28 August 2000 GST/HST Interpretation 28959 - GST Rebate on Tax-free Allowance for Firefighters

Dear XXXXX

Thank you for your letter of June 18, 1999, concerning the XXXXX eligibility to claim the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) rebate on the allowance it pays to volunteer firefighters.

Interpretation Requested

The XXXXX (the Town) pays volunteer firefighters a non-accountable allowance for any expense incurred relating to the performance of their function. Prior to 1998, the Town did not include the allowance ($500) in the firefighter's income for income tax purposes. For 1998, and 1999, the allowance amount was included in the firefighter's income for income tax purposes. In addition to the allowance, the Town pays a $75 a day "per diem" for lost wages and reimburses the volunteer firefighters for expenses incurred. These amounts are not included on the T4 slips. The Town issues T4 slips to the volunteer firefighters.

Is the Town entitled to a GST/HST rebate for the non-accountable expense allowance paid to volunteer firefighters where it is not included in their income for income tax purposes (i.e., tax-free allowance)?

Is the Town entitled to a GST/HST rebate for the amounts reimbursed to volunteer firefighters where it is not included in their income for income tax purposes (i.e., $75 per day "per diem" for lost wages and other expenses)?

Interpretation Given

With respect to the eligibility of a GST/HST rebate pursuant to subsection 259(3) of the Excise Tax Act (ETA) on allowances and reimbursements paid to volunteer firefighters, there are basically two issues to consider:

1. whether a volunteer firefighter should be considered an employee of the municipality; and if so,

2. whether the municipality is eligible to claim a rebate pursuant to subsection 259(3) of the ETA on the non-taxable portion of the allowance and the reimbursement for expenses paid to volunteer firefighters.

Allowances

The Canada Customs and Revenue Agency (CCRA) considers individuals performing duties on a volunteer basis not to be employees performing the duties of an office or employment. In other words, an individual performing the duties as a volunteer will not be considered an employee unless it is otherwise determined by the facts of the case that the individual was performing the duties of an office or employment.

If the facts indicate that the firefighter is performing the duties as a volunteer, the expense allowance is considered not to have been paid to an employee of the municipality and therefore no portion of the allowance received by the volunteer firefighter is deemed to include a GST/HST component for the purposes of section 174 of the ETA. Accordingly, the municipality would not be entitled to claim a rebate pursuant to subsection 259(3) of the ETA.

However, there may be instances where the volunteer firefighter is in fact performing the duties of an office or employment. For example, where the municipality not only pays expense allowances to their volunteer firefighters, but also pays for their services and issues T4 slips for the amounts received by them. As long as the municipality pays the non-accountable expense allowances to the volunteer firefighters for supplies all or substantially all of which are taxable supplies (other than zero-rated supplies) acquired in Canada, the municipality will be deemed to have received a taxable supply and to have paid tax equal to 7/107ths of the allowance amount pursuant to section 174 of the ETA. Accordingly, subsection 259(3) of the ETA will allow the municipality to claim a rebate.

Reimbursements

Section 175 provides that if an employee incurs an expense for which the employee is reimbursed by the employer, any GST/HST included in the reimbursement shall be deemed to have been paid by the employer and not the employee. Accordingly, the employer may be eligible to claim a rebate under subsection 259(3) of the ETA.

It is important to note that section 175 of the ETA does not apply to expenses incurred by persons who are not employees. Therefore, where an individual who is not an employee, such as a volunteer (other than in the case of a charity or public institution), is reimbursed for expenses incurred by that individual, these expenses will not qualify for a rebate.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, 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 CCRA 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 (613) 954-4280.

Yours truly,

Shashi Fernando
Municipalities and Health Care Services Unit
Public Service Bodies & Governments Division
Excise and GST/HST Rulings Directorate