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: 156693
Business Number: […]
September 26, 2014
Dear [Client]:
Subject: GST/HST RULING AND INTERPRETATION
[…] [Is a supply made by a [the Charity] a service]
Thank you for your letter of [mm/dd/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to [Program #1] and [Program #2].
Please note that this ruling letter will only address Program #1 and Program #2 since a response has been provided to you by […] with respect to your other question regarding [Program #3] in a letter dated [mm/dd/yyyy] […].
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 and 15% in Nova Scotia. 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
As per your incoming letter dated [mm/dd/yyyy] we understand that:
1. The (“the Charity”) is a registered charity for Income Tax purposes, effective [mm/dd/yyyy], and it is also a charity for GST/HST purposes.
2. The Charity has entered into agreements to deliver certain programs on behalf of an unrelated party, (“the Corporation”), which receives funding for its programs via […].
3. According to […], “[the Corporation] is the independent, non-profit organization that […]. [The Corporation] is independent from both the government and […].”
4. The Charity and the Corporation have entered into two agreements – the Master Agreement dated [mm//dd/yyyy] that relates to Program #1 and the undated Master Agreement that relates to Program #2.
Program #1 Master Agreement
5. The Charity has been selected by the Corporation for the purpose of designing and implementing strategies that generate sustained environmental and social benefits.
6. The Charity has the expertise, experience and resources to carry out the activities described above and within the Master Agreement.
7. The Master Agreement sets out general terms and conditions upon which the Charity will provide the services as defined within the Agreement, with additional specific terms and conditions applicable to Program #1 to be contained within Schedule 1 attached to the Agreement.
8. Clause […] of the Master Agreement defines “Services” as “the services to be provided by [the Charity] to [the Corporation] under this Agreement and as more particularly described in Schedule 1 attached to this Agreement.”
9. Schedule 1 to the Master Agreement outlines the following deliverables:
[…] [Describes the role of the Charity, including deliverables, costs to clients, invoicing, and pricing]
10. Clause […] of the Master Agreement indicates that the Charity will furnish all labour, materials, products, tools, construction machinery, equipment, water, heat, light, power, transportation and other facilities necessary to perform the Services, unless otherwise provided in the Agreement.
11. Clause […] of the Master Agreement states “[the Corporation] acknowledges that [the Charity] is in the business of providing Services and has proprietary know-how in how the Services are performed and products developed; nothing herein will transfer any ownership right, title or interest in or to [the Charity’s] know-how or its proprietary rights to [the Corporation]”.
12. Clause […] of the Master Agreement states that “No partnership, joint venture, or agency relationship is created between [the Corporation and the Charity] as a result of this Agreement”. This fact is further reiterated in Clause […] which states that “[the Corporation and the Charity] agree that [the Charity] is an independent contractor and that this Agreement shall in no manner be construed as creating any form of employer-employee or agency relationship”.
Program #2 Master Agreement
13. Program #2 is similar to Program #1, but with a broader scope of deliverables including […].
14. The Master Agreement for Program #2 states “[the Charity] has been selected by [the Corporation] for the purpose of designing and implementing strategies that generate sustained environmental and social benefits.”
15. The Charity has the expertise, experience and resources to carry out the activities described within the Master Agreement.
16. The Master Agreement sets out “general terms and conditions upon which [the Charity] will provide the Services as defined [within this Agreement] to achieve the targets described within this Agreement, with additional specific terms and conditions applicable to [Program #2] to be contained within Schedule 1 attached to this Agreement”.
17. Clause […] of the Master Agreement defines “Services” as “the services to be provided by [the Charity] to [the Corporation] under this Agreement and as more particularly described in Schedule 1 attached to this Agreement.”
18. Schedule 1 to the Master Agreement outlines the following deliverables:
[…] [Describes the role of the Charity, who is eligible for the program, how the program works, and the costs of the program]
[…] states the Charity is not required to market or promote this service; rather this is the responsibility of the Corporation.
