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
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 62279
Business Number: […]
June 21, 2012
Dear [Client]:
Subject: GST/HST INTERPRETATION
[…] [Dance instruction provided by a dance 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 courses of dance instruction provided by […]([…] [XYZ Dance School]). We apologize for our 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.
RULING REQUESTED
[…]
[…] you have asked us to […] provide a ruling to the effect that [XYZ Dance School] is a vocational school and that the supplies of dance instruction provided by [XYZ Dance School] are exempt supplies of vocational courses pursuant to section 8 of Part III of Schedule V to the ETA.
INTERPRETATION GIVEN
We have reviewed your letter as well as the information provided by your client respecting this file. […]. […] we can provide the following comments regarding the Canada Revenue Agency’s (CRA’s) position on the subject of dance instruction as vocational training.
Section 8 of Part III of Schedule V to the ETA exempts from the GST/HST:
A supply, other than a zero-rated supply, made by a government, a school authority, a vocational school, a public college or a university 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 practise or perform a trade or vocation, except where the supplier has made an election under this section in prescribed form containing prescribed information.
Vocational school
The ETA defines “vocational school” as follows: “vocational school” means 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.
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; and,
(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 courses 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 dance 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 a curriculum or syllabus, 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 in more detail below.
For the purposes of this revenue test income from non-vocational dance courses (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 dance school uses this source of added income as a means to defray the costs of providing courses which are vocational in nature.
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 courses in the following to develop or enhance a student's occupational skills:
* sports
* games
* hobbies; or
* other recreational or cultural pursuits, that are designed for personal interest.
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 so as to ascertain whether it continues to satisfy the “operated primarily” requirement for a “vocational school”. 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. 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.
We are of the opinion that [XYZ Dance School] is an organization that was established solely to provide instruction in dance courses that develop or enhance student’s occupational skills. However it is a question of fact whether [XYZ Dance School] was operated primarily to provide instruction in dance courses that develop or enhance students' occupational skills in any given fiscal year. Therefore we are unable to conclude if [XYZ Dance School] would be considered a vocational school for purposes of the ETA.
Meeting the definition of vocational school does not relieve an organization from collecting and remitting the GST/HST. However, some supplies made by the vocational school may be exempt. GST/HST is not collected on exempt supplies and a GST/HST registrant may not claim input tax credits for any GST/HST paid or payable on purchases or expenses related to making exempt supplies.
Dance lessons as courses leading to certificates…that attest to the competence of individuals to practise or perform a trade or vocation
Once it has been determined that an organization meets the definition of a “vocational school”, this does not necessarily mean that the dance lessons it supplies are exempt. The dance lessons must also meet the requirements of the exempting provisions of Section 8 of Part III of Schedule V of the ETA.
In order for a course to be exempt of GST/HST, section 8 requires that a certificate, diploma, licence or similar document be issued to each student upon successful completion of the course of study and that the document attest to the competence of the students 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.
Generally, courses in sport, games or hobbies or other recreational or cultural pursuits, or courses designed for personal interest are not considered to be part of a full time program which provides an individual with the competence to practise or perform a trade or vocation.
For instruction in dance to meet the requirements of section 8 the instruction should be part of a full time program which provides an individual with the competence to practise or perform the vocation of a professional dancer, or dance instructor. This instruction must further be attested to by a certificate, diploma, licence or similar document.
For example, in all six levels of the Royal Academy of Dance Vocational Syllabus a student must pass an exam in order to continue to the next level. A student is awarded a certificate only on successful completion of the level being examined. The certificate attests to the student’s ability to audition for entrance into a higher-level of dance instruction, or to pursue a non-performing career in dance.
[…] we have referred you to our policy papers P-229, Definition of “Vocational School” in Section 1 of Part III of Schedule V to the Excise Tax Act; and P-231 Courses that Qualify for exemption Pursuant to Section 8 of Part III of Schedule V to the Excise Tax Act. Both these documents are available on our website. In particular, our policy paper P-229, Definition of “Vocational School” in Section 1 of Part III of Schedule V to the Excise Tax Act should help you determine whether [XYZ Dance School] was operated primarily to provide instruction in dance courses that develop or enhance students' occupational skills in any given fiscal year.
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 613-952-0329. 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,
Michael Mavis
Charities, Non-Profit Organizations and Educational Services Unit
Public Sector Bodies and Governments Division
Excise and GST/HST Rulings Directorate
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