21 August 1998 GST/HST Ruling HQR0001131 - Application of the GST/HST to Transportation Services

Dear XXXXX

Thank you for your letter of March 24, 1998, with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below.

All legislative references are to the Excise Tax Act and Regulations thereunder, unless otherwise specified.

Our understanding of the facts is as follows:

Statement of Facts

•   XXXXX was incorporated under the XXXXX, 1995.

•   The shares of XXXXX are owned exclusively by the XXXXX[.]

•   The current XXXXX[.]

•   XXXXX[.]

•   XXXXX has not been designated to be a "municipal transit service" under section 24 of Part VI of Schedule V.

•   XXXXX is not a Crown Corporation and is not considered to be a government entity that is exempt of paying the GST under the Reciprocal Taxation Agreement.

•   XXXXX responsibilities are set out XXXXX[.]

•   The cost of the operating expenses of XXXXX is considerably higher than the value of the fares collected. There is a formula for funding the deficit in the XXXXX[.]

•   The fares which are collected by XXXXX and reported in XXXXX financial statements, are passed on to XXXXX to permit the latter to account for the subsidies that it must provide to XXXXX to fund their deficit.

•   XXXXX has its own corporate offices and employees, and uses its own logo and colour scheme on the vehicles.

•   XXXXX has a Services Agreement with XXXXX whereby the latter provides services such as snow and ice removal, cleaning and repair, janitorial, electrical and painting, security, fare inspection, administrative and financial, risk management and fire prevention.

Ruling Requested

Is the supply of transportation services made by XXXXX to members of the public taxable for GST purposes?

Ruling Given

Based on the facts set out above, we rule that the supply of transportation services made by XXXXX to members of the public are considered to be supplies made in the course of a commercial activity for purposes of the Excise Tax Act, and are taxable at a rate of 7%.

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 transactions for which you requested a ruling.

Explanation

Section 1 of Part VI of Schedule V defines "municipal transit service" as a public passenger transportation service that is supplied by a transit authority all or substantially all of whose supplies are of public passenger transportation services provided within a particular municipality and its environs.

Section 1 also defines "transit authority" as (a) a division, department or agency of government ... the primary purpose of which is to supply public passenger transportation services, or (b) a non-profit organization that (i) receives funding from a government ... to support the supply of public passenger transportation service ...".

Although XXXXX primary purpose is to supply public passenger transportation services, XXXXX is not a division, department or agency of a government, nor is it considered to be a non-profit organization.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact Enikö Vermes, Manager, Municipalities and Health Care Services at (613) 954-5127 or me at (613) 952-9214.

Yours truly,

Doris Rist
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate