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.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 125593r
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
Municipal wastewater discharge services
We are writing in reply to your fax of [mm/dd/yyyy], wherein you ask that we reconsider the GST/HST ruling issued to […] (the City) by the […] Region GST/HST Rulings Centre dated [mm/dd/yyyy], (Case Number […]) that section 22 of Part VI of Schedule V does not apply to exempt supplies of wastewater discharge services by the City to […]([…][XYZ]).
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.
The statement of facts in Case Number […] provides the relevant details of the agreement between the City and [XYZ] for the services of accepting and treating wastewater. You have not provided any additional information or revised facts with respect to the services provided under the agreement. For convenience, the facts are restated as follows:
STATEMENT OF FACTS
1. The City is a “municipality” as defined in subsection 123(1) and is registered for GST/HST purposes under the Business Number noted above.
2. [XYZ] is a “municipality” as defined in subsection 123(1).
3. […][Information about a report on the acceptance, treatment and disposal of wastewater at a wastewater treatment plant between [XYZ] and [the City]]. […]. Sewers were constructed for this purpose by the respective municipalities.
4. Specifically, the […] locations referred to above include: […]
5. […][Additional information from the report]
6. Formal agreements were in place in the past establishing the terms and conditions relating to the treatment of the […] wastewater. The agreements have since expired and the City and [XYZ] are still in the process of negotiating a formal agreement. Accordingly, the municipalities operate on a basis of understanding and cooperation as the supplies have been ongoing since the expiry of the previous formal agreement.
7. […]
8. […]
9. […] states that a draft Agreement has been developed between the City and [XYZ] and outlines some of the key points as follows:
a. […];
b. […];
c. […];
d. The City and [XYZ] will each charge $[…] for the receipt and treatment of the other municipality’s wastewater […]. The rate will be reviewed annually by both parties; and
e. Invoices for the receipt and treatment of these wastewater […] will be prepared quarterly […]
10. […].
RULING REQUESTED
The GST/HST ruling letter (Case Number […]) states that the City’s supply to [XYZ] of a service of accepting and treating wastewater is not a service of “installing, repairing, maintaining or interrupting the operation of a water distribution, sewerage or drainage system” and is, therefore, not an exempt supply under section 22 of Part VI of Schedule V.
It is your view that the wastewater treatment process of removing contaminants from wastewater, which includes physical, chemical, and biological processes, to produce final effluent that meets or exceeds applicable regulatory requirements in an environmentally responsible manner is interconnected with maintaining an effective water distribution and sewerage system.
You cite the decisions rendered in the City of Brandon v The Queen (2009 TCC 369) and City of Brandon v The Queen (2010 FCA 244) as support for your position. In your view, these cases suggest that section 22 of Part VI of Schedule V applies to the supply of wastewater treatment services, as wastewater treatment falls within the scope of a sewerage system, and operating a wastewater treatment plant is covered by the word “maintaining”.
RULING GIVEN
Based on the facts set out above, we rule that the supply by the City to [XYZ] of accepting, treating and disposing of wastewater is subject to the HST.
EXPLANATION
The decisions rendered in the City of Brandon v The Queen (2009 TCC 369) and City of Brandon v The Queen (2010 FCA 244) address a unique set of facts that are distinguishable from the facts in this case in several important respects. Among other things:
- The existing wastewater treatment plant owned by the City of Brandon was not able to deal with wastewater from the proposed hog-processing plant to be built by Maple Leaf.
- Maple Leaf was originally to build and operate a wastewater treatment facility to treat the wastewater from the proposed plant, but for business reasons it was agreed that the City of Brandon would build, own and operate the facility.
- The two parties entered into an agreement (Agreement) to build the wastewater treatment facility specifically for the wastewater from the plant.
- The principle terms of the Agreement were for the City of Brandon to design, construct, and operate the facility. The facility would adjoin the plant and accept for treatment the wastewater effluent of the plant.
- The City of Brandon would own, staff, and operate the facility and recover the costs of doing so from Maple Leaf on a cost recovery basis plus an administration fee.
- If Maple Leaf sold the hog-processing plant before the plant went into operation, it would repay the City of Brandon the entire cost of construction of the facility.
- At any time during the term of the Agreement, Maple Leaf could elect to take over the operation of the facility provided it could reasonably substantiate that it could operate the facility more cheaply or efficiently than the City of Brandon while maintaining the same standards.
Section 22 of Part VI of Schedule V exempts, in part, the supply of a service made by a municipality of installing, repairing, maintaining or interrupting the operation of a water distribution, sewerage or drainage system.
In the City of Brandon v The Queen (2009 TCC 369) and City of Brandon v The Queen (2010 FCA 244), the Tax Court of Canada and the Federal Court of Appeal concluded that the wording of section 22 is broad enough to include the “operation” of a water distribution, sewerage or drainage system, including the operation of the wastewater disposal facility by the City of Brandon for the treatment of wastewater from the Maple Leaf plant.
Based on the facts set out above, it is our view that the agreement between the City and [XYZ] is for the acceptance, treatment and disposal of [XYZ’s] wastewater at the City’s municipal wastewater treatment facilities. The City is not supplying to [XYZ] a service of operating a wastewater treatment facility.
It is the Canada Revenue Agency’s (CRA) position that the services of accepting, treating and disposing of wastewater is not maintaining a water distribution, sewerage or drainage system for purposes of section 22 of Part VI of Schedule V. Therefore, the supply by the City to [XYZ] of accepting, treating and disposing wastewater is not exempt under section 22 of Part VI of Schedule V. As there are no exempting provisions in Part VI of Schedule V (or any other Part of Schedule V) that would apply to exempt the supply by the City, nor are there any other provisions that would relieve tax on the supply, the supply by the City to [XYZ] is taxable and the wastewater discharge fees are subject to the HST.
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(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 905-984-2332. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Maria Forte-Long
Municipal Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
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