File 11585-1
Ref. s. 182
Document HQR0000055
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XXXXX
XXXXX
XXXXX
XXXXX
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October 23, 1998
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This concerns a letter from XXXXX to Mr. Adrien Venne, then Director of Special Sectors, concerning restitution for damages. We apologize for the delay in replying.
Ms. XXXXX was questioning a memo dated August 6, 1991, from Mr. Adrien Venne to XXXXX Manager of Interpretation and Service, concerning damage payments received by a municipality from individuals as restitution for loss or damage to the municipality's property.
The material forwarded by XXXXX indicated that such amounts should include tax in situations where the funds could be directly attributed to the damage done. XXXXX pointed out in her memo that the suggestion that such damage payments should be subject to tax contradicted a ruling dated May 23, 1991, as well as a response provided in the Question and Answer - GST section of Revenue Canada Library as question 4.A.75, and revised April, 1991.
The letter of May 23, 1991, had to do with damages to a hydro-electric plant as a result of automotive accidents. The letter stated that such payments would not be treated as consideration for supplies because the owner of the hydro-electric plant, who is receiving the payments, is not supplying any property or service, as defined in the legislation, in exchange for the payments. In question 4.A.75, a municipality billed a taxpayer for damages that the taxpayer caused to municipal property. The charge was ruled not to be consideration for a supply.
After these decisions were made, the matter came under review. The issue was finally resolved, by the issuing of Policy Statement P-218 on May 28, 1998. The Policy Statement indicates that a damage payment should not be regarded as consideration for a supply unless the payee receives a supply in exchange for the damage payment. In the situation at issue, it would appear that the damage payments are being made by individuals who do not receive a supply in exchange, and are merely reimbursing the municipality for damages. Therefore, the damage payments were not consideration for supplies, and would not be subject to GST/HST.
If you require any further information concerning this matter, please contact the undersigned at (613) 954-9211.
Don Dawson
Financial Institutions and
Real Property
GST/HST Rulings & Interpretations
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