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: 106435
October 24, 2012
Dear [Client]:
Subject: GST/HST INTERPRETATION
Tuition Fees
Thank you for your letter of [mm/dd/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to various courses provided by colleges and universities. We apologize for the delay in responding to your enquiry.
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.
You have requested clarification regarding the treatment of fees charged by public colleges and universities in the following four situations described in your letter:
A. Continuing education for health care professionals
1. A public college offers self-study courses via distance learning or correspondence;
2. The courses are non-credit and are offered to nursing professionals through continuing education;
3. The courses allow health care professionals to renew or advance their nursing practice knowledge;
4. Materials are supplied as part of the course; the course and the materials are supplied for a single fee;
5. As self-study courses, the materials are primarily study manuals;
6. The study manuals are an essential component to the course because, as a self-study course, the manual is the course;
7. The tuition and the material fees are not separately itemized (they are reflected as a single sum);
8. Some courses require an on-site (on-campus) laboratory component in order to obtain certification. To participate in the laboratory component of the course, the student must pay an additional fee for their use of incidental lab materials (direct consumables);
9. Registration for the lab component of the course is restricted to students who have successfully completed the theory course;
10. The lab fee and materials fees are reflected separately (invoiced separately); and
11. All material fees, whether for print or lab supplies, do not exceed the amount required to cover the direct cost of providing the material.
Neither the self-study manuals nor the incidental lab supplies have any value or use apart from the course and both are essential to succeed in the course. If the student withdraws from the course, there is a partial refund of the course fees. There is no separate refund for the self-study manual – whether or not it is returned.
B. Continuing education school of business
A public college or university offers various courses in management, finance, insurance, and accounting that are recognized by professional accreditation associations for credit towards their respective designations. For a number of courses the college charges an additional fee for items such as:
1. publications, duplications services, reading material and business cases
2. Insurance Manuals
3. Handouts
4. Workbooks, etc.
The college is providing this material directly to the student rather than having the student acquire the goods at the Book Store. The courses are held on campus.
While the costs are separately itemized, the student has no choice but to receive the materials.
C. […] [Course A] and [...] [Course B]
A public college offers the above two courses. In addition to the course tuition, a fee of $[…] to $[…] is charged to the student as a royalty fee paid to the curriculum provider/association to allow the student to write the national exam at the courses’ conclusion.
The fee represents a “flow-through” cost to the student to apply to write the exam.
D. Fine Arts courses
A university and/or public college offers various courses for credit towards a degree or diploma in fine arts. Courses such as Drawing, Arranging, Principal Instrument, etc. have additional fees added to the tuition. A software upgrade costs [is] added to tuition, which allows the educational institution to ensure the student is using the most recent versions of software required for these courses.
Other fine arts classes have additional fees to cover costs of consumables used in the course such as clay, wood, paint, metal, etc.
INTERPRETATION REQUESTED
A. Continuing education for health care professionals:
* The self-study manuals “may be considered a “part” of the supply made for the tuition for the course.”
* “[W]hether the lab fees may be considered exempt, as part of the course, or if they are taxable as a stand alone supply of tangible property.”
B. Continuing education school of business:
* The additional fees charged for items such as publications, insurance manuals, handouts, workbooks, etc., “should be treated as part of a single supply of the course tuition.”
C. [Course A] and [Course B]:
* The royalty fee “will retain its exempt status.”
D. Fine Arts courses:
* The software upgrade and consumable materials fees are “part of the exempt tuition.”
INTERPRETATION GIVEN
Single or multiple supplies
Each transaction described in your letter consists of multiple elements; therefore, it is necessary to determine whether the transaction is a single supply or consists of multiple supplies. This distinction is important when a public college or university provides a combination of elements to the student, some of which could be taxable, and some of which could be exempt from the GST/HST, if supplied separately. GST/HST Policy Statement P-077R2, Single and Multiple Supplies, sets out the principles CRA will use to determine whether a transaction consisting of several elements constitutes a single supply or multiple supplies:
1. Every supply should be regarded as distinct and independent.
2. A supply that is a single supply from an economic point of view should not be artificially split.
3. There is a single supply where one or more elements constitute the supply and any remaining elements serve only to enhance the supply.
Whether a particular transaction constitutes a single supply or multiple supplies is a question of fact. Two or more elements are part of a single supply when the elements are so intertwined or interdependent that they must be supplied together. Conversely, multiple supplies occur when one or more of the elements can sensibly or realistically be broken out.
A. Continuing education for health care professionals
You described two types of continuing education courses for health care professionals:
1) self-study courses without a laboratory component; and
2) courses with a laboratory component
1) self-study courses without a laboratory component
The self-study courses are delivered via distance learning or as correspondence courses. Lesson materials such as study manuals provided with a correspondence or distance-learning course may be integral elements of a single supply of a service of instructing individuals and, as such, hold the same tax status as the course itself. This will be the case where the supply of instruction is contingent upon the acquisition of the study manual and the student’s needs cannot be met by the supply of instruction alone.
