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: 186334
Business Number: […]
Dear [Client]:
Subject: GST/HST RULINGS AND INTERPRETATIONS
Annual licensing fees and public service bodies’ rebate eligibility
Thank you for your letter of August 2, 2017, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the […] ([…][Organization])’s fees, as well as its eligibility for the public service bodies’ (PSB) rebate. We apologize for the delay in providing our response.
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 the following based on the information you provided and the [Organization]’s website:
1. The [Organization] was established as a corporation on [mm/dd/yyyy] under […] of […][Act X] (Footnote 1) .
2. You have stated that the [Organization] is a non-profit organization as defined in subsection 123(1).
3. Per […] of [Act X], the [Organization] regulates the profession of […] in […][Province X].
4. [Act X] includes the following provisions:
[…][sections of Act X, including: definitions including “licence”; the determination of when a person becomes a member and when a person is issued a licence; the payment of fees, renewals of licences, and the consequences of not doing so; and prohibiting a person from practising without a licence].
5. The […][Regulations] (Footnote 2), made under […] of [Act X], include the following provisions:
[…][sections of the Regulations including; the definitions of terms for fees and year; the classes and categories of licences; the information required in the register; the requirements to obtain a licence; the appeal process and requirements to pay fees].
6. […][information about licences and licence renewal requirements].
7. There are sections in [Act X] and the [Regulations] that impose fines and penalties in certain circumstances. […] of [Act X] states that […][any payment of fines belong to the Organization].
8. The [Organization] charges an annual licensing fee to […][the licensee’s] in [Province X]. Prior to [mm/yyyy], it charged and collected tax on this fee.
9. […], it was noted that the [Organization] is considering imposing the following other fees:
- initial registration fee,
- expired licence fee (additional fee where a person does not renew their licence before the expiry date),
- temporary/restricted licencing fee,
- change of licence class fee,
- jurisprudence test fee,
- registration appeal fee,
- licence reinstatement fee,
- verification of licensure fee,
- provincial exam fee,
- insufficient funds fee, and
- fines and penalties.
10. The [Organization]’s website notes that potential licensees must pass the […][exam]. The website notes the cost of the exam […].
11. Based on information from the [Organization]’s and […] websites, the [Organization] is not the person supplying the service of administering the [exam].
12. The [Organization] is not registered for GST/HST purposes.
13. […].
RULINGS REQUESTED
You would like to know:
1. Should HST be charged on the [Organization]’s annual licensing fee charged to […]?
2. Should HST be charged on the following fees?
- initial registration fee,
- expired licence fee,
- temporary/restricted licencing fee,
- change of licence class fee,
- jurisprudence test fee,
- registration appeal fee,
- licence reinstatement fee,
- verification of licensure fee,
- provincial exam fee,
- insufficient funds fee, and
- fines and penalties.
3. Is the [Organization] eligible for the PSB rebate?
RULINGS GIVEN
Based on the facts set out above, we rule that the supply of a licence by the [Organization] in exchange for the annual licensing fee is an exempt supply under paragraph 20(c) of Part VI of Schedule V and is not subject to the GST/HST.
We acknowledge your request for rulings on the above matters. However, as noted in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, a ruling provides the Canada Revenue Agency’s (CRA’s) position on specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person. As the circumstances are such that all of the pertinent facts cannot be established at this time (the fees being considered by the [Organization] and the [Organization]’s eligibility for a PSB rebate and the jurisprudence test fee), we are unable to rule on these issues. Rather, we are providing general information which we trust will be of assistance.
EXPLANATION
Annual licensing fees
Paragraph 20(c) of Part VI of Schedule V to the ETA exempts a supply of a licence, permit, quota or similar right (other than a right or service supplied in respect of the importation of alcoholic beverages) where the supply is made by a government or municipality or by a board, commission or other body established by a government or municipality. GST/HST Policy Statement P-247, What Constitutes an “Other Body Established by a Government” for Purposes of the Excise Tax Act (the Act)?” sets out the Canada Revenue Agency’s position with respect to what type of body would be an “other body established by a government”. This policy provides that the body must fall into one of three categories. The categories are:
- Category 1 – A body created by a government in legislation;
- Category 2 – A body incorporated by a government; and
- Category 3 – A body that meets the following criteria –
- (a) a government has taken action relating to the body;
- (b) the body is set up to undertake a public service function that government usually undertakes; and
- (c) the government retains the overall authority for the regulatory program, and the body remains accountable to the government.
The [Organization] was established through [Act X] and is therefore considered to be an “other body established by government” under Category 1 for the purposes of section 20 of Part VI of Schedule V.
The supply of a licence by the [Organization] in exchange for the annual licensing fee is an exempt supply and is not subject to the GST/HST. Therefore, the [Organization] should not charge GST/HST on its annual licensing fee or other fees associated with the supply of the licences. There are no provisions within the ETA which would enable the [Organization] to elect to have an exempt supply of a licence treated as taxable.
INTERPRETATIONS GIVEN
Other fees
The following of the [Organization]’s other fees would be consideration for exempt supplies and GST/HST should not be charged on these fees:
- initial registration fee,
- expired licence fee,
- temporary/restricted licencing fee,
- change of licence class fee,
- registration appeal fee,
- licence reinstatement fee,
- verification of licensure fee, and
- insufficient funds fee.
The provincial exam fee would be consideration for a taxable supply and subject to the GST/HST.
Fines and penalties that may be imposed under [Act X] and [Regulations] are not consideration for a supply and are not subject to the GST/HST.
Expired licence fee
The expired licence fee is additional consideration for supply of a licence and would also be exempt.
Initial registration fee, temporary/restricted licencing fee, change of licence class fee, and reinstatement fee
As paragraph 20(c) of Part VI of Schedule V also exempts “a service of processing an application for a licence, permit, quota or similar right”, the following fees relate to the service of processing the […] licences:
- initial registration fee,
- temporary/restricted licencing fee,
- change of licence class fee, and
- reinstatement fee.
Registration appeal fee
Subparagraph 20(b)(i) of Part VI of Schedule V to the ETA exempts a supply of “a service of filing … a document … in accordance with legislative requirements” where the supply is made by a government or municipality or by a board, commission or other body established by a government or municipality.
The registration appeal fee is consideration for a supply of “a service of filing … a document … in accordance with legislative requirements”. Therefore, the supply would be exempt under subparagraph 20(b)(i) of Part VI of Schedule V and GST/HST should not be charged on the registration appeal fee.
Verification of licensure fee
The verification of licensure fee is consideration paid for the supply of “any document [or] a service of providing information, […] that indicates […] any other status of any person.” Therefore, the supply would be exempt under subparagraph 20(d)(iii) of Part VI of Schedule V and GST/HST should not be charged on the verification of licensure fee.
Insufficient funds fee
With respect to the insufficient funds fee, a dishonoured cheque triggers a situation in which the [Organization] obtains a “right to be paid money” by the drawer of the cheque. This “right to be paid” meets the definition of “debt security” in subsection 123(1). The debt security is a “financial instrument” and the processing of a financial instrument is an exempt supply of a “financial service” under section 1 of Part VII of Schedule V.
Provincial exam fee
Based on information from the [Organization]’s and […] websites, the [Organization] is not the person supplying the service of administering the [exam]. Therefore, the “provincial exam fee” is consideration for a service of processing an application.
There is no provision that would apply to exempt this supply and therefore the supply would be taxable.
Jurisprudence test fee
Section 6 of Part III of Schedule V exempts “a supply of:
(a) a service of instructing individuals in courses leading to, or for the purpose of maintaining or upgrading, a professional or trade accreditation or designation recognized by a regulatory body, or
(b) a certificate, or a service of administering an examination, in respect of a course, or in respect of an accreditation or designation described in paragraph (a), where the supply is made by a professional or trade association, government, vocational school, university or public college or by the regulatory body, except where the supplier has made an election under this section in prescribed form containing prescribed information.”
A “regulatory body” is defined in section 1 of Part III of Schedule V to mean “a body that is constituted or empowered by an Act of Parliament or of the legislature of a province to regulate the practice of a profession or trade by setting standards of knowledge and proficiency for practitioners of the profession or trade”.
