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, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 219060
Attention: […]
Dear [Client]:
Subject: GST/HST RULING
[Public Service Body Rebate - Whether subsidies under the] Canada Emergency Wage Subsidy (CEWS) […] [are considered] government funding […]
Thank you for your fax of December 16, 2020, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the CEWS and whether the CEWS is considered to be government funding as defined in section 2 of the Public Service Body Rebate (GST/HST) Regulations.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. 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
We understand:
1. The Government of Canada has provided a wage subsidy to qualifying eligible entities; this wage subsidy is known as the CEWS. The CEWS amount is based in part on the number of eligible employees an employer has and the amount and type of pay they received.
2. Pursuant to subsection 125.7(2) of the Income Tax Act (“ITA”), the CEWS takes the form of a deemed overpayment of an eligible entity’s liability under Part I of the ITA, which is then refunded to the entity. However, subsection 125.7(3) of the ITA states that for purposes of the ITA, “and for greater certainty,” the amount of the deemed overpayment is “assistance received by a [qualifying entity] from a government immediately before the end of the qualifying period to which it relates.”
3. According to information on Canada.ca, the purpose of the CEWS is to enable entities to re-hire workers previously laid off as a result of COVID-19, help prevent further job losses, and better position businesses and other employers to resume normal operations following the crisis.
4. On [mm/dd/yyyy], your client received a written letter from the Canada Revenue Agency (CRA) in response to their submission of Form GST523, Non-Profit Organizations – Government Funding, for the fiscal year ending [mm/dd/2020]. The letter indicated that the CRA did not accept the CEWS as government funding for the purpose of determining whether your client was a qualifying NPO.
5. You stated in your incoming fax that:
[…]
RULING REQUESTED
You would like to know:
Is the CEWS considered to be government funding as defined in section 2 of the Public Service Body Rebate (GST/HST) Regulations?
RULING GIVEN
Based on the facts set out above, we rule that:
The CEWS is not government funding as defined in section 2 of the Public Service Body Rebate (GST/HST) Regulations for the following reasons:
* the CEWS is a refund of income taxes under the ITA; and
* the CEWS is not paid for the purpose of financially assisting the NPO in carrying out the purposes of the NPO.
EXPLANATION
For purposes of the PSB rebate, “government funding” is defined in section 2 of the Public Service Body Rebate (GST/HST) Regulations as
(a) an amount of money (including a forgivable loan but not including any other loan or a refund, rebate or remission of, or credit in respect of, taxes, duties or fees imposed under any statute) that is readily ascertainable and is paid or payable to the particular person by a grantor
(i) for the purpose of financially assisting the particular person in carrying out the purposes of the particular person and not as consideration for supplies made by the particular person, or
(ii) as consideration for making property or services available for consumption or use by other persons (other than the grantor, individuals who are officers, employees, shareholders or members of the grantor, or persons related to the grantor or to such individuals), where supplies of the property or services made by the particular person to such other persons are exempt supplies,
[…]
Under the ITA, the CEWS takes the form of a deemed overpayment of liability under Part I of the ITA by an eligible entity, which is then refunded to the eligible entity. The Minister of National Revenue has statutory authority under the ITA to refund the deemed overpayment. Therefore, the CEWS is a refund of taxes imposed under the ITA and is excluded from the definition of “government funding” as defined in section 2 of the Public Service Body Rebate (GST/HST) Regulations.
Although the CEWS is considered government assistance for income tax purposes and must be included in computing taxable income, the CEWS is not government funding as defined in section 2 of the Public Service Body Rebate (GST/HST) Regulations.
The purpose of the CEWS is to enable businesses to re-hire workers previously laid off as a result of COVID-19, help prevent further job losses, and better position businesses to resume normal operations following the pandemic.
The CEWS may assist any eligible entity in carrying out its purpose, regardless of whether the eligible entity is an NPO or not. Although it may happen coincidentally, the CEWS is not paid for the purpose of financially assisting NPOs in carrying out their purpose. The CEWS cannot meet the definition of “government funding” as defined in section 2 of the Public Service Body Rebate (GST/HST) Regulations because the CEWS is not for the purpose of financially assisting NPOs in carrying out their purpose.
