Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
Place de Ville, Tower A, 5th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 62355r2
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
Supplies of testing backflow devices
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to supplies of testing backflow devices. We apologize for the delay in this response.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
We understand the following:
1. […][The Corporation] supplies services of testing and repairing backflow prevention assemblies installed on a property owner’s water line as a certified backflow assembly tester. [The Corporation] is registered for the GST/HST.
2. Backflow prevention assemblies are safety valves that are installed at connections to the water distribution system of a municipality to prevent contamination of potable water.
3. Through bylaws, municipalities require that property owners have the backflow prevention assemblies installed on their property tested upon installation and on an annual basis thereafter. The municipality informs the property owner, by written letter, that the backflow assembly must be tested at the owner’s expense, and that the testing must be done by an independent certified backflow assembly tester that is authorized by the municipality.
4. The certified backflow assembly tester records the results of the test on a backflow assembly test report, submits the report to the municipality, and pays a fee to submit the report.
5. […].
6. […].
7. You provided a sample invoice issued by [the Corporation] to a property owner in […][a municipality] for two backflow tests, […] $[…][for each backflow testing service and], $[…] [for the fees paid to the City to submit the backflow assembly test report], and […][GST/HST is charged on both the testing services and the fee paid to the City].
8. […][Information about another municipality]
9. […]
10. […].
RULING REQUESTED
You would like to know if the supply of [the Corporation’s] services of testing backflow prevention assemblies are exempt from the GST.
RULING GIVEN
Based on the facts set out above, we rule that [the Corporation’s] service of testing backflow prevention assemblies is a taxable supply. The amount invoiced for the […][backflow testing service] and the [fee paid to the City] together form the consideration for the taxable supply that is subject to the GST/HST.
EXPLANATION
Generally, most supplies of property and services made in Canada are taxable and subject to GST/HST, unless they are specifically exempt under Schedule V. An exempt supply is not subject to GST/HST. In order for a supply of property or a service to be exempt from GST/HST, a specific exempting provision must apply to the particular supply.
The GST/HST is a transactional tax, and each supply must be evaluated and characterized on a case-by-case basis in order to determine the application of the GST/HST. Part VI of Schedule V provides that certain supplies when made by a municipality are exempt from GST/HST. However, the tax status of supplies made by a municipality to property owners must be determined independently from the tax status of the supplies made by third party contractors to property owners.
There is no provision that exempts [the Corporation’s] service of testing backflow prevention assemblies.
[…]you refer to a sentence from guide RC4049, GST/HST Information for Municipalities, under the heading Municipal water distribution, sewerage, or drainage systems that states “A separate fee charged to a property owner or occupant for a service of repairing or maintaining part of an existing sewer or water line is exempt.” As stated on page 1 of RC4049, this guide uses plain language to explain the most common tax situations. It is provided for information only and does not replace the law. Further, the entire information under the heading Municipal water distribution, sewerage, or drainage systems in that guide must be read to understand the context and how the legislation applies to this type of supply.
That section of the RC4049 is in reference to section 22 of Part VI of Schedule V that exempts:
A supply of a service, made by a municipality or by an organization that operates a water distribution, sewerage or drainage system and that is 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.
[the Corporation] does not operate a water distribution system, […][and therefore] does not qualify to be designated a municipality for purposes of section 22 of Part VI of Schedule V. […][The Corporation’s] activities of installing, testing, and repairing backflow prevention assemblies do not consist of a service listed in […][section 22 of Part VI of Schedule V]; that is, of installing, repairing, maintaining or interrupting the operation of a water distribution system.
As [the Corporation] is not a municipality or an organization that operates a water distribution system that has been designated to be a municipality, section 22 of Part VI of Schedule V does not apply to exempt the supply of services provided by [the Corporation].
It is noted that RC4049 was updated in 2022 and the section under Municipal water distribution, sewerage, or drainage systems currently reads as follows:
A supply of a service of installing, repairing, maintaining or interrupting the operation of a water distribution, sewerage, or drainage system, is GST/HST exempt if the supply is made by a municipality or by an organization that operates a water distribution, sewerage, or drainage system and that is designated as a municipality for this purpose.
For example, where a municipality or a designated municipality repairs that part of a water or sewer line that is for the sole use of a property owner, and the municipality or designated municipality bills the owner, the amount billed is GST/HST exempt. A fee billed by a municipality or designated municipality to a property owner or occupant to turn the water supply on or off is also GST/HST exempt.
A supply of a service of operating or managing another person's water distribution, sewerage or drainage system is subject to the GST/HST.
Accordingly, the amount invoiced to the property owner for the [backflow testing service] is consideration for a taxable supply and subject to the GST/HST.
Furthermore, the […][fee that is] invoiced to the property owner, as reimbursement for the fee required to be paid by [the Corporation] to […][the City] for submitting the backflow assembly test report, also forms part of the consideration for the taxable supply of [the Corporation’s] services, and is subject to the GST/HST.
DISCLAIMER
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 289-257-6196. Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Sincerely,
Maria Forte-Long
Industry Sector Specialist
Municipal Sectors Unit
Public Service Bodies and Governments Division
GST/HST Rulings Directorate
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