GST issue at stake
South Peace News
The Federation of Canadian Municipalities is seeking clarity from the Minister of National Revenue on whether cost sharing agreements between Canadian municipalities are taxable.
The issue has alarmed municipalities with cost sharing agreements since the Town of Peace River received a surprise $600,000 GST bill from the CRA for money received from neighbouring municipalities for the new Baytex Centre.
In a July 6 letter to the Hon. Diane Lebouthillier, Minister of National Revenue, the FCM says cost sharing agreements should not be taxable.
A resolution on the issue, Federal Tax Treatment of Intermunicipal Cost-Sharing Agreements, was adopted at the March 2020 FCM board of directors meeting in Saint-Hyacinthe, Quebec.
“The purpose behind intermunicipal cost-sharing agreements is to enable neighbouring municipalities to integrate and efficiently allocate scarce resources, for the benefit of their residents,” the letter reads.
“Despite that intent, in 2019, the Canada Revenue Agency [CRA] upheld an auditor’s report of the Town of Peace River, which found that expenses within the town’s intermunicipal cost-sharing agreements were not made in the public interest, or for any other charitable purpose.”
The FCM says the ruling in Peace River’s case contradicts a 2011 CRA assessment when the auditor didn’t identify intermunicipal cost-sharing agreements as taxable.
“Following the 2019 audit, the CRA issued a public statement confirming that no new policy has been adopted since 2011. To date, the CRA has provided no information on this reinterpretation’s implications or scope of applicability to other Canadian municipalities,” the FCM says.
“As such, FCM is calling on the federal government to confirm that intermunicipal cost-sharing agreements and their resulting fund transfers are made for a public purpose, and therefore do not constitute a taxable supply.”
“The aforementioned ruling establishes a precedent that could have negative implications for all Canadian municipalities in that it: disincentivizes municipalities from entering into cost-sharing agreements; shifts unnecessary administrative burdens, in the form of labour costs and short-term expenditures related to reversing or remitting a collection, onto municipalities; and introduces new financial liabilities, in the form of unpaid back taxes, into the equation.”
Peace River town council reviewed the letter at their regular Aug. 24 meeting.
Mayor Tom Tarpey says now that Chyrstia Freeland has been made Minister of Finance, it may be a good time for the Town to follow up with her.
The Town advocated for clarity on the issue during a meeting with Freeland the last time she visited Peace River, her home town.
Freeland recently took over the finance portfolio from her predecessor Bill Morneau.
Peace River town councillors also agreed to support the FCM resolution.