In your fax, you referred to the Tax Court of Canada’s decision in Courtyard Terrace Assisted Living Residence Ltd. v. The Queen, 2015 TCC 278, in which the Court stated “funds received by a non-profit operator of an assisted living or residential care facility from a grantor as consideration for making such property and services available for consumption or use by the residents of the facility would still fall within the definition of “government funding” in the [Public Service Body Rebate (GST/HST) Regulations]…” Even if the CEWS were not considered a refund of taxes, the CEWS is not consideration for a supply. Therefore, the CEWS does not meet the criteria of subparagraph (a)(ii) of the definition of “government funding” as defined in section 2 of the Public Service Body Rebate (GST/HST) Regulations.
ADDITIONAL INFORMATION
In your fax of December 16, 2020, you indicated that certain NPOs may become ineligible for the PSB rebate as a qualifying NPO if they have to include the CEWS amount as “other revenue”. However, the CEWS will have no impact on the percentage of government funding calculation.
The method of determining whether an NPO receives 40% or more of its total revenue from government funding has been prescribed and is included in Section 3 of the Public Service Body Rebate (GST/HST) Regulations.
The formula used to determine the percentage of government funding is:
A
—————————— x 100
A + B + C - D
Or, in general terms:
Government Funding
————————— x 100
Total Revenue
Element A of the formula is:
The amount, if any, by which the total of all amounts, each of which is identified in the NPO’s annual financial statements for the year as government funding of the NPO that is received or became receivable in the year (depending upon the method followed by the NPO in determining the NPO’s revenue or funding for the year), exceeds the total of all government funding that is repaid in the year by the NPO or that became receivable by the NPO before the beginning of the year and is not received before the end of the year.
The “Total Revenue” denominator in the above formula (A + B + C - D) refers to funding received from both public and private sources in addition to government funding. These amounts include:
* government funding that is identified as such in the NPO’s financial statements
* income from investments (interest and dividends)
* non-capital distributions from a trust to the NPO
* loans from people with whom the NPO is not dealing at arm's length (for example, an NPO funds a related NPO through loans with unusually low interest rates). If the loans are later reimbursed, they will be deducted from revenue at that time
* proceeds from the issuance of equity securities
* monetary capital contributions (for example, the raising of capital by an NPO that cannot issue shares)
For all the following categories of revenue, a fixed amount of 25 per cent may be deducted. In effect, this means that for every dollar of revenue from the following sources, the NPO need count only 75 cents in its calculation of the percentage of government funding:
* financial payments, such as private gifts and donations
* the total of all amounts by which the fair market value of a financial instrument received by the NPO is more than the consideration paid or payable for the instrument
* all receipts from sponsorships
* all receipts from taxable (including zero-rated) and exempt sales of property and services (do not include receipts from sales of real property or capital property, sales of financial instruments, benefits granted to employees or shareholders, or property you are deemed to have sold when you stop being a registrant)
* proceeds from gambling activities, minus prizes and winnings paid out
An NPO must record ongoing revenue, such as sales, membership fees, or revenue items for activities extending over a number of years, when the NPO receives them or when they become receivable, whichever is earlier.
The NPO must deduct from the total any amounts the NPO repaid during the year. The result is the NPO’s “total revenue” for the purpose of the percentage of government funding calculation.
Since the CEWS is not government funding, it is not considered in element A in the denominator or the numerator of the formula. No other element of the formula applies to the CEWS. The CEWS is not considered a gift either because it is not a voluntary payment for no consideration. It is a statutory requirement of the Minister to pay the CEWS to those who qualify under the legislative criteria. Therefore, the CEWS will have no impact on the percentage of government funding calculation.
If an NPO’s percentage of government funding for a fiscal year is less than 40% and the fiscal year is the NPO’s first fiscal year of existence, the NPO is not a qualifying NPO for that fiscal year.
If an NPO’s percentage of government funding for a fiscal year is less than 40% and the fiscal year is not the NPO’s first fiscal year of existence, the NPO may be a qualifying NPO based on their preceding fiscal years as follows:
* The percentage of government funding for its first fiscal year, if the fiscal year is the NPO’s second fiscal year of existence; or
* The total government funding for the immediately preceding two fiscal years of the NPO, divided by total revenue for that same period, if the fiscal year is the NPO’s third or later fiscal year of existence.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling given in this letter provided that: none of the issues discussed in the ruling are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
If you require clarification with respect to any of the issues discussed in this letter, please call Heather Reardon at 343-571-0916. 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,
Lucas Ghosn, CPA
Public Service Bodies and Rebates Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
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