26 June 2006 GST/HST Ruling 57757 - Application of GST/HST to XXXXX Products

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) pursuant to section 174 of the Excise Tax Act.

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

The information you provided is as follows:

•   The Fire Department is not incorporated under the Societies Act of the province where it is located nor does it have any other document or charter of incorporation.

•   The members of the Fire Department elect an executive consisting of a Chief, two Deputy Chiefs, a Secretary, a Treasurer and several trustees. The Treasurer administers the bank account.

•   The executive, which is not required to report to Town Council, controls the Fire Department. However, the Fire Department Chief sits with the Department Heads of Town, prepares a monthly report for Council and presents a budget to Council annually. The Town owns the assets of the Fire Department and the Town pays all operating expenses.

•   The Town's approval of the budget results in budgeted funds being paid by the Town to the Fire Department in two or three instalments. These funds are used by the Fire Department to make payments to volunteer firefighters.

•   Each volunteer firefighter must remain in Town for two weekends over the summer to be on call in case of alarms (summer standby). Each volunteer firefighter must come into the Fire Department and contribute two hours of labour, usually cleaning the fire trucks and other equipment. For these undertakings, the volunteer firefighters receive a total of $300 a year consisting of $150 and two payments of $75 each for summer standby.

•   Neither the Town nor the Fire Department provides T4 slips to the volunteer firefighters.

•   The Chief, the two Deputy Chiefs, the Secretary and Treasurer receive amounts in excess of $1,000 per year directly from the Town. The Town issues T4 slips for the individuals' earnings in excess of $1,000. Payment is made to the Chief every pay period and all other individuals are paid in instalments during the year.

Interpretation Requested

Question 1

Is the Town entitled to a GST/HST rebate for the amounts paid to the volunteer firefighters where it is not included in their income for income tax purposes (emergency volunteer's exemption)?

Question 2

Is the Town entitled to a GST/HST rebate for the total honorariums paid to the Fire Chief, Deputy Chiefs, Treasurer and Secretary? If not, is the Town entitled to a GST/HST rebate on the first $1,000 that is not included in their income (emergency volunteer's exemption)?

Interpretation Given

Response 1

There is no indication in the information you provided that the Town is a charity or public institution as defined in the ETA. Therefore, for section 174 to apply to deem the Town to have paid the tax in respect of the allowance paid to the volunteers, the Town must be paying the allowance as an employer to its employees. Based on the information provided by you, it is not clear whether the volunteers are volunteers or employees. It is a question of fact requiring the consideration of all relevant information in making such a determination. If it is determined that the volunteer firefighters are volunteers and not employees, then the Town will not be eligible to claim a rebate under the provisions of section 259 of the ETA for tax deemed paid under section 174 of the ETA on allowances paid to volunteers. If it is determined that the volunteer firefighters are employees, then the Town may be eligible to claim a rebate of the tax deemed paid on the allowances.

Response 2

Based on the information provided by you, it appears the Town considers the Fire Chief, Deputy Fire Chiefs and the Secretary and Treasurer to be employees of the Town. It is a question of fact whether or not this is the case. If, in fact, it is determined that they are employees, then the Town may be eligible to claim a rebate for tax deemed paid under the provisions of section 174 of the ETA on allowances paid to such employees.

Rationale

For purposes of section 174 of the ETA, the term "allowance" is interpreted to have the same meaning it has for income tax purposes. An allowance is any periodic payment or other similar payment that a person receives from another person without having to account for its use. An amount constitutes an allowance for the purposes of section 174 where the amount meets all of the following criteria:

•   the amount must be predetermined,

•   the amount must be paid for a certain purpose;

•   the amount paid must be at the complete disposition of the person receiving it; and

•   the person receiving the amount is not required to account for its use.

Section 174 of the ETA applies where an allowance is paid by one of the following:

(i) a person to an employee

(ii) a partnership to a member of the partnership

(iii) a charity or a public institution to a volunteer who gives services to the charity or institution.

Charity is defined in subsection 123(1) to mean a registered charity or registered Canadian amateur athletic association within the meaning assigned to those expressions by subsection 248(1) of the ITA, but does not include a public institution.

A public institution is defined in subsection 123(1) and means a registered charity (within the meaning assigned by subsection 248(1) of the ITA) that is a school authority, a public college, a university, a hospital authority or a local authority determined under paragraph (b) of the definition "municipality" to be a municipality. Paragraph (b) of the definition of municipality refers to it as "such other local authority as the Minister may determine to be a municipality for GST/HST purposes".

The allowance must have been used for the acquisition of supplies all or substantially all (90% or more) of which are taxable supplies (other than zero-rated supplies) of property or services acquired in Canada by the employee, partner or volunteer and in relation to activities engaged in by the person or for the use of a motor vehicle in relation to the activities engaged in by the person.

In addition, the amount in respect of the allowance must be deductible in computing the income of the person for a taxation year of the person under the ITA, or would have been so deductible if the person were a taxpayer under the ITA and the activity were a business. If the allowance was of a type to which subparagraphs 6(1)(b)(v), (vi), (vii) or (vii.1) of the ITA applies, or would apply if the person receiving it were an employee, this allowance must have been considered to have been reasonable at the time it was paid.

Section 174 of the ETA deems the person paying the allowance to have received a supply of the property or service or services so acquired by the employee, partner or volunteer and any consumption or use of the property or service by the employee, partner or volunteer is deemed to be consumption or use by the person and not by the employee, partner or volunteer, and the person is deemed to have paid tax at the time the allowance is paid.

Therefore, in order for section 174 to apply:

•   the payment must have been an allowance as described above; and

•   the Town as an employer must have paid the allowance to its employee, as a partnership paying a member of the partnership or as a public institution or a charity paying a volunteer.

In the information provided, there is no indication that the Town is a partnership where the individuals are members of the partnership. There is also no indication that the Town is a charity or public institution as defined in the ETA. Therefore, for section 174 to apply to deem the Town to have paid the tax in respect of the allowance paid to the volunteers, the Town must be paying the allowance as an employer to its employee.

Where the criteria described in the preceding paragraph are met, section 174 would deem the Town to have paid the tax in respect of the allowance and the Town would be eligible under the provisions of section 259 to claim a rebate of the deemed tax paid.

Where such is not the case, no rebate would be available to the Town.

The Minister of Finance announced in the Federal Budget of May 2, 2006, a proposal to reduce the rate of the GST and the federal portion of the HST by 1% effective July 1, 2006. The general rule is that the rate of GST will be reduced from 7% to 6% and the rate of HST from 15% to 14% on supplies for which the GST/HST is paid on or after July 1, 2006, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to Reduction in the Rate of the GST/HST - Questions and Answers (http://www.cra-arc.gc.ca/agency/budget/2006/gstrateqa-e.html) on the CRA Web site.

The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-7931.

Yours truly,

Anne Kratz
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/06/21 — RITS 59099 — Workshops Provided to Indian Bands