16 May 2000 GST/HST Interpretation 25778 - Application of the GST/HST to the Construction Services of a School on Land Leased from the Federal Government

Dear XXXXX

Thank you for your letter received on January 18, 2000 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the XXXXX construction of a school on land leased from the federal government.

Although you requested an application ruling, we are not able to comply with your request. As noted in Chapter 1.4, Goods and Services Tax Rulings of the GST/HST Memorandum Series, an application ruling provides Canada Customs and Revenue Agency's (CCRA) position on specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person. As the issue in question does not relate to a specific provision of the Excise Tax Act (ETA), we will provide an interpretation.

On April 1, 1997, the harmonized sales tax (HST) replaced the goods and services tax (GST) and the provincial sales tax (PST) in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%. However, since the supplies in this particular case are not occurring in a participating province, we will make reference to the GST only.

Statement of Facts

The following information was provided to us in your submission:

1. The XXXXX[.]

2. XXXXX[.]

3. XXXXX XXXXX[.]

4. XXXXX[.]

5. XXXXX[.]

Interpretation Requested

1. What is the application of GST to construction services obtained by XXXXX for the construction of a school on land leased from the federal government, that is not reserve land?

2. Can XXXXX retroactively qualify for tax relief if XXXXX becomes reserve land after construction of the school has been completed?

Interpretation Given

1. XXXXX must pay GST on the supply of construction services received from XXXXX[.]

2. XXXXX cannot retroactively qualify for tax relief if XXXXX becomes reserve land after construction of the school has been completed.

Analysis

1. We understand from your incoming letter that you were previously informed by an employee of CCRA that the supply of construction services received by XXXXX would be "exempt of GST since they are a band-empowered entity performing band management activities." We would like to correct this verbal opinion now that we have had the opportunity to review your written submission.

Technical Information Bulletin (TIB) B-039R provides that services acquired on or off reserve by an Indian band or band-empowered entity for band management activities or for real property on reserve are relieved of GST/HST.

However, the construction services supplied to XXXXX are being acquired for real property off reserve. As such, the acquisition of these construction services is not eligible for tax relief as set out in TIB B-039R. XXXXX must pay the tax charged on the acquisition of construction services.

Therefore, the issue of whether XXXXX is a band-empowered entity is irrelevant in regards to the supply of construction services from XXXXX[.] The activities of your client may meet the definition of "commercial activity" and entitle XXXXX to claim Input Tax Credits (ITCs) to recover the GST paid on the purchase of construction services acquired for supply in the course of commercial activity. However, please be aware that XXXXX ability to claim ITCs must be determined upon a review of XXXXX operations and transactions in their entirety. For example, possible real property implications such as self-supply rules for builders, may restrict ITC claims stemming from the construction of student residences.

Please note that if XXXXX is engaged in a commercial activity, subsection 240(1) of the ETA requires any person who is making a taxable supply in Canada in the course of commercial activity in Canada to register. However, there are certain exceptions to the registration requirements, such as the exception for small suppliers.

We understand that XXXXX is a school authority and a qualifying non-profit organization. As a school authority, XXXXX is entitled to claim a rebate of 68% as per subsection 259(3) of the ETA. However, rebates cannot be claimed on amounts for which an ITC has already been claimed.

2. GST is a transaction based tax; therefore, the tax becomes payable when the transaction occurs. There are no change in use rules which would allow for retroactive tax relief if XXXXX becomes reserve land after the construction project has been completed.

If construction services are acquired by an Indian band or band-empowered entity for real property on reserve, then they are relieved of tax. However, construction services acquired for real property off reserve, do not meet the requirements of TIB B-039R and are subject to GST. Therefore, even if XXXXX is a band-empowered entity, it cannot retroactively qualify for tax relief in this situation.

Additionally, from your written submission, we have identified important GST issues that extend beyond the scope of your request. We have not addressed these issues in our interpretation, but we bring them to your attention. They are as follows: the application of GST to the payment of moneys from the federal government to XXXXX for funding of the school construction project; the implications associated with the construction of student residences as housing for students, such as self-supply rules; XXXXX eligibility to claim ITCs for tax paid on the supply of construction services; and the GST implications associated with the operation of the water and sewage treatment plant.

These issues have not been addressed within the interpretation. However, if you would like an interpretation on the above-noted, please forward a written submission along with all pertinent documentation to the appropriate unit within the Excise and GST/HST Rulings Directorate for their consideration.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, 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 CCRA 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 Tim Krawchuk, Manager at (613) 954-7957 or the undersigned at (613) 952-4157.

Yours truly,

Lee Ann Gorman
Technical Officer
Aboriginal Affairs Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate