26 February 1998 GST/HST Interpretation HQR0000868 - Municipal Transit Services

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

Dear XXXXX

Thank you for your letter of September 12, 1997 (with attachments) concerning the application of the Goods and Services Tax (GST)Harmonized Sales Tax (HST) to the fares charged by the XXXXX for the provision of commuter transit services in the XXXXX

Our understanding of the facts is as follows.

Statement of Facts

1.  XXXXX is a Crown Agency of XXXXX established under the XXXXX to design and operate an interregional transit service in XXXXX

2 XXXXX main business is the transportation of passengers XXXXX

3 XXXXX has been registered for GST since January 1,1991 and has been charging GST on its fares, and claiming input tax credits related to its purchases.

4. At some point in 19 XXXXX

Ruling Requested

You are requesting a ruling in respect of the following:

•   That XXXXX is a "municipal transit service" as defined in section 1 of Part VI of Schedule V to the Excise Tax Act (the "ETA"), and therefore exempt under section 24 of that Part.

•   If it is determined not to be a "municipal transit service" under the above definition, you are requesting that XXXXX be designated by the Minister to be a "municipal transit service" pursuant to section 24 of Part VI of Schedule V to the ETA.

Ruling Given

Based on the facts set out above, we rule that XXXXX is a not "municipal transit service" as defined in section 1 of Part VI of Schedule V to the ETA, and therefore is not exempt under section 24 of that Part.

Unfortunately, as XXXXX is essentially providing an interregional passenger transportation service and not an intramunicipal passenger service, it would not qualify for designation under section 24 of Part VI of Schedule V to the ETA.

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.

Section 24 of Part VI of Schedule V to the ETA exempts a supply made to a member of the public of a municipal transit service or of a public passenger transportation service designated by the Minister to be a municipal transit service.

Section 1 of Part VI of Schedule V defines "municipal transit service" to mean "... a public passenger transportation service (other than a charter service or a service that is part of a tour) 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".

Included in the definition of "transit authority" as defined in section 1 of Part VI of Schedule V to the ETA, is a division of a government, municipality or school authority that is established to provide public transportation services.

While services of most local municipal transit services to the public would be exempt under section 24 of Part V of Schedule V, the nature of the supplies made by intercity transit organizations would generally preclude such supplies from exemption.

In your submission you have presented several arguments to support your request.

In particular, you submit that the term "environs" in section 1 of Part VI of Schedule V to the ETA should be interpreted broadly to mean more than the immediate or adjacent surrounding areas of a municipality and make a reference to "surrounding areas" in the Explanatory Notes to Bill C62 for that section. You feel that x the "environs" XXXXX

The term "environs" referred to above is not defined in the ETA. It is the Department's administrative position that "environs" refers to an area, district or region adjacent to or adjoining or surrounding a municipality such as a city, town, municipal district or any other type of municipality. XXXXX would be considered to be in the environs of XXXXX However, XXXXX are all areas which are outside the area considered to be within the "environs" XXXXX even using a liberal interpretation of that term.

You also submit that that the term "all or substantially all" in the definition of "municipal transit service" should be interpreted much more liberally than the Department's administrative position (90% or more). However, case law supports the Department's administrative position with respect to "all or substantially all". The term "substantial majority" as you propose, would not meet that definition. The services provided by XXXXX would not be considered to be those of a "municipal transit service" as defined in section 1.

In your submission, you have also included two examples of transit authorities of other metropolitan areas that provide a combination of intracity and intercity transit services and are presently treating their supplies as exempt. We cannot disclose confidential information that relates to other transit systems.

We can inform you that it is not the intent of section 24 of Part VI of Schedule V to the ETA to provide outright relief to intercity transportation services. Section 24 generally applies to exempt supplies of public passenger transportation services made by a municipal transit system within a municipality, while at the same time providing some relief to incidental supplies of services immediately outside the border of that municipality. Where a transit authority provides all or substantially all of its supplies of passenger transportation services within a municipality and its environs, then incidental supplies of intercity transportation services may still fall into the definition of "municipal transit service" under section 1 of that Part and remain exempt.

As stated above, section 24 of Part VI to Schedule V to the ETA generally applies to exempt supplies of public passenger transportation services made by a municipal transit system within a municipality, while at the same time providing some relief to incidental supplies of services immediately outside the border of that municipality. As " XXXXX is basically providing an interregional passenger transportation service, it would not qualify for designation under section 24.

Should you have any questions or require clarification on the above matter, please do not hesitate to contact Ms. Enikö Vermes, Manager, MUSH Unit at (613) 5127 or Mr. Joseph Levstik, Policy Officer, at (613) 952-8531.

Yours truly

J. A. Venne
Director
PSB's and Governments
GST Rulings and Interpretations

Sch. VVI24

NCS Subject Code(s)              R 6