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: 238505
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
Entitlement to relief of the GST/HST
Thank you for your correspondence of [mm/dd/yyyy], concerning entitlement to relief of the GST/HST as described in GST/HST Technical Information Bulletin B-039, GST/HST Administrative Policy - Application of the GST/HST to Indians (TIB B-039). We apologize for the delay in this response.
The Canada Revenue Agency (CRA) uses the term Indian because it has a legal meaning in the Indian Act(Footnote 1).
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) is incorporated under the […][legislation of Province X].
2. The Corporation has issued only one share. According to the […][Province X corporation registry], the share is owned by […][the Chief of a “band” as defined in section 2 of the Indian Act in trust for the band].
3. The […] is a “band” as defined in section 2 of the Indian Act.
4. The Corporation is a general partner of […](the Limited Partnership).
5. The Limited Partnership’s limited partner is a trust per […].
6. The Corporation’s address, both physical and mailing, is on […][a reserve of the band in Canada].
7. The Corporation, in its capacity as a general partner of the Limited Partnership, operates a […][store] on reserve land […][of the band]. […].
8. The Corporation is registered for GST/HST [purposes] […].
RULING REQUESTED
You would like […][to know if the Corporation qualifies for GST/HST relief as described in TIB B-039].
RULING GIVEN
Based on the facts set out above, we rule that:
1. the Corporation is not entitled to relief of the GST/HST described in TIB B-039.
2. the Limited Partnership is not entitled to relief of the GST/HST described in TIB B-039.
EXPLANATION
Band-empowered entities
TIB B-039 summarizes CRA’s administrative policy concerning treatment of supplies made to, or by, Indians, Indian bands and band-empowered entities.
Since the Corporation is not an Indian or an Indian band, the GST/HST relief described in TIB B-039 would only apply if the Corporation is a band-empowered entity and if the conditions for GST/HST relief described in TIB B-039 are met.
A band-empowered entity is defined in TIB B-039 to be “a corporation, board, council, association, society, or other organization that is owned or controlled by a band, a tribal council, or a group of bands other than a tribal council.” The CRA’s policy in TIB B-039 applies to band-empowered entities situated on a reserve. A band-empowered entity is considered to be situated on a reserve when the entity maintains a presence on a reserve.
An incorporated band-empowered entity may acquire property relieved of GST/HST on a reserve or delivered to a reserve if the property is for band management activities. In addition, an incorporated band-empowered entity may acquire services relieved of GST/HST when those services are acquired for band management activities or for real property on a reserve.
Band management activities are defined in TIB B-039 as follows:
Band management activities are activities or programs undertaken by a band or band-empowered entity that are not commercial activities for which they would otherwise be entitled to claim input tax credits [emphasis added]. In determining whether the acquisition of a supply is for band management, the output of the activity or program will be the determining factor, as opposed to the objectives of the activity or program.
The CRA considers band management activities to be those activities conducted by bands and band-empowered entities with regard to their normal administration, programs, services and activities that are designed and/or are delivered for the well-being or assistance of band members and are generally similar to those provided by other levels of government. These include, for example, activities undertaken by schools, hospitals and social service entities.
The Corporation
Regardless of whether the Corporation meets the definition of band-empowered entity, the Corporation operates a [store], in its capacity as the general partner of the Limited Partnership. The activities that relate the operation of the [store] are commercial activities and are not band management activities. As such, the Corporation is not entitled to the GST/HST relief described in TIB B-039. In addition, for GST/HST purposes, the business of and by extension the commercial activities of the [store] is treated as the commercial activities of the Limited Partnership. Therefore, the Corporation would not be entitled to claim any input tax credits that relate to the operation of the [store]. See the next section for more details on the application of the GST/HST to the Limited Partnership.
The Limited Partnership
The definition of “person” in subsection 123(1) includes a partnership. The inclusion of a partnership in this definition provides that a partnership is to be treated for GST/HST purposes as if it were a legal entity. Therefore, a partnership exists as a separate person from its members on whose behalf the business is carried on. Section 272.1 provides a set of deeming rules that apply to the activities of partnerships. Under subsection 272.1(1), any act done by a person acting as a member of a partnership is deemed to have been done by the partnership in the course of the partnership’s activities and not by the person.
The inclusion of a partnership in the definition of “person” and the deeming rule in the subsection 272.1(1) provide that for GST/HST purposes, the partnership is the person who carries on the partnership business. If the business of the partnership is to make taxable supplies in Canada in the course of a commercial activity, the partnership, and not any individual member, is the person that must register for GST/HST purposes and file GST/HST returns to account for any GST/HST owing or to receive any GST/HST refund to which it is entitled.
