7 December 2016 Ruling 158637

A registered charity which is also registered for GST/HST purposes charges employers or sponsors fees for providing training to apprentices and also charges a cancellation fee if the apprentice withdraws from training during a specified time period. After finding that the training charge was consideration for a single supply that was exempted under Sched. V, Pt, V.1, s. 1, CRA went on to state:

The [cancellation fee] is not made in respect of any supply. Rather, it is required to be made by the employer/sponsor as compensation or indemnification for damages (e.g., loss of income from the [third party] for services rendered, inconvenience). Although the ETA does provide for special rules (section 182) where there is compensation or indemnification for damages, these rules only apply when the original agreement was for a taxable supply. As these rules do not apply, and the [cancellation fee] is not consideration for a supply, no GST/HST is applicable.

A registered charity, which is also registered for GST/HST purposes, charges employers or sponsors fees for providing training to apprentices, and also charges a cancellation fee if the apprentice withdraws from training during a specified time period. After finding that the training charge was consideration for a single supply that was exempted under Sched. V, Pt, V.1, s. 1, CRA went on to find that the cancellation fee also was not taxable:

The [cancellation fee] is not made in respect of any supply. Rather, it is required to be made by the employer/sponsor as compensation or indemnification for damages (e.g., loss of income from the [third party] for services rendered, inconvenience).

Training services provided by a registered charity to apprentices and supplied to employers or sponsors were exempted under Sched. V, Pt, V.1, s. 1.

After finding that a cancellation fee charged by a registered charity was not subject to GST/HST, CRA stated:

Under subsection 232(1), where a charity has charged or collected an amount as GST/HST in error on an exempt supply, it has the option to adjust, refund or credit the excess tax within two years after the day the amount was so charged or collected. …

Alternatively, persons that paid an amount as GST/HST on supplies that are exempt or on which no tax is payable may file an application for a rebate of amounts paid in error [on] Form GST 189… .