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, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 127947r
Business Number: […]
Dear [client]:
Subject: GST/HST RULING
Supplies of [health related] goods and services by a registered charity
As part of our regular quality assurance process, we have reviewed our ruling letter of [mm/dd/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the provision of services and the sale of property by […]([…][the Corporation]).
As the result of this review, we are issuing this revised GST/HST ruling. Please note that our decision regarding the GST/HST status of supplies of educational services provided to school authorities and professionals, the provision of educational consultancy services, and registrations to [the Corporation’s] annual conference has not changed. The revisions made only affect the supplies of […][Products A, B, and C] by [the Corporation]. […]. This revised ruling replaces the ruling issued [mm/dd/yyyy].
The HST applies in the participating provinces at the following rates: 13% in Ontario; 14% in Prince Edward Island; and 15% in New Brunswick, Newfoundland and Labrador and Nova Scotia. The Government of Prince Edward Island has proposed to increase the rate of the HST in that province from 14% to 15% effective October 1, 2016. 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 facts to be as follows:
1. [The Corporation is] located in […][Province A]. [The Corporation] is a registered charity for income tax purposes and is a charity for GST/HST purposes. It is also registered for GST/HST purposes.
2. […][Direct quote from about the charity’s activities from their Web site].
3. [The Corporation] has a number of sources of revenue, including the following:
(a) […][Information about the Corporation’s supplies of educational services].
(b) In addition to providing educational services to primary and secondary schools, [the Corporation] provides educational seminars to professionals. All programs are designed to inform, motivate and educate the participants. In these cases, [the Corporation] generally charges a fee to each participant who wishes to attend the seminar.
(c) [The Corporation’s] employees also provide educational consulting services to […][Client X] for which [the Corporation] charges […] consulting fees.
(d) [The Corporation] hosts an annual conference, to which it charges registration fees to those individuals wishing to attend. The conference is typically held at a local hotel and includes an awards ceremony, a luncheon, a keynote speaker, as well as [the Corporation’s] annual general meeting.
(e) In the course of carrying out its mandate, [the Corporation] purchases […][Products A, B, and C] from a supplier and sells these […][products]. […].
4. […][Product A description]
5. […][Product B description]
6. [The Corporation] sells […][the products] for more than the purchase cost […] and charges GST on all of the sales.
RULINGS REQUESTED
Are the following supplies made by […][the Corporation] subject to the GST/HST?
1. educational services provided to school authorities and professionals;
2. the provision of educational consultancy services […][Client X];
3. registrations to [the Corporation’s] annual conference;
4. sales of [Products A, B, and C] made by [the Corporation].
RULINGS GIVEN
Based on the facts set out above, we rule that:
1. Educational services provided by [the Corporation] to school authorities and professionals are exempt supplies, not subject to the GST/HST.
2. [The Corporation’s] provision of educational consultancy services to [Client X] are exempt supplies, not subject to the GST/HST.
3. Registrations to [the Corporation’s] annual conference are exempt supplies, not subject to the GST/HST.
4. Sales of [products A and B] are zero-rated pursuant to paragraph 2(b) of Part I of Schedule VI. Sales of [Product C] are subject to the GST/HST at the applicable rate depending on the province in which the supply is made.
These rulings are subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by these rulings provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect their validity, and all relevant facts and transactions have been fully disclosed.
EXPLANATION
Rulings # 1 to 3
For GST/HST purposes, most supplies of property and services that are made in Canada are taxable supplies subject to the GST/HST at the rate (i.e., 5%, 13%, 14% or 15%) applicable in the province in which the supply is made, unless the supply is specifically identified as being a zero-rated supply or an exempt supply. Zero-rated supplies are taxable at the rate of 0% and are listed in Schedule VI. Exempt supplies are listed in Schedule V and are not subject to the GST/HST.
Section 1 of Part V.1 of Schedule V provides that any supply made by a charity […] is an exempt supply unless the supply is excluded from exemption by any of paragraphs (a) to (p) of that section. There are no exclusions from this general exempting provision for [the Corporation’s] supplies of educational and consultancy services described above or for the supply of registrations to [the Corporation’s] annual conference. As such, these are all exempt supplies under section 1 of Part V.1 of Schedule V and are not subject to the GST/HST.
Ruling # 4
[Products A and B]
Paragraph 1(a) of Part V.1 of Schedule V excludes from exemption a supply of property or a service that is included in Schedule VI, i.e., zero-rated supplies. Part I of Schedule VI contains provisions that zero-rate a broad range of drugs and substances that are regulated under federal legislation. Paragraphs 2(a) to (d.1) of Part I of Schedule VI generally refer to drugs or substances that are included in schedules to the Food and Drugs Act (FDA) and its regulations and regulations made under the Controlled Drugs and Substances Act (CDSA). In order to fall within paragraphs 2(a) to (d.1) of Part I of Schedule VI, the supply in question must be that of a “drug” or, in the case of paragraph 2(c), a “drug or other substance”.
