Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 14th Floor
320 Queen Street
Ottawa, ON K1A 0L5XXXXX
XXXXX
XXXXXXXXXX XXXXX
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Case: 31363September 22, 2000
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Subject:
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GST/HST INTERPRETATION
GST Treatment of Invoices Paid by the Town on Behalf of Developers
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Dear XXXXX
This is in reply to your facsimile of May 25, 2000, with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to invoices paid by the XXXXX (the "Town") on behalf of developers and for which the Town invoices developers for reimbursement.
Interpretation Requested
As part of the Town's subdivision approval process, the plan of a subdivision must be reviewed by a Control Architect. The current practice is for the Town to submit plans to the Control Architect who then invoices the Town for costs plus GST. The Town pays this invoice through a clearing account and does not claim a rebate for this GST. The Town then invoices the developer on a cost-recovery basis, i.e., for the total payment made by the Town which is costs plus the corresponding GST. You have advised us that the amount charged to the developer is not a fee in respect of a permit.
You provided us with a sample invoice issued by an architect to the Town showing consideration in the amount of $1,815.58 plus GST of $127.09, as well as the subsequent invoice issued by the Town to a developer showing consideration in the amount of $1,942.67. You indicated that the Town did not claim a municipal rebate for the $127.09 GST it was charged by the architect.
You also indicated that the funds that flow through a clearing account are not reflected in the Town's Statement of Operations. Payments are processed through the Town as a matter of convenience to the developers and the architect, and the Town does not provide any additional services or charge an administrative fee to these parties.
The Town uses the Special Quick Method of accounting for the GST/HST and is therefore ineligible to claim input tax credits for non-capital expenditures. You are requesting clarification of the GST treatment for the above-described invoices; i.e., whether the Town is required to charge the GST/HST on the reimbursements paid by the developers and how should the Town's charges to the developers be included in the Special Quick Method calculation.
Interpretation Given
Direct cost rules - whether to include the GST when invoicing a developer
For the purposes of the Excise Tax Act (the "ETA"), where a public service body (such as the Town) acquires a service for the purpose of reselling that service on a cost-recovery basis, the resale of that service may be taxable or exempt depending on whether or not the supplier charges the GST/HST. The information provided indicates that the Town invoices developers on a cost-recovery basis and the Town does not charge an amount as the GST on these invoices. Accordingly, these invoices by the Town to the developer are in respect of exempt supplies pursuant to section 6 of Part VI of Schedule V to the ETA.
Section 6 of Part VI of Schedule V to the ETA describes the application of the direct cost exemption as follows:
(a) where a supplier does not charge an amount as GST on the invoice for the good or service, the direct cost of the supply is the consideration paid for the acquisition of the good or service, plus the GST that was charged and where applicable, the HST, the Quebec sales tax, as well as any non-recoverable provincial tax. As long as the consideration for the supply is equal to or less than this amount, the supply will remain exempt;
(b) where a supplier charges an amount as GST on the invoice for a good or service, the direct cost of the supply is the consideration paid for the acquisition of the good or service as well as any non-recoverable provincial sales tax. As long as the consideration for the supply is equal to or greater than this amount, the supply will be taxable.
In the sample invoice you provided, the Town invoiced the developer an amount of $1,942.67 for the supply of the architect's services and it did not charge the GST on this supply. The consideration of $1,942.67 charged by the Town is equal to the direct cost of the supply as described in paragraph (a) above. Accordingly, the "resupply" of the architect's services by the Town for $1,942.67 is exempt pursuant to section 6 of Part VI of Schedule V to the ETA. The Town would be entitled to a rebate of 57.15% for the GST it was charged by the architect.
Where the Town charges the GST on the supply of a good or service, the supply will be taxable provided that the consideration charged is not less than the supply's direct cost as described in paragraph (b) above. For example, using the sample invoice you provided, the minimum amount the Town could have charged in order to make a taxable supply of the architect's services would have been $1,815.58; i.e., the cost of acquiring the services less the GST/HST the Town was charged by the architect.
Consequently, your question of whether the GST should be included when invoicing a developer in the "cost-recovery" situation described above depends on whether the Town chooses to make a taxable or exempt supply. Where the Town has previously made an exempt supply, the supply will remain exempt for purposes of the ETA. For instance, since the Town did not charge an amount as GST on the sample invoice you provided and the consideration for this supply of the architect's services did not exceed the direct cost of the supply as described in paragraph (a) above, this supply remains exempt in accordance with section 6 of Part VI of Schedule V to the ETA.
Special Quick Method calculation
In accordance with the Special Quick Method calculation, the Town collects the 7% GST on all its taxable sales and remits 5.8% of the GST-included value of these sales. The Special Quick Method calculation does not include amounts charged for exempt supplies. Therefore, where the Town has made an exempt supply of the architect's services (as explained above), the amount charged to the developer is not included in the Special Quick Method calculation. As previously noted, the Town would be entitled to claim a 57.14% rebate for the GST it was charged by the architect.
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 Canada Customs and Revenue Agency with respect to a particular situation.
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6761.
Yours truly,
Susan Eastman
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Legislative References: |
section 6 of Part VI of Schedule V; Streamlined Accounting Regulations |
NCS Subject Code(s): |
I-11875-2 |