2 December 2004 GST/HST Ruling 53780 - Application of subsection 9(2) of Part I of Schedule V to the Excise Tax Act

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 your client's operations. We apologize for the delay in responding to your request.

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

•   Charity A, your client, is a registered charity within the meaning assigned under section 248 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).

•   Charity A is registered for purposes of the GST/HST under the ETA.

•   Charity A makes taxable and exempt supplies.

•   Charity A is involved in supplying services of XXXXX.

•   In a contract with XXXXX, XXXXX, Charity A provided, in Canada, various XXXXX services to XXXXX. XXXXX. Charity A charged and collected tax on these supplies.

•   Another contract was signed in XXXXX. In this contract, Charity A provides policy advice and analysis XXXXX. XXXXX.

•   XXXXX Charity A XXXXX using the simplified method of accounting for charities whereby it remitted 60% of the GST/HST collected on its taxable supplies.

Interpretation Requested

1. What is the application of the GST/HST to the supplies provided by Charity A under the contracts?

2. If these supplies are exempt and Charity A has wrongfully collected and remitted the GST/HST based on the simplified method for charities, does Charity A have any liability in respect of the 40% tax it retained?

Interpretation Given

In the absence of specific contracts or information about Charity A, we are unable to issue you a ruling with respect to your enquiry as rulings can only be issued with regard to a clearly defined fact situation of a particular person. However, we are pleased to provide you with the following interpretation of the relevant provisions of the ETA.

Property or Services Supplied by a Charity

Generally, supplies of property and services made by a charity are exempt from tax in accordance with section 1 of Part V.1 of Schedule V to the ETA, unless such supplies are excluded under paragraphs 1(a) through (n). Paragraph 1(a) of Part V.1 of Schedule V excludes from exemption, property or services included in Schedule VI, including certain services made to non-resident persons. Other services involving performing artists and certain services of instruction in respect of recreation or athletic activities may also be excluded and therefore subject to the GST/HST unless qualifying for exemption under another provision within the legislation.

GST/HST Collected

For reporting periods after 1996, a charity that is registered for purposes of the GST/HST is required to calculate its net tax in accordance with the method set out in section 225.1 of the ETA. Under this method, the charity includes in its net tax only 60% of the tax collectible on "specified supplies" (which includes most taxable supplies other than sales of capital and real property). The inclusion of only 60% of that tax is in lieu of claiming input tax credits on most inputs to the supply of the taxable services or property it supplies. The charity also includes in its net tax 100% of the tax collectible on sales of capital and real property and other specifically enumerated supplies. The charity is entitled to claim input tax credits only in respect of the acquisition and improvements to real property and capital property. The charity may also be eligible to file for a public service body rebate under subsection 259(3) of the Act for the tax paid on purchases where no input tax credit was allowed.

Where a charity makes supplies outside Canada, or zero-rated supplies, in the ordinary course of a business or all or substantially all of its supplies are taxable, it may be eligible to elect not to use the net tax calculation method and to calculate its net tax using the ordinary method outlined in section 225 of the ETA.

If a person collected GST/HST in respect of the supply of exempt services, then tax would be considered to have been collected in error. In accordance with subsection 222(1) of the ETA, any amounts that a person collects as tax are deemed to be held in trust for the Crown, whether or not the tax was properly chargeable to the person's customers. As a result, tax collected in error must either be remitted to the Canada Revenue Agency or in accordance with subsection 232(1) of the ETA, be refunded or credited to the recipient (the purchaser). Any such refund or adjustment must be made within two years after the end of the person's reporting period in which the tax was collected or charged. However, please note that subsection 232(3) of the ETA specifies rules on adjustments such as issuance of credit notes, which must contain prescribed information and be issued to the recipient within a reasonable time.

Accordingly, if a registered charity were to collect the GST/HST on exempt supplies in error, it would have to remit 100% of the GST/HST. If the charity had remitted the net tax on the basis of the calculation for charities at 60%, it would have to remit the remaining 40% collected or refund or credit the recipient. As well, if the charity has claimed input tax credits on property or services used, consumed, or supplied in the course of its exempt activities, it would be liable to repay the amounts.

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 53919 — Textbooks with Accompanying CD Software