8 December 2004 GST/HST Interpretation 53919 - Tax Status of Supplies Provided by a Charity

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, (with sample products), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below.

Statement of Facts

Our understanding of the facts, the transactions, and the purpose of the transactions is as follows:

1. XXXXX (the Company) is a publisher of educational materials XXXXX.

2. The Company sells textbooks accompanied by CD-ROMs across Canada, including in the participating provinces.

3. You have provided three samples of textbooks accompanied by CD-ROMs.

4. XXXXX ("Product A"). This textbook is designed for one- or two-semester courses in business communication. A XXXXX CD-ROM is included free with every new textbook in a folder on the inside back cover of the textbook. The CD-ROM includes additional self-tests, grammar modules, exercises, and case studies. The back cover of the textbook also highlights the features of a student Website, which contains online quizzes, hyperlinks, and study resources. Anyone may access the student Website; it does not require a password. The textbook also comes with a passcode for a free XXXXX subscription to XXXXX, an online library that offers over XXXXX articles from over XXXXX periodicals.

5. XXXXX ("Product B"). This textbook explains how to get a job in the health care field, and provides self-directed activities to reinforce each step in the process. The accompanying CD-ROM features files that can be used to complete the activities in the book, and the XXXXX. This software can be used to create personalized resumes and cover letters designed specifically to help the user find a rewarding job in the health care field. A License Agreement for the software is attached to the back cover of the book, beside the folder containing the CD-ROM. The License Agreement states, in part, that XXXXX.

6. XXXXX ("Product C"). This textbook is designed for a first year computer science course. The sample came in a box set with the XXXXX CD-ROM. This interactive course delivered on CD-ROM includes audio lectures, practise questions, links to Websites with additional resources, allows users to compile code sections, search the course for key topics, and track their progress. The CD-ROM course is based on the textbook. There is also a XXXXX Website for the textbook, with study resources such as chapter overviews, key concepts, self-tests and the source code. The XXXXX box set has a list price of $XXXXX on the XXXXX website, while Product C has a list price of $XXXXX.

Transactions

The Company sells textbooks with accompanying CD-ROMs to bookstores in the participating provinces.

Ruling Requested

Are these textbooks supplied by the Company with CD-ROMs subject to 15% HST when supplied in a participating province?

Ruling Given

Based on the facts set out above, we rule that supplies of Products A, B, and C with the CD-ROMs are subject to 15% HST when supplied in a participating province.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

The provincial sales tax legislation in each of the three participating provinces allows for a point-of-sale rebate of the provincial component of the HST (8%) on all supplies of a printed book or an update of a printed book, an audio recording all or substantially all of which is a spoken reading of a printed book, or a bound or unbound printed version of scripture of any religion, where "printed book" has the meaning assigned by subsection 259.1(1) of the Excise Tax Act (ETA). The point-of-sale rebate is administered by the CRA.

The point-of-sale rebate is available at any point in the distribution chain. It is not limited to sales made to consumers through retail establishments located in the participating provinces. It applies to sales by publishers, wholesalers and distributors throughout the country.

A supplier normally credits the point-of-sale rebate to the purchaser when qualifying goods are purchased. However, if the supplier does not pay or credit the rebate at the time of sale, and if the recipient is a registrant acquiring the goods for use or supply in the course of a commercial activity, the recipient is entitled to claim an input tax credit for the 8% provincial component of the HST as well as the 7% federal component.

Section 259.1 of the ETA outlines the federal book rebate of the GST available to specified persons (e.g. municipalities, school authorities and universities) under certain conditions. A "printed book," as defined in subsection 259.1(1), does not include anything that is or the main component of which is one of the items listed in paragraphs (a) to (p) of that definition (e.g. newspapers, sales catalogues). None of the exclusions apply to the sample textbooks. Common dictionary definitions of the term "book" indicate that a book is essentially a number of sheets fastened together in some way.

In some cases, an item that consists of a book and another product packaged together and sold for a single price will be considered to be a single supply of a new product that does not fall within the definition of a printed book.

In other cases, a printed book and another item packaged together and sold for a single price will be considered to be two separate items. In these cases, it is necessary to determine if the supply of one item is incidental to the supply of the other.

The products submitted were reviewed with reference to our policy position on single and multiple supplies (P-077R2, Single and Multiple Supplies, copy enclosed) to determine whether each product is a single supply or a multiple supply before determining whether there is a supply of a "printed book" for purposes of the point-of-sale rebate. We concluded that there is a single supply in each case, and that supply is of a new product that does not qualify for the point-of-sale rebate:

1. Product A - Every new copy of this textbook is packaged with the CD-ROM and the subscription to XXXXX, both of which are only available with the purchase of a textbook. The resulting package provides learning resources in several formats that are integrated together to meet the recipient's needs. Although the recipient may be aware of the various elements, the recipient cannot acquire them separately or substitute any of the elements. The supply of Product A with the CD-ROM and the subscription to XXXXX is a single supply of a new product that is not a printed book.

2. Product B - Every new copy of this textbook is packaged with the CD-ROM. The resulting package provides learning resources in several formats that are integrated together to meet the recipient's needs. Although the recipient may be aware of the various elements, the recipient cannot acquire them separately or substitute any of the elements. The supply of Product B with the CD-ROM is a single supply of a new product that is not a printed book.

3. Product C - This textbook is sold in a box set with the CD-ROM to form a complete XXXXX course. The resulting package provides learning resources in several formats that are integrated together to meet the students' needs. Although the recipient may be aware of the elements included in the box set, in this particular transaction, the recipient cannot acquire them separately or substitute any of the elements. The supply of Product C in a box set with the CD-ROM is a single supply of a new product that is not a printed book.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8253.

Yours truly,

Jacqueline Russell
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2004/12/10 — RITS 53926 — Election Under Subparagraph 9(2)(b)(ii) of Part I of Schedule V to the Excise Tax Act ("the ETA")