GST/HST Rulings and Interpretations
XXXXX Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Avenue
Vanier, Ontario
XXXXX K1A 0L5
Thank you for your letter of December 19, 1997, with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below. In his letter of October 8, 1997, XXXXX requested that Revenue Canada reconsider its earlier position, as reflected in its GST/HST Application Ruling issued on September 18, 1997, on the tax status of XXXXX to users of its electronic toll collection system (ETC). We understand that you represent XXXXX in this regard. This ruling supersedes that of September 18, 1997.
Our understanding of the facts, the transactions, and the purpose of the transactions is as follows.
Statement of Facts
1. For GST/HST purposes, XXXXX is treated as XXXXX XXXXX owns, operates and maintains XXXXX[.]
2. Under XXXXX (the "Act"), XXXXX is given the power to charge and collect rates, tolls and charges for the use of its XXXXX by the public.
3. Subsection 24(1) of the Act deems XXXXX to be a public utility within the meaning of XXXXX and is subject to the provisions of that Act.
4. XXXXX states that "No public utility shall charge, demand, collect or receive any compensation for any service performed by it until such utility has first established for the approval of the Board, a schedule of rates, tolls and charges and has obtained the approval of the Board thereof.
5. XXXXX state that "All tolls, rates and charges shall always, under substantially similar circumstances and conditions in respect of the same description, be charged equally to all persons and at the same rate, and the Board may by regulation declare what shall constitute substantially similar circumstances and conditions ... The taking of tolls, rates and charges contrary to the provisions of this Section and the regulations made pursuant thereto is prohibited and declared unlawful ..."
6. Currently, tolls for the right to use a XXXXX are collected by XXXXX from users XXXXX in the form of cash or tokens. XXXXX[.]
7. A letter of September 10, 1996 from XXXXX states that "The Board carefully reviewed your letters of June 10 and July 31, 1996 concerning the replacement of your toll collection equipment and in particular the inclusion of electronic toll collection as a component of your replacement program ... It is apparent that there have been advances in automatic XXXXX identification technology since XXXXX first raised the possibility of implementing such technology with XXXXX[.] Based on the information you have provided, the proposed electronic toll collection system appears to be feasible. The Board notes that electronic toll collection costs will be separately identified in your accounting system. This will be of assistance in tracking the financial aspects of electronic toll collection for purposes of assigning the costs of the system to the appropriate customer XXXXX. The Board hereby approves your proposal that no additional charge be levied on customers who opt to pay by electronic toll collection and it approves in principal your proposal to sell transponders to such customers for a one-time charge of approximately XXXXX per XXXXX. Given that you propose to buy the equipment rather than rent it and that your capital expenditures are not subject to Board approval, the Board does not consider that there is any requirement for it to approve your overall proposal or any contracts that you may enter as you proceed to implement it."
8. XXXXX is planning to implement the electronic toll collection (ETC) system in XXXXX[.]
9. A draft of XXXXX (the "Agreement") was provided for review. XXXXX of the Agreement states that XXXXX through its XXXXX "agrees to sell XXXXX (the "Transponder") to the User which may be used to obtain passage on toll facilities operated by XXXXX. The cost of each Transponder shall be XXXXX plus applicable taxes if any."
10. XXXXX the User agrees, among other things, to mount and display the Transponder in his/her vehicle and that the Transponder will only be used on the vehicle for which it is valid.
11. XXXXX "User agrees to maintain a prepaid account wit[h] XXXXX to cover the User's applicable tolls, charges and fees as described in the Agreement (the "Prepaid Account")." A "PERSONAL ACCOUNT APPLICATION" or "COMMERCIAL ACCOUNT APPLICATION" is made by the User for purposes of opening a Prepaid Account.
12. Under the Agreement, the User is required to open a Prepaid Account by payment to XXXXX of a minimum toll prepayment of XXXXX[.] Whenever the Prepaid Account balance falls to less than XXXXX of the User's average monthly usage of toll facilities, the User must replenish the prepaid account by the dollar value of the User's average monthly usage.
13. XXXXX "User's Prepaid Account will be reduced by charges for applicable approved tolls charged each time the User's Transponder is used to obtain passage on, continue upon, or exit from a XXXXX collection area."
14. XXXXX states that "Provided the Transponder is returned in proper working condition, within one year from the date of this Agreement, the User will be entitled to a refund of 100% of the Transponder fee less any amounts owed under this Agreement. In the second and subsequent years of the Agreement the refund of the Transponder fee is subject to a depreciation charge of 20% per year for the next five year period less any amounts owed under the Agreement. After the expiration of XXXXX from the date of this Agreement, there is be no refund of all or a portion of the Transponder fee."
Ruling Requested
Does GST/HST apply to the provision of Transponders by XXXXX to Users of its ETC system for which XXXXX charges a XXXXX fee?
Ruling Given
Based on the facts set out above, we rule that GST/HST does not apply to the provision of Transponders by XXXXX to Users of its ETC system for which XXXXX charges a XXXXX fee.
This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST 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.
Explanation
The provision of a Transponder to a User by XXXXX for purposes of obtaining passage on, continuing upon, or exiting from a XXXXX by way of the electronic toll collection system is an integral component to the supply of a right to use a XXXXX where a toll is charged for the right and is exempt pursuant to section 2 of Part VIII of Schedule V to the Excise Tax Act.
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-7952.
Yours truly,
Lynn Renner
Rulings Officer
Governments Unit
GST/HST Rulings and Interpretations Directorate
| c.c.: |
E. Vermes
D. Harding |
ATIP
L. Renner
Nigel Kelly, Halifax TIS Centre
| Legislative References: |
123(1) supply; section 6, Part VI and section 2, Part VIII, Schedule V to the ETA |
| NCS Subject Code(s): |
11849-7 |
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