4 January 2000 GST/HST Interpretation 7137/HQR0000743 - GST Rebate Eligibility - Municipal Expense Allowances

Dear XXXXX

I refer to your letter dated April 7, 1997, (with attached reports), concerning eligibility to claim the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) rebate on non-accountable expense allowances paid to council members and volunteer firefighters. I apologize for the delay in responding to your request.

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

Allowances paid to Municipal Officers

1. The XXXXX (the Town) is a Municipality with the GST registration number XXXXX[.]

2. Pursuant to the XXXXX each member of a municipal council is to be paid any remuneration that may be fixed by the municipal council for attending any business of the municipality. In most situations, the municipal council fixes a daily remuneration for attending regular and special meetings, for attending committee meetings, and for attending conventions.

3. The XXXXX Act specifies that one third of the total remuneration paid is deemed to be paid in respect of general expenses incurred by the council member incidental to the discharge of the members' duties.

4. Pursuant to subsection 81(3) of the Income Tax Act (ITA), the Town has included two thirds of the total remuneration paid to the council member under the XXXXX Act in his/her income for income tax purposes, and has issued a T-4 Supplementary to each council member reflecting this. The Town has been treating the remaining one third of the remuneration paid as a non-accountable allowance and has not been including this amount as income for the council member for income tax purposes.

Allowances paid to Volunteer Firefighters

5. The Town pays to their volunteer firefighters an hourly wage for each hour spent fighting fires. For these services the Town pays an allowance not exceeding XXXXX and the remainder is paid as remuneration.

6. Pursuant to subparagraph 6(1)(viii) of the ITA prior to 1998, the Town has included the total wages paid, less XXXXX in the fireman's income for income tax purposes. The Town has been treating the XXXXX of remuneration paid as a non-accountable allowance and has not been including this amount as income for the firefighters for income tax purposes.

Interpretation Requested

1. With respect to municipal officers allowances, given that the Town treats the remaining one third of the annual remuneration as a non-accountable expense allowance to the council member in conducting municipal affairs, is the Town entitled to claim the 57.14% municipal rebate on this portion of the allowance?

2. With respect to volunteer firefighters allowances, given that XXXXX of each of the firefighter's annual remuneration is treated as a non-accountable expense allowance in discharging their duties, is the Town entitled to claim the 57.14% municipal rebate on this allowance?

Interpretation Given

1. The one third of the remuneration paid as a non-accountable expense allowance to a council member to conduct municipal affairs meets the criteria outlined in section 174 of the Excise Tax Act (ETA). This section deems the Town paying the allowance to have received a supply of the goods and services so acquired by the council member and to have paid tax equal to 7/107th of the allowance amount. Accordingly, pursuant to subsection 259(3) of the ETA, the town is entitled to claim a municipal rebate of 57.14% on the tax paid, based on 7/107th of the non-accountable allowance.

2. The XXXXX firefighters' annual remuneration paid as a non-accountable expense allowance in discharging their duties and excluded from the volunteers income prior to 1998 meets the criteria outlined in section 174 of the ETA. This section deems the Town paying the allowance to have received a supply of the goods and services so acquired by the volunteer firefighters and to have paid tax equal to 7/107th of the allowance amount. Accordingly, pursuant to subsection 259(3) of the ETA, the town is entitled to claim a municipal rebate of 57.14% on the tax paid, based on 7/107th of the non-accountable allowance.

Policy P-097, Expense Allowances of Municipal Officers, is currently being revised and will be available on the Canada Customs and Revenue Agency's web site at www.ccra-adc.gc.ca in the very near future.

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 sales tax of 15%. As the transactions described above occur in a non-participating province, the HST has not been addressed.

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 therein. 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.

Should you have any further questions or require clarification on the above matter, please contact the undersigned at (613) 941-3268.

Yours truly,

O.W. Newell, CGA
Manager
Municipalities and Heath Care Services
Public Service Bodies and Governments