16 September 2004 GST/HST Ruling 39725 - Application of GST to Sales of Time-Share Resort Accommodation Through the Sale of Resort Points

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 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your operations. Your letter was forwarded to us for reply and we apologize for the delay in responding to your request.

From your letter, our subsequent telephone conversation and the XXXXX, our understanding of the situation is as follows:

1. XXXXX is a non-profit organization and its purpose is to promote and encourage all phases of XXXXX. XXXXX revenues include taxable membership fees.

2. XXXXX has XXXXX associated organizations. The XXXXX associated organization is the XXXXX which is a registered charity that uses donated funds to publish a XXXXX bulletin, run XXXXX seminars, provide scholarships for XXXXX and other charitable activities related to the promotion of XXXXX.

3. The XXXXX associated organization is XXXXX, which is also a non-profit organization. The XXXXX was incorporated in XXXXX. Its stated objectives are to support the aims, objectives and activities of XXXXX and to solicit monies by way of donations or otherwise, and to spend these monies in furtherance of its objectives. XXXXX uses donations to finance court cases that may affect the viability and sustainability of XXXXX in Canada. XXXXX have the same board of directors.

4. XXXXX is registered for purposes of the GST/HST. XXXXX and XXXXX are not registered for GST/HST purposes.

5. XXXXX hired a lawyer to represent XXXXX for a particular case that may threaten XXXXX. The Board of Directors of XXXXX and the XXXXX approved $XXXXX from XXXXX to help finance the case. XXXXX paid the invoice for the legal fees and claimed an input tax credit (ITC) for the GST paid on the legal fees. XXXXX then invoiced XXXXX for the amount of the legal fees net of the GST.

Interpretation Requested

Is XXXXX entitled to claim an ITC for the GST paid on these legal fees?

Interpretation Given

As a registrant, XXXXX is entitled to claim an input tax credit (ITC) in respect of tax paid or payable provided all of the conditions in section 169 of the Excise Tax Act (ETA) are met. One of the conditions in section 169 of the ETA for claiming a full ITC is that the service acquired by XXXXX must be for consumption, use, or supply in the course of XXXXX commercial activities.

"Commercial activity" of a person is defined in subsection 123(1) of the ETA to mean, in part, a business carried on by the person (other than a business carried on without a reasonable expectation of profit by an individual, a personal trust, or a partnership all of the members of which are individuals), except to the extent to which the business involves the making of exempt supplies.

Based on the information provided to us, it is our position that XXXXX acquired the legal services in order to make a resupply of them to XXXXX and not as an input to taxable supplies of memberships. Whether the resupply of the legal services by XXXXX to XXXXX is taxable or exempt depends upon whether the legal services resupplied to XXXXX fall under the direct cost exemption in section 6 of Part VI of Schedule V to the ETA.

The direct cost of the legal services includes the amount XXXXX paid when purchasing the services, any GST or HST payable by XXXXX, and any tax, duty or fee that is prescribed for purposes of section 154 of the ETA but not any portion of such tax, duty or fee that is recovered or recoverable by XXXXX. Generally, provincial sales taxes (if applicable) are not recoverable so that, under most circumstances, provincial sales taxes remain components of direct cost.

Under the provisions of section 6 of Part VI of Schedule V to the ETA, a supply of a service purchased by a public service body (which includes a non-profit organization such as XXXXX) for the purpose of making a supply by way of sale of the service is exempt from GST or HST where the total charge for the supply is the usual charge by the public service body for such supplies to such recipients and:

•   if the public service body does not charge the recipient the GST/HST in respect of the supply, the total charge for the supply does not, and could not reasonably be expected to, exceed the direct cost of the supply; and

•   if the public service body charges the recipient GST/HST in respect of the supply, the consideration for the supply does not, and could not reasonably be expected to, equal or exceed the direct cost of the supply determined without reference to GST/HST and, for Quebec Sales Tax (QST) registrants, the QST.

For example, if XXXXX does not charge GST on the resupply of the legal services to XXXXX, and the consideration is equal to or less than $XXXXX, then the resupply is exempt pursuant to section 6 of Part VI of Schedule V to the ETA and XXXXX will not be eligible claim an ITC.

If XXXXX does charge the GST to XXXXX on the resupply of the legal services and the consideration is equal to or more than $XXXXX, the resupply is taxable. In this case, XXXXX will be eligible to claim an ITC for the GST paid provided all of the other conditions in section 169 of the ETA are met.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, 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 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) 954-7931.

Yours truly,

Anne Kratz
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2004/09/21 — RITS 40343 — GST/HST Treatment of Interchange Fee