17 December 2004 GST/HST Interpretation 44592 - Input Tax Credit Available to a Charity for Capital Property

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to purchases of capital property by a charity. We apologize for the delay in responding to your request.

The following is our understanding of the situation as presented in your letter:

•   the charity is a registered charity within the meaning assigned under subsection 248(1) of the Income Tax Act and therefore a charity for purposes of the GST/HST under subsection 123(1) of the Excise Tax Act (ETA);

•   the charity is registered for GST/HST purposes;

•   the charity owns a commercial building and makes an election under section 211 of the ETA to make supplies of commercial leases subject to the GST/HST;

•   as a result of having made the election, more than half of the total activities of the charity are taxable commercial activities;

•   short-term accommodations, in a major city location, may be provided by the charity at a charge of $XXXXX per day.

Interpretation Requested

You requested confirmation on the following issues where a charity is registered for GST/HST purposes and makes an election under section 211 of the ETA:

1. Is the charity entitled to claim a full input tax credit (ITC) of the GST/HST paid or payable on capital personal property used in its operations where more than half of its activities are commercial activities?

2. Would short-term accommodation provided by the charity be exempt from GST/HST under section 5.2 of Part V.1 of Schedule V to the ETA?

Interpretation Given

Charities that are registrants have to use a special net tax calculation where they remit 60% of the GST/HST collected on taxable supplies and only claim ITCs for purchases of real property, capital personal property and improvements to real or capital property of the charity. The charity must remit 100% of the GST/HST collectible by them on their sales of capital property and other specifically enumerated supplies. In addition, they may claim the 50% public service body rebate for the GST/HST paid and for which they cannot claim an ITC, whether it related to their taxable or exempt activities.

As outlined in subsection 123(1) of the ETA, "capital property, in respect of a person, means property that is, or would be if the person were a taxpayer under the Income Tax Act, capital property of the person within the meaning of that Act, other than property described in Class 12, 14 or 44 of Schedule II to the Income Tax Regulations." In general terms, capital property includes most items for which a capital cost allowance can be claimed under the Income Tax Act, such as equipment, machinery, office furniture, and real property. Personal property is any property, other than real property.

A charity can elect not to use the net tax calculation for charities if it makes supplies outside Canada or zero-rated supplies in the ordinary course of its business, or if 90% or more of its supplies are taxable.

Issue #1

Section 199 of the ETA outlines the conditions for entitlement to ITCs on capital personal property such as equipment and improvements thereto, used by the charity in their commercial activities.

Under subsection 199(2) of the ETA,

"Where a registrant acquires or imports personal property or brings it into a participating province for use as capital property,

(a) the tax payable by the registrant in respect of the acquisition, importation or bringing in of the property shall not be included in determining an input tax credit of the registrant for any reporting period unless the property was acquired, imported or brought in, as the case may be, for use primarily in commercial activities of the registrant; and

(b) where the registrant acquires, imports or brings in the property for use primarily in commercial activities of the registrant, the registrant is deemed, for the purposes of this Part, to have acquired, imported or brought in the property, as the case may be, for use exclusively in commercial activities of the registrant."

Accordingly, in order to claim full ITCs, the capital personal property must be used primarily (more than 50%) in commercial activities. Where the capital personal property is not used primarily in commercial activities, the charity may be entitled to claim a 50% public service body rebate for the GST/HST paid on the purchase.

In accordance with section 199 of the ETA, the charity would have to examine the primary use of the capital personal property on a property-by-property basis to determine any entitlement to ITCs.

Issue #2

Section 5.2 of Part V.1 of Schedule V to the ETA provides exemption of the GST/HST for "A supply made by a charity of food, beverages or short-term accommodation if the supply is made in the course of an activity the purpose of which is to relieve poverty, suffering or distress of individuals and is not fund-raising."

Accordingly, for purposes of the provision, the supply of short-term accommodation by the charity must be made in the course of an activity and the purpose of the activity must be to relieve poverty, suffering or distress of individuals. For example, the provision would apply to the supply of short-term accommodation by a charity in relation to their operation of an emergency shelter for the homeless. It would not apply to supplies of short-term accommodation made to such persons as students, persons attending conferences or seminars, or persons who are renting short-term accommodation while visiting the area. Also, this provision does not apply to supplies made for the purpose of fund-raising.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-952-0420.

Yours truly,

Debra Murphy
Charities, NPO & Educational Services Unit
Public Service Bodies & Governments Division
Excise and GST/HST Rulings Directorate

2004/12/08 — RITS 45733 — Supply of Books with CD ROMs and/or Online Access in the Participating Provinces