20 November 1998 GST/HST Ruling HQR0000159 - Application of the GST/HST to the Transfer of Bridge Liability

Dear Mr. XXXXX

Thank you for your letter of July 16, 1996 (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transaction(s) described below.

Statement of Facts

Our understanding of the facts is as follows:

Following a Task Force on real property and a memorandum examining XXXXX holdings, it was determined that XXXXX (the Bridges) serve the purpose of and are properly characterized as part of the regional road system as described in XXXXX XXXXX[.] In view of that characterization, XXXXX and the Minister of Supply and Services and of Public Works (PWGSC) were given the authorization to transfer their interests in the XXXXX agreed to assume such interest in the Bridges, and full responsibility and liability for the Bridges (Bridge Liability).

We understand the responsibility for the construction, maintenance and repair of the Bridges were previously assumed XXXXX and PWGSC.

In consideration of the Assumption of the Bridge Liability by XXXXX agreed to transfer lands to XXXXX to meet the XXXXX needs in connection with the reparation of the Bridges and related work. XXXXX undertook to transfer lands because it did not have money.

The lands were vacant lands and were acquired by XXXXX before 1991. They were never used in commercial activities of XXXXX has indicated that XXXXX are dealing at arm's length.

A Bridge Transfer Agreement (Agreement) was concluded between XXXXX, Her Majesty the Queen in Right of Canada as represented by PWGSC, Her Majesty the Queen in Right of Canada as represented by the Minister of Communications (the Minister), XXXXX[.] The Terms of the Agreement include:

Transfer to XXXXX PWGSC, XXXXX and the Minister shall transfer to XXXXX all interests in those parts of XXXXX owned by each of them subject to the terms and conditions of the Agreement.

PWGSC and the Minister shall transfer to XXXXX all interests in those parts of the XXXXX owned by PWGSC and the Minister subject to the terms and conditions of the Agreement.

XXXXX shall transfer to XXXXX all of its interests in those parts of XXXXX to the Agreement subject to the terms and conditions of the Agreement.

XXXXX was also granted, for nominal consideration, easements for some other properties connected with the Bridges (parcels of lands, structural elements of the Bridges, etc.).

Obligations assumed by XXXXX

The Bridge Liability to be assumed by XXXXX includes the rehabilitation of the XXXXX[.] For the purposes of the Agreement, the value of the Bridge Liability assumed by the XXXXX has been calculated by the parties to be XXXXX[.] This amount includes the cost of preparation of the plans and specifications and the interim repairs on the XXXXX has been invoiced the amount of XXXXX (We understand this work was performed before the transfer of the Bridges).

Interests to be conveyed to XXXXX agreed to make a contribution of XXXXX to meet the XXXXX needs in connection with the Bridge Liability. Because XXXXX did not have money, they instead transferred lands to XXXXX[.] For the purposes of the Agreement, the aggregate of the values of all interests in land conveyed to XXXXX is mutually agreed to be XXXXX[.] The Agreement contains a list and description of the these lands.

Because the value of the lands transferred exceeds the contribution XXXXX agreed to pay to XXXXX it was determined that, on closing date of the transaction, the XXXXX would make a payment of XXXXX XXXXX XXXXX[.]

Terms and Conditions applicable to conveyances

XXXXX agrees to accept the title of the Bridges and the interests in the lands being conveyed by XXXXX or PWGSC. It shall not call for the production of any title deeds or abstract of title, proof or evidence of title, or to have furnished any copies thereof other than those in possession or under the control of XXXXX or PWGSC as the case may be.

XXXXX agrees that all interests in real property being conveyed to XXXXX are being conveyed on "as is" basis.

XXXXX agrees with XXXXX that the consideration to be shown in each of the conveyances from XXXXX in respect of XXXXX[.]

General Provisions

XXXXX agrees that the road surfaces of XXXXX shall be designated as regional roads.

It is understood and agreed that neither the provisions contained in the Agreement nor any acts of the parties will be deemed to create any relationship of partners or co-ventures between the parties.

Interpretation Requested

1) XXXXX is a specified Crown agent of Her Majesty in right of Canada within the meaning of subsections 200(3) and 200(4) of the Excise Tax Act (ETA).

2) The Assumption of the Bridge Liability is not a supply of a taxable service by the XXXXX and the commitment to contribute XXXXX does not constitute an inducement payment. XXXXX contribution (transfer of the lands by the XXXXX is a form of grant or assistance provided by XXXXX to the XXXXX to help it pay for future restoration, replacement and maintenance work on the Bridges and is not consideration for a taxable service.

Ruling Given

Based on the facts set out above, we rule that:

1) As the regulations prescribing agents of Her Majesty in right of Canada for the purposes of the definition "specified Crown agents" in subsection 123(1) of the ETA have not been issued yet, we cannot confirm that XXXXX is a specified Crown agent for the purposes of subsections 200(3), 200(4) and 209(1) of the ETA.

2) The assumption of the Bridge Liability is not a supply of a taxable service by the XXXXX and the commitment of  XXXXX to contribute XXXXX to the XXXXX does not constitute an inducement payment.

XXXXX contribution (transfer of lands to XXXXX is not consideration for a supply to the extent it is provided to XXXXX to help it pay for future restoration, replacement and maintenance work on the Bridges. The contribution is a grant and is therefore not subject to GST.

As a portion of the contribution is regarded as a payment made by XXXXX to the XXXXX for services provided by XXXXX before the transfer of the Bridges, that portion of the contribution is consideration for a supply and may be subject to GST.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9589.

Yours truly,

B. Mulinda
Governments Sectors Unit
Public Service Bodies & Governments Division
GST/HST Rulings and Interpretations Directorate