8 April 2005 GST/HST Ruling 51793 - Application of GST/HST to Charity's Operations

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

This memorandum is in response to a question that you posed to us concerning the self-government refund. You asked if a daycare operated by a self-governing First Nation was a self-government activity eligible for the refund.

We have analyzed the applicable agreements for the XXXXX First Nation and compared the result with the agreements for the XXXXX First Nation. Both of their self-government agreements provide for tax treatment agreements that include provisions for a refund of GST in relation to tax incurred while performing a function of government (with certain exceptions).

Our conclusion is that a self-governing First Nation is eligible for the self-government refund for GST it incurs for the operation of a daycare, based on the statutory conditions for the refund (i.e., where the specific conditions of the self-government agreement and the related tax treatment agreement are met).

Our analysis of the applicable XXXXX agreements and the XXXXX agreements leads us to make the following general statements about the self-government refund.

Eligibility for the refund is based on 6 factors. The 6 factors set up restrictions that eliminate GST paid. The tax paid has to pass through the elimination process in each of the factors in order to be eligible for the self-government refund.

Factor 1: the application deadline.

Under XXXXX the XXXXX Agreement, the application is required to be filed within 4 years after the tax was paid.

Factor 2: the nature of the applicant.

The applicant has to satisfy the definition of a "claimant" for purposes of XXXXX the XXXXX Agreement related to the XXXXX Self-Government Agreement.

Factor 3: input tax credits (and recovery under any law).

XXXXX the XXXXX Agreement sets up a number of restrictions.

First it requires that an input tax credit cannot be available. Thus, if the business or activity falls under the Schedule V exemptions to the Excise Tax Act (as does a daycare activity, under section 1, Part IV of Schedule V), the GST paid on taxable supplies acquired for it will probably survive the elimination process in XXXXX. If the GST is paid while engaged in a commercial activity for which an input tax credit is available, it probably will be eliminated, and no self-government refund will be available.

Further, XXXXX provides that the refund is unavailable where the tax is refundable under any other law.

Factor 4: non-profit activities and specified activities

XXXXX provides that the business or other activity for which the GST is paid cannot be for profit or gain, unless it is a "specified activity." Therefore, the first filter in this factor eliminates GST paid for any activity or business that is for profit or gain.

That is, unless it is a "specified activity." A "specified activity" means a business or activity that has the primary purposes of providing property or services to XXXXX Citizens, the XXXXX Government, its eligible corporations, individuals resident on XXXXX lands or in a XXXXX community, XXXXX community governments or any combination of those persons. It also includes any other business or activity that the Government of Canada and the XXXXX Government agree upon.

If the GST is paid for an activity or business that is non-profit in nature or is a "specified activity," it must also XXXXX be tax paid in the course of performing a "function of government" under the XXXXX Self-Government Agreement or a subsequent agreement.

Factor 5: relation to capital or non-capital property.

XXXXX follows the above restrictions with ones concerning the relation of the tax paid to the classifications of capital property and non-capital property.

The "primary" rule for GST paid related to capital property.

XXXXX the XXXXX Agreement, GST paid that relates to a claimant's acquisition of capital property (including services for that property and for property supplied with these services) must be for consumption, use or supply primarily (more than 50%) in the course of engaging in a business or other activity on XXXXX land or in a XXXXX community. So, in this factor, even if the GST paid is for a property or service for a business or activity that is non-profit in nature, it must pass through this filter if it is related to capital property.

The "exclusive" rule for GST paid on non-capital property, for GST on services related to that property, and for GST on services not related to property.

XXXXX the XXXXX Agreement, GST paid that relates to a claimant's acquisition of non-capital property, including services for that property, and services acquired that are not for property, must be for consumption, use or supply exclusively (at least 90%) in the course of engaging in a business or other activity on XXXXX land or in a XXXXX community. So, in this factor, even if the GST paid is for a property or service for a business or activity that is non-profit in nature, it must pass through this filter if it is related to non-capital property, or if it is for services not related to property.

In the Appendix to this memorandum, we describe the kind of analyses that will result from the elimination process under the capital property and non-capital property rules established under XXXXX.

Factor 6: the issue of permanent establishments not on XXXXX land or in a XXXXX community.

