3 July 2002 GST/HST Interpretation 30263 - Application of the GST to Services Supplied by

Dear XXXXX:

Thank you for your letter of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies made by XXXXX[.] Your question concerning the tax status of supplies made by XXXXX. was addressed in the letter dated XXXXX, from our Technical Interpretation Services office, now GST/HST Rulings XXXXX. Your question concerning supplies by XXXXX was referred to this office for reply. We regret the delay in our response.

As all supplies of goods and services discussed in this letter are made in XXXXX, references will be made to the GST only.

Interpretation Requested

You have asked for confirmation that GST applies to XXXXX billings by XXXXX.

While we have been provided with some information concerning the operations of XXXXX we do not have sufficient information and documentation to provide an application ruling on the tax status of its supplies. However, we can provide a general interpretation of how the GST applies to this situation.

Interpretation Given

We understand that XXXXX is a GST/HST registrant XXXXX. We understand that XXXXX supplies water via the water distribution system.

XXXXX has no agreement with XXXXX or any other level of government to make supplies of the water distribution system on their behalf.

The Minister of National Revenue (the Minister) has not designated XXXXX as a municipality for the purposes of section 22 of Part VI of Schedule V to the Excise Tax Act (ETA). XXXXX does not intend to make an application to the Minister for such a designation.

Section 22 of Part VI of Schedule V provides an exemption from the GST to a supply of a service made by an organization that operates a water distribution, sewerage or drainage system and that has been designated by the Minister to be a municipality for the purposes of this section, of installing, repairing, maintaining or interrupting the operation of a water distribution, sewerage or drainage system.

Where a supplier makes a supply of a service of installing, maintaining or interrupting the operation of a water distribution system and has not been designated as a municipality for the purposes of this section, then the exemption in section 22 of Part VI of Schedule V does not apply. GST must be collected and remitted on the consideration paid in respect of this service.

Section 23 of Part VI of Schedule V provides an exemption to supplies of unbottled water (other than a zero-rated supply and a supply of water dispensed in single servings to consumers through a vending machine or at a permanent establishment of the supplier) when made by a person other than a government or by a government designated by the Minister to be a municipality for the purposes of this section.

This section also exempts a service of delivering water when the service is provided by the person who supplies the exempt water.

The supply of unbottled water by XXXXX would be an exempt supply under section 23 of Part VI of Schedule V. Therefore, if consideration is charged for the supply of water, GST will not apply.

A GST/HST registrant is entitled to claim an input tax credit for the tax paid or payable on a property or service to the extent to which the property or service is for consumption, use, or supply in the course of a commercial activity of the registrant. A commercial activity does not include the making of exempt goods or services.

Therefore, a registrant that makes taxable supplies of services related to a water distribution system and exempt supplies of unbottled water may be required to apportion its entitlement to input tax credits under the ETA.

While a supplier who provides exempt supplies of unbottled water will not be entitled to claim input tax credits for the tax paid on related purchases, it will be entitled to claim a 57.14% rebate if it has been designated by the Minister for the purposes of section 259 of the ETA. An organization seeking designation as a municipality for this purpose may mail its request to:

Pierre Bertrand
Director
Public Service Bodies and Governments
Excise and GST/HST Rulings Directorate
Canada Customs and Revenue Agency
Ottawa, Ontario
K1A 0L5

In support of this request, the applicant should also provide copies of its governing documents, a description of the services provided and the area in which it is provided, a copy of a customer invoice, evidence of ownership of the unbottled water or evidence that the person is allowed to take water from its source.

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) 952-9590.

Yours truly,

Elaine Bonnah
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate