10 March 2000 GST/HST Ruling 8260/HQR1866 - Municipality Designation for the Purposes of Claiming the GST/HST Rebate

Dear Sir:

I refer to your letter of May 25, 1999, concerning the designation of XXXXX (the XXXXX as a municipality for the purposes of claiming the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) rebate under subsection 259(4) of the Excise Tax Act (the Act) (our file 11894-7 dated December 18, 1998). I apologize for the delay in responding to your request.

On November 1, 1999, Revenue Canada became the Canada Customs and Revenue Agency (CCRA).

In our letter designating the XXXXX as a municipality for the purposes of claiming the municipal rebate for GST/HST incurred on inputs acquired to make an exempt supply of housing on an XXXXX basis, we indicated that the XXXXX met the criteria established by the CCRA. There are three requirements that must be met, namely, the organization must be a non-profit organization or a charity, the organization must be supplying at least 10% of its rental housing units on an XXXXX basis, and the organization must be receiving government funding. It is the funding criteria that has raised concerns. It is your view that the XXXXX does not receive government funding. You are seeking confirmation that the XXXXX XXXXX housing is nonetheless a municipal service for rebate purposes under our administrative policy.

Statement of Facts

The XXXXX has an agreement with XXXXX which specifies the maximum rentals and the XXXXX does provide housing on an XXXXX basis. As further explained in your letter, the XXXXX has a system of internal subsidies in place, whereby middle income tenants pay surcharges on top of the maximum rentals and low income tenants pay 30% of their gross monthly income made possible from the proceeds of the surcharges. Our files indicate that on November 23, 1983, the XXXXX entered into a long-term repayable loan agreement with XXXXX with the loan, XXXXX to be used by the XXXXX to assist it in providing XXXXX housing.

Ruling Requested

Does the fact that the XXXXX receives a repayable loan from XXXXX to assist the XXXXX in the supply of XXXXX housing affect the CCRA's designation of the XXXXX as a municipality?

Ruling Given

For the purposes of granting municipal designation to organizations that are providing XXXXX housing, our administrative policy treats a loan from a government, either federal, provincial or municipal, that is used by the organization to assist it in providing XXXXX housing, to be government funding. Our administrative policy treating a repayable loan as government funding is restricted to the designation of non-profit organizations and charities that provide XXXXX housing. For other provisions of the Excise Tax Act and related Regulations that refer to government funding, such as the definition of government funding as provided for in section 2 of the Public Service Body Rebate Regulations, that definition of government funding must be adhered to. Repayable loans are specifically excluded from that definition. Therefore, the loan agreement entered into between the XXXXX and XXXXX qualifies as government funding for the purposes of granting municipal designation to the XXXXX.

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%, to the extent that they are taxable supplies (which are not zero-rated), tax must be collected at the harmonized rate[.]

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

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact the undersigned at (613) 941-3268.

Yours truly,

Owen W. Newell, CGA
Manager
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate