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
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 222419
Business Number: […]
Dear [Client]:
Subject: GST/HST INTERPRETATION
Application of GST/HST to a determined municipality
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the operations of […][Corporation A]. 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. [Corporation A] was incorporated under the […][relevant Provincial Act] on [dd/mm/yyyy]. It is a registered charity within the meaning assigned to that expression by subsection 248(1) of the Income Tax Act and is a charity for purposes of Part IX of the ETA.
2. [Corporation A] is registered for GST/HST purposes effective [dd/mm/yyyy].
3. […]
4. […].
5. […][Corporation A carries on various activities, including making exempt supplies to the tenants and residents of its housing sites and long-term care facilities].
6. […].
7. […].
8. […]
9. You have stated that [Corporation A] provides housing management services to […][Province 1] for units owned by [Province 1] and operated by [Corporation A] […] and [that Corporation A also provides housing management services] to […][Corporation B] for units that are owned by [Corporation B] and operated by [Corporation A] […] (together, the Housing Management Services).
10. You have also stated that [Corporation A] provides optional parking, laundry and cable services for its tenants/residents living at its sites or facilities that are not attached to the residential rent and are made for the convenience of tenants and residents.
11. [Corporation A] has requested to be determined a municipality pursuant to paragraph (b) of the definition of “municipality” in subsection 123(1) for its operations as a Management Body on behalf of the Province.
INTERPRETATION REQUESTED
You would like to know, if [Corporation A] is determined to be a municipality:
1. […] would [Corporation A] be eligible to claim the PSB rebate at 100% for all of its activities?
2. if the effective date of the municipal determination is retroactive, can [Corporation A] claim the additional PSB rebate amount for costs incurred during the retroactive period, […]?
3. would the supply of […][housing management services to Corporation B] and optional parking, laundry and cable services for tenants/residents living at the sites or facilities be taxable for GST/HST purposes?
4. if the municipal determination is applied retroactively to the four-year limitation period, would [Corporation A] have to remit GST/HST on supplies that became taxable as a result of the change from charity to municipal status even though no taxes were collected by [Corporation A] during the retroactive period?
INTERPRETATION GIVEN
PSB rebate eligibility and rebate rate for municipalities
Certain public service bodies, such as municipalities, can claim a PSB rebate to recover a percentage of the GST/HST paid or payable on eligible purchases and expenses. Municipalities are eligible to claim a PSB rebate at the rate of 100% of the GST and the federal part of the HST where applicable. The 100% PSB rebate rate applies to non-creditable tax charged for property and services acquired by municipalities. Non-creditable tax charged is generally the GST/HST that was paid or payable by the municipality, that cannot be recovered through an input tax credit, or any other rebate, refund or remission.
Where an organization is determined to be a municipality under paragraph (b) of the definition of municipality found in subsection 123(1), it has the benefit of municipal status for all GST/HST purposes. If a municipal determination were granted to [Corporation A], [Corporation A]’s activities related to the provision of all of its programs would qualify for the PSB rebate at the rate of 100% of the GST and the federal part of the HST where applicable with respect to all non-creditable tax charged in respect of property and services (other than prescribed property and services) which [Corporation A] acquires and for which the GST/HST is payable.
Charities and municipal determination
Where a determined municipality is also a registered charity under the Income Tax Act, it is a public institution as defined in subsection 123(1). Public institutions are excluded from the definition of charity in subsection 123(1) and are therefore not treated as charities for GST/HST purposes. If [Corporation A] were granted a municipal determination, [Corporation A] would not only be subject to the provisions of the ETA that apply to municipalities but also to those that apply to public institutions. As of the effective date of a municipal determination, [Corporation A] would no longer be treated as a charity for GST/HST purposes. Instead, [Corporation A] would be treated as a municipality and a public institution for GST/HST purposes. As a result, some supplies made by [Corporation A] that were previously exempt from GST/HST as a charity may become taxable as a municipality and public institution. However, [Corporation A] may become eligible to claim input tax credits in respect of inputs used in its supplies that would become taxable as a result of a municipal determination. For more information on general eligibility rules that apply when claiming input tax credits under the ETA, see GST/HST Memorandum 8.1, General Eligibility Rules.
