31 August 1998 GST/HST Interpretation HQR0001167 - Input Tax Credit Entitlements for Contracted Out Municipal Recycling Programs

                                                                        GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Road
Vanier, Ontario
XXXXX                                                                                 K1A 0L5

Dear XXXXX

Thank you for your letter of May 1, 1998 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to municipal reycling programs and Input Tax Credits (ITC's).

Interpretation Requested

1. A municipality that contracts out the performance of their recycling program * is entitled to claim Input Tax Credits (ITC's) with respect to a portion of the contract price for the recycling program as a portion of the contract relates to commercial activities arising from the sorting, processing and subsequent marketing of recyclables.

2. It would be reasonable to allocate XXXXX 50% of the contract payment to those commercial activities.

Background

In a typical situation a supplier would charge the municipality a set amount for each pick-up location. The supplier woud also have title to the recyclables and be entitled to revenues collected from the supply of the recyclables.

Interpretation Given

Where a municipality contracts out the performance of a service as discussed above, there is no ITC entitlement for the municipality. A partial rebate of the GST paid may be claimed by the municipality where the amount paid or payable qualifies as "non-creditable tax charged" for purposes of section 259 of the Excise Tax Act. Municipalities are entitled to the selected public service body rebate at the rate of 57.14% of the GST paid. (The rebate treatment of the provincial portion of the HST varies depending on the province in which the municipality is located.)

In the situation discussed above, the municipality is not involved in a commercial activity and no ITC's are claimable. Therefore the answer to your second question regarding the appropriate percentage of the GST/HST charged to be claimed as an ITC by the municipality is nil.

On April 1, 1997, the harmonized sales tax (HST) replaced the goods and services tax (GST) and the provincial sales tax (PST) in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%. To the extent that they are taxable supplies (which are not zero-rated), tax must be collected at the harmonized rate.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Department with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series. Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 952-9590.

Yours truly,

Ken Syer
Senior Rulings Officer
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate