Peace River’s town council has vowed to use every political and legal option available after receiving a demand letter for $600,000 in additional GST payments from the Canada Revenue Agency (CRA).
Finance Manager Allan Schramm presented a briefing to council on the new GST bill at their July 22 council meeting.
The surprise tax bill comes after the town received a GST audit in March.
The last time the town was audited was 2011, and town administration says the new finding contradicts that previous GST audit.
A large portion of the new tax bill is due to $400,000 GST assessed on the $8,000,000 in donations for the new multiplex.
The auditor determined the intermunicipal cost- sharing agreement for the project is taxable.
At issue is clause 146(e) of the Excise Tax Act which says something is taxable if it is a “a supply of a right to enter, to have access to or to use property of the government, municipality or other body.”
However, the Town says the $8,000,000 in funding for the new multiplex does not supply a right to access the new facility since there is a single user rate for everyone, regardless of where they live.
The Healthcare Attraction and Retention Committee was also assessed as taxable, despite the fact the committee does not actually provide any healthcare.
The Canada Day fireworks worth $3000 provided by Northern Sunrise County were also deemed to require GST even though the event was free to residents.
“I also received a letter earlier today from CRA’s collections stating that they are expecting payment and if not they will escalate it, and CRA has the ability to remove funding right from our bank account,” Schramm said.
Faced with the prospect of paying the $600,000 tax bill, with additional interest of $1000 a month if not paid, administration asked council what they wanted to do.
The town does have a right to appeal the finding, but will continue to incur interest during the appeal process.
The appeal process can take over a year.
“To be quite honest, staff is extremely frustrated, because what you have is a federal government that did not give us one lousy penny for that regional facility and now they’re demanding $400,000 from all the municipal partners that DID support the facility,” said CAO Chris Parker.
“In my personal opinion they’re acting more like a mafioso than anything else,” he said.
“I can see where the CRA is coming on this, and while I think it’s idiotic, the legislation says that if you supply a right to enter… that fits a supply,” Councillor Don Good said.
“Then they have a part of the agreement which was signed and it says the signatories will provide access to regional assets and services to each other’s residents in a manner that does not discriminate against them.”
Good offered two somewhat tongue-in- cheek possible solutions for next year.
“We sign a new agreement but it’s a discriminatory one. It takes out the non-discrimination clause because obviously CRA thinks that non-discrimination is now a taxable benefit,” he suggested.
Good also suggested all municipalities in the agreement could be united as one.
“Hence there is no cost sharing agreements necessary, hence no GST,” he said to mild laughter.
“Can we not return the money to the counties, rip up the contract, and then write something that basically states right in the document that these monies are to be considered to be a donation and then everything’s fine, right?” asked Mayor Tom Tarpey.
“If somebody came from Timbuktu we wouldn’t deny them access to the facility, so why would we deny someone from [the County of Northern Lights] or [Northern Sunrise County] or even the MD of Peace?” Mayor Taper said.
“You’re exactly right,” the CAO replied. “If someone came from south Calgary they would pay the exact same price as what a Town of Peace River resident would pay, what a Northern Sunrise Resident would pay, so it’s not paying for access to the service, it is contributing to a service that is a facility here.”
Mayor Tarpey suggested the Town speak with Alberta Urban Municipalities Association (AUMA) and Federation of Canadian Municipalities (FCM) and engage their legal departments for help before taking any additional action.
“They probably have better access to the players that matter, and they could probably at least get an injunction of something to prevent anyone from garnishing our bank account,” Mayor Tarpey said.
“If their advice is to pay then I guess we will have to consider that legal advise and go forward from there,”he said.
Council also agreed to reach out to other municipal and federal politicians for help advocating on the Town’s behalf.
“Surely we cannot be the only community that has experienced this,” Councillor Downing said via phone.
“It wasn’t identified in the 2011 audit and nowhere is the excise tax even the part that they did highlight,” Schramm said.
He noted that the town’s accounting firm had presented arguments to CRA that the money in question wasn’t a supplied service but that their arguments “fell on deaf ears,” and that accountants also want clarity since confusion about the rules could affect audits for other municipalities.
Schramm also noted in his briefing that the inconsistent application of the definition of “supply” by CRA makes it difficult for staff to determine which services in intermunicipal agreements qualify as supply and need to have GST charged on invoices now and in future. The equal treatment clause has been in all local intermunicipal agreements since 2002.