8 November 1999 GST/HST Interpretation HQR00001890 - Application of (GST) to Revenues Earned by a Charity Operating a "Blue Box" Recycling Program

Dear XXXXX

Thank you for your letter of June 18, 1999, concerning the application of the Goods and Services Tax (GST) to revenues earned by a charity operating a "blue box" recycling program. The charity collects and sorts recyclable (i.e., used) material and sells the materials to a commercial recycling company. In addition the charity receives revenues from a municipality based on a formula which takes into account the profits or losses incurred in the program.

Please note that as of November 1, 1999, Revenue Canada became the Canada Customs and Revenue Agency.

Interpretation Requested

Are the amounts received by the charity from the commercial recycling company and from the municipality subject to GST/HST?

Interpretation Given

Amounts received by a charity from the commercial recycling company and from the municipality are not subject to GST, since these amounts do not represent consideration for taxable supplies.

That is, pursuant to subsection 169(1) of the Excise Tax Act, the GST is imposed on the consideration for a "taxable supply." Under subsection 123(1) of the Act, a taxable supply is defined as one that is made "in the course of a commercial activity" and the definition of "commercial activity" in that subsection excludes a business that "involves the making of exempt supplies." The general exemption for charities in section 1 of Part V.[1] of Schedule V includes, pursuant to paragraph (d), supplies of tangible personal property if the property was used by another person before its acquisition by the charity. The general exemption under this section also includes services supplied by a charity (with only a few exceptions).

Accordingly, based on the limited facts submitted, it is apparent that the charity is engaged only in making exempt supplies, whether such supplies include the sale of the used materials, or the service of operating the recycling program.

We do not have sufficient information to determine whether the funds received from the municipality represent a "grant" rather than consideration for a supply. However, since the charity is engaged in making only tax exempt supplies, it does not appear necessary to make this determination. That is, this funding is not subject to GST whether it is viewed as consideration for an exempt supply, or a municipal grant.

If, for some reason, you require a ruling on whether the municipal funding is a grant rather than consideration for a supply, we would be pleased to respond. However, we would ask that you provide us further information concerning this funding, including a copy of the funding agreement.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the us with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-0420.

Yours truly,

Lorrie Grannary
Charities and Non-Profit Organizations Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate