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: 146888
Business Number: [...]
July 3, 2013
Dear [Client]:
Subject: GST/HST INTERPRETATION
[...][administration of second-language tests] [whether a vocational school]
Thank you for your letter of [mm/dd/yyyy], concerning the application of the Goods and Services Tax ("GST")/Harmonized Sales Tax ("HST") to [...] [the administration of second-language tests].
The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador, 14% in Prince Edward Island (effective April 1, 2013) and 15% in Nova Scotia. The GST applies in the rest of Canada at the rate of 5%.
Effective April 1, 2013, the 12% HST in British Columbia has been replaced by the 5% GST and a provincial sales tax.
All legislative references are to the Excise Tax Act ("ETA") unless otherwise specified.
Statement of Facts
The following information was provided in your letter, during our telephone conversations [...], and from the information provided on the websites of [...] ("Co. A") and [...] ("Co. B"):
Co. A
• Co. A is a privately owned business that incorporated in [yyyy] and operates in [...] [City 1].
• Co. A was established to provide [...], and to offer [...] ("teacher training") [...].
• [...].
• In [yyyy], Co. A added the [...] ("language test") to its business activities [...]. Co. B provided the language test prior to Co. A adding it to its business activities.
• Co. A is currently providing only the teacher training and the language test [...].
• Co. A is not a registered charity or a non-profit organization.
Teacher Training
• The teacher training is a program whereby Co. A trains individuals how to teach English to adults whose first language is not English. As well, if requested, Co. A would offer [...] [another program] to the teacher training [...] which would enable its clients to also teach children or teenagers in language schools. [...]
• The teacher training qualifications are validated by [...] ("Co. C").
• Co. A has an agreement with Co. C that gives Co. A the right to provide the teacher training program. Co. A is required to display the certificate of approval issued by Co. C so that the public can be assured that Co. A is a valid centre approved by Co. C.
• Co. A is not an agent of Co. C.
• Co. C requires that [...] the session is provided in accordance with its standards.
• If Co. A wishes to run a teacher training session with less than [X] students, Co. C bills Co. A for [X] students [...].
• Co. A can cancel a session if it doesn't enroll enough students. [...].
• Co. A presently holds approximately [#] teacher training sessions per [...], [...] [information about the sessions].
• The duration of a teacher training session is [...].
• Students register with Co. A and pay a fee to Co. A for the teacher training session which includes a certificate upon successful completion.
• [...] [administrative information].
• Co. A pays a fee to Co. C for each teacher training certificate to be issued to successful students.
• Co. C sends the certificates to Co. A who then mails them to the students.
Language Test
• The language test is recognized [internationally] [...].
• The language test is [...] owned by [...] ("Co. D"), [...].
• Co. A has an agreement with Co. D giving Co. A [...]. Co. A is not an agent of Co. D.
• Co. A maintains a small inventory of the language tests and must request more tests from Co. D when needed.
• The language tests are provided to Co. A's clients separate from any other course or international language program that Co. A may provide from time-to-time.
• [...] [information about the test]
• The language test covers [...] [information about the skills tested]
• [...] [information about test marks]
• Clients pay Co. A for administering the tests. Co. A charges clients the [...] [GST/HST] on the fee for taking the language test.
• Co. A's employees are responsible for grading the language tests.
• [...] [administrative procedures and reporting]
• [...] [availability of related programs].
• Co. A also provides a link on its website to [...].
You provided the following [...] containing Co. A's revenue from supplies of the language tests and the teacher training [...]: [...]
Co. B
• Co. B provides English language training.
• The shareholders of Co. B also own the shares of Co. A.
• Co. B does not currently provide the language test to clients.
• If Co. B were to take over the provision of the language test it would still be offered as a separate test and not as a component of any language training/program offered by Co. B.
• [...].
• [...].
• Co. B is not a registered charity or a non-profit organization.
