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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
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XXXXX
XXXXX
XXXXX
XXXXXXXXXX XXXXX |
Case Number: 45698June 3, 2003
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Subject:
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GST/HST APPLICATION RULING
XXXXX Recovery of the Goods and Services Tax on Certain Road Construction Projects
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Dear XXXXX:
Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to certain road construction projects undertaken XXXXX. You have asked that we reconsider the ruling issued by this office XXXXX.
Statement of Facts
Our understanding of the facts, the transactions, and the purpose of the transactions is as follows:
1) XXXXX
2) XXXXX
3) XXXXX
4) XXXXX Agreement
XXXXX included the following conditions:
• XXXXX
• XXXXX
• XXXXX
• XXXXX
• XXXXX
• XXXXX
• XXXXX
• XXXXX
• XXXXX
• XXXXX
• XXXXX
• XXXXX
5) XXXXX
6) XXXXX
7) XXXXX
8) XXXXX
9) At XXXXX request, XXXXX XXXXX included the construction of XXXXX work in its contract for reconstruction of XXXXX.
10) XXXXX agreed to do XXXXX work at XXXXX cost and expense.
11) XXXXX
• XXXXX
• XXXXX
• XXXXX
• XXXXX
• XXXXX
• XXXXX
• Upon completion of XXXXX work by XXXXX, XXXXX will, at its cost and expense maintain the work that has been constructed under the Agreement. XXXXX agreed that it would assume all responsibilities and liabilities for the work.
Ruling Requested
That XXXXX is entitled to recover 100% of the GST paid to XXXXX under cost sharing agreements for the XXXXX.
Ruling Given
Based on the facts set out above, we rule that XXXXX is not entitled to claim an ITC to recover the GST paid to XXXXX in respect of these projects. However, it may claim a 57.14% rebate under subsection 259(3) of the Excise Tax Act.
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 ETA, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.
Explanation
We understand from your recent letter that you feel our ruling did not take into account the fact that XXXXX and XXXXX have undertaken these projects together. Your position is that if XXXXX had undertaken these projects alone, then this would be considered a commercial activity for which ITCs could be claimed on related expenses.
It is also your view that although XXXXX has requested its portion of the construction project be incorporated in XXXXX work, this should not alter the fact that XXXXX is undertaking a road construction project, which the courts consider to be a commercial activity.
As explained in our ruling XXXXX, we do not consider the facts in this case to be similar to those in the Tax Court decision, Regina (City) v. Canada [2001] T.C.J. No. 315. In that case, the City provided services to the Province in respect of provincial highway connector routes. A municipality will be involved in a commercial activity and will be entitled to claim ITCs if it is making supplies of taxable construction services to a third party for consideration.
In this situation, XXXXX is not making supplies to another party in the course of a commercial activity. Whether XXXXX acquires construction services carried out on its behalf by XXXXX or whether it shares in the responsibility for these projects, there is no indication that it is doing so in the course of a commercial activity. That is, XXXXX has not incurred these costs in order to make taxable supplies for consideration but rather, is participating in these projects in the course of its ongoing municipal activities.
In order to be eligible to claim an ITC, XXXXX must meet the conditions set out in sections 169 and 141.01 of the ETA.
Section 169 provides that an entitlement to an ITC is only available where the property or service on which the GST/HST is paid is consumed, used or supplied in the course of a commercial activity.
Subsections 141.01(2) and (3) provide that where a person acquires, uses or consumes property or a service, that acquisition, use or consumption is deemed to be in the course of commercial activities of the person to the extent that the acquisition, use or consumption is for the purpose of making taxable supplies for consideration.
Conversely, subsections 141.01(2) and (3) provide that where a person acquires, uses or consumes property or a service, that acquisition, use or consumption is deemed to be otherwise than in the course of commercial activities of the person to the extent that the acquisition, use or consumption is for the purpose of making supplies that are not taxable supplies made for consideration or for a purpose other than the making of supplies.
It is our position therefore, that XXXXX involvement in these projects does not represent a commercial activity. The costs it incurs in the course of these projects are not inputs to any taxable supply made by XXXXX for consideration. Therefore, XXXXX is not entitled to claim ITCs in respect of the tax paid to XXXXX under these cost-sharing agreements.
Although XXXXX is not entitled to claim ITCs, it is eligible for the 57.14% rebate available to municipalities under subsection 259(3) for its non-creditable tax charged.
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
| c.c.: |
T. Krawchuk
XXXXX
Circulation File
Chron File |
| Legislative References: |
141.01(2) and 141.01(3), section 169, subsection 259(3) |
| NCS Subject Code(s): |
11890-1, 11895-1 |
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