Supply of Services by or on Behalf of a Municipality which are Subject to Section 21 of Part VI of Schedule V to the Excise Tax Act (the ETA)
Please note that the following Policy Statement, although correct at the time of issue, may not have been updated to reflect any subsequent legislative changes.
GST/HST policy statement P-177R
Date of Issue
April 6, 1995
Revised March 16, 1999
Subject
Supply of services by, or on behalf of, a municipality, which are subject to section 21 of Part VI of Schedule V to the Excise Tax Act.
Legislative Reference(s)
Schedule V, Part VI, section 21 to the Excise Tax Act, as amended by S.C. 1997, c.10, s.115(1).
National Coding System File Number(s)
11895-3
Effective Date
April 24, 1996 for GST
April 1, 1997 for HST
Text
Issue and Decision:
This paper replaces Policy Number P-177 and addresses the issue of when the supply of a municipal service supplied to owners or occupants of real property in a particular geographic area is to be considered an exempt supply pursuant to section 21 of Part VI of Schedule V to the Excise Tax Act ("the Act").
In 1996, section 21 of Part VI of Schedule V to the Act was amended, applicable to supplies for which consideration became due after April 23, 1996, or was paid after that day. While this policy statement addresses those amendments, it does not introduce any change to the Department's interpretative position as outlined in the previous statement.
Section 21 provides an exemption for municipal services generally provided to property owners which are usually funded from the municipality's general revenues.
A supply of a municipal service is exempt where the property owners or occupants have no option but to have the service performed by the municipality. For example, services such as street lighting would be exempted under this provision as non-optional services, even if the municipality identified the cost of this service separately on the tax bill.
Where the homeowner or occupant may choose the service of the municipality over the same service provided by businesses in the private sector, the supply of the service by the municipality is considered to be optional and is taxable, unless it is exempted by another provision of the Excise Tax Act.
Also, a supply of a municipal service performed by or on behalf of a municipality or government, as a result of a property owner's or occupant's failure to comply with an obligation imposed under a law, receives the same treatment as non-optional services and is exempt under the Excise Tax Act.
Sample Rulings
Example 1:
Facts
1. A municipality holds registered title to an easement on a portion of a homeowner's land. The easement prohibits the homeowner from erecting any structure within the limits of the easement, and provides that the municipality may remove any structure which infringes upon the easement.
2. Where the property owner fails to comply with the easement by erecting a porch thereon, the municipality will remove the porch and charge the homeowner for its removal.
3. The municipality includes the charge for the porch removal service on the property owner's tax bill.
Ruling Requested
Is the supply of the porch removal service an exempt supply under the Excise Tax Act?
Ruling Provided
The supply of the porch removal service provided by the municipality resulting from the property owner's infringement on the registered easement, is an exempt supply pursuant to subsection 21(b) of Part VI of Schedule V to the Excise Tax Act.
Example 2:
Facts
1. A property owner asked the municipality to provide curb sawing services in front of his property so that the owner may install a circular driveway.
2. Under a municipal by-law, only the municipality can supply the curb sawing service.
3. The property owner will be invoiced by the municipality for the supply of this service.
Ruling Requested
Is the supply of the curb sawing service an exempt supply under the Excise Tax Act?
Ruling Provided
The supply of the curb sawing services by the municipality is an exempt supply of a non-optional service pursuant to section 21 of Part VI of Schedule V to the Excise Tax Act. This service is considered to be non-optional because only the municipality may provide it, irrespective of the fact that it is at the homeowner's choice as to whether it is provided at all.
Example 3:
Facts
1. A homeowner wants to have his driveway paved and has asked the municipality to supply the paving service.
2. The municipality will charge the homeowner a contract price for the supply of the service.
Ruling Requested
Is the paving service supplied by the municipality an exempt supply under the Excise Tax Act?
Ruling Provided
The supply of the paving service is not an exempt supply of a non-optional service pursuant to section 21 of Part VI of Schedule V to the Excise Tax Act. The municipality is not the only supplier who may supply the paving service. The supply of the paving service made by the municipality is taxable.
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