Interpretation Requested
You have asked the following two questions:
1. Are the supplies of the language tests exempt of the GST/HST when supplied by Co. A?
2. Would the supplies of the language tests be exempt if Co. B were to make the supplies?
INTERPRETATION GIVEN - Question One - Co. A
In response to your first question, in order for the supply of the language tests made by Co. A to be an exempt supply, Co. A would have to meet the definition of a "vocational school" in section 1 of Part III of Schedule V, and the language tests would have to meet the conditions of a qualifying course pursuant to section 8 of Part III of Schedule V. That is, not all supplies made by an organization that meets the definition of a vocational school are exempt.
Vocational School
The ETA defines "vocational school" as follows: "an organization that is established and operated primarily to provide students with correspondence courses, or instruction in courses, that develop or enhance students' occupational skills".
The definition sets out three principle criteria that an organization must meet in order to be considered a vocational school:
1) The organization must be established primarily to provide correspondence courses or instruction in courses, that develop or enhance students' occupational skills;
2) The organization must be operated primarily to provide correspondence courses, or instruction in courses that develop or enhance students' occupational skills; and,
3) The correspondence courses or instruction in courses must develop or enhance students' occupational skills.
To ascertain whether an organization is established primarily to provide correspondence courses, or instruction in courses that develop or enhance students' occupational skills, the Canada Revenue Agency ("CRA") will review the organization's governing documents. These documents, which include the letters patent, articles of incorporation, memorandum of agreement, by-laws, and articles should reveal the purpose of the organization. Where these documents are not available or are not determinative, the CRA will look to the activities of the organization (i.e., the extent to which the organization provides courses that develop or enhance students' occupational skills) as evidence of the purpose for its establishment.
As no governing documents were submitted, we are not able to determine whether Co. A was established primarily to provide correspondence courses or instruction in courses, that develop or enhance students' occupational skills.
The CRA will consider an organization to be operated primarily to develop or enhance students' occupational skills, if more than 50% of its total annual revenues are derived from tuition for correspondence courses, or may be attributed to the provision of instruction in courses, that develop or enhance students' occupational skills. Consequently, revenues earned from the provision of property or services that are related to, or dependent on, the provision of the instruction in such courses will be included in the revenue calculation for determining the primary purpose of the organization. The revenue may include fees such as the supply of a curriculum or syllabus, an examination or testing fee or a certification fee.
To meet the third criterion of developing or enhancing students' occupational skills, courses offered must have a direct link to skills that are essential for an individual to gain or retain employment. Given the facts presented, it is the CRA's view that the teacher training meets the third criterion, that is, Co. A is providing instruction in a course that develops or enhances students' occupational skills.
As the third criterion has been met, Co. A would also meet the first criterion if Co. A was established primarily to provide teacher training. As well, Co. A would meet the first criterion if it were established to provide teacher training as well as other correspondence courses or instruction in courses that develop or enhance students' occupational skills providing the revenue from the teacher training and the correspondence courses or instruction in courses is more than 50% of Co. A's total revenue, and the other criteria in the definition of vocational school are met.
Courses exempt under section 8 of Part III of Schedule V
Section 8 of Part III of Schedule V provides that the supply of a course is exempt of the GST/HST if the supply is made by a vocational school and the course is a supply of a "service of instructing individuals in, or administering examinations in respect of, courses leading to certificates, diplomas, licences or similar documents, or classes or ratings in respect of licences, that attest to the competence of individuals to practice or perform a trade or vocation..." Courses for which students are not issued some form of documentation at their conclusion do not satisfy the "certificate, diploma, licence or similar document" criterion, and are therefore not exempt under section 8.
As noted in the facts provided above, individuals completing the teacher training program attend a course, and receive a certificate attesting to their ability to practice or perform a vocation or trade, which is to teach English to adults whose first language is not English. Therefore, the supply of teacher training by Co. A would be an exempt supply under section 8 of Part III of Schedule V if Co. A qualifies as a vocational school as defined for purposes of the ETA.
However, the language test on its own does not qualify as a course. As well, the supply of administering the language test is not offered by Co. A in respect of a course leading to a certificate, diploma, licence or similar document that attests to the competence of the individual to practise or perform a trade or vocation. Also, there was no evidence provided that would indicate that the supply of administering the language test leads to a class or rating in respect of a licence that attests to the competence of the individual to practice or perform a trade or vocation. In other words, the language test provides a competency rating but it is not linked to a certificate, diploma, licence or similar document required by an individual to perform a trade or vocation. Therefore, where the supply does not meet the conditions of section 8 of Part III of Schedule V it is not an exempt supply under that section.