[…] A note to the Appendix “A” to Schedule 1 of the Master Agreement states that “only accurate and complete invoices with all the necessary supporting documentation will be processed by [the Corporation] for payment. Payment will be made within 30 days of [the Corporation’s] receipt of an accepted invoice.”
[…]
19. Clause […] of Schedule 1 to the Master Agreement states “[the Corporation and the Charity] agree that [the Charity] is an independent contractor and that this Agreement shall in no manner be construed as creating any form of employer-employee or agency relationship”.
RULING REQUESTED
You would like to know
1. Program #1: Is the supply made by the Charity to the Corporation under Program #1 Master Agreement a supply of tangible personal property or a service.
2. Program #2: Is the supply made by the Charity to the Corporation under Program #2 Master Agreement a supply of tangible personal property or a service.
RULING GIVEN
Based on the facts set out above, we rule that the supply made by the Charity to the Corporation under Program #1 Master Agreement is a supply of a service, which is exempt under section 1 of Part V.1 of Schedule V to the ETA. With respect to Program #2, we rule that the supply made by the Charity to the Corporation under Program #2 Master Agreement is a supply of a service, which is exempt under section 1 of Part V.1 of Schedule V to the ETA.
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
As indicated in your incoming letter, you would like to receive an explanation of the primary factors that the Canada Revenue Agency takes into consideration in determining the nature of a supply. In your letter you stated that the Charity anticipates expanding its program offerings in various jurisdictions, and therefore, will be required to determine whether each new supply is in the nature of a service or tangible personal property. In addition, you also asked for clarification as to whether or not the CRA is of a view that there is a direct correlation as to the ratio of materials vs labour included in the supply to be considered a service as opposed to property.
Whether a supply is of a property or service is a question of fact. We reviewed the information available in the Master Agreements for Program #1 and Program #2 in order to establish the nature of the supply made by the Charity to the Corporation. In determining the nature of a supply it is important to examine the agreement for the supply in the context of factors such as the intent of the parties, the circumstances surrounding the supply, and the supplier's usual business practices in order to properly characterize the nature of the supply as a "sale of property" or the "provision of services" and whether there is a single or multiple supplies. We would like to clarify that no factor in and of itself is determinative of the nature of the supply being made. Each factor must be given equal consideration and a determination must be made based on the overall facts relating to the transaction in question. Therefore, on its own, the ratio of materials vs labour included in a supply would not be considered as a deciding factor in determining the nature of a supply.
Where an agreement provides for the provision of a number of services or property and services, it must first be determined whether a single supply or multiple supplies are being provided under the agreement. GST/HST Policy Statement P-077R2, Single and Multiple Supplies, provides information on determining whether a single supply or multiple supplies are being provided. If it is determined that a single supply is being provided, then the predominant element of that supply must be established to determine the nature of the supply. Once it is established whether there is a single supply or multiple supplies, the nature of each supply must be determined based on the criteria mentioned above. In the case of Program #1 and Program #2, the opening paragraphs in both Master Agreements, under the heading “and whereas”, state that the parties to the Agreements, the Charity and the Corporation, “set out the…terms and conditions upon which [the Charity] will provide the Services as defined [in the Agreement]”, and clause […] in the Master Agreements for both of the programs states that the Charity is to provide “the Services in accordance with the pricing and payment provisions contained…in Appendix “A” to Schedule 1” of each Master Agreement. Schedule 1 to the Master Agreement for Program #1 indicates that the Charity is to deliver a […] service on behalf of the Corporation and provides further detail on how this service is to be provided. Program #1 Master Agreement outlines that the Charity is to […][provide] products and to […] discuss the benefits of the products provided through the program, on behalf of the Corporation. Schedule 1 to Program #2 Master Agreement indicates that the Charity is to deliver a […] service […] on behalf of the Corporation. Program #2 Master Agreement further indicates […]. Therefore, both Master Agreements set out the details of the services to be provided by the Charity to the Corporation. Any materials used in making the supply of these services would be seen as inputs consumed in making the supply of the service.
The supply of the service made by the Charity to the Corporation under Program #1 Master Agreement and Program #2 Master Agreement are each exempt under section 1 of Part V.1 of Schedule V.
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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