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: 181617
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
Tax status of supplies made by a non-profit organization
Thank you for your fax of January 9, 2017, sent by […][your representative], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to certain supplies made by your organization. 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
We understand the following facts based on information contained in your letter, further information obtained through subsequent telephone calls and documents, and a review of the websites of […]:
1. […][The Provincial association]’s purpose, per its Constitution, “is to […]”.
2. [Your representative] stated that [the Provincial association] is a non-profit organization as defined in subsection 123(1).
3. [The Provincial association]’s By-laws contain the following provisions:
- […][By-laws about memberships and registration fees] […]
4. [The Provincial association] is a member association of […][the Federal association].
5. As of the date of this letter, [the Provincial association] is not registered for GST/HST purposes.
6. [Your representative] stated that [the Provincial association] has charged and collected tax on some supplies, and is holding the collected tax in a liability account. [The Provincial association] has not filed any GST/HST returns nor remitted any net tax owing.
[…][Fee]
7. [The Provincial association] charges […][a fee] of $[…] to all its […] participants. Participants include (but are not limited to) […]. The [fee] is paid by participants who either participate in the programs run by [the Provincial association] or participate in […] affiliated with [the Provincial association], […].
8. In return for the [fee], [the Provincial association] provides […] participants:
- the right to participate in [Provincial association] […] activities;
- […] insurance coverage […];
- registration with [the Federal association]; and
- other benefits (newsletters, etc.).
9. [The Provincial association] considers the [fee] to be payment for a membership in [the Provincial association].
10. [The Provincial association] pays an amount of $[…] to [the Federal association] from the $[…] [fee] it receives from participants. [Your representative] believes [the Provincial association] is acting as an agent when it collects this money on behalf of [the Federal association]. This $[…] amount is based on the membership fee explained in facts #11 and 12. No agency agreement has been provided.
11. [The Federal association]’s By-laws indicates its only members are provincial and territorial […] organizations. […]. According to section [#], the number of votes a [Federal association] member is entitled to is based on its number of […][participants] […].
12. Prior to the […] season, [the Federal association] invoiced [the Provincial association] quarterly for payment of a “Membership Fee”.
13. [Your representative] advised that [the Provincial association] is not billed for any other membership dues by [the Federal association], apart from the $[…] fee for each of its participants. As of [yyyy], the [Federal association] portion is separated out from the $[…] [fee] and sent through [the Provincial association]’s new […] registration system […] directly to [the Federal association].
14. [The Provincial association]’s [fee] includes insurance coverage […].
15. [The Provincial association] pays […] for blanket insurance coverage. The insurance policy does not name each participant specifically. If a participant makes an insurance claim, the claim is first submitted to [the Provincial association]. Once [the Provincial association] confirms that the participant has paid the [fee], the insurance claim is sent to […].
16. […][Information about the insurance coverage]
17. According to [your representative], approximately $[…] of the [fee] is paid for the […] insurance. [Your representative] believes [the Provincial association] is acting as an agent when it collects the money for the insurance.
[…][Program X] for participants 7 to 17 years of age
18. [The Provincial association] offers […] [Program X] for participants 7 to 17 years of age.
19. […][Description of Program X]
20. […][Quote from website about Program X]
21. […][Additional description of Program X]
22. [The Provincial association]’s website lists the cost for [Program X] for […][year A] as $[…]. The [Program X] cost includes participation […], and a [Provincial association] membership. The cost without a membership is $[…][cost of program minus fee].
23. [The Provincial association]’s website lists the cost for [Program X] for […][year B] as $[…]. The [Program X] cost includes participation in […], and a [Provincial association] membership. The cost without a membership is $[…][cost of program minus fee].
24. [Program X] for participants 7 to 17 years of age does not involve overnight supervision.
25. [Program X] for participants 7 to 17 years of age is not provided primarily for underprivileged individuals or individuals with a disability.
26. During the [year A] season, [the Provincial association] had a total of […] participants between 7 and 22 years of age registered in its [Program X]] programs. Eighty-two percent of the participants were 7 to 14 years of age. You confirmed that the “vast majority” of participants for the [year B] season were 14 years of age or under.
[…] [Program X] participants 18 to 22 years of age
27. [The Provincial association] also offers a [Program X] for participants 18 to 22 years of age. […]
28. [Program X] for participants 18 to 22 years of age does not involve overnight supervision.
29. [Program X] for participants 18 to 22 years of age is not provided primarily for underprivileged individuals or individuals with a disability.