The [Organization] satisfies the definition of “regulatory body” set out above. If the [Organization] is the supplier of the jurisprudence test, that is the [Organization] is administering the examination, then the jurisprudence test fee would be consideration for a “supply of […] a service of administering an examination […] in respect of [a professional or trade accreditation or designation recognized by a regulatory body] where the supply is made by […] the regulatory body”. Where this is the case, the supply of the jurisprudence test would be exempt and GST/HST should not be charged on the fee, unless the [Organization] has made an election to exclude the supply of the administration of an examination from the exemption under section 6.
PSB rebate eligibility
To be eligible to claim a PSB rebate of the GST/HST, a person must be a selected public service body, a charity or a qualifying non-profit organization. As the [Organization] is neither a selected public service body, nor a charity, it would need to be a qualifying non-profit organization.
A “qualifying non-profit organization” is a non-profit organization whose percentage of government funding is at least 40% of its total revenue.
Qualifying non-profit organization
Subsection 259(2) states that “a person is a qualifying non-profit organization at any time in a fiscal year of the person if, at that time, the person is a non-profit organization and the percentage of government funding of the person for the year is at least 40%.”
Therefore, to be a qualifying non-profit organization the [Organization] must satisfy two conditions:
- it must be a “non-profit organization”; and
- its percentage of government funding must be at least 40%.
A “non-profit organization” is a person (other than an individual, an estate, a trust, a charity, a public institution, a municipality or a government) that was organized and is operated solely for a purpose other than profit, no part of the income of which is payable to, or otherwise available for the personal benefit of, any proprietor, member or shareholder thereof unless the proprietor, member or shareholder is a club, a society or an association the primary purpose and function of which is the promotion of amateur athletics in Canada.
It is a question of fact whether, at any particular time, the [Organization] meets the definition of a non-profit organization for ETA purposes. In particular, whether the [Organization] meets the criterion of operating solely for a purpose other than profit must be determined on an ongoing basis. For more information, see Policy Statement P-215, Determination of whether an entity is a Non-Profit Organization for purpose of the Excise Tax Act (‘ETA’).
Pursuant to subsection 259(1), the “percentage of government funding” of a person for a fiscal year of the person means the percentage determined in prescribed manner. The prescribed manner for determining the “percentage of government funding” is set out in section 3 of the Public Service Body Rebate (GST/HST) Regulations.
You mentioned […] that the [Organization] received a […] grant from [Province X] for the set-up of the [Organization]. This amount may be government funding. Generally, government funding refers to an amount of money (including a forgivable loan) that is easily measurable, identified as government funding in the non-profit organization’s financial statements and is paid by a grantor:
- to support or promote the non-profit organization’s objectives but not to pay for property or services supplied by the non-profit organization to the grantor; or
- for an exempt supply of property or services made by the non-profit organization, if the property and services are not for the use or consumption of the grantor or persons related to the grantor (for example, government funding of a local health unit to supply medical services to the public).
Assuming the grant received is government funding, the [Organization] can use this amount to calculate its percentage of government funding for its [yyyy - yyyy] fiscal year and its [yyyy - yyyy] fiscal year and determine its PBS rebate eligibility. If the [Organization] receives no other government funding, it is unlikely that the amount received would allow it to claim the PSB rebate beyond its two first fiscal years, if at all.
For more information on how to calculate the [Organization]’s percentage of government funding and determine its eligibility for the rebate, see Guide RC4034, GST/HST Public Service Bodies’ Rebate, and in particular the section entitled “Claiming a rebate as a qualifying non-profit organization”, and Form GST523-1, Non-profit Organizations - Government Funding, both available on CRA’s website. Please note that generally a person has four years from the end of the claim period in which it paid the tax to file its rebate application.
Small supplier
In general, every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to be registered for the GST/HST, except where the person is a small supplier. A non-profit organization is a small supplier if its total revenues and those of its associates from taxable supplies are $50,000 or less in the last four consecutive calendar quarters and in any single calendar quarter.
The [Organization] makes a combination of taxable and exempt supplies. Therefore, not all of its income is revenue from taxable supplies. Its revenue from exempt supplies is not included in the small supplier calculation.
For more information, see Guide RC4081, GST/HST Information for Non-profit Organizations, available on our website.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the 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 interpretation 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 interpretation 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 613-670-7943. 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,
Desneiges Arbour
Charities and Non-profit Organizations Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
1. […].
2. […].
Email this Content