22 March 1999 GST/HST Interpretation HQR0001224 - GST/HST on Supplies Made by

Dear XXXXX

We are writing in regard to your letter of November 13, 1997, on the above-noted subject. We are aware that the XXXXX sent you a preliminary response, dated June 9, 1998. However, because certain issues raised in your letter may be affected by policies originating in this office, your letter was transferred to this office for further consideration. Our office sent a facsimile message to you on July 9, 1998, to obtain additional information. To date, we have not received a reply to our facsimile message. Therefore, we will provide you with an interpretation on this subject. If, at a later date, you require a ruling, we will be pleased to issue one to you, on receipt of the requisite additional information.

On April 1, 1997, the harmonized sales tax (HST) replaced the goods and services tax (GST) and the provincial sales tax (PST) in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%. It is our understanding that you do not make any supplies in the participating provinces and for this reason our response will address only the GST.

Statement of Facts

1. XXXXX was incorporated in XXXXX XXXXX and offers two types of courses. The XXXXX will offer courses leading to a diploma in hotel management and courses in English as a second language ("ESL"). The XXXXX recruits both local and international students from XXXXX with all revenue generated from various fees charged to students for registration, tuition, textbooks, activity fees and a homestay program. The XXXXX is registered for GST purposes.

2. The XXXXX will initially offer both courses separately, with the emphasis being on the hotel management course. Although ESL courses will be offered initially to the general public, the XXXXX hopes to eventually provide ESL only as part of the course in hotel management. Accordingly, from the outset, the main emphasis of the XXXXX will be the provision of the hotel management program.

Interpretation Requested

Are the supplies of hotel management courses and ESL courses offered by XXXXX XXXXX subject to GST or are they exempt, pursuant to section 8 or section 11 of Part III of Schedule V of the Excise Tax Act ("section 8" and "section 11")?

Interpretation Given

Since we did not receive the information we requested, we cannot determine if sections 8 or 11 apply to exempt supplies of courses described above. However, at this time, we can only describe these exemptions. If you believe that supplies made by the XXXXX qualify for exemption, we suggest that you submit the information requested in our facsimile message of July 9, 1998, and ask for a ruling. In the meantime, since the XXXXX is a GST registrant, it is required to collect GST on its taxable supplies.

Description of Exemptions

Section 8

Section 8 exempts, among other things, instruction and examination in courses provided by a vocational school and leading to certificates, diplomas, licenses or similar documents, or classes or ratings in respect of licenses, that attest to the competence of individuals to practice or perform a trade or vocation where the supplier is governed by federal or provincial legislation respecting vocational schools. Section 8 is set out below.

"8. A supply, other than a zero-rated supply, made by a school authority, vocational school, public college, or university of a service of instructing individuals in, or administering examinations in respect of, courses leading to certificates, diplomas, licences or similar documents, or classes or ratings in respect of licences, that attest to the competence of individuals to practise or perform a trade or vocation where

(a) the document, class or rating is prescribed by federal or provincial regulation;

(b) the supplier is governed by federal or provincial legislation respecting vocational schools; or

(c) the supplier is a non-profit organization or a public institution.

The definition of "vocational school" is set out in section 1 of Part III of Schedule V of the Excise Tax Act ("section 1"). Section 1 is set out below.

"vocational school" means an organization that is established and operated primarily to provide students with correspondence courses, or instruction in courses, that develop or enhance students' occupational skills.

Established Primarily

To determine whether an organization is established primarily to provide courses that develop or enhance occupational skills, we will examine an organization's governing documents. These documents include letters patent, articles or incorporation, memoranda of agreement and by-laws and should contain information as to the reason or purpose for the establishment of the organization. Where these documents are not available or not determinative, we will look to the activities of the organization (i.e. the extent to which the organization provides courses that develop or enhance students' occupational skills) as evidence of the purpose for its establishment.

Also, where an organization is governed by provincial legislation respecting vocational schools, this will be considered an indication that one of the main purposes of the organization is to provide vocational training. However, registration with a province as a vocational school is not in and of itself conclusive evidence that the organization is "established primarily" as a vocational school for the purposes of the Excise Tax Act.

Operated Primarily

The Department will consider an organization to be "operated primarily" to provide correspondence courses or instruction in courses that develop or enhance students' occupational skills, if more than 50% of its total annual revenues are derived from tuition for courses, or may be attributed to the provision of instruction in courses, that develop or enhance students' occupational skills. Grants and contributions received from government bodies to provide occupational training courses to individuals will be included in the calculation of revenues received for providing occupational training courses to individuals. Revenues earned from the provision of property or services that are directly related to, or dependent on, the provision of the instruction will be included in the revenue calculation for determining the primary purpose of the organization.

Where an organization is commencing operations or considering commencing operations, the Department will consider it to be "operated primarily" as a vocational school if its intent is to primarily offer courses that develop or enhance students' occupational skills.

An organization should review its operations on an annual basis to ascertain whether it is "operated primarily" to provide correspondence courses, or instruction in courses that develop or enhance students' occupational skills.

Develop or Enhance Students' Occupational Skills

To be considered a vocational school, the correspondence courses, or instruction in courses offered by an organization must develop or enhance students' occupational skills. On this basis, "occupational courses" must have a direct link to skills that are essential for an individual to gain or retain employment.

The Department will examine the curriculum and promotional material of an organization to identify the type of courses provided, whether the courses lead to certificates, diplomas or similar documents, and whether the courses are marketed as providing skills needed for employment or for recreational or personal interest. How the organization promotes its activities (e.g. in its brochures, advertisements, literature, course calendar, telephone listings) will also provide insight into whether its courses "develop or enhance students' occupational skills".

Section 11

Section 11, as it is currently written, exempts supplies of instructing individuals in language courses that form part of a program of second language instruction in either English or French, where the supply is made by an organization that is established and operated primarily to provide instruction in languages. Section 11, as it is currently written, is set out below.

"11. A supply of a service of instructing individuals in, or administering examinations in respect of, language courses that form part of a program of second-language instruction in either English or French, where the supply is made by a school authority, public college or university or an organization that is established and operated primarily to provide instruction in languages."

To determine if section 11 applies to a supply, we will use the tests for established primarily and operated primarily as were described above under the definition of "vocational school." That is, with respect to being established primarily, the Department will review the organization's governing documents to determine if the organization is established primarily to provide instruction in languages. With respect to being operated primarily, the Department will determine if more than 50% of its total annual revenues are derived from tuition from courses, or may be attributed to the provision of courses in language instruction.

Please note a Ways and Means Motion was tabled in Parliament on December 10, 1998, to amend section 11. The proposed amendment is set out below.

"11. A supply of a service of instructing individuals in, or administering examinations in respect of, language courses that form part of a program of second-language instruction in either English or French, if the supply is made by a school authority, a vocational operated primarily to provide instruction in languages."

This proposed amendment to section 11 applies to supplies made after April, 1999.

We will consider whether ESL courses provided by the XXXXX qualify for exemption under the amended version of section 11 if the supply were made by the XXXXX and it qualified as a "vocational school", according to the criteria described under the section dealing with the definition of "vocational school".

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 Department with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 954-5125.

Yours truly,

Pauline Greenblatt
Educational Services and Indians Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate