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: 158637
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
Application of the GST/HST to fees charged by a charity.
Thank you for your letter of [mm/dd/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a commitment fee and a cancellation fee charged by a charity to the employer/sponsor of an apprentice in relation to training services. We apologize for the delay in 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
Based on your letter and its attachments, including the agreement the […] (the Charity) entered into with […][a third party], as well as information on the Charity’s website […], our telephone conversations of [dates], and your [correspondence] of [mm/dd/yyyy], we understand the facts to be as follows:
1. The Charity is a registered charity for purposes of the Income Tax Act (ITA) and is a charity for purposes of the ETA.
2. The Charity is registered for GST/HST purposes, and files for the public service bodies’ rebate, under account number […].
3. The Charity’s most recently filed T3010 - Registered Charity Information Return lists its ongoing programs as: […]
4. The Charity entered into an agreement with the [third party] (the Agreement) to deliver […] training to […] apprentices and/or trainees during the term of the Agreement. The term of the Agreement commenced on [mm/dd/yyyy] and ended on […][mm/dd/yyyy].
5. Pursuant to the Agreement, the [third party] will pay a specified amount to the Charity for each apprentice and/or trainee enrolled in and attending each course of the term during which the Charity is engaged in providing services under the Agreement. The [third party] does not pay the Charity for a training course if an apprentice withdraws or does not attend the training course. In such a case, the Charity will provide the [third party] with the date on which the apprentice withdrew.
6. In order to access the training supplied by the Charity, an apprentice and their employer/sponsor enter into an agreement with the Charity to obtain training by applying on the Charity’s website. The Charity’s […][Form A] requires an apprentice and their employer/sponsor to input relevant information and make declarations. The […] on [Form A] states: […] [quote from website about administration with information for the apprentice and/or trainee]
7. The […] on [Form A] states:
[…][quote from website about administration with information for the employee/sponsor]
8. After inputting the information and agreeing to the applicable declaration on the Charity’s [Form A], the employer/sponsor or the apprentice is required to make a $[…] payment ($[…] plus […][GST/HST]) as a […][FeeY]. The following description is provided for [Fee Y]: […][quote from website]
9. The Charity’s [Form A][ also outlines the Charity’s cancellation policy. It states:
[…][quote from website]
10. The Charity charges the […][GST/HST] on the […][cancellation fee].
RULING REQUESTED
You would like to know:
1. Should the GST/HST be charged on [Fee Y] that is charged to the employer/sponsor or the apprentice?
2. Should the GST/HST be charged on the [cancellation fee] charged to the employer/sponsor if […][a participant withdraws from training during a specified time period]?
RULING GIVEN
Based on the facts set out above, we rule that:
1. The GST/HST should not be charged on [Fee Y] that is charged to the employer/sponsor or the apprentice. [Fee Y] is consideration for a supply that is an exempt supply pursuant to section 1 of Part V.1 of Schedule V.
2. The GST/HST should not be charged on the [cancellation fee] charged to the employer/sponsor if [a participant withdraws from training during a specified time period].
EXPLANATION
[Fee Y] is consideration paid to the Charity for a supply to the employer/sponsor or the apprentice. This is a single supply made by the Charity that is an exempt supply pursuant to section 1 of Part V.1 of Schedule V.
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.
GST/HST collected in error
Where a supplier has collected GST/HST in respect of an exempt supply, the GST/HST has been collected in error. Please note that where a charity has collected GST/HST in error on exempt supplies, 100% of the GST/HST collected in error must be remitted. For more information on how a charity determines its net tax, refer to GST/HST Info Sheet GI-066, How a Charity Completes its GST/HST Return available on the Canada Revenue Agency (CRA) Web site.
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. If the charity chooses to adjust, refund, or credit the excess amount of GST/HST, a credit note containing prescribed information must be issued to the recipient (the purchaser) within a reasonable time by the charity. The charity 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 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. Form GST 189, General Application for Rebate of Goods and Services (GST)/Harmonized Sales Tax (HST), is used to apply for the rebate. 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 Series Chapter 12.2, Refund, Adjustment, or Credit of the GST/HST under Section 232 of the Excise Tax Act, available on the CRA Web site.
ADDITIONAL INFORMATION
A charity that is registered for purposes of the GST/HST is required to calculate its net tax in accordance with the net tax calculation for charities set out in section 225.1. The net tax calculation for charities simplifies the way charities calculate their net tax as it generally removes the need for charities to allocate their purchases and expenses in relation to their taxable supplies and exempt supplies. A charity can elect not to use the net tax calculation for charities if it makes supplies outside Canada or zero-rated supplies in the ordinary course of its business, or if 90% or more of its supplies are taxable. Please see GST/HST Info Sheet GI-066 for more information on how a charity determines its net tax.
For more information on the application of the GST/HST to charities please refer to GI-067, Basic GST/HST Guidelines for Charities.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, 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.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-0420. 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,
Trent MacDonald
Charities and Non-Profit Organizations Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
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