18 February 2003 GST/HST Interpretation 41539 - Services Provided in the

Dear XXXXX:

Thank you for your letters XXXXX (with attachments), requesting a GST ruling concerning services provided in the XXXXX. We regret the delay in responding.

In your letter XXXXX, you requested a ruling on the following points:

•   That the CCRA designate XXXXX to be a municipality pursuant to section 259 of the Excise Tax Act ("ETA") XXXXX.

•   That the supplies between XXXXX be exempt pursuant to paragraph (a) of section 28 of Part VI of Schedule V to the ETA.

We have reviewed the material you provided but are not able to provide a ruling at this time without additional information and documentation concerning XXXXX and the nature of its transactions with XXXXX. The facts provided in your letters and in our telephone conversation are summarized in the attached appendix.

In this letter, we will explain our administrative criteria for municipal determinations and designations and will provide an interpretation of the relevant sections of the ETA.

We will also identify the additional information that will be necessary before we may provide a ruling on the matters raised in your letter.

Interpretation

For the purposes of the ETA, a "municipality" will include a local authority that the Minister of National Revenue determines to be a municipality. Where an organization is determined to be a municipality, all the GST/HST provisions in the ETA that relate to municipalities will apply to the organization.

Included among the categories that the Minister may determine to be a municipality for the purposes of the ETA are para-municipal corporations, boards and commissions created and owned or controlled by one or more municipalities.

To be eligible for this determination, an applicant organization must be a body, board, commission, corporation or other organization created by one or more municipalities or by a province at the request of one or more municipalities. In addition, the applicant must be owned or controlled by one or more municipalities.

An entity will be considered to be owned by a municipality if the municipality owns all or substantially all (90 per cent) of the shares or capital of the entity; or if the municipality holds title to the assets of the entity or controls their disposition such that in the event of wind-up or liquidation, these assets are vested in the municipality.

An entity will be considered to be controlled by a municipality if the municipality appoints a majority of the members of the governing body of the entity and if the municipality must approve the entity's operating and where applicable, capital budget.

XXXXX has been determined to be a municipality by the Minister of National Revenue for the purposes of the ETA. XXXXX provides that XXXXX may either establish or acquire subsidiaries to carry out its purpose and responsibilities.

On XXXXX acquired the shares of XXXXX making it a wholly owned subsidiary of XXXXX. As there is no indication that XXXXX originally created XXXXX, it appears that XXXXX will not meet the first criterion for determination as a municipality and thus is not eligible for this status.

To qualify for designation as a municipality under section 259 of the ETA, an organization must make exempt supplies of certain municipal services. It is not clear to us whether XXXXX is supplying municipal services. Although we do not have sufficient information to reach a conclusion on this point, it appears that XXXXX may be providing services to XXXXX XXXXX.

We note in this connection that your letter asked whether the supplies between XXXXX and XXXXX would fall under the exemption in paragraph (a) of section 28 of Part VI of Schedule V to the ETA. As this exemption applies to supplies between a municipal body and any of its para-municipal organizations, we assume that XXXXX is making supplies to XXXXX.

XXXXX permits XXXXX to delegate the operation of XXXXX to a subsidiary or a contractor. The fact that XXXXX may enter into arrangements with another party to operate XXXXX does not necessarily prevent XXXXX from being the actual supplier of XXXXX.

As you may be aware, section 24 of Part VI of Schedule V to the ETA exempts a supply made to a member of the public of a municipal transit service or of a public passenger transportation service designated by the Minister to be a municipal transit service.

A "municipal transit service" is defined in section 1 of Part VI of Schedule V to mean a public passenger transportation service (other than a charter service or service that is part of a tour) that is supplied by a transit authority all or substantially all of whose supplies are of public passenger transportation services provided within a particular municipality and its environs.

This section also defines a "transit authority" as:

(a) a division, department or agency of a government, municipality or school authority, the primary purpose of which is to supply public passenger transportation services, or

(b) a non-profit organization that

(i) receives funding from a government, municipality or school authority to support the supply of public passenger transportation services, or

(ii) is established and operated for the purpose of providing public passenger transportation services to individuals with a disability.

Our understanding based on the facts presented to date is that XXXXX is not a non-profit organization, nor is it a division, department or agency of XXXXX or of any other municipality, government or school authority. As such, it would not meet the definition of a transit authority; therefore, section 24 of Part VI of Schedule V would have no application unless XXXXX made supplies of public passenger transportation services that were designated by the Minister to be a municipal transit service.

Without further information concerning the supplies made by XXXXX, we are not able to determine if it is providing a public passenger transportation service that might be eligible for designation by the Minister to be a municipal transit service. We would mention that to be eligible for this designation, the service must be provided directly to the public.

Before we can issue a ruling on these matters, we would ask that you provide copies of any operating or funding agreements between XXXXX and XXXXX that would assist our understanding of the interactions between these parties.

We would also need to be provided with specific details about the supplies made by XXXXX and the nature and purpose of the funding received by XXXXX from XXXXX.

XXXXX 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 or Tim Krawchuk at (613) 941-3268.

Yours truly,

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

Encl.

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