4 February 2002 GST/HST Ruling 36902 - Services Agreement - Payments to City of

Dear XXXXX:

Thank you for your letters of July 26 and August 7, 2001 with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to payments made under a XXXXX Services Agreement. As the transactions described in this letter all take place in XXXXX, reference will be made to the GST only.

Statement of Facts

Our understanding of the facts, the transactions, and the purpose of the transactions is as follows:

1) The City XXXXX (the City) entered into a five year XXXXX Services Agreement (Agreement) with XXXXX (Referred to elsewhere in the Agreement and in XXXXX XXXXX) (the Contractor).

2) The primary focus of the Agreement is the provision of efficient, cost-effective XXXXX services XXXXX

3) The Contractor will be the first company called by XXXXX XXXXX to perform XXXXX and associated services, in the following situations (except in case of emergency, or where the Contractor will be unable to respond within a reasonable amount of time):

XXXXX

4) XXXXX

5) XXXXX

6) During the term of the Agreement, the Contractor shall charge:

XXXXX XXXXX

7) XXXXX

8) The compensation to the City from the Contractor under the terms of the Agreement is a fixed payment of XXXXX per month.

Ruling Requested

Is the fixed monthly payment by the Contractor to the City subject to the GST?

Ruling Given

Based on the facts set out above, we rule that the monthly payment by the Contractor to the City is consideration for the right to be the first company called to provide XXXXX and associated services for the City of XXXXX. The supply of this right to preferential treatment supplied to the Contractor by the City does not fall under any exempting provisions in the Excise Tax Act (ETA). Therefore, GST applies to the monthly payment paid by the Contractor to the City for this right.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the ETA, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9590.

Yours truly,

Elaine Bonnah
Municipalities and Health Care Services Unit
Public Service Bodies & Governments Division
Excise and GST/HST Rulings Directorate