File 11935-1
Doc 947 XXXXX
February 27, 1995
Dear XXXXX
This is in reply to your letter of March 23, 1993, in which you request application rulings concerning the effects of the Goods and Services Tax (the "GST"), as set out under the provisions of the Excise Tax Act (the "ETA"), on the XXXXX . We regret the delay in our reply.
We are unable to issue an application ruling with respect to agency since the question of agency is entirely dependent on the specific facts of a relationship, which is not susceptible of determination solely on the basis of the documentation submitted. However, for your assistance, we will provide our comments and interpretations with respect to this issue, on the basis of the information you have provided.
These interpretations are given subject to the general limitations and qualifications set forth in GST Memorandum 100-3 dated November 29, 1991 issued by this department. Also, these interpretations are based upon the ETA and regulations thereunder in their present form and do not take into account the effects of any proposed or future amendments thereto.
Statement of Facts
XXXXX
1. The authority for the regulation of bingos is found under section 207 of the Criminal Code of Canada. Pursuant to that section, the authority to regulate bingos in XXXXX has been delegated by the Federal Government to the " XXXXX of the Province". This delegation of responsibility led, by way of Order in Council, to the establishment of the XXXXX (the "Commission"). There are no provincial statutes in XXXXX which specifically govern the operation of bingos.
2. Pursuant to paragraph 207(1)(b) of the Criminal Code of Canada, "... it is lawful for a charitable or religious organization ... to conduct and manage a lottery scheme (which, by definition, includes bingos) ... if the proceeds ... are used for a charitable or religious purpose.
3. Pursuant to subsection 207(2) of the Criminal Code, "... a licence issued under the authority of the Lieutenant Governor in Council of a province ... may contain such terms and conditions relating to the conduct, management and operation of or participation in the lottery scheme to which the licence relates. ..."
4. The XXXXX (the "Commission") is the provincial authority for the licensing of bingos in XXXXX The Commission establishes provincial policy for the operation of bingos, as set out in its publications "Licensing Information", "Terms and Conditions of Bingo License", and "Bingo Association Handout". Another provincial body, the XXXXX Gaming Control Branch (the "Branch"), controls licence applications and enforcement of the licences' terms and conditions.
5. As described in the above-noted publications (i.e. "provincial directives"), only charitable and religious organizations may be licensed to conduct bingos. Furthermore, if an organization wishes to conduct bingo events in a commercial gaming venue, it is required to be a member of a bingo association.
6. In the above-noted handbook, the Commission published detailed guidelines governing the formation of bingo associations and the operation of bingos in XXXXX and it describes the following functions of a bingo association:
• to negotiate and sign a lease agreement for a facility, procure supplies, and hire personnel, and other items of common interest to member organizations;
• to establish a common bingo program which includes: game format, expenses, hours of operation, price of cards, prize-layout, and rules of play in addition to and consistent with those in the terms and conditions of a Bingo Licence;
• to schedule bingo events and allocate those events to member organizations;
• to maintain proper financial/inventory controls regarding services provided to member organizations; provide members with daily event summaries, and provide members with an audited financial statement at the end of the bingo association's fiscal year.
7. With regards to financial/inventory control, bingo associations are subject to strict guidelines with respect to handling of cash at the events, inventory control for bingo supplies, and accounting of all bingo expenses. Transaction reports must be completed for each event. Sample forms are provided by the Commission. The forms actually used may vary, so long as they conform with the provincial directives.
Bingo Licences
8. A bingo licence may be issued by the XXXXX to an organization for a single event or for a continuous series of events (e.g. once a week event over a 12 month period).
9. As indicated in the "Terms and Conditions of Bingo Licence", this licence provides that the "conduct and management of bingo is the sole responsibility of the licensed organization and cannot be delegated." However, both the licensed organization and the bingo association are required to adhere to the terms of the licence, summarized as follows.
10. The licence provides stipulations for the conduct of the bingo encompassing admissions, bingo card sales, prize structure, and rules of play.
11. The licence also provides stipulations concerning the treatment of revenues and expenses of a bingo event:
• gross revenues "shall be deposited into the account specified on application;
• expenses will be those "directly related to the conduct and management of the event." Other than this, there are few limitations concerning the nature of expenses. However, expenses, excluding rental of premises, shall not exceed 10% of gross revenue.
• any amounts paid by a licensed organization to its bingo association in respect of expenses are "considered pre-paid expenses, and remain gaming revenues ... and any surplus remaining after payment of allowable expenses shall be reimbursed to association members on an equitable basis, on a frequency determined by association membership."
• net proceeds from an event are to be spent by the licensed organization on charitable or religious objectives specified in the approved application.
12. With regards to financial reports and records, the licensee "shall maintain financial/inventory control system at event level agreed to by the association, approved by the Commission and organized along the following lines ... (outlines controls regarding handling of cash and inventory, and recording of expenses. Terms regarding financial reporting to the Commission are also provided).
