Principal Issues: [TaxInterpretations translation] (1) Is the provision of a ferry service for motorists considered to be a public transport service?
(2) Would a monthly pass from a local ferry service to transport motorists be eligible for the proposed tax credit?
Position: (1) Yes, since the services offered by a ferry consist of transporting individuals with or without their cars.
(2) Only the portion that is attributable to the individual's use of public transit services would qualify for the tax credit.
Reasons: Wording of proposed section 118.02 of the Income Tax Act. Our conclusion was corroborated by the Legislative Policy Branch.
XXXXXXXXXX 2006-020860
November 8, 2006
Dear Sir,
Subject: Request for technical interpretation
Tax Credit for the Cost of Public Transit Passes
This is further to your email of September 29, 2006, in which you requested the Canada Revenue Agency's ("CRA") interpretation of the new tax credit for the cost of public transit passes (the "tax credit"). We apologize for the delay in responding to your question.
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act (the "Act").
Facts
XXXXXXXXXX operates a ferry service for passengers and vehicles XXXXXXXXXX.
XXXXXXXXXX currently sells passes to pedestrians and the cost of these is eligible for the tax credit.
Currently, there are no monthly passes available for automobile customers. However, if such passes were available, you wish to know if they would be eligible for the tax credit.
Questions
You asked us for an interpretation as to:
- Whether the provision of a ferry service for motorists is considered to be a public commuter transit service.
- Whether a monthly pass for motorist transportation by a local ferry service qualifies for the tax credit.
Our Comments
As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is the practice of our Directorate not to issue written opinions on proposed transactions otherwise than by way of advance rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments which may not apply in full to the situation you have submitted to us.
The May 2, 2006, federal budget announced various tax measures, including a new tax credit for the cost of public transit passes. On October 16, 2006, the Government of Canada tabled Bill C-28 to implement certain provisions of the budget, including the above-mentioned credit, including a Notice of Ways and Means Motion and the relevant Explanatory Notes. That measure will result in an amendment to the Act by adding a new section 118.02.
Once it receives Royal Assent, new section 118.02 of the Act will provide individuals with a non-refundable tax credit for the cost of eligible public transit passes in a taxation year.
A) Is the provision of a ferry service for individuals with cars considered to be a public commuter transit service?
New subsection 118.02(1) of Bill C-28 contains certain definitions and rules that apply for the purposes of the tax credit. The following definition is relevant to the first question:
"public commuter transit services" means services offered to the general public, ordinarily for a period of at least five days per week, of transporting individuals, from a place in Canada to another place in Canada, by means of bus, ferry, subway, train or tram, and in respect of which it can reasonably be expected that those individuals would return daily to the place of their departure.
This definition of "public commuter transit services" provides that a public commuter transit service includes transporting individuals between two places in Canada. With respect to ferry services, the wording of proposed section 118.02 does not distinguish between an individual using that service with or without an automobile. Given that the text of this definition does not explicitly exclude individuals with their automobiles, it is our view that the provision of ferry services to such individuals should be considered a public commuter transit service. Otherwise, we are of the view that Parliament should have made that distinction explicitly in the definition if it clearly intended to exclude individuals with automobiles.
B) Would a monthly local ferry pass for an individual with an automobile be eligible for the tax credit?
With respect to the second question, since we are of the view that the service of such a ferry to individuals with automobiles constitutes a "public commuter transit service" for the purposes of proposed section 118.02, we can proceed with our analysis.
Under section 118.02, the tax credit is to be calculated on the basis of the portion of the cost of an eligible transit pass that is attributable to the use of the transit service by the individual or a qualifying relation. Thus, where a motorist uses a ferry service, only the reasonable cost of the individual's transportation service may be eligible for the tax credit. However, if the cost of the ferry service is the same whether the individual uses the ferry alone or with his or her automobile, then the total cost may qualify for the tax credit.
These comments are not advance income tax rulings and do not bind the CRA with respect to any particular factual situation.
We hope you find these comments of assistance.
Best regards,
Phil Jolie
Director
Business and Partnerships Division
Income Tax Rulings Directorate