GST on Intermunicipal Cost Sharing Agreements: A Financial Risk

In July 2019, the Canada Revenue Agency (CRA) upheld an auditor’s report which found that items on Town of Peace River intermunicipal cost share agreements were subject to GST. The Town was required to pay nearly $610,000 in GST as a result of this auditor’s decision. The Town filed an objection (i.e., an appeal) to the decision with the CRA on October 9, 2019.

Two and a half years later, after a lengthy initial wait and then extensive back-and-forth discussions with the CRA about “adequate sufficient supporting documentation,” the Town of Peace River received a decision on March 14, 2022, indicating that their objection was “allowed in full” and they will receive a refund of the GST they paid in 2019. Based on the documentation the Town provided, the CRA ultimately accepted the position that the revenue in question consisted of transfer payments received for a public purpose, and, therefore, was outside the scope of GST, and not taxable.

While the decision was good news for the Town, the CRA also indicated that GST is a transactional tax, and based on current policy and process, the specifics of future cost sharing arrangements between municipalities would be reviewed on a case-by-case basis when flagged by auditors to determine if the conditions to be a deemed a nontaxable transfer payment are met. This confirms that municipalities in Alberta will continue to be risk of being charged GST on cost-sharing agreements based on the interpretation of individual CRA auditors. Further, the costs associated with navigating  the CRA’s Objection process are significant. Town of Peace River staff indicated that they spent thousands of dollars on accountants and financial consultants, and that they can’t begin to calculate the cost of the staff time.

This CRA policy and its impact on municipalities is the subject of the 2019 resolution sponsored by the Town of Peace River, “Taxation of Intermunicipal Cost Sharing Agreements.” The resolution calls for ABmunis to engage with the Federation of Canadian Municipalities (FCM), other municipalities and municipal organizations to advocate for the CRA to officially confirm intermunicipal cost sharing arrangements and resulting fund transfers as being made for a public purpose and therefore not constituting a “taxable supply”. Both FCM and the Rural Municipalities of Alberta adopted similar resolutions in 2019, given the unpredictable financial impacts for all municipalities of the current CRA policy.

A meeting that included representatives from ABmunis and the CRA took place in January 2020 to initiate discussions about the requested action in the resolution. The meeting was productive; CRA representatives expressed interest in learning more about intermunicipal agreements in Alberta. They offered to provide guidance to municipalities to avoid the application of GST to these agreements and to consider reviewing the CRA policy that defines “taxable supply” and its application to intermunicipal agreements.

Unfortunately, no further discussion has taken place since the January 2020 meeting, given the onset of COVID-19 pandemic in March 2020. Alberta Municipalities staff were unable to reconnect with anyone from the CRA due to agency staffing changes. The resolution has been presented to the Minister of National Revenue in hopes of resuming discussions with the CRA.

Alberta Municipalities will continue to advocate on behalf of its members to reduce the financial risk posed by the ambiguity surrounding the application of CRA's regulations.

If you have any questions on this resolution or the application of GST to intermunicipal cost-sharing agreements, please contact Advocacy staff by advocacy [at] (email).