You noted that the study manual “is the course”. Care must be taken to distinguish between a supply of a correspondence course, a service, and a supply of learning materials alone, which could be a supply of tangible personal property.
If the above single/multiple supply analysis concludes that there are multiple supplies, it is then necessary to determine whether one of those supplies is incidental to another and whether it may consequently be deemed to form part of a single supply pursuant to section 138.
Under section 138, where multiple supplies are supplied together for a single consideration and it is reasonable to regard one supply as incidental to the other supply, the incidental supply is deemed to form a part of the main supply.
The CRA’s administrative policy regarding section 138 is explained in GST/HST Policy Statement P-159R1, Meaning of the Phrase “reasonably regarded as incidental”; and GST/HST Policy Statement P-160R, Meaning of the Phrase “where a particular property or service is supplied together with any other property or service”.
Pursuant to Policy Statement P-159R1, a supply may reasonably be regarded as incidental to a particular supply if the supplier’s primary objective is to provide the particular supply, and if the value of the consideration charged for the particular supply provided together with other properties or services is the same as, or only marginally different from, what the value of the consideration for the particular supply would be if it were provided alone.
As explained in Policy Statement P-160R, section 138 applies only in circumstances where at least two supplies are made together. If it is determined that the public college or university is making only one supply, section 138 will not apply.
2) courses with a laboratory component
Some of the continuing education courses include a mandatory on-campus laboratory component. To participate in the laboratory component, students must pay an additional fee to cover the cost of lab materials. The lab fees are separately invoiced; however, the way in which the price for a program or package is set out does not in itself determine whether there are one or more supplies. Separately identified charges for certain elements do not necessarily mean that there are two or more supplies. The structure of the transaction must be examined to determine if the provision of any particular element is contingent on the provision of one or more elements.
You indicated that a student cannot successfully complete the course without the lab materials and the materials have no value or use apart from the course. These factors indicate that the lab materials are a part of a single supply of instructing individuals in a course. Conversely, the lab materials may constitute a separate supply from the supply of instruction if a student can acquire the materials from a supplier other than the public college.
Section 138 would not apply to the courses with a laboratory component. The lab materials and the instruction are not supplied together for a single consideration, as the fee for the lab materials is separately identified.
B. Continuing education school of business
The business courses consist of various elements, including instruction, reading material, business cases, insurance manuals, handouts, and workbooks, etc. In addition to the course tuition, the public college or university charges separately itemized fees for the course materials. For the additional fees to be considered part of the course tuition, the various elements of the transaction would have to constitute a single supply, rather than separate supplies.
For an element to be characterized as a supply, the element should be distinct and independent. It should amount to more than merely a component of an overall supply. If the reading material, business cases and other items are an integral part of the course and the students have no choice but to receive the materials, there is likely a single supply. Materials handed out in class as a component of an in-class activity would likely form part of the overall supply of instruction.
C. [Course A] and [Course B]
In addition to the course tuition, students enrolled in the [Course A] and the [Course B] are charged a “royalty fee”, which is paid to the curriculum provider to allow the student to write the national exam at the conclusion of the course. You described the royalty fee as a ““flow-through” cost to the student to write the exam.” It is unclear whether the royalty fee is consideration for a supply made by the public college or the curriculum provider. The provision of property and/or services by two or more suppliers generally indicates that multiple supplies are being made, even if the various supplies are provided together.
The tax treatment of the “royalty fee” depends on whether the public college is acting as an agent in making a supply on behalf of the curriculum provider. The CRA's position with regard to determining whether an agency relationship exists is expressed in GST/HST Policy Statement P-182R, Agency.
If the public college is making a supply to the students as agent of the curriculum provider, the supply will have the same tax status as if it were made by the curriculum provider directly. If the royalty fee is consideration for a taxable supply, the public college must collect GST/HST in respect of that supply. Generally, an agent who collects GST/HST related to the principal’s supply must pass along the tax collected to the principal who must account for the tax. If the royalty fee is consideration for an exempt supply, neither the principal nor the agent charges the recipient GST/HST, but the agent is responsible for collecting GST/HST in respect of any taxable services it supplies to the principal.
If the public college is not acting as an agent of the curriculum provider, the principles expressed in Policy Statement P-077R2 must be applied to determine whether the royalty fee forms part of the consideration for the supply of instructing individuals in a course, or is consideration for a separate supply. In determining whether the transaction consists of single or multiple supplies, relevant factors include, but are not limited to, whether students are required to pay the royalty fee in order to enrol in the course, and whether students must take the course in order to write the exam. For instance, if a student can write the national exam without taking the course, the royalty fee may be consideration for a separate supply from the supply of instruction.
D. Fine Arts courses
The university/public college charges additional fees to students enrolled in certain Fine Arts courses on top of the course tuition. These fees may include software upgrading costs and fees to cover the cost of consumable materials used in the course such as clay, wood, paint and metal. Whether the additional fees form part of the tuition for a Fine Arts course depends on the facts of the particular situation. Relevant considerations may include, but are not limited to, whether the software upgrades and consumable materials are mandatory, whether the student is required to purchase these elements from the university/public college in order to enrol in the course, whether the student has the option of acquiring the elements elsewhere, and whether the additional fees are refunded if the student withdraws from the course.