As discussed previously, it is not possible for the CRA to determine with certainty whether Co. A was established primarily to provide correspondence courses, or instruction in courses that develop or enhance students' occupational skills. However, even if Co. A was established primarily to provide correspondence courses, or instruction in courses that develop or enhance students' occupational skills, and even if Co. A's teacher training remained a course that developed or enhanced students' occupational skills, based on the revenue figures in the chart you provided, Co. A does not presently meet the requirement of being operated primarily to provide correspondence courses, or instruction in courses that develop or enhance students' occupational skills. The revenue derived from the supply of teacher training has been less than 50% of Co. A's total revenue since [yyyy]. If an organization meets the requirements as a vocational school in its previous fiscal year, and its intent continues to be primarily to offer courses that develop or enhance students' occupational skills, it will continue to be a vocational school for the following fiscal year. However, if in that following year the organization fails to meet the operated primarily requirement, it will cease to be a vocational school for supplies made after that year.
Therefore, unless Co. A is providing correspondence courses, or instruction in courses that develop or enhance students' occupational skills other than teacher training, and whose revenue when added to the revenue from teacher training would enable Co. A to meet the requirement of being operated primarily to provide courses that develop or enhance students' occupational skills, supplies made by Co. A of both teacher training and language tests would be subject to the GST/HST. The reason is that Co. A would no longer qualify as a vocational school as defined in the ETA, and as a result its supplies of correspondence courses, or instruction in courses, would no longer be exempt under section 8, of Part III of Schedule V.
INTERPRETATION GIVEN - Question Two - Co. B
In response to your second question, we need to look at sections 8, and 11 of Part III of Schedule V to determine whether the supply of administering the language tests is exempt. As we do not have sufficient information to determine whether Co. B meets the definition of a vocational school, or whether it is a business established and operated primarily to provide instruction in languages, we cannot provide a definitive answer to your question. The following information may be helpful.
Even if Co. B meets the definition of a vocational school, the supply of administering the language tests would have to meet the conditions of section 8 of Part III of Schedule V in order to be exempt under that section. As previously noted, no evidence was provided that would exempt the supply of administering the language tests under section 8 of Part III of Schedule V.
Under section 11, "a supply of a service of instructing individuals in, or administering examinations in respect of, language courses that form part of a program of second-language instruction in either English or French" are exempt where the provider of those courses and examinations is, for example, a vocational school or a "business established and operated primarily to provide instruction in languages".
You have indicated that Co. B's revenue is presently primarily derived from the provision of language courses. However, even if Co. B meets the conditions of being a business established and operated primarily to provide instruction in language courses, the supply of the language tests would still be a taxable supply as the supply is offered as a separate supply from language courses that would qualify for exemption under section 11. That is, the administration of the language tests does not form part of a program of second-language instruction in either English or French. Therefore, the supply of the language tests would be subject to the GST/HST.
Please be aware that in order for Co. B to offer supplies of language instruction exempt of the GST/HST under section 11, Part III of Schedule V, the conditions under that section must be met. If Co. B does not meet the requirements as a vocational school, but is operating a business, that business must meet the condition of being a business established and operated primarily to provide instruction in languages. Therefore, if Co. B takes over the provision of the language tests, Co. B would have to look at whether it continues to meet the condition of being operated primarily to provide instruction in language courses in order for the supply of English language courses to continue to be exempt.
The above information on the definition of a vocational school can be found in the CRA's Policy P-229, Definition of "Vocational School" in Section 1 of Part III of Schedule V to the Excise Tax Act. The information of qualifying courses can be found in the CRA's Policy P-231, Courses that Qualify for Exemption Pursuant to Section 8 of Part III of Schedule V to the Excise Tax Act. Both of these policies can be found on the CRA's website at: www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/frmspbs/bytyp-eng.html.
[...]
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-7954. 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,
K. Bennett
Aboriginal Affairs and Educational Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
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