18 August 1998 GST/HST Ruling HQR0000802 - Payment Made Under Paragraph 677(1)(c) of the Canada Shipping Act

Dear XXXXX

This is in reply to your ruling request of May 21, 1998 e-mailed to Mary Ann McMahon of Revenue Canada Legal Services. Your request, forwarded to this office for reply, concerns the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to amounts charged against the ship owners for pollution damages under paragraph 677(1)(c) of the Canada Shipping Act (the "CSA").

Our understanding of the facts is as follows:

Statement of Facts

1. Paragraph 677(1)(c) of the CSA provides:

Subject to this Part, the owner of a ship is liable

(c) for costs and expenses incurred by the Minister in respect of measures taken pursuant to paragraph 678(1)(a) in respect of any monitoring, or in relation to the direction of the taking of measures or their prohibition, pursuant to paragraph 678(1)(b) or (c), or by any other person in respect of measures the person was directed to take, or prohibited from taking, pursuant to paragraph 678(1)(b) or (c), to the extent that the measures taken and the costs and expenses are reasonable, and for any loss or damage caused by such measures.

2. Subsection 678(1) of the CSA states:

Where the Minister believes on reasonable ground that a ship has discharged, is discharging or is likely to discharge a pollutant, the Minister may

(a) take such measures as the Minister deems necessary to repair, remedy, minimize or prevent pollution damage from that ship, including the removal or destruction of the ship and its contents, and may sell or otherwise dispose of the ship and its contents;

(b) monitor the measures taken by any person to repair, remedy minimize or prevent pollution damage from the ship; or

(c) where the Minister considers it necessary to do so, direct any person to take measures referred to in paragraph (b), or prohibit any person from taking such measures.

3. The term "pollutant" is defined under section 673 of the Act to mean, among other things, oil or any substance that is prescribed to be a pollutant for purposes of Part XV to the CSA.

4. Pursuant to paragraph 677(1)(c) of the CSA, when a ship has discharged or is likely to discharge a pollutant as defined in the CSA, Fisheries & Oceans Canada ("F&O") will take (or direct other person to take) the necessary measures as described in subsection 678(1) to deal with the pollution damages, and charge the ship owner for the costs and expenses incurred in respect of these measures, and for any loss or damages caused by such measures.

Ruling Requested

The amount charged by F&O to a ship owner pursuant to paragraph 677(1)(c) of the CSA is not subject to GST or HST.

Ruling Given

Based on the facts set out above, we rule that the amount charged to a ship owner by F&O pursuant to paragraph 677(1)(c) of the CSA is not subject to GST or HST.

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 department interpretative policy; and that you have fully disclosed all necessary facts and transaction(s) for which you requested a ruling.

Should you have any further question or require clarification on the above ruling, please do not hesitate to contact me at (613) 954-1433.

Yours truly,

Phil Tang
Specialty Tax Unit,
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate