10 January 1995 GST/HST Interpretation 1995-01-10 - Application of GST to Supplies of Steam Made by Registered Charities

 XXXXX This is in response to your letter of November 12, 1992, in which you requested our comments on your draft letter to XXXXX of XXXXX concerning the application of GST to supplies of steam made by registered charities. We regret the delay in responding.

Facts

The facts, as outlined in XXXXX letter, are as follows.

1. A registered charity (Charity A) sells steam to another registered charity (Charity B). Charity B resupplies all or part of the steam to a third party (Charity C).

2. Charity A charges Charity B $6.95/1000 lbs. for the steam plus GST. Charity B, although entitled to claim a full ITC on the portion of the steam which it intends to resupply, claims a 50% rebate on its total purchase for simplicity. Charity B charges Charity C $7.19/1000 lbs. plus GST for the steam. In addition, Charity B charges Charity C an administrative fee of .50/1000 lbs. plus GST for maintaining the lines, reading the meters, etc. This fee is not set out separate on the invoice but rather is reflected in a combined rate of $7.69/1000 lbs.

Issues

The issues, as outlined in XXXXX letter, are as follows.

1. If Charity B were to charge Charity C $7.19/1000 lbs. for the steam and not charge an administrative fee, would the supply by Charity B to Charity C be subject to tax?

2. If Charity B enters into a separate agreement for administrative services whereby Charity B charges Charity C a fee for reading the meters, maintaining the lines, etc., would the service be subject to GST?

3. If Charity B reflects the charge for the steam and the administrative fee as two separate items on one invoice, would this change the tax status of the supply of the steam and administrative service?

4. If Charity B charged Charity C GST in error, can Charity B issue a credit to Charity C for this tax and claim an input tax credit on its GST return for the amount credited to Charity C?

5. If Charity A sells the steam to Charity C for its direct cost, and charity B charges Charity C a fee for maintaining the lines, monitoring the meters, etc., would the supply or supplies be exempt of tax pursuant to section 2 or section 6 of Part VI of Schedule V to the Excise Tax Act (the ETA)?

Analysis

We have reviewed XXXXX letter and your draft response, and our comments are as follows.

In the case at issue, XXXXX refers to both supplies of steam and supplies of "administrative services", which consist of such services as meter reading and maintaining lines. You indicated that the "administrative services" may be incidental supplies that would therefore have the same GST status as supplies of steam. However, in the first scenario outlined in your letter, where Charity B provides both the steam and the maintenance service, the Department's policy on single and multiple supplies would indicate that only one supply is actually being made, a supply of tangible personal property in the form of steam.

In the second scenario, there would appear to be separate supplies being made by Charity A and Charity B, but since the supplies are being made by separate persons, section 138 would not apply. Refer to the attached Note to File concerning the application of the departmental policy on single and multiple supplies to both scenarios.

You are correct in stating that the supplier is ineligible for a rebate where an input tax credit is available, provided the supplier is not using a simplified tax method.

Accordingly, we would suggest that your draft letter be revised to provide XXXXX with the following responses to the issues that he raised, as outlined above.

Suggested Responses

1. The supply would appear to be taxable. If the amount charged for the supply at issue is $7.19/1000 lbs. and the cost is $6.95/1000, the consideration for the supply is in excess of direct cost, so section 6 of Part VI of Schedule V to the ETA would not apply. Section 1 of Part VI of Schedule V defines the direct cost of tangible personal property, in part, as the total of all consideration paid or payable by the supplier of the property for an article or material (other than capital property of the supplier) that was purchased by the supplier, to the extent that the article or material is to be incorporated into or is to form a constituent or component part of the property or is to be consumed or expended directly in producing the property. The consideration paid or payable includes any amount of tax payable by the supplier on the transaction, after input tax credits or rebates have been deducted. If Charity B is a registrant, it is entitled to claim an input tax credit to recover the GST paid on purchases pertaining to its taxable supplies. It is not entitled to claim the fifty percent rebate for charities on inputs pertaining to taxable transactions unless it is using a simplified accounting method.

2. Even if Charity B enters into a separate agreement to charge Charity C a fee for reading the meters, maintaining the lines, et cetera, the departmental policy on single and multiple supplies would indicate that there is nevertheless only one supply, the supply of tangible personal property in the form of steam. If the total amount charged by Charity B for the supply of steam and for the "administrative services" exceeds Charity B's direct cost, section 6 of Part VI of Schedule V to the ETA would not apply. It does not matter whether the charge for "administrative services" is recorded on a separate invoice or whether it appears to be part of a separate agreement. If the payment for "administrative services" is required to be paid as a condition of being a recipient of steam, the payment remains part of the consideration for the steam.

3. It does not matter whether Charity B records the charges for the steam and for the "administrative charges" on the same invoice or on different invoices. The consideration is paid for a single supply of steam that would be taxable, since the total amount of consideration would exceed Charity B's direct cost of the steam.

4. As already discussed, the charge for "administrative services" forms part of the consideration for the supply of steam, which is a taxable supply of tangible personal property that is not exempted by section 2 or section 6 of Part VI of Schedule V to the ETA. Charity B cannot recapture the GST previously collected and remitted for the transactions, since the supplies at issue are taxable, and the tax was therefore properly remitted.

5. If Charity A sells steam to Charity C for its direct cost, and Charity B charges Charity C a fee for maintaining the lines, monitoring the meters, etc., the supply of steam made by Charity A would be exempt of tax pursuant to section 6 of Part VI of Schedule V to the ETA. The supply of a service by Charity B to Charity C would be exempt of tax pursuant to section 2 of Part VI.

We hope that the information provided is of assistance to you. If you require any further information concerning this letter, please contact Mr. Don Dawson at 954-4393.

Yours truly

J. A. Venne
Director
Tax Policy - Special Sectors
GST Policy and Legislation

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