23 February 1995 GST/HST Interpretation 11925-3-1[1] - Status Under the GST of Reimbursements of Election Expenses Paid to Federal Political Parties Pursuant to Section 322 of the Canada Elections Act (i.e., "CEA")

                                                                        File 11925-3-1(EB)
Doc. 641
Leg. Ref. s. 259

Dear XXXXX

This is in response to your memorandum dated July 20, 1994, requesting the status under the GST of reimbursements of election expenses paid to federal political parties pursuant to section 322 of the Canada Elections Act (i.e., "CEA"). We regret the delay in our response.

Statement of Facts

1) A federal political party may be registered under the CEA if it makes a formal application (including the names, addresses, occupations and signatures of one hundred electors that are members of the party) and if it presents at least fifty candidates at a general election.

2) Under subsection 43(1) of the CEA, an auditor appointed by the registered party must prepare a return of receipts and expenses of the party for the fiscal period and a return in respect of election expenses of the party during his/her term of office as auditor.

3) Section 39 of the CEA sets out the limitation for election expenses of registered parties. These expenses cannot exceed the product obtained by multiplying thirty cents by the number of names on the preliminary lists of electors for electoral districts in which there is an official candidate of the party, multiplied by the fraction published by the Chief Electoral Officer that is in effect on the date of the issue of the election writ (e.g., the fraction for April 1993 to March 1994 was 169.6/88.9).

4) Pursuant to section 322 of the CEA, where a registered party has expended more than 10 percent of its election expenses limit, the party will be entitled to receive an amount equal to twenty two and one half percent of the amount of election expenses set out in the registered party's return.

5) On receipt of a registered party's election expense return and the auditor's report, the Chief Electoral Officer transmits to the Receiver General of Canada a certificate setting out the amount that is twenty two and one half percent of the registered party's election expenses (if the party's election expenses are greater than 10%). Upon receipt of this certificate, the Receiver General will pay this amount to the registered party out of the Consolidated Revenue Fund.

Question

Does the partial reimbursement of election expenses to a registered party provided under section 322 of the CEA constitute government funding for the purpose of the 50% rebate provided to qualifying non-profit organizations under section 259 of the Excise Tax Act (ETA)?

Conclusion

Payments made to registered federal political parties pursuant to section 322 of the CEA will fall under subparagraph 2(a)(i) of the definition of "government funding" in the Public Service Body Rebate (GST) Regulations. Accordingly, these amounts may be included in the calculation of the party's percentage of government funding for the purpose of establishing whether it is a qualifying non-profit organization that is entitled to claim the public service body rebate.

Analysis

If a non-profit organization, such as a federal political party, receives at least 40% of its annual revenue from government funding, it will meet the definition of a "qualifying non-profit organization" and will be entitled under section 259 of the ETA to claim a 50% rebate of the GST it pays for which no input tax credit may be claimed.

"Government funding" as defined in the Public Service Body Rebate (GST) Regulations means amounts of money that are readily measurable and that are paid or payable to a non-profit organization by a grantor for the purpose of:

i) financially assisting the non-profit organization in carrying out its objectives and not as payment for goods or services,

ii) as payment for exempt supplies of property or services provided to persons other than the grantor, individuals who are officers, employees, shareholders or members of the grantor, or to persons related to the grantor or to such individuals.

The definition of "grantor" includes federal, provincial or municipal governments, Indian bands, corporations controlled by a government or municipality, one of the main purposes of which is the funding of charitable or non-profit endeavours and trusts, boards, commissions or other bodies created by a government or municipality that have as one of their main purposes, the funding of charitable or non-profit endeavours.

In order to determine whether the reimbursement by the federal government of registered political parties' election expenses constitutes government funding, it is necessary to refer to the policy described in TIB B 067 "Goods and Services Tax Treatment of Grants and Subsidies".

Political parties carry on a variety of activities including research and analysis of public opinion on issues of concern, policy development, strategic planning, the selection and promotion of candidates and participation in election campaigns. The benefits arising from the activities of political parties are conferred on an unspecified class of persons (i.e., the general public).

While the purpose of the partial reimbursement of election expenses is not set out in section 322 of the CEA, it is nonetheless evident that these payments are made in the public interest as a means of encouraging and promoting the involvement of parties in the political process. There is no direct link between the payment of these reimbursements by the federal government and supplies made by registered political parties. Requirements to file election expense returns and financial statements are simply accountability mechanisms and are not considered to be supplies for which consideration is paid by the government.

It is our opinion therefore, that amounts paid to registered parties pursuant to section 322 of the CEA are amounts paid by the federal government in order to financially assist these organizations in carrying out their purposes. As such they will fall under subparagraph 2(a)(i) of the definition of government funding in the Public Service Body Rebate (GST) Regulations.

If a registered party receives at least 40% of its annual revenue in the form of government funding, it will constitute a qualifying non-profit organization and will be entitled to claim the 50% rebate available to such organizations.

I trust that this information will be of assistance. For information concerning the extent to which political parties are engaged in commercial activities and their entitlement to register for the purposes of the GST and to claim input tax credits, please refer to the directives on this subject released by this office on January 5 and April 15, 1994. If you have any additional questions or concerns on these matters, please do not hesitate to contact Elaine Bonnah at (613) 952-6761.

Yours truly,

J.A. Venne
Director
Tax Policy - Special Sectors
GST Policy and Legislation