Change in tax status of supplies
Generally, all supplies of property and services made in Canada are subject to GST/HST unless specifically relieved under the ETA. Similar to the general exemption for charities found in section 1 of Part V.1 of Schedule V, section 2 of Part VI of Schedule V provides that most supplies of personal property or services made by public institutions are exempt from GST/HST, unless the supply is excluded under paragraphs (a) to (q) of that section. Paragraph (n) specifically excludes the supply of property or services made by a municipality from the general exemption of supplies made by public institutions provided for in section 2. Therefore, most supplies of property or a service made by a public institution that is a municipality are taxable supplies unless another exemption is available. As a result, supplies of property or services made by [Corporation A] that are currently considered exempt pursuant to section 1 of Part V.1 of Schedule V (general exemptions for charities) would generally become taxable supplies pursuant to paragraph (n) of section 2 of Part VI of Schedule V, unless another exemption is available. For example, the supplies of Housing Management Services made by [Corporation A] would become taxable supplies if [Corporation A] were determined a municipality. Similarly, the optional supplies of laundry and cable services made by [Corporation A] would also become taxable supplies as of the effective date of a municipal determination.
Where the supply of optional parking by [Corporation A] meets the requirements of paragraph (a) of section 8.1 of Part I of Schedule V, the supply would be exempt from GST/HST under that provision. Otherwise, the supply would be subject to GST/HST as it would be excluded from the general exemption pursuant to paragraph 2(n) of Part VI of Schedule V, as discussed above. For more information, see GST/HST Memorandum 19.2.2, Residential Real Property – Rentals.
Effective date of municipal determination
The Canada Revenue Agency (CRA) may consider, on a case-by-case basis, a request for an effective date of municipal determination prior to the date of the application. However, retroactive determinations are subject to considerations such as the legislative time limits for claiming rebates and whether determination as a municipality will change the tax status of the applicant's supplies. Retroactive determinations will generally not be granted where the retroactive determination would change the tax status of supplies that have already been made. The effects of a municipal determination discussed herein would only apply as of the effective date of the municipal determination.
ADDITIONAL INFORMATION
If a municipal determination were granted, [Corporation A], as a public institution, would no longer be able to use the net tax calculation for charities. Public institutions generally use the regular method to calculate their net tax that is reported on their GST/HST return for a reporting period but may elect to use the Special Quick Method of Accounting. Detailed information on the regular method of completing a GST/HST return is available in Guide RC4022, General Information for GST/HST Registrants. For more information on the Special Quick Method of Accounting, go to “The Special Quick Method of Accounting for Public Service Bodies” webpage on the CRA website.
As a municipality, [Corporation A] may also be eligible to use the simplified method for claiming PSB rebates. For more information, see Guide RC4034, GST/HST Public Service Bodies' Rebate.
Additionally, basic information on how the GST/HST applies to many issues commonly faced by organizations that are public institutions under the ETA is available in GST/HST Info Sheet GI-068: Basic GST/HST Guidelines for Public Institutions.
Supplies of property and services made to provincial government entities
Suppliers must charge the GST/HST on their taxable supplies of property or services made to a government entity of a province that is entitled to point-of-purchase relief from the GST/HST (Manitoba, Saskatchewan, Alberta, the Northwest Territories and Yukon) unless the entity meets both of the following conditions:
* it is a listed entity purchasing the taxable property or service on its own behalf
* it provides sufficient documentary evidence to show that it is eligible for point-of-purchase relief from GST/HST
Where a supplier has not charged the GST/HST on taxable supplies of property or services to a listed entity that is entitled to point-of-purchase relief, the supplier must maintain sufficient documentary evidence that the listed entity was the recipient of the supply and was eligible for that relief. If a municipal determination were granted, [Corporation A] should retain a copy of an exemption certificate or contract containing a certification clause with respect to any taxable supplies of property or services made to a provincial or territorial government (i.e. Housing Management Services supplied to [Province 1]). An exemption certificate or certification clause is a statement detailing that a purchase is being made by a listed entity of a province or territory that is entitled to point-of-purchase relief from the GST/HST. A supplier is required to retain any exemption certificate or certification clause issued by a listed entity to support the claim that a taxable supply of property or services is not subject to the GST/HST because the listed entity was eligible for point-of-purchase relief. For audit purposes, when determining whether a supply has been made to a listed entity eligible for point-of-purchase relief, the CRA will examine the business records that are normally kept by a supplier. For more information, see GST/HST Memorandum 18.2, Provincial Governments.
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 interpretations given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretations or the additional information provided herein.
CONTACT
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 343-575-4115. 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,
Paul Lalonde
Public Service Bodies and Rebate Unit
Public Service Bodies and Governments Division
GST/HST Rulings Directorate
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