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: 154152
July 30, 2013
Dear [Client]:
Subject: GST/HST INTERPRETATION
Whether courses offered are exempt educational services
Thank you for your letter of May 23, 2013, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to swimming lessons.
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Effective April 1, 2013, the 12% HST in British Columbia has been replaced by the 5% GST and a provincial sales tax.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.
We understand that [...] ("Swim School") is a private for profit swim school that operates from various locations in [...][Province X] and is registered for the GST/HST.
Swim School provides swimming and life-saving education programs including swimming lessons, certification courses in First Aid and CPR and certification programs in lifeguarding.
Interpretation Requested
You would like to know whether the Red Cross swimming program offered by the Swim School is exempt as a vocational course.
Interpretation Given
Section 8 of Part III of Schedule V applies to vocational courses. It provides that certain supplies of instructing in respect of courses are exempt of the GST/HST if the services are made by certain educational institutions including a school authority, vocational school, a public college or a university. As well, section 8 pertains to a service of administering examinations in respect of, courses leading to certificates...that attest to the competence of individuals to practise or perform a trade or vocation...
It first must be determined whether Swim School is a vocational school in order to determine whether the supplies of instruction provided by Swim School are exempt.
The ETA defines "vocational school" as 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.
GST/HST Policy Statement P-229, entitled: Definition of "vocational school" in Section 1 of Part III of Schedule V to the Excise Tax Act, explains how to determine if an organization is a "vocational school" within the meaning of the ETA
There are three principle criteria that an organization must meet to be considered a vocational school:
(a) The organization must be established primarily to provide correspondence courses or instruction in courses, that develop or enhance students' occupational skills;
(b) The organization must be operated primarily to provide correspondence courses or instruction in courses that develop or enhance students' occupational skills;
(c) 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 CRA will review the organization's governing documents.
These documents, which include the letters patent, articles of incorporation, memoranda 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 course that develop or enhance students' occupational skills) as evidence of the purpose for its establishment.
The CRA will consider an organization to be "operated primarily" to provide correspondence courses or instruction in courses that develop or enhance students' occupational skills, if more than 50% of its total annual revenues are derived from tuition for 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 determination of whether more than 50% of a swim school's total annual revenue is derived from courses which develop or enhance a student's occupational skills can be somewhat complex and is ultimately a question of fact to be decided on a case-by-case basis. This income stream may include fees for the provision of property or services that are related to, or dependent on, the provision of courses or instruction which clearly develops or enhances a student's occupational skills such as the purchase of manuals, an examination or testing fee or a certification fee. It may also include courses which develop or enhance a student's occupational skills but which are not exempt of tax because they do not meet the requirements of section 8 which are described below.
For the purposes of this income test, income from non-vocational swim lessons (e.g. courses taken for general interest, fitness or recreation) cannot be included in the amount of revenue derived from courses that develop or enhance a student's occupational skills, even if the swim school uses this source of added income as a means of defraying the costs of providing courses which are vocational in nature.
With respect to the courses being offered, P-229 states:
To be considered a vocational school the ... instruction in courses offered by an organization must develop or enhance students' occupational skills. On this basis, "occupational courses" must have a direct link to skills that are essential for an individual to gain or retain employment.
The CRA does not consider the following courses to develop or enhance a student's occupational skills:
Sports
Games
Hobbies; or
Other recreational or cultural pursuits which are designed for personal interest.
In your incoming letter you refer to the entire Red Cross program from preschool to swim kids as being part of the instruction in courses that develop or enhance students' occupational skills; however, as noted above the CRA considers these courses as recreational.
Occupational courses must have a direct link to skills that are essential for an individual to gain or retain employment. The instructor courses that train and test lifeguards would be considered to have a direct link to skills necessary for employment. The courses teaching children how to swim do not certify or attest to their competence to practice or perform a trade or vocation.
The CRA will examine the curriculum and promotional material of an organization to identify the type of courses provided, whether the courses lead to certificates, diplomas or similar documents, and whether the courses are marketed as providing skills needed for employment or for recreational or personal interest. How the organization promotes its activities (e.g., in its brochures, advertisements, literature, course calendar, telephone listings) will also provide insight into whether its courses "develop or enhance students' occupational skills."
An organization should review its operations on a yearly basis to ascertain whether it continues to satisfy the "operated primarily" requirement for a "vocational school". If an organization meets the requirements of 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. If, however, 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.
Without a breakdown of the revenues or other evidence to establish that Swim School was established and operates primarily to provide vocational courses it is not possible to determine whether Swim School meets the definition of vocational school. Therefore, it cannot be determined whether section 8 of Part III of Schedule V applies to exempt the lifeguarding courses.
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.
For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9264. 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,
Cindy Christmas
Aboriginal Affairs and Educational Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
Enc.: GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service.
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