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: 144865
Business Number: [...]
August 19, 2013
Dear [Client]:
Subject: GST/HST RULING
Taxable status of promotional benefits
Thank you for your facsimile of [mm/dd/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to promotional benefits received by the sponsors of several venues at the [...][recreational facility] in [...][City, Province]. We apologize for the delay in responding.
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
Statement of Facts
We understand that:
1. [...] ("the City") is a municipality and a public sector body as those terms are defined in the ETA.
2. The City is not a registered charity for the purposes of the Income Tax Act.
3. The City has entered into three separate agreements, referred to as "sponsorship agreements": one with [...][Company A], one with [...][Company B], and one with [...][Company C].
4. These agreements identify the City as the registered owner of the [recreational facility].
[Company A] Agreement:
5. The terms of the agreement between the City and [Company A] outline the following conditions:
a. [Company A] has agreed to sponsor [...] an [Indoor Field] at the [recreational facility] currently known as the [...][Indoor Field];
b. The City grants to [Company A] the exclusive right to name the [Indoor Field];
c. For the period of the term of the agreement, the [Indoor Field] will be known as the [...][XYZ] [Indoor Field];
d. The term of the agreement is for the period from [mm/dd/yyyy] through [mm/dd/yyyy];
e. [Company A] will pay to the City the sum of $[...], in an annual payment of $[...] for the [yyyy], before [mm/dd/yyyy] and $[...] for the years [yyyy] through [yyyy] inclusive, with each payment to be made prior to [mm/dd] of each year;
f. The terms of the agreement further state that for the term of the agreement, the City will provide [Company A] with the following:
i. Display in and around the [XYZ] [Indoor Field] any and all signage featuring the name and logo of [Company A], which may include, but is not limited to rink boards, banners and tall end board space;
ii. Feature the logo of [Company A] on any promotional materials of the [recreational facility] indicating its sponsorship;
iii. Recognize [Company A] in all promotional campaigns related to the [XYZ] [Indoor Field], including campaigns conducted in print, broadcast and electronic media;
iv. Include the name of [Company A], as well as their logo and website link on the [recreational facility] website; and
v. Recognize [Company A] as a sponsor for programs and special events offered by the City at the [XYZ] [Indoor Field];
vi. All signage that is installed under the terms of the sponsorship agreement must be approved by the City prior to installation.
g. The terms of the agreement also state [...][option to extend duration of sponsorship agreement].
[Company B] Agreement:
6. The terms of the agreement between the City and [Company B] state the following conditions:
a. The City grants to [Company B] an exclusive right to name the [rink] currently known as [...] [Rink #1] at the [recreational facility];
b. For the period of the term of the agreement, [Rink #1] shall be known as the [Company B] [Rink #1];
c. The term of the agreement shall be from [mm/dd/yyyy] through [mm/dd/yyyy]. The period from [mm/dd/yyyy] to [mm/dd/yyyy] is to align the agreement with [Rink] seasons and is being adjusted at no charge. Any further agreements would begin on [mm/dd/yyyy];
d. [Company B] will pay to the City, the total sum of $[...], in an annual payment of $[...] each year for the years [yyyy] through [yyyy], inclusive. Each payment is to be made prior to [mm/dd] of each year;
e. The agreement also indicates [...][option to extend duration of sponsorship agreement];
f. The terms of the agreement further state that for the term of the agreement, the City will provide [Company B] with the following:
i. The City will display in and around the [Company B] [Rink #1] any and all signage featuring [Company B]'s name and logo, which may include but is not limited to rink boards, banners and ice logos, and [rink] glass advertisements;
ii. Feature the logo of [Company B] on any promotional materials of the [recreational facility] indicating its sponsorship;
iii. Recognize [Company B] as the sponsor in all promotional campaigns related to the [Company B] [Rink #1], including campaigns conducted in print, broadcast and electronic media;
iv. Include the [Company B] name, logo and website link on the [recreational facility] website and recognize [Company B] as a sponsor for programs and special events offered by the City at the [Company B] [Rink #1].
g.[...]
h. The terms of the agreement between the City and [Company B] also state that [Company B] agrees to provide the City with the artwork in respect of the trade marks in an appropriate format, within a reasonable time following the execution of the agreement and that the City must approve all signage installed in accordance with this agreement prior to installation taking place.