XXXXX the XXXXX Agreement applies where the claimant is engaged in a business or activity partly on XXXXX land or a XXXXX community and partly at or through one or more of the claimant's permanent establishments not located on XXXXX land or in a XXXXX community.

The term, "permanent establishment," is defined in the XXXXX Agreement to mean a fixed place of business of the claimant, a fixed place of business or another person who is acting on behalf of the claimant, a place at which the claimant uses substantial machinery or equipment, or any real property owned, or supplied on a regular or continuous basis, by the claimant.

In the situations in which XXXXX applies, and where the capital property is real property that the claimant uses to make supplies on a regular or continuous basis by way of lease, licence or similar arrangement, and where that property is not located or not intended to be located on XXXXX land or in a XXXXX community, the self-government refund is not available. In these situations, the claimant is deemed not to be engaged in a business or activity on XXXXX land or in a XXXXX community. Consequently, GST paid on property and services that relate to that business or activity (involving making the supplies of real property described above) conducted partly at or through one or more permanent establishments not located or not intended to be located on XXXXX land or in a XXXXX community will not will not qualify for the refund.

In any other case in which XXXXX applies, the self-government refund is available only on a prorated basis. The refund is available to the extent that the GST paid is not related to a business or activity engaged in or at a permanent establishment off XXXXX land or outside a XXXXX community.

In situations where the self-government refund is unavailable.

Where the self-government refund is not available, and the claimant qualifies as a public service body, the GST paid may be reimbursable at the specified percentage.

We have created a flowchart of the full elimination process for the self-government refund, based on the XXXXX and XXXXX examples, which we have enclosed with this memorandum.

Dave Caron
Manager
Aboriginal Affairs Unit
Excise & GST/HST Rulings Directorate

Attachment: Flowchart of the self-government refund's elimination process.

Appendix

The following are examples demonstrating the application of the rules concerning capital property and non-capital property in XXXXX the XXXXX Agreement.

Rules for GST related to capital property.

Where the acquisition is capital property that is moveable, the intent is not to eliminate GST paid on property that is not located on XXXXX land or in a XXXXX community. For example, where a vehicle is purchased for use primarily to carry XXXXX citizens on daytrips between XXXXX, a XXXXX community, and XXXXX to attend health care appointments, the intention is not to exclude the GST paid on any acquisition because the property is often located off XXXXX land or outside a XXXXX community (i.e., in a XXXXX parking lot). In this health care scenario, the vehicle is used primarily in the course of engaging, on XXXXX land or in a XXXXX community, in a business or other activity, that activity being the provision of health care benefits to residents of a XXXXX community. The GST paid on the purchase of the vehicle would be eligible for the self-government refund.

Rules for GST on non-capital property, for GST on services related to that property, and for GST on services not related to property.

According to XXXXX the XXXXX Agreement, GST paid that relates to a claimant's acquisition of non-capital property, including services for that property, and other services acquired that are not for property, must be for consumption, use or supply exclusively in the course of engaging in a business or other activity of the claimant on XXXXX land or in a XXXXX community.

Where the acquisition is non-capital property, such as government stationery, it is not the location of use that XXXXX intends to restrict, but the nature of the use to which it is put. If the stationery is used by a government official engaged in a government activity while in a plane in the air midway between XXXXX and XXXXX, it will be eligible for the self-government refund. If the official uses it purely for personal reasons, XXXXX will technically exclude it.

Where the acquisition is a service not in relation to capital property, such as an air transportation service for XXXXX officials to fly between XXXXX and XXXXX for a summit, the refund will be available because the acquisition is used exclusively in the course of engaging on XXXXX land or in a XXXXX community in the activity of governing.

Flowchart for the vetting process for the XXXXX Taxation Agreements

Note 1: If the business or activity involves making supplies of real property on a regular and continuous basis by way of lease, licence or similar arrangement (e.g. residential rents), and the real property is not or is not intended to be located on the FN land or in a community of the FN, no self-government refund is available.

Note 2: If the business or activity is engaged partly on the FN land or partly in a community of the FN and partly off through one or more permanent establishments, the entitlement to the self-government refund is limited to the extent to which the business or activity is engaged on the FN land or in a community of the FN.

The information in this flowchart is provided as a reference tool. It does not replace the law.

2005/04/04 — RITS 52246 — Conversion XXXXX from a Long-term Care Facility into Seniors' Apartments