RULINGS REQUESTED
You would like to know:
1. Should GST/HST be charged on the [fee]?
2. Is the supply made in [Program X] for 7 to 17 years olds exempt for GST/HST purposes?
3. Is the supply made in [Program X] for 18 to 22 years olds exempt for GST/HST purposes?
RULINGS GIVEN
Based on the facts set out above, we rule that:
1. Yes, GST/HST should be charged on the [fee]. The fee is consideration for the supply of a membership in [the Provincial association]. As no exempting provisions apply, the supply is taxable. Since the total amount of consideration from the [fee] exceeds the small supplier threshold for public service bodies, [the Provincial association] must register for GST/HST purposes and collect GST/HST on the [fee].
2. Yes, the supply made in [Program X] for persons aged 7 to 17 year old is exempt from the GST/HST under section 12 of Part VI of Schedule V. Therefore, the fees for [Program X] for persons aged 7 to 17 year old are not subject to GST/HST.
3. No. The supply made in [Program X] for 18 to 22 years olds is not exempt from GST/HST. As no exempting provisions apply, the supply is taxable.
EXPLANATION
For ETA purposes, a “non-profit organization” is defined to mean 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 Provincial association] meets the definition of a non-profit organization for ETA purposes. In particular, whether [the Provincial association] meets the criterion of operating solely for a purpose other than profit must be determined on an ongoing basis.
[Fee]
In general, supplies of property and services made by a non-profit organization are taxable for GST/HST purposes unless the supply is an exempt supply under a provision in Schedule V.
[The Provincial association] considers the supply made in exchange for the [fee] to be a membership. Supplies of memberships by a public sector body, such as a non-profit organization, can be exempt or taxable depending on the type of benefits the members are entitled to receive.
Section 17 of Part VI of Schedule V exempts a supply of a membership in a non-profit organization (other than a membership in a club the main purpose of which is to provide dining, recreational or sporting facilities or in a registered party) where each member does not receive a benefit by reason of the membership, other than the allowable benefits listed in paragraphs (a) to (f) of that section. These benefits are described in Guide RC4081, GST/HST Information for Non-profit Organizations, which is available on our website.
A “benefit” is the right to any property or service of value regardless of the extent to which the right is actually exercised by individual members. All possible benefits accruing to members must be taken into consideration in determining the tax status of a membership.
The participants paying the [fee] receive significant direct benefits by reason of their membership in [the Provincial association], including insurance coverage and the right to participate in [Provincial association] […] activities. These benefits exceed the allowable benefits listed in paragraphs (a) to (f) of section 17. Therefore, [the Provincial association]’s supplies of memberships in exchange for the [fee] are not exempt under section 17 of Part VI of Schedule V.
As no other provision in Schedule V applies, [the Provincial association]’s supplies of memberships to participants who pay the [fee] are taxable. Therefore, [the Provincial association] must charge GST/HST on the [fee]. See “Additional Information” for more details.
A part of the [fee] charged by [the Provincial association] is relayed to [the Federal association] as payment for [the Provincial association]’s membership dues in [the Federal association]. Where a supplier ([the Provincial association]) charges a fee to a recipient (participants) and part of that fee is used to recoup the supplier’s costs (in this case, [the Provincial association]’s cost of being a member in [the Federal association]), this fee forms part of the consideration for the supply to the recipient (participants). As such, the part of the [fee] related to the [the Federal association] fees form part of the consideration for the [the Provincial association]’s supply of a membership. The same is true of the fees for the insurance coverage […].
[…][Program X]
A supply will be exempt under section 12 of Part VI of Schedule V where:
- the supplier is a public sector body (which is defined to include a non-profit organization);
- the supply is of a membership in a program or services supplied as part of a program;
- the program is established and operated by the public sector body;
- the program consists of a series of supervised instructional classes or activities involving athletics, outdoor recreation, music, dance, arts, crafts or other hobbies or recreational pursuits; and
- one of the following circumstances applies:
- the program is provided primarily to children 14 years of age or under and it does not involve overnight supervision throughout a substantial part of the program; or
- the program is provided primarily to underprivileged individuals or individuals with a disability.
The term “program” is not defined in the ETA. The determination as to whether [the Provincial association] supplies one or more programs is a decision for [the Provincial association] itself – that is, [the Provincial association] itself may define its own programs provided it is done on a reasonable basis. [The Provincial association] considers [Program X] for 7 to 17 year olds to be one program.
Some of the participants in [Program X] for 7 to 17 year olds are not 14 and under. However, based on the information provided, it may reasonably be expected that [Program X] for 7 to 17 year olds will be provided primarily (Footnote 1) to children 14 years of age or under. Therefore, all of [the Provincial association]’s supplies of services supplied as part of [Program X] for 7 to 17 year olds will be exempt, including supplies made to children who are 15 and over. If the age ratio in [Program X] for 7 to 17 year olds remains the same, so that it may reasonably be expected that [Program X] for 7 to 17 year olds will be provided primarily to children 14 years of age or under, [the Provincial association]’s supplies of services supplied as part of [Program X] for 7 to 17 year olds will continue to be exempt in future seasons.
