15 February 2019 GST/HST Ruling 193880 - Charity acting as an agent to purchase a service

Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 193880
Business Number: […]

Dear [Client]:

Subject: GST/HST RULING
Charity acting as an agent to purchase a service

Thank you for your letter of September 17, 2018, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to a charity acting as an agent to purchase a service. We apologize for the delay in our reply.

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.

STATEMENT OF FACTS

We understand

1. […][the Charity][…][represents and supports […](the Faculties)].

2. [The Charity] has been a registered charity for income tax purposes since [mm/dd/yyyy]. Its registration number is […].

3. As a registered charity for income tax purposes, [the Charity] is also a charity for GST/HST purposes under the definition of “charity” in subsection 123(1). It is not a public institution.

4. [The Charity] is not registered for GST/HST purposes. However, it does have an RT account because it claims the public service bodies’ rebate (PSB rebate).

5. […][the Organization] is the organization responsible for […][Describes the services supplied by the Organization].

6. [The Organization] states on its website (Footnote 1) that it is a non-profit corporation. [The Organization] is registered for GST/HST purposes and its GST/HST number is […].

7. Both [the Charity] and [the Organization] are located in [city], [province].

8. On [mm/dd/yyyy], [the Charity] and [the Organization] signed a Service Contract (the Contract) providing that starting [mm/dd/yyyy], [the Organization] will invoice a single fee to [the Charity] instead of invoicing the […] Faculties separately. The first invoice was for $[…], plus […]% [tax].

9. Subsequent to receiving [the Organization]’[s] invoice, [the Charity] will invoice the […] Faculties individually for their share of the […] service provided by [the Organization]. [the Charity] also intends to add around […]% as an administration fee to cover its costs.

10. Section […] of the Contract states that […][the Charity and the Organization are separate entities].

11. The […] page of the Contract states, in part, that […][the Charity will act as agent for the Faculties].

12. Section […] of the Contract states that […][the Faculties will be bound to the Service Contract by the Charity].

13. […].

14. Schedule […] to the Contract states, in part, that […][the Charity pays for the service on behalf of the Faculties].

15. Schedule […] to the Agreement sets out [the Charity]’s obligations under the Contract. All the obligations mentioned in Schedule […] are obligations of the Faculties, not of [the Charity].

16. Section […] of [the Charity]’s By-Laws dated [mm/dd/yyyy], states, in part, that […][the service must be used by the Faculties that are members of the Charity].

17. Section […] of [the Charity]’s By-Laws states, in part, that […][the board of directors is made of the following individuals].

18. You have stated that [the Charity] does not make any other taxable supplies.

RULINGS REQUESTED

You would like to know

1. Must [the Charity] charge GST/HST on the […][service] fee?

2. Must [the Charity] register for GST/HST purposes?

3. If the fee for the service is taxable, at what rate should it be charged? Is it based on the province where the Faculty is located?

4. How to calculate input tax credits (ITCs) and which calculation method should be used?

RULINGS GIVEN

Based on the facts set out above, we rule that

1.1. No, [the Charity] must not charge GST/HST on the [service] fee since it is not the supplier of the […] service.

1.2. No, [the Charity] must not charge tax on the […]% administration fee since it is consideration for a supply of a service that is exempt under section 1 of Part V.1 of Schedule V.

2. No, [the Charity] does not need to register for GST/HST purposes.

3. As [the Charity] is not making taxable supplies to the […] Faculties, it does not need to charge the GST/HST.

4. [The Charity] cannot claim an ITC for the GST/HST charged by [the Organization] since it is not the recipient of the supply of the […] service.

EXPLANATIONS

Ruling 1.1

There are two distinct supplies being made in this situation.

The first supply, the […] service, is made by [the Organization]. […] This is a taxable supply of a service.

The basic rule for the GST/HST is that, under section 165, every recipient of a taxable supply made in Canada must pay GST/HST in respect of the supply. “Recipient” in respect of a supply of property or a service is defined in subsection 123(1) to mean, where consideration for the supply is payable under an agreement for the supply, the person who is liable under the agreement to pay that consideration.

Although the name of the person on [the Organization]’[s] invoice is [the Charity], [the Charity] acts as an agent for the Faculties, as expressly mentioned in the Contract and demonstrated by the facts. Schedule […] to the Contract, quoted above, explicitly states that the fee is paid by [the Charity] on behalf of the Faculties, which means the Faculties are the ones liable to pay the consideration. As such, the […] Faculties are the recipients of the […] service supplied by [the Organization] and the persons liable to pay the GST/HST on this service.

Because the person making the supply is [the Organization], not [the Charity], [the Charity] must not charge GST/HST on the […][service] fee since it is simply passing on the cost to the Faculties.

When [the Charity] subsequently seeks reimbursement from the Faculties, the amount of the reimbursement will include the GST/HST charged by [the Organization] and paid by [the Charity] in respect of the original invoice. As [the Charity] originally paid the fees as agent for the Faculties, [the Charity] is not making an additional taxable supply to the Faculties when the Faculties reimburse [the Charity] for those costs. The reimbursement by the Faculties of the […] service fee would not be consideration for a supply, and therefore GST/HST will not be payable on the reimbursement. If [the Charity] had not paid the GST/HST on the consideration for the supply of the […] service on behalf of the Faculties, the Faculties would be liable to pay the GST/HST to [the Organization].

Ruling 1.2

The second supply is made by [the Charity] to the Faculties, the consideration for which is the […]% administrative fee. This is a supply of a service of acting as an agent. As [the Charity] is a charity, the general exemption under section 1 of Part V.1 of Schedule V will exempt the supply unless an exception in any of paragraphs 1(a) to (p) applies. None of the exceptions to the exemption apply, which means the supply of the service is exempt.

Rulings 2 and 3

Since [the Charity] does not make any taxable supplies, it neither needs to register for GST/HST purposes nor charge the GST/HST. A charity is required to register for GST/HST purposes if it makes taxable supplies in Canada and it is not a small supplier. A charity is a small supplier if it meets either of the following two tests:

• if its total revenues from taxable (that is, not exempt) supplies of property and services (other than sales of capital property, supplies of financial services and certain payments for goodwill), and those of associated persons, has not exceeded $50,000 in the current calendar quarter and the previous four consecutive calendar quarters; or
• if it is the charity's first fiscal year, it is a small supplier; or if the charity is in its second fiscal year, its gross revenue from its first fiscal year was $250,000 or less; and if it the charity's third or subsequent fiscal year, its gross revenue for either of its two preceding fiscal years was $250,000 or less. Gross revenue includes business income, revenues from taxable and exempt supplies, donations, grants, gifts, property income, investment income and any amount considered a capital gain less any amount considered a capital loss from the disposal of property for income tax purposes.

If all of a charity’s supplies are exempt, it cannot register for GST/HST purposes, even should it want to. For more information, see Guide RC4082, GST/HST Information for Charities.

Ruling 4

[The Charity] cannot claim an ITC or PSB rebate for the tax paid on the […] service on behalf of the Faculties since, not being the recipient, no tax was paid or became payable by [the Charity].

An ITC can only be claimed by persons that are registrants (which means registered or required to be registered) for GST/HST purposes to recover the GST/HST paid or payable by the person on property or a service to the extent that the property or service was acquired, imported or brought into a participating province for consumption, use or supply in the course of the person's own commercial activities (i.e., for making taxable supplies for consideration) provided all other conditions for claiming the ITCs are met. Based on the information provided, not only is [the Charity] not a registrant, [the Charity] is not the recipient of the […] service, and therefore does not meet these requirements.

A charity can claim the PSB rebate under subsection 259(3) to recover a percentage of the GST/HST paid or payable on its eligible purchases and expenses. However, [the Charity] cannot claim a PSB rebate for the tax paid on the […] service on behalf of the Faculties since it was not the recipient of the supply, and as a result no tax would be included in its “non-creditable tax charged” as defined under subsection 259(1). In general terms, “non-creditable tax charged” means the GST/HST paid or payable by a person on property or services in a claim period for which the person cannot claim an ITC, rebate, refund or remission other than a PSB rebate. The PSB rebate is based on the “non-creditable tax charged”, so if that amount is nil because no tax was payable, the rebate will also be nil.

[The Charity] can however claim the PSB rebate for the GST/HST paid or payable on inputs into its exempt supply of a service of acting as an agent, such as the GST/HST paid or payable on paper and postage fees for use in invoicing the Faculties.

The Faculties are universities that fall under the definition of “selected public service body” under subsection 259(1), which means they are also eligible to claim the PSB rebate under subsection 259(3). Being the recipients of the […] service supplied by [the Organization], the Faculties will be able to recover a percentage of the GST/HST paid or payable on that service.

Additional information concerning the PSB rebate may be found in Guide RC4034, GST/HST Public Service Bodies' Rebate.