[Company C] Agreement:
7. The terms of the agreement between the City and [Company C] state the following conditions:
a. [Company C] has agreed to sponsor [a] [rink] at the [recreational facility] currently known as [...][Rink #2];
b. The City grants to [Company C] the exclusive title right to name [Rink #2] for the term of the agreement; for the period of the term of the agreement, [Rink #2] shall be known as the [Company C] [Rink #2];
c. [Company C] will be paying to the City the total sum of $[...], in an annual payment of $[...] each year for the years [yyyy] through [yyyy], inclusive. Each payment is to be made prior to [mm/dd] of each year;
d. The term of the agreement is from [mm/dd/yyyy] through [mm/dd/yyyy]. The period of [mm/dd/yyyy] and [mm/dd/yyyy] is to align the agreement with [Rink] seasons and is being adjusted at no charge. Any further agreements would begin on [mm/dd];
e. The terms of the agreement further state that for the duration of the agreement, the City will:
i. Display in and around the [Company C] [Rink #2] any and all signage featuring [Company C]'s name and logo, which may include but is not limited to rink boards, banners, ice logos, and [Rink #2] glass advertisements;
ii. Feature [Company C]'s logo on any promotional materials of the [recreational facility] indicating its sponsorship;
iii. Recognize [Company C] in all promotional campaigns related to [Company C] [Rink #2], including campaigns conducted in print, broadcast and electronic media;
iv. Include [Company C]'s name, logo and website link on the [recreational facility] website, and recognize [Company C] as a sponsor for programs and special events offered by the City at the [Company C] [Rink #2];
v.[...].
f. The terms of the agreement further state that the City must approve all signage that is to be installed as per the agreement, prior to the installation taking place.
g. In addition, [...][option to extend duration of sponsorship agreement].
8. The City considers the payments under these agreements to be subject to the GST due to unclear interpretation of the rule in Guide RC4082, "GST/HST Information for Charities".
Ruling Requested
You would like to know whether the promotional benefits that the City is providing to [Company A], [Company B], and [Company C] are exempt from GST.
Ruling Given
Based on the facts set out above, we rule that the City is making a taxable supply of an intangible property, that is, a right to name the facilities specified in the agreements ("naming right").
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling 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 its validity, and all relevant facts and transactions have been fully disclosed.
Explanation
Every recipient of a taxable supply made in Canada is required to pay GST/HST at the rate of 5%, 12%, 13% or 15% (depending on the place of supply) on the value of the consideration for a supply unless it is an exempt supply. Exempt supplies are listed in Schedule V. The ETA contains no provision to exempt the supply of the naming right and therefore, the supply of the naming right is subject to GST/HST.
We have also considered whether section 135 would deem that there was no supply made and therefore, no GST/HST would be applicable to the payments under the three agreements discussed above. Section 135, "Sponsorship of public service bodies", states that:
"For the purposes of this Part, where a public sector body makes
a) A supply of a service, or
b) A supply by way of licence of the use of a copyright, trade-mark, trade-name or other similar property of the body,
to a person who is the sponsor of an activity of the body for use by the person exclusively in publicizing the person's business, the supply by the body of the service or the use of the property shall be deemed not to be a supply, except where it may reasonably be regarded that the consideration for the supply is primarily for a service of advertising by means of radio or television or in a newspaper, magazine or other publication published periodically or for a prescribed service."
The ETA definition of a "service" excludes property, and the definition of "property" includes intangible property, such as a naming right; therefore, paragraph 135(a) does not apply. Furthermore, based on the terms of the agreements, the City has not made a "supply by way of licence of the use of a copyright, trade-mark, trade-name or other similar property of the body" to any of the businesses; thus, paragraph 135(b) also would not be applicable to the case at hand. Therefore, the provisions of section 135 cannot be applied to the supply made by the City to [Company A], [Company B], and [Company C].
Thus, the supplies are taxable and the City is correct in applying GST to the payments received from the three businesses in question under the terms of their respective agreements, and given that the City is a GST registrant, GST on the payments received from [Company A], [Company B], and [Company C] should be collected and remitted.
Furthermore, please note that in your facsimile dated [mm/dd/yyyy] you referred to Guide RC4082 "GST/HST Information for Charities" and indicated that the payments received by the City from the above noted businesses are being viewed by the City as being subject to GST due to unclear interpretation of the rule in Guide RC4082. Since the City is a municipality and not a registered charity, the information discussed in Guide RC4082 should not be used by the City given that this publication was created to provide guidance only to registered charities or registered Canadian amateur athletic associations as those terms are defined in the Income Tax Act. For information on the application of GST/HST to municipalities, please refer to RC4049 "GST/HST Information for Municipalities".
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-0329. 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,
Tetyana Zabroda
Charities and Non-Profit Organizations Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
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