GST on Pest Control Services
Res #: 21-04A
Responses Received: No
Departments: Finance Canada (CCRA)
Resolution No. 21-04A
WHEREAS, a self-employed individual, like a farmer, who already has a GST number for an entirely different business, and is the Pest Control Officer, would be required to charge GST; and
WHEREAS, an individual that is not self-employed and is the Pest Control Officer, would not be required to charge GST; and WHEREAS, this is discriminatory;
THEREFORE BE IT RESOLVED, that SARM lobby the Canada Customs and Revenue Agency to exempt all Pest Control Officers from GST collection requirements.
Response from Ralph Goodale, Minister of Finance Canada:
In your resolution, you note that a self-employed individual, such as a farmer, who already has a GST number and is a pest control officer, must charge GST for services provided to a municipality. On the other hand, an employee of a municipality who is a pest control officer does not charge GST for pest control services to the municipality. As you know, the GST and the harmonized sales tax (HST) are broad based, value added taxes on consumption in Canada.
Under the GST/HST, the value added at each stage of the production-distribution process is taxed, rather than only at the point of final delivery of goods and services, as it is the case under retail sales tax. In accordance with this structure, supplies acquired by municipalities are subject to the GST/HST. Most municipal services, however, are exempt services under the GST/HST. This means that municipalities do not charge GST/HST on such services. At the same time, municipalities cannot recover the tax paid in respect of their related purchases by way of input tax credits in the way that businesses making taxable sales recover tax. Instead, municipalities are entitled to claim a rebate of the GST and the federal portion of the HST.
As you may know, effective February 1, 2004, the Government of Canada increased the rebate of the GST and the federal portion of the HST for municipalities across Canada from 57.14 per cent to 100 per cent. This means that municipalities now get full relief from GST and the federal portion of HST paid on their purchases used to provide exempt municipal services and community infrastructure.
The increased rebate will provide municipalities of all sizes with an estimated $7 billion in additional revenue over the next 10 years. Consistent with this treatment, the supply to municipal residents of basic municipal services, such as pest control, is exempt from the GST/HST whether or not the services are delivered directly by the municipality or by private companies with which a municipality contracts to provide the services.
However, the charges made by private contractors to municipalities to provide such municipal services as pest control are taxable in the same way as are most of the purchases by municipalities in the course of their activities. Given that the private contractor is providing a taxable service, it can recover the tax paid to provide these services by the municipality to supply to its residents are exempt municipal services. Consequently, the municipality can claim a 100 per cent rebate of the tax it paid to provide these services.