On the other hand, the supply in [Program X] for 18 to 22 year olds would not be exempt under section 12 of Part VI of Schedule V as the participants are older than 14 years of age and the program is not provided primarily for underprivileged individuals or individuals with a disability. As no other exempting provision applies, the supply of [Program X] for 18 to 22 year olds is taxable.
Please note that [the Provincial association] membership which may be supplied with [Program X] remains a separate supply and is taxable. GST/HST should be charged on this portion.
Registration for GST/HST purposes
The ETA requires that 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 GST/HST purposes. The ETA defines a “commercial activity” to include a business carried on by the person, or an adventure or concern of the person in the nature of trade, except to the extent to which the business, adventure or concern involves the making of exempt supplies by the person.
One exception to the general requirement to register is where the person is a small supplier. In general, a non-profit organization is a “small supplier” throughout a particular calendar quarter and the following month if the total consideration that became due, or was paid without becoming due, for taxable supplies made by the person, or an associate of the person, in the previous four calendar quarters did not exceed a threshold of $50,000.
[The Provincial association] 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.
The total consideration for [the Provincial association]’s taxable supplies is at least $[…][50,000], based on the [fee] alone (number of participants multiplied by the fee). Therefore, [the Provincial association] is required to register for GST/HST purposes and is required to charge GST/HST on its taxable supplies.
For more information, see Guide RC4081 available on our website.
[…]
Collecting GST/HST
Generally, a GST/HST registrant (a person who is registered or who is required to be registered) is required to charge and collect GST/HST on all taxable (other than zero-rated) supplies of property and services it makes in Canada.
Any amounts a person collects as or on account of GST/HST are deemed to be held in trust for the Crown and must be included in determining the person’s net tax for the reporting period in which the tax became collectible or collected.
Reporting and remitting the GST/HST
The ETA requires that every registrant must file a GST/HST return for each of their reporting periods, by the applicable due date. The net tax of a person for a reporting period, as calculated on the GST/HST return, is generally the difference between the amount of tax collected or collectible and the amount of tax paid or payable for which an input tax credit may be claimed. If the net tax for a reporting period is positive, the amount must be remitted to the Receiver General. If the net tax for a reporting period is negative, that amount may be claimed as a net tax refund, which is payable by the Minister.
For further information on the collection and remittance of the GST/HST, see “Collecting the GST/HST” and “GST/HST returns” in Guide RC4022.
In general, a registrant is eligible to claim an input tax credit (ITC) for the GST/HST paid or payable by the registrant on property or a service acquired, imported or brought into a participating province to the extent (expressed as a percentage), that the property or service was acquired, imported or brought into a participating province for consumption, use or supply in the course of the registrant’s commercial activities (as previously defined under the heading “Registration for GST/HST purposes”).
Therefore, as [the Provincial association] is required to be registered, it will be entitled to claim ITCs to recover the GST/HST paid or payable on the purchases and expenses related to its commercial activities. [The Provincial association] cannot claim ITCs for the GST/HST paid or payable on property and services consumed, used or supplied in the course of its exempt activities.
[The Provincial association] makes both taxable and exempt supplies. Thus, [the Provincial association] must apportion its ITCs based on the extent of consumption, use, or supply of the property or services in its commercial activity. For instance, [the Provincial association] will be able to claim ITCs to recover the GST/HST paid or payable on purchases related to its taxable supplies of memberships to its members. However, [the Provincial association] cannot claim ITCs for the GST/HST paid or payable on property and services to the extent the property or service is consumed, used or supplied in making exempt supplies of [Program X] for persons aged 7 to 17 years.
For more information, see “Input tax credits” in Guides RC4081 and RC4022.
Public service bodies’ rebate
Where no input tax credit is available to a non-profit organization, a public service bodies’ rebate (PSB rebate) of 50% of the GST and the federal part of the HST may be available where certain conditions are met. A “qualifying non-profit organization” is entitled to a PSB rebate of the GST and the federal part of the HST paid or payable on eligible purchases and expenses for which it cannot claim an input tax credit or other rebate, refund or remission of tax. (Footnote 2) Generally, a non-profit organization is a qualifying non-profit organization for a fiscal year if its percentage of government funding for the fiscal year, or for the previous two fiscal years, is at least 40% of its total revenue.
For more information, see “Public service bodies’ rebate” in Guide RC4081 and Info Sheet GI-186, Public Service Bodies’ Rebate for Qualifying Non-profit Organizations Resident in One or More Non-participating Provinces.
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.
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
FOOTNOTES
1 “Primarily” means more than 50%.
2 Qualifying non-profit organizations resident in a participating province are entitled to a PSB rebate of the provincial part of the HST.
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