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
[Addressee]
Case Number: 238383
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
Eligibility of a municipality to claim a public service bodies’ rebate on a honorarium paid to an elected official.
Thank you for your facsimile transmission of [mm/dd/yyyy], concerning the eligibility of a municipality to claim a public service bodies’ rebate on honoraria paid to a mayor and councillors of the municipality.
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%.
STATEMENT OF FACTS
We understand from your facsimile transmission that
1. […](the Town) is a municipality as defined in section 123(1) of the Excise Tax Act (ETA).
2. The Town is governed by a council made up of a mayor and councillors.
3. The Town pays an honorarium to the mayor and councillors of the Town.
4. You have indicated the Town has recently increased the amount of the honorarium paid to the mayor and councillors.
5. […][The municipal act of a province] does not deem a proportion of the total amount paid to a mayor or a councillor in respect of their position as an elected member of a municipality to be an allowance for expenses.
6. The Town’s […][policy on council remuneration] was adopted on [mm/dd/yyyy] and is found on the Town’s website [...]. […][The municipality’s policy confirms that the mayor and councillors are paid an annual honorarium to compensate them for the exercise of their duties]
RULING REQUESTED
You would like to know if the Town is allowed to claim a public service bodies’ rebate for any amount of the honorarium paid to the mayor or councillors of the Town.
RULING GIVEN
Based on the facts set out above, we rule that the Town is not entitled to claim a public service bodies’ rebate in respect of any part of the honorarium paid to the mayor or councillors of the Town.
EXPLANATION
A public service body, such as a municipality, may be able to recover a percentage of the GST and the federal part of the HST paid or payable on its eligible purchases and expenses by claiming a public service bodies’ rebate. A public service body resident in a participating province may also be able to claim a public service bodies’ rebate to recover a percentage of the provincial part of the HST paid or payable on its eligible purchases and expenses. The public service bodies’ rebate calculation is based on the “non-creditable tax charged” in respect of property or a service for a claim period. Generally, non-creditable tax charged is the GST/HST paid or payable on an eligible purchase or expense that a public service body cannot recover in any other way other than by claiming the public service bodies’ rebate. For more information, see GST/HST Memorandum 13-5, Non-creditable Tax Charged.
Section 174 of the ETA enables a public service body to claim a public service bodies’ rebate in respect of allowances paid to an employee (Footnote 1) for certain expenses to the same extent as would have been the case had the public service body incurred the expense directly. When the conditions under section 174 of the ETA are met, the public service body is deemed to have paid the GST/HST in respect of the supply acquired by the employee and any consumption or use of the property or services is deemed to be consumption or use by the public service body and not by the employee.
A municipality that pays an allowance to an employee may be eligible for a public service bodies’ rebate in respect of the allowance paid where the following conditions are met:
1. The municipality pays an allowance to an employee of the municipality;
2. The allowance is paid to the employee for:
- supplies of property or services all or substantially all (90% or more) of which are taxable supplies (other than zero-rated supplies) acquired in Canada by the employee in relation to the municipality’s activities; or
- the use of a motor vehicle in Canada in relation to the municipality’s activities;
3. An amount in respect of the allowance is deductible by the municipality for income tax purposes, or would be deductible if the municipality were a taxpayer under the Income Tax Act and the activity were a business; and
4. In the case of certain travel and motor vehicle allowances, the municipality must ensure that
- the allowance is reasonable for income tax purposes; and
- at the time the allowance was paid, the person considered it to be a reasonable allowance, and it was reasonable for the person to have considered it to be a reasonable allowance for income tax purposes.
To satisfy the first condition, the Town must have paid an allowance to an employee, such as the mayor and councillors of the Town. An amount constitutes an allowance where the amount meets all of the following criteria:
- the amount is predetermined,
- the amount is paid for a certain purpose;
- the amount paid is at the complete disposition of the person receiving it; and
- the person receiving the amount is not required to account for its use.
The amounts paid by the Town to the mayor and councillors of the Town are honoraria (generally defined as a fee for services) and are not an allowance paid by the Town to the mayor and councillors of the Town.
The legislation governing municipalities (Municipal Acts) of some provinces deem that a proportion of the total amount paid to an elected officer of a municipal council (salary, fees, indemnities and honoraria; a general expense allowance, a mileage or other travelling allowance) is an allowance for expenses. Where this is so, it is the Canada Revenue Agency’s (CRA’s) policy that the proportion so deemed to be an expense allowance will be accepted as an expense allowance. [The municipal act of a province] does not deem a proportion of the total amount paid to a municipal officer in respect of their position as an elected officer to be an allowance for expenses.
In this case, the Town does not pay an allowance to an employee of the Town. The Town pays an honorarium to the mayor and councillors. In addition, the Town is not governed by a Municipal Act of a province that deems a proportion of the total amount paid to an elected officer to be an allowance for expenses. As the first condition for the application of section 174 of the ETA is not met, section 174 of the ETA will not apply to deem the Town to have paid the GST/HST in respect of a given supply acquired by the mayor or councillors of the Town. Therefore the Town is not able to claim a public service bodies’ rebate in respect of the honorarium paid to the mayor or councillors as there is no allowance paid or deemed to be paid.
Due to the repeal of subsection 81(3) of the Income Tax Act, the information contained in GST/HST Policy Statement P-097R2: Expense Allowances of Elected Municipal Officers and School Board Members (P-079R2) is no longer applicable after January 1, 2019. P-097R2 is in the process of being removed from the CRA web site. The removal of P-097R2 does not impact the application of section 174 of the ETA to allowances paid to an employee such as an elected officer of a municipality.
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 additional information given in this letter 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 additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 343-573-6071. 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,
Trent MacDonald
Public Service Bodies and Rebates Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
FOOTNOTES
1 The definition of employee in subsection 123(1) of the ETA includes an officer.
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