For instance, if the university/public college does not require a student who already owns the most recent versions of software required for the Fine Arts courses to pay the software upgrade cost, or if a student can acquire the necessary software from a different supplier, this additional fee is likely consideration for a separate supply from the supply of instruction.
Tax status of the instruction
You have indicated that the courses described in each of the above situations are exempt from GST/HST. Generally, most supplies of property and services made in Canada are taxable for GST/HST purposes, unless they are exempt supplies. Exempt supplies are listed in Schedule V to the ETA. In order for a supply of property or a service to be exempt from GST/HST, a specific exempting provision included in Schedule V must apply to that particular supply. Part III of Schedule V provides that certain educational services are exempt from GST/HST.
Section 6 of Part III of Schedule V exempts the supply of a service of instructing individuals in courses leading to, or for the purpose of maintaining or upgrading, a professional or trade accreditation or designation recognized by a regulatory body where the supply is made by, among others, a public college or university, except where the supplier has made an election under this section in prescribed form containing prescribed information.
The term “regulatory body” is defined in section 1 of Part III of Schedule V as “a body that is constituted or empowered by an Act of Parliament or of the legislature of a province to regulate the practice of a profession or trade by setting standards of knowledge and proficiency for practitioners of the profession or trade.”
Section 7 of Part III of Schedule V exempts supplies made by a school authority, public college or university of a service of instructing individuals in courses for which credit may be obtained toward a diploma or degree. Such credit courses are exempt even where they are taken by an individual not enrolled in a degree or diploma program.
Section 8 of Part III of Schedule V exempts a supply made by, among others, a public college or 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.
Section 16 of Part III of Schedule V exempts a supply made by a school authority, public college or university of a service of instructing individuals in, or administering examinations in respect of, courses (other than courses in sports, games, hobbies or other recreational pursuits that are designed to be taken primarily for recreational purposes) that are part of a program that consists of two or more courses and that is subject to the review of, and is approved by, a council, board or committee of the college or university established to review and approve the course offerings of the college.
Tax status of the course materials
If the above transactions consist of multiple supplies, the tax status of each element must be determined separately. Although the course materials and other elements may be separate supplies, these supplies are not necessarily taxable for GST/HST purposes.
If the public colleges and universities described in your letter are registered charities for income tax purposes, they are public institutions for GST/HST purposes. Supplies made by public institutions are generally exempt under section 2 of Part VI of Schedule V, unless specifically excluded from exemption by paragraphs (a)-(p) of that section.
Paragraph 2(e) of Part VI of Schedule V excludes from the general exemption for public institutions supplies of tangible property that were acquired, manufactured or produced by the institution for the purpose of making a supply of the property and was neither donated to the institution nor used by another person before its acquisition by the institution.
If the supply of the course materials is not exempt under section 2 of Part VI of Schedule V to the ETA, the supply of the materials may be exempt under section 6 of that same Part (the “direct cost” exemption).
Under the direct cost exemption, if no GST/HST is charged for the course materials, the supply will be exempt if the charge for the materials is equal to or less than the cost of the materials (including GST/HST and provincial sales taxes less recoverable non-Québec provincial sales taxes, but excluding any administrative charge). If GST/HST is charged, the supply of the materials will not be exempt if the consideration for the materials is equal to or more than the cost of the materials (including provincial sales taxes, but excluding GST/HST and any administrative charge).
If no exempting provision applies, a separate supply of tangible personal property made by a public college or university would be taxable for GST/HST purposes.
The governments of the participating provinces (British Columbia, Ontario, Nova Scotia, New Brunswick and Newfoundland and Labrador) provide a point-of-sale rebate of the provincial component of the HST payable on supplies of qualifying property. The rebate is available to all recipients of qualifying property sold in the participating provinces. Qualifying property includes printed books and updates of printed books, audio recording all or substantially all of which is a spoken reading of a printed book, and bound or unbound printed versions of scripture of any religion. The term “printed book” takes on its ordinary meaning for ETA purposes; however, certain types of publications are excluded from the definition of printed book under subsection 259.1(1), such as newspapers, brochures or pamphlets, books designed primarily for writing on, etc. For more information, please see GST/HST Info Sheet GI-065, Harmonized Sales Tax for Ontario and British Columbia - Point-of-Sale Rebate on Books.
Tax status of the “royalty fee”
A university or public college may offer the [Course A] and the [Course B] as part of a diploma or degree program. In such cases, the “royalty fee” may be consideration for an exempt supply pursuant to section 7.1 of Part III of Schedule V.
Section 7.1 of Part III of Schedule V exempts mandatory fees for services or memberships related to registration in courses exempt under section 7 of Part III of Schedule V. The supply of the service or membership and the supply of the course do not need to be made by the same supplier. Section 7.1 does not apply to supplies of tangible property.
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 613-954-3158. 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,
Heather Reardon
Charities, Non-profit Organizations and Educational Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
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