A limited partnership carries on business through its general partner. The GST/HST return is signed by the general partner who manages the business of the partnership. However, pursuant to the definition of “person” in subsection 123(1) and the deeming rule in subsection 272.1(1), the general partner is required to report the remittance of the GST/HST on the partnership’s GST/HST return and under the Business Number assigned to the partnership.
Based on the information provided, the Corporation is acting in its capacity as a general partner of the Limited Partnership when it operates the [store]. Per subsection 272.1(1), the operation of the [store] by the Corporation is deemed to be undertaken by the Limited Partnership and not by the Corporation. That is, the Limited Partnership is deemed to be the supplier.
Since the Limited Partnership is not a band-empowered entity (i.e. it is owned by corporate entities and a trust) and the activity of the Limited Partnership is a commercial activity, which it operates through the Corporation, the Limited Partnership is also not entitled to the GST/HST relief described in TIB B-039. See the next section for the Limited Partnership’s input tax credit (ITC) entitlements.
Limited Partnership’s ITC Entitlements
As noted previously, the deeming rule in subsection 272.1(1) treats the partnership as the person that engages in the activities of the partnership. Where property or a service is purchased by a person acting in the person’s capacity as a member of a partnership, the purchase of the property or service is deemed to be undertaken by the partnership and not by the member.
Any resulting GST/HST payable in respect of the property or service is, therefore, considered to be payable by the partnership and not by the member. For a partnership to be entitled to claim an ITC to recover all or part of the GST/HST payable in respect of property or a service that is considered to be purchased by the partnership, the partnership must be a registrant during the reporting period in which the GST/HST becomes payable or is paid without having become payable, and the other conditions for claiming an ITC must be met.
Ordinarily, a partnership expense will be paid directly from partnership funds and normally included in the accounts of the partnership. When a member, usually a general partner, pays an expense on behalf of the partnership they will normally then be reimbursed by the partnership from partnership funds. However, if the member pays an expense of the business carried on in partnership and is not reimbursed or entitled to be reimbursed by the partnership, subsection 272.1(2) provides an exception to subsection 272.1(1) to allow the member to claim an ITC in respect of the expense where the member is not an individual.
The member’s entitlement to ITCs is subject to the restrictions set out in subsection 272.1(2) and the property or service must be for consumption, use or supply in the course of activities of the partnership. Therefore, there should be evidence that the expense was accepted by the partnership as a partnership expense and the partnership agreement would typically set out whether it would either pay for the expenses or reimburse the member for the expenses of the partnership or whether particular partnership expenses are to be borne by particular members out of their own funds. If the member is reimbursed by the partnership for an expense of the partnership or the partnership agreement provides for reimbursement of partnership expenses, the member’s claim for ITCs will be reduced to the extent of the ITC portion of the reimbursement and the partnership will be entitled to claim an ITC for the GST/HST included in the reimbursement.
In the current case, if the only commercial activity of the general partner is the business that the general partner engages in as a member of a partnership (i.e. the [store]), the general partner generally would not be entitled to register for GST/HST. The one exception is where subsection 272.1(2) applies for purposes of determining an ITC of a member that is not an individual. In this case, the CRA will, for purposes of administering subsection 272.1(2), permit the member to voluntarily register under paragraph 240(3)(a) strictly for the purpose of claiming an ITC in respect of the partnership’s commercial activities. However, as a GST/HST registrant, the partnership is the entity that is required to file and remit the GST/HST when making taxable supplies in Canada in the course of its commercial activity.
For more information on input tax credits, please refer to Guide RC4022, General Guide for GST/HST Registrants, GST/HST Memoranda 8-1, General Eligibility Rules, and 8-2, General Restrictions and Limitations, and Policy Statement P-216, Registration of a Partner.
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 CRA is bound by the ruling given in this letter provided that: none of the issues discussed in the ruling 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. The interpretation 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 interpretation or the additional information provided herein.
If you require clarification with respect to band-empowered entities and band management activities, please call the undersigned directly at 343-573-0977. If you require clarification with respect to partnerships, please call Mathieu Purney at 613-292-0461. 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,
Desneiges Arbour
Industry Sector Specialist
Government Sectors and Indigenous Affairs Unit
Public Service Bodies and Governments Division
GST/HST Rulings Directorate
FOOTNOTES
1 R.S.C., 1985, c. I-5, as amended.
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