Staffing
13. The Handbook provides that "only the following positions may receive remuneration for their services: ... Caller (1), Cashier (up to 2) and Association Representative."
14. We have been advised by Revenue Canada Taxation that the above workers, who are paid for their services by the associations, are employees of the bingo associations, and accordingly, the associations withhold CPP, UIC and income tax deductions.
XXXXX
15. XXXXX is incorporated under the XXXXX and reports as a non-profit organization for purposes of the GST. It is a GST registrant XXXXX
16. XXXXX like all bingo associations in XXXXX is subject to the provincial directives outlined above. Although it remains in compliance with those directives, XXXXX has amended its incorporating objects and has entered a "Bingo Joint Venture Agreement" with its member clubs.
17. XXXXX recovers its costs of bingo related expenditures from its member clubs through both cash advances and direct reimbursements for outlays made. Distributions to member clubs of any annual surplus is made on a pro rata basis in accordance with the above-noted directives.
18. XXXXX has submitted a typical "contract of employment" with one of its staff. This agreement is with XXXXX dated May 1, 1992.
Amended Objects
19. XXXXX incorporated objects were amended by a special resolution dated September 29, 1990, and are duly registered with the Office of the Registrar of Corporations.
20. Its amended objects are, in part:
"to facilitate the operation of and to operate bingos for the benefit of its members;
• on behalf of its voting members ... to acquire ... property or every kind ... and from time to time, to turn over that property (or the proceeds thereof) to the voting members ...;
• to improve, furnish and fixture the lands or leasehold interests held by the Association and lease, sub-lease or license the use thereof to members of the Association or to organizations with similar objects ...;
• to undertake revenue producing activities of the Association on behalf of its members and to apply all revenues in excess of the expenses thereof to effectively reduce the amounts payable, or to increase the amounts earned, by the members in respect of those activities and, from time to time, to return that excess revenue to the members ...;
• to enter into arrangements with authorities public, private academic or otherwise, that are conductive to the objects of the Association or its members, and to obtain from these authorities any rights, privileges and concessions for the benefit of the Association or its members, or both ....
Bingo Joint Venture Agreement
21. The copy of the agreement submitted is not an executed copy. For purposes of this ruling, we assume that the agreement is valid and in effect. The agreement is between XXXXX and its member clubs which are referred to, in the agreement, as "Venturers" or "Co-venturers". The following is a summary of some of the terms of the agreement
"each of the Co-venturers has agreed to ... combine certain of their money, assets, efforts, knowledge and skill to create ... a joint venture for the limited purpose only of supplying equipment, bingo paper and gaming materials, personnel and facilities to themselves and others for the purposes of enabling bingo games and related activities to be conducted in compliance with the requirements of the XXXXX and to more efficiently obtain revenues and share expenses in the pursuit of their ... objectives;
2.4 (b): "no Co-venturer shall have the authority to act for or bind any other Co-venturer ..."
2.4(b): "Each Co-venturer shall be entitled to its Percentage Interest (as set out in a schedule) in the revenue of the Bingo Joint Venture and shall be liable for ... its Percentage Interest in the ... liabilities and expenses of the Bingo Joint Venture."
3.1: "... the management and conduct of the affairs of the Bingo Joint Venture shall at all times be subject to the control and decision of the Venturers; however (certain decisions will be) delegated by the Venturers to XXXXX (as) set out in Section 4.1."
3.2: "The Venturers have authorized and delegated...their authority to XXXXX to enable XXXXX to operate, manage and conduct the day to day affairs of the Bingo Joint Venture on behalf of the Venturers pursuant to this Agreement ... Each of the Co-venturers has appointed ... XXXXX as its agent to manage it interests in the Bingo Joint Venture and XXXXX has accepted ... the authority, power, and agency delegated and appointed to it."
4.1: "Subject to 3.1 and 3.2, XXXXX shall ...
(a) supervise all legal, accounting and administrative services required for the Bingo Joint Venture;
(b) maintain proper ... records ... with respect to the affairs of the Bingo Joint Venture;
(c) ... control a system for the receipt and allocation of gross revenues and the receipt and payment of gross expenses of the Venturers ...
(d) enter into agreements for assets or services required in pursuit of the Bingo Joint Venture and thereafter manage these assets ... and supervise all contractors ... personnel employed ... or other persons engaged in the rendering of services to the Bingo Joint Venture;
(e) on behalf of each Co-venturer, insure its activities as trustee, agent and attorney, the Bingo Joint Venture and the interest of each Co-venturer therein ...
(f) negotiate, execute, supervise and report to the Venturers on all contracts relating to the affairs of the Bingo Joint Venture.