Paragraph 2(b) of Part I of Schedule VI zero-rates a supply of “a drug that is set out on the list established under subsection 29.1(1) of the Food and Drugs Act or that belongs to a class of drugs set out on that list, other than a drug or mixture of drugs that may, under that Act or the Food and Drug Regulations, be sold to a consumer without a prescription”. Subsection 29.1(1) of the Food and Drugs Act gives the Minister of Health the power to establish a list that sets out prescription drugs, classes of prescription drugs, or both. The list established under subsection 29.1(1) of the Food and Drugs Act is called the Prescription Drug List.
The term “drug” is not defined in the ETA. As paragraph 2(b) of Part I of Schedule VI references drugs contained on a list established pursuant to the Food and Drugs Act we can look to the definition of “drug” in that act. The Food and Drugs Act defines “drug” as including “any substance or mixture of substances manufactured, sold or represented for use in
(a) the diagnosis, treatment, mitigation or prevention of a disease, disorder or abnormal physical state, or its symptoms, in human beings or animals,
(b) restoring, correcting or modifying organic functions in human beings or animals, or
(c) disinfection in premises in which food is manufactured, prepared or kept;”
For purposes of the zero-rating provision of paragraph 2(b) of Part I of Schedule VI to the ETA a product would have to be a drug, as defined in the Food and Drugs Act, rather than simply a product that is regulated as a drug by Health Canada. Health Canada has advised our office that [Products A and B], as singular products, are drugs as defined in the Food and Drugs Act. [Products A and B] are not specifically listed on the Prescription Drug List, but their active ingredient, […], is on the list in a class of drugs called […][drug class]. […][Products A and B] are drugs that can only be sold to a consumer with a prescription. Therefore supplies […][Products A and B] are zero-rated pursuant to paragraph 2(b) of Part I of Schedule VI.
[Product C]
[Product Cs] are not drugs as defined in the Food and Drugs Act. As they are not drugs, the zero-rating provisions in Part I of Schedule VI will not apply to sales of these products.
Paragraph 1(d) of Part V.1 of Schedule V excludes from the general exempting provision the supply of tangible personal property that has been acquired by the charity for purposes of resupply and was neither donated to the charity nor used by another person before its acquisition by the charity. As [the Corporation] purchases [Product C] new (i.e., they are not donated to […][the Corporation]) in order to resupply them, these sales are excluded from the general exempting provision in section 1 of Part V.1 of Schedule V.
Part II of Schedule VI lists medical devices for human use that are zero-rated under the ETA. Some devices are zero-rated in their own right (e.g., supplies of artificial eyes, artificial teeth, hearing aids) while other devices are zero-rated only when supplied under certain conditions (e.g., on the written order of a specified professional for use by a consumer named in the order, or specially designed for use by an individual with a disability). There are no provisions in Part II of Schedule VI that would zero-rate the supply of a [Product C].
Given the preceding, [Product C] would be taxable at the applicable rate depending on the province in which the supply is made.
Exempting provisions
As noted above, supplies of [Products A, B and C] made by [the Corporation] are excluded from the general exempting provision for charities by paragraphs 1(a) and 1(d) of Part V.1 of Schedule V. However, these supplies may be exempt under another section in Schedule V. Generally, section 5.1 of Part V.1 of Schedule V exempts supplies made by a charity that does not exceed the “direct cost” of the supplies. The term “direct cost” of a good is generally defined to mean the total amount paid by the supplier to purchase the good, including the GST/HST and duties or taxes that are not recoverable by the supplier. Direct cost does not include administrative or overhead expenses, or employee salaries that the charity incurs to provide the goods.
Given that [the Corporation] currently charges more than direct cost when it supplies [Products A, B and C], the exemption in section 5.1 of Part V.1 of Schedule V would not apply to these supplies. However, if [the Corporation] were to charge less than direct cost for the sale of an [these products], the supply of [these products] may be exempt. For more information on direct cost, see Guide RC4082, GST/HST Information for Charities.
Amounts paid as or on account of tax
Where a supplier has charged or collected an excess amount as or on account of tax on supplies that qualify for zero-rating, the supplier may refund or credit the excess amount to the recipient in accordance with section 232. If the supplier refunds or credits the amounts collected as GST/HST, it must do so within two years after the day the amount was charged or collected and it must provide the recipient with a credit note containing prescribed information.
Alternatively, persons who have paid an amount as GST/HST on supplies that qualify for zero-rating 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 (available on the CRA website at www.cra-arc.gc.ca). The time limit to apply for this rebate is within two years after the day the amount was paid.
For more information, refer to GST/HST Memorandum 12.2, Refund, Adjustment, or Credit of the GST/HST under Section 232 of the Excise Tax Act and 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 ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) 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.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-4395. 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,
Art Blommesteijn
Health Care Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
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