26 November 2003 GST/HST Ruling 46634 - Agreement Between the Registered Owner of Certain Land and an Municipality

Please note that the following documents, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ces documents, bien qu'exacts au moment émis, peuvent ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your letter XXXXX, (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below.

All legislative references are to the Excise Tax Act unless otherwise noted.

Statement of Facts

Our understanding of the facts and transactions is as follows:

1. The XXXXX (hereafter "the RM") is the registered owner of certain land (hereafter "the Land") that is legally described XXXXX. The Land is used, at least in part, as waste disposal grounds. The waste disposal grounds situated within The Land are described as a XXXXX.

2. XXXXX XXXXX allows a municipality to enter into agreements with a person, with an agency of the Government of XXXXX or the Government of Canada, or with another municipality, including a municipality in another province, to do with or on behalf of the municipality anything the municipality has the power to do within the municipality.

3. XXXXX provides that no person can operate a XXXXX (which includes a XXXXX waste disposal ground, which the Land includes) unless the person obtains a valid licence from the director for the development or is exempted under that Act or the regulations thereto from having to obtain a licence. XXXXX of that Act requires the director to either issue a licence, outlining the terms of the licence, or to refuse to issue a licence. XXXXX of that Act allows the Lieutenant Governor in Council to make regulations ancillary to the Act and those regulations have the force of law. XXXXX provides that no person is entitled to construct or operate a new XXXXX disposal ground (which is what we understand the disposal grounds in question to be) without first receiving an environmental licence in accordance with XXXXX.

4. The RM was issued a licence XXXXX under Licence No. XXXXX (hereafter the "Licence") in respect of the Land. XXXXX (hereafter M Ltd.) has not been issued a licence in respect of the Land and there is no evidence that the RM has assigned, or is entitled to assign, the rights the RM received under the Licence.

5. The RM and XXXXX had entered into an agreement XXXXX XXXXX. It is our understanding that that agreement has expired and a new agreement has been drawn up between the RM and M Ltd. The new agreement is set out in a document entitled, XXXXX (hereafter "the Agreement"). The Agreement you submitted has not been executed. The Agreement is between the RM and M Ltd.

6. Under the Agreement:

XXXXX

7. The RM is a "municipality" as defined in paragraph (a) of the definition of that term in subsection 123(1). The RM has not filed an election under section 211 in respect of the Land.

Rulings Requested

1. Is the RM making a taxable supply of the Land to M Ltd. under the Agreement?

2. Are the fees collected by M Ltd. from various users of the Land subject to the GST?

Rulings Given

Based on the facts set out above, we rule that:

1. There are two supplies being made under the Agreement - a supply of the Land made by the RM to M Ltd. and a supply of a service of operating the disposal grounds made by M Ltd. to the RM. The supply of the Land made by the RM to M Ltd. under the Agreement is exempt pursuant to section 25 of Part VI to Schedule V to the Excise Tax Act. The supply of services made by M Ltd. is a taxable supply.

2. The fees collected by M Ltd. from users of the Land are not subject to the GST. This supply of the right to deposit refuse at the Land is a supply made by the RM and is exempt under paragraph 20(i) of Part VI of Schedule V to the Excise Tax Act.

These rulings are 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 these rulings 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 our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Explanation

Ruling 1

Under the Agreement, the supply of the Land made by the RM is inextricably linked to the provision by M Ltd. of a service of managing the Land on behalf of the RM. As such, under the Agreement, there is a supply made by the RM and at least one supply made by M Ltd.1 (Whether M Ltd is making a single supply or separate supplies under the Agreement has not been factually determined. However, such a determination is unnecessary for purposes of this ruling.)

With respect to the supply of Land made by the RM, section 25 of Part VI of Schedule V to the Act exempts most supplies of real property made by a public service body (which includes a municipality), other than the supplies set out in paragraphs (a) through (i) of that section. Subparagraph 25(f)(i) excludes from exemption a supply of real property made in the course of a business carried on by a municipality where the supply is made by way of lease and the period throughout which continuous possession or use of the property provided under the lease is for a period of less than one month. As this condition is not met (i.e. possession of the property is given to M Ltd. for a term of XXXXX years), the supply is not excluded from the exemption by that paragraph. Further, no other exclusions apply and accordingly, the RM's supply of the Land to M Ltd. is exempt.

Under the Agreement, M Ltd. is supplying one or more services to the RM of operating the waste disposal grounds situated on the Land. As set out in paragraphs 6(j) and (k) of the Statement of Facts, M Ltd is contractually required to carry out a number of activities in relation to the operation and management of the disposal grounds. These activities include the general operation of the disposal grounds, the receiving of residential and commercial garbage, the responsibility for costs of operating the facility, keeping the disposal grounds open for set hours and the hiring of any personnel to operate the grounds. There are no provisions to exempt the supply(ies) by M Ltd. and, as a GST/HST registrant, M Ltd. is required to collect from the RM the GST applicable to the supply(ies).

Ruling 2

As stated above, XXXXX provides that no person can operate a XXXXX development (which includes a XXXXX waste disposal ground, which the Land includes) unless the person obtains a valid licence from the director for the development or is exempted under that Act or the regulations thereto from having to obtain a licence. Further, XXXXX provides that no person is entitled to construct or operate a new XXXXX disposal ground (which is what we understand the disposal grounds in question to be) without first receiving an environmental licence in accordance with the XXXXX.

The RM has been issued the Licence by the Province XXXXX in respect of the Land. There is no evidence to indicate that the RM has assigned its rights under the Licence to M Ltd., nor is there any evidence that M Ltd. has been exempted under the XXXXX or the regulations thereto from having to obtain a licence. Further, there is nothing in the XXXXX or the regulations thereto to suggest that the RM is entitled to assign the rights and obligations it was granted under the Licence. As such, the supply of the right to deposit refuse at the Land is a supply made by the RM. This supply, made by a municipality, is exempt under paragraph 20(i) of Part VI of Schedule V to the Act. M Ltd. is not required to collect the GST on the fee collected from customers of the Land.

Should you have any further questions or require clarification pertaining to Ruling 1, please do not hesitate to contact me at (613) 954-4393. Should you have any further questions or require clarification pertaining to Ruling 2, please contact Elaine Bonnah at (613) 952-9590.

Yours truly,

Hugh Dorward
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate