GST Memoranda

G500-6-2 Provincial Governments (GST 500-6-2)

GST 500-6-2

ADMINISTRATION AND ENFORCEMENT
SPECIAL COMPLIANCE MEASURES
PROVINCIAL GOVERNMENTS
Ottawa, March 19, 1993

This memorandum does not replace the law found in the Excise Tax Act and its Regulations. It is provided for your reference. As it may not completely address your particular operation, you may wish to refer to the Act or appropriate Regulation or contact any Revenue Canada Excise/GST District office for additional information. If you are located in the Province of Quebec, please contact the ministère du Revenu du Québec (MRQ), for additional information.

This memorandum may reflect amendments proposed to the Excise Tax Act contained in Notice of Ways and Means Motion dated December 10, 1992, or Bill C-112 which was tabled in the House of Commons on February 11, 1993. [Where the information provided in this memorandum reflects proposed amendments, the information is enclosed in square brackets]. At the time of publication, Parliament had not enacted these proposed amendments. Any commentary in this memorandum should not be taken as a statement by the Department that such amendments will in fact be enacted into law in their current form.

This memorandum outlines the application of the Goods and Services Tax (GST) to sales and purchases by provincial governments, and to sales and purchases by those Crown corporations, boards, commissions and agencies that are not part of provincial governments.

Definitions and departmental interpretations to explain specific terms are provided at the end of this memorandum.

LEGISLATIVE AND OTHER REFERENCES

Excise Tax Act - paragraph 122(b), subsection 123(1);

Schedule V, Part VI, Public Sector Bodies

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TABLE OF CONTENTS

General. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Sales by Provincial Government Entities. . . . . . . . . . . . .3

Sales to Provincial Government Entities. . . . . . . . . . . . .3

Vendor Documentation for Sales to Provincial Government Entities . . . . . . . . . . . . . . . . . . . .4

Sales to Provincial Government Employees . . . . . . . . . . . .6

Organizations External to Provincial Governments . . . . . . . .6

Definitions and Interpretations. . . . . . . . . . . . . . . . .7

GENERAL

1. Most supplies of goods and services provided in Canada are taxable under the Goods and Services Tax (GST) at the rate of seven per cent. In addition, certain supplies may be zero-rated or tax-exempt. Zero-rated supplies are taxable supplies to which a tax rate of zero per cent applies. Tax-exempt supplies are supplies in respect of which there is no GST liability. (Persons making only exempt supplies are not required to register for the GST).

2. More information on the application of the GST is contained in the following memoranda:

GST 300-2, TAXABLE SUPPLIES

GST 300-3, ZERO-RATED SUPPLIES

GST 300-4, EXEMPT SUPPLIES

GST 300-6, TIME OF LIABILITY

GST 300-7, VALUE OF SUPPLY

GST 400, INPUT TAX CREDITS

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SALES BY PROVINCIAL GOVERNMENT ENTITIES

3. By virtue of paragraph 122(b) of the Act, all provincial government departments and bodies must collect and remit the GST on their supplies of taxable goods and services to persons outside the government entity. However, a number of supplies provided by government entities are exempt, such as those found in Part VI of Schedule V to the Act.

4. For more information on exempt supplies refer to GST MEMORANDUM 300-4-6, PUBLIC SECTOR BODIES.

5. Each provincial government, including all of its government departments or ministries, and certain of its Crown corporations, boards, commissions and agencies, is registered as one entity for the purposes of GST. By virtue of being registered as one entity, transactions within these bodies are not subject to the GST.

SALES TO PROVINCIAL GOVERNMENT ENTITIES

6. The Department maintains lists of provincial government departments, Crown Corporations, boards, commissions and agencies that are eligible to make purchases without paying GST. Government entities may be responsible for providing services in areas such as:

Agriculture,
Culture,
Education
Energy and Mines,
Health,
Industry and Trade,
Justice
Science and Technology,
Tourism.

If you need verification as to whether or not an organization is part of a provincial government entity, please contact your nearest Revenue Canada Excise/GST District office.

7. Suppliers from outside the government entity, therefore, do not charge the tax on taxable sales of goods or services made to provincial governments if they maintain adequate documentary evidence (refer to paragraphs 12 and 13 of this memorandum) that the goods or services were purchased by a provincial government. A supplier must charge tax on taxable sales to any purchaser who does not provide such evidence.

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8. Even though vendors may make supplies only to provincial governments, they are required to register for the GST if their annual taxable (including taxable at the rate of zero per cent) sales of goods and services exceed $30,000.

9. More information on the registration requirements is available in GST MEMORANDUM 200, REGISTRATION.

10. Registered persons making taxable supplies to provincial governments are entitled to claim input tax credits (ITCs) for the tax paid on purchases used in making such supplies. This means that supplies made to provincial governments that would otherwise be taxable at seven per cent are treated, for ITC purposes, in the same manner as zero-rated supplies.

11. Exempt supplies made to provincial governments are subject to the normal rules of the GST; that is, no tax is charged, and the supplier is not entitled to ITCs for tax paid on purchases used in making exempt supplies. Examples of exempt supplies commonly made to provincial governments are health and educational services, and long-term residential rents.

VENDOR DOCUMENTATION FOR SALES TO
PROVINCIAL GOVERNMENT ENTITIES

12. Suppliers must maintain sufficient documentation to support the information recorded on their GST returns. As part of this requirement, suppliers must maintain appropriate documents to support taxable sales to provincial government entities for which no GST is payable. Although Revenue Canada Excise/GST does not specify the records to be kept, the Department does require that such records

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(a) permit the amounts of sales not subject to the GST to be determined,

(b) substantiate that no GST was paid,

(c) state to which provincial department or entity the sale was made, and

(d) substantiate that the purchase was made with Crown funds.

13. When determining whether a sale has been made to a provincial government entity, Revenue Canada examines the documents normally kept by a vendor. Such documents may include

(a) provincial government purchase orders,

(b) invoices,

(c) receipts,

(d) bills of sale,

(e) debit notes,

(f) statements of accounts,

(g) books or ledgers of accounts,

(h) written contracts or agreements,

(i) any record contained in a computerized or electronic retrieval or data storage system, and

(j) any other document validly issued or signed by the registrant provincial government entity concerning the purchase.

14. Suppliers are also required to retain any certification clauses issued by provincial government entities to support the claim that the supplies are not subject to the GST. This is a statement that a purchase is being made by a provincial department or entity with Crown funds. Most provinces include such a statement on their purchase orders.

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15. The certification clause should be similar in form to the following:

This is to certify that the property and/or services ordered/purchased hereby are being purchased by,
____________________________________________________
(Name of Provincial/Territorial Government Department or Institution)

with Crown funds, and are not, therefore, subject to the Goods and Services Tax.
________________________________
Signature of Authorized Official

16. When a provincial government entity purchases supplies on a regular basis from a supplier, there are often no physical purchase documents issued for each individual transaction. In these situations, the provincial government entity may use "blanket certificates". These should be similar to the above sample certification clause, but expanded to define a group of purchases which are being covered by the certification. Suppliers should ensure that blanket certification clauses meet all the criteria outlined in paragraph 12 of this memorandum.

SALES TO PROVINCIAL GOVERNMENT EMPLOYEES

17. Purchases made by employees of a provincial government entity in their own name in the course of official business are not relieved from the GST. Examples of these types of purchases include reimbursable hotel and meal expenses incurred by a provincial government entity employee while on travel status, purchases by employees which are reimbursed through petty cash, and credit card purchases which are made with a credit card issued in the name of the employee. Provincial government entities cannot issue certification clauses for these purchases.

18. The GST is not payable on any of these purchases if, instead of an arrangement where the employee is reimbursed, the employee uses a government credit card and the invoice is issued to the provincial government entity.

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ORGANIZATIONS EXTERNAL TO PROVINCIAL GOVERNMENTS

19. Crown corporations, boards, commissions and agencies that are not part of a provincial government are required to register separately for purposes of the GST. Transactions between these particular Crown corporations, and between provincial governments and these Crown corporations, boards, commissions and agencies are subject to the normal GST rules. Therefore, these organizations pay tax on their purchases and are entitled to claim ITCs for the tax paid or payable on purchases used in making taxable supplies.

DEFINITIONS AND INTERPRETATIONS

The following are either definitions which have been taken from the Excise Tax Act or proposed in the Notice of Ways and Means Motion tabled on December 9, 1992, or departmental interpretations of the terms relevant to the administration of that Act.

"Act" means the Excise Tax Act;

"exempt supply" means a supply included in Schedule V to the Act;

"government" means all of the departments or ministries of a province and certain of the province's Crown corporations, boards, commissions and agencies;

"input tax credit" means a credit claimable by a registrant for the Goods and Services Tax paid or payable by the registrant in respect of the acquisition or importation of any property or service for consumption, use or supply in the course of commercial activities of the registrant;

"person" means an individual, partnership, corporation, trust or estate, or a body that is a society, union, club, association, commission, or other organization of any kind;

"provincial government" means the governments of each province as well as the governments of the Northwest Territories and the Yukon;

"supply" means, subject to sections 133 and 134 of the Act, the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition;

"tax" means the Goods and Services tax payable under Part IX of the Act;

"zero-rated supply" means a supply included in Schedule VI to the Act.

REFERENCES
OFFICE OF RESPONSIBILITY:

Policy and Legislation

LEGISLATIVE REFERENCES:

Excise Tax Act

HEADQUARTERS FILE:

N/A

SUPERSEDES GST MEMORANDUM:

N/A

OTHER REFERENCES:

N/A

SERVICES PROVIDED BY THE DEPARTMENT ARE AVAILABLE IN BOTH OFFICIAL LANGUAGES.

THIS MEMORANDUM IS ISSUED BY TECHNICAL INFORMATION, EXCISE/GST BRANCH UNDER THE AUTHORITY OF THE DEPUTY MINISTER OF NATIONAL REVENUE, CUSTOMS, EXCISE AND TAXATION.