INTERPRETATION GIVEN

Under the Contract, [the Organization] makes a taxable supply of a […] service to the […] Faculties. As such, this supply is subject to the GST/HST at the applicable rate (depending on the place of supply). We are pleased to provide you with the following general comments about the application of the place of supply rules to the supply of the […] service.

A) Place of supply

The general place of supply rules for services, such as the […] service provided by [the Organization], are set out in section 13 of the New Harmonized Value-Added Tax System Regulations.

Generally, under subsection 13(1) of the Regulations, a supply of a service is made in a province if, in the ordinary course of business of the supplier, the supplier obtains an address in the province that is

(a) if the supplier obtains only one address that is a home or a business address in Canada of the recipient, the home or business address in Canada obtained by the supplier;

(b) if the supplier obtains more than one address described in paragraph (a), the address described in that paragraph that is most closely connected with the supply; or

(c) in any other case, the address in Canada of the recipient that is most closely connected with the supply.

For purposes of subsection 13(1) of the Regulations, the address obtained by the supplier in the ordinary course of its business must be an address in Canada of the “recipient” of the supply who, under subsection 123(1), is generally defined to mean the person who is liable under the agreement for the supply to pay the consideration payable for the supply. The determination of the recipient of a particular supply would depend on the facts of each case, including the terms of the agreement for the supply and the relationship of the parties. As determined above, the recipients of the […] service supplied by [the Organization] are the […] Faculties.

If the supplier obtains more than one home or business address in Canada of the recipient in the ordinary course of its business, the province in which the supply is made is determined by the address that is most closely connected with the supply. The business address of the recipient from which the supplier is hired pursuant to the agreement for the supply (the “contracting address”) is generally the address that is most closely connected with the supply. This address will therefore determine the province in which the supply of the service is made where it is in Canada and is obtained by the supplier in the ordinary course of its business. If the contracting address of the recipient is not obtained, the business address of the recipient that is most closely connected with the supply would be the obtained business address of the recipient in Canada that the supplier has the most contact with and that the supplier mostly uses in connection with that supply.

Where the supplier does not, in the ordinary course of its business, obtain a home or business address in Canada of the recipient, but obtains another address in Canada of the recipient, the supply is made in the province where such an address that is most closely connected with the supply is located. For purposes of this part of the place of supply rule, there is no requirement for the address of the recipient to be an address at which the recipient is located. The types of addresses that could fall under this part of the rule could also include an address of the recipient such as a billing address, provided it is obtained by the supplier for a legitimate underlying business reason.

Additional information concerning place of supply rules for GST/HST purposes may be found in Draft GST/HST Technical Information Bulletin B-103, Harmonized Sales Tax – Place of supply rules for determining whether a supply is made in a province. Specifically, the Services – General rules would be the ones to apply.

B) Tax paid in error

Under subsection 232(1), where a person has overcharged or collected the wrong amount as or on account of GST/HST in error, the person has the option to adjust, refund or credit the excess tax within two years after the day the amount was so charged or collected. If the person chooses to adjust, refund, or credit the excess amount of GST/HST, a credit note containing prescribed information (Footnote 2) must be issued by the person to the recipient within a reasonable time (unless the recipient issues a debit note). The person may also make an adjustment to its net tax calculation to account for any adjustment, refund or credit of an amount of tax charged or collected in error to the extent that the amount was included in determining the net tax for the reporting period or a prior reporting period.

Alternatively, persons who have paid an amount as GST/HST in error may make an application to the Canada Revenue Agency (CRA) for a rebate of tax paid in error under section 261 using Form GST189, General Application for Rebate of GST/HST. The time limit to apply for this rebate is within two years after the day the amount was paid.

Additional information concerning tax collected in error may be found in GST/HST Memoranda 12.2, Refund, Adjustment, or Credit of the GST/HST under Section 232 of the Excise Tax Act. Further information regarding rebate claims is set out in Guide RC4033, General Application for GST/HST Rebates.

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the rulings given in this letter provided that: none of the issues discussed in the rulings are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretations given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA's interpretative policy could affect the interpretations or the additional information provided herein.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-670-0671. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Pierre-Olivier Roy
Charities and Non-Profit Organizations Unit
Public Service Bodies and Government Division
Excise and GST/HST Rulings Directorate

FOOTNOTES

1 […][Organization’s website], consulted on December 17, 2018.

2 The information is prescribed in the Credit Note and Debit Note Information (GST/HST) Regulations.