5.3: "(Where) advances are required to meet the expenses ... of the Bingo Joint Venture, each Co-venturer shall advance further funds into the Bingo Venture Expense account maintained by XXXXX
6.2: "All revenues received ... on account of the Bingo Joint Venture shall be paid immediately into the Bingo Joint Venture revenue bank account (maintained by XXXXX and all disbursements ... shall be made by cheque drawn upon the Bingo Joint Venture expenses account (maintained by XXXXX Financial Statements
22. XXXXX audited financial statements for its 1991 and 1992 year ends have been submitted. They indicate no assets, liabilities or surplus at the year ends, and they state that "the association has earned no revenues and has incurred no expenses during the period. ..." The notes to the financial statements, however, state that "all assets, liabilities advances, revenues and expenditures of the Association are on the account of Bingo Operations and Concession Operations. All transactions are reflected on the appropriate schedule of financial information prepared for each operation."
Interpretations
1. Is XXXXX acting as an agent for its members?
The determination as to whether XXXXX acts as an agent of its member clubs is one that must be made in respect of each transaction.
Although we are unable to rule definitively on whether XXXXX acts as an agent with respect to all its transactions involving the conduct of bingos, we will provide the following interpretations based on the documentation we have reviewed.
The directives set out in the XXXXX do not indicate, in our view, that bingo associations in XXXXX such as XXXXX are acting as agents of member clubs in respect of the payment of salaries and wages to bingo workers, nor, generally, for other purchases by the associations related to the bingo events. It is clear from these directives that the bingo associations make purchases in their own right, rather than as agents of the member clubs.
Although XXXXX and its member clubs may have entered a joint venture agreement, the joint venture agreement does not affect our view that XXXXX supplies services to its member clubs, that it incurs expenditures in making these supplies, and that generally, it does not incur these expenditures as an agent of its member clubs.
Based on the information on hand, one situation where XXXXX does appear to act as an agent is with respect to the purchase of the bingo licence. XXXXX may be authorized by a member club to purchase, as an agent, a bingo licence.
With respect to gaming revenues, it is the Department's position that XXXXX acts as an agent in collecting these revenues, and paying bingo prizes, on behalf of its member clubs.
2. Is XXXXX required to charge its members GST on any reimbursements of costs incurred for the members including costs such as salaries and wages, insurance and licence fees?
It is the Department's position that XXXXX is providing a taxable supply of a service of conducting bingo events for its member clubs, and that the reimbursements received from member clubs covering the costs of conducting these events, including employee costs and bingo supplies, represent consideration for the supply of such services. Accordingly, if XXXXX is required to be GST registrant, it must collect and remit GST on these reimbursements.
3. Is XXXXX required to charge GST on advances received from its members?
As noted above, it is the Department's position that XXXXX is providing a taxable supply of services to its member clubs and is required to charge GST to these clubs on the consideration they pay for these services. It is also our view that advances paid by the member clubs for the purpose of funding XXXXX purchases are deposits held by XXXXX for that purpose. Pursuant to subsection 168(9) of the ETA, the tax becomes payable when the deposit is applied as consideration for the supply.
Final Comments
It should be noted that, as a GST registrant, XXXXX is entitled to recover the GST paid on purchases that are related to making taxable supplies by claiming input tax credits.
An example of how the provisions discussed above apply is attached for your information. Should you require more information concerning this letter, please contact Joanne Houlahan at (613) 954-7945 or Michael Place at (613) 954-7936. x For other questions concerning the GST, please contact the GST District Office in XXXXX
Yours truly,
J.A. Venne
Director
Tax Policy - Special Sectors
GST Policy and Legislation
| c.c.: |
A. Venne
J. Houlahan
M. Bloom
XXXXX
H.Q. Audit Programs
XXXXX |
EXAMPLE
ABC is a bingo association, and X Charity is one of its member clubs. On May 30, ABC assisted X Charity in hosting a bingo event. X Charity advanced $850 to ABC for this purpose. Bingo card sales totaled $5000, of which $3000 was paid out in prizes. ABC incurred costs of $700, comprised of $200 in wages and $500 in operating costs.
Tax Treatment
1. Consideration for taxable supplies
|
Operating costs reimbursed:
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$ 500 |
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Wages reimbursed:
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200 |
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$ 700 |
The above represents taxable consideration received by ABC from X charity for services related to X charity's bingo event. ABC is required to collect and remit GST on this amount.
2. Consideration for exempt supplies
Revenue from bingo card sales; $ 5000
X Charity is viewed as supplying the bingo cards. The supply of bingo cards by a charity or non-profit organization is exempt under section 5.1 of Part VI of Schedule V.
3. Amounts that are not Consideration
Prizes Paid Out: $ 3000
X Charity is viewed as supplying the prizes. A prize is not consideration for a supply, Subsection 188(1) deems certain prizes to be consideration, but only when related to a commercial activity. A commercial activity excludes the making of exempt supplies, such as supplying bingo cards by a charity.
Unused Advance $ 150
This amount is the difference between the advance by X Charity ($850) and the amount of the advance used to offset wages and operating costs ($700).
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