27 September 2006 GST/HST Ruling 80091 - Application of GST/HST to Medicinal Herbal Teas

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 XXXXX and whether it qualifies as a band-empowered entity, as defined in GST/HST Technical Bulletin B-039R3, GST/HST Administrative Policy - Application of the GST/HST to Indians (B-039R3). Additional information (i.e., an unsigned copy of By-law XXXXX relating to the affairs of the XXXXX and a copy of a document entitled XXXXX) was provided to this office by way of facsimile transmission XXXXX.

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

The Minister of Finance announced in the Federal Budget of May 2, 2006, a proposal to reduce the rate of the GST and the federal portion of the HST by 1%, effective July 1, 2006. Bill C-13 was tabled in Parliament on May 2, 2006, and received royal assent on June 22, 2006. The general rule is that the rate of GST will be reduced from 7% to 6% and the rate of the HST from 15% to 14% on supplies for which the GST/HST is paid on or after July 1, 2006, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to Reduction in the Rate of the GST/HST - Questions and Answers (http://www.cra-arc.gc.ca/agency/budget/2006/gstrateqa-e.html) on the CRA Web site.

Statement of Facts

XXXXX

1. XXXXX was established in XXXXX as a non-profit, charitable organization. For income tax purposes, it is a registered charity XXXXX.

2. XXXXX operates XXXXX facilities in XXXXX with a maximum capacity of XXXXX beds in total. XXXXX provides transportation for its clients - First Nation individuals (and their escorts, if applicable) - from their First Nation reserve to XXXXX. It also provides short-term accommodation and meals to its clients. Referrals to XXXXX are made by the XXXXX, First Nation community health representatives, XXXXX, physicians and XXXXX hospitals. XXXXX also accepts referrals from across Canada for any First Nation individual requiring care, provided they meet the requirements of XXXXX.

3. XXXXX is entirely funded by the federal government through a contribution agreement it has with the XXXXX. A copy of this agreement was not provided for review. In your letter, you advised that this agreement requires XXXXX to provide medical transportation benefits to XXXXX First Nation individuals.

XXXXX - By-Law XXXXX

4. XXXXX.

5. XXXXX.

6. XXXXX.

7. XXXXX.

8. XXXXX.

9. XXXXX.

10. XXXXX.

11. XXXXX.

12. XXXXX.

XXXXX

13. XXXXX.

XXXXX Funding

14. In your letter you state, XXXXX.

15. You also state, XXXXX.

16. Further, you state, XXXXX that XXXXX.

Additional Information

17. XXXXX.

Ruling Requested

Does XXXXX qualify as a band-empowered entity, as defined in B-039R3 thereby entitling it to claim GST/HST rebates as a band-empowered entity where the conditions described in B-039R3 are met?

Ruling Given

Based on the facts set out above, we rule that XXXXX qualifies as a band-empowered entity, as defined in B-039R3 provided that those who appoint or elect the majority of the members of the Board of Directors of XXXXX "individual members of the band, tribal council or group of bands", as described under the first criteria of the "controlled" test in B-039R3. As a band-empowered entity, XXXXX will be entitled to claim GST/HST rebates as a band-empowered entity where the conditions described in B-039R3 are met.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

B-039R3 sets out criteria for purposes of determining whether an entity is owned by a band, a tribal council or a group of bands other than a tribal council or controlled by a band, tribal council or group of bands.

XXXXX will be considered to meet the first criteria of the "controlled" test, as described in B-039R3, if those who appoint or elect the majority of the members of the Board of Directors of XXXXX are "individual members of the band, tribal council or group of bands". XXXXX is considered to meet the second criteria of the "controlled" test because according to XXXXX its By-Law, one half the members of the Board of Directors are either a "Tribal Council Member, Chief or a Band Councillor" and it is through these majority members - as representatives of the XXXXX Communities XXXXX serves - that the budget of XXXXX is reviewed and approved by "the band, tribal council or group of bands". Since the Head Office of XXXXX is on a reserve, it is situated on a reserve for purposes of B-039R3.

In order to avail itself to GST/HST rebates provided under B-039R3 to band-empowered entities, XXXXX must be carrying out band management activities and all other conditions described in B-039R3 must be met. B-039R3 defines "band management activities", in part, as activities or programs undertaken by a band or band-empowered entity that are not commercial activities for which they would otherwise be entitled to an input tax credit.

XXXXX as an incorporated band-empowered entity would be entitled to acquire property on a reserve where the property is for band management activities and appropriate documentation is provided to the vendor. Property acquired off a reserve that is not delivered to a reserve by the vendor or the vendor's agent would not be relieved of tax. For example, if XXXXX acquired property off a reserve for use in one of its facilities in XXXXX, that property would have to be delivered to a reserve in order for tax relief to apply. Services, whether acquired on or off a reserve by XXXXX, would be tax relieved (other than off-reserve transportation, short-term accommodation, meals and entertainment) where the services are for band management activities or for real property on a reserve and all other conditions described in B-039R3 are met.

The GST/HST paid by XXXXX, its employees or officials on off-reserve transportation, short-term accommodation, meals and entertainment that constitute "eligible travel expenses" for purposes of B-039R3 would be recoverable by XXXXX under section 261 of the ETA through the use of GST189, General Application for Rebate of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST). For example, if employees of XXXXX attended a conference off a reserve for band management activities and XXXXX reimbursed the employees for their travel expenses to attend the conference, XXXXX would be entitled to claim, as a Code 8 rebate, 5/105 of the reimbursement paid. With respect to the conference fee, XXXXX would be relieved from the payment of the GST/HST provided that XXXXX gives the conference supplier a certificate, as required under B-039R3.

As a band-empowered entity carrying out band management activities, XXXXX would also be entitled to claim a Code 8 rebate on its purchase of other off-reserve purchases of transportation, short-term accommodation, meals and entertainment. For example, if XXXXX acquired a transportation service to transport a First Nation individual - XXXXX - from the XXXXX airport to one of its facilities in XXXXX, XXXXX would be entitled to claim a Code 8 rebate in respect of this purchase. Travel expenses that are not incurred by XXXXX, its employees or officials do not, however, constitute "eligible travel expenses" for purposes of the Code 8 rebate. If in the above example, the First Nation individual (rather than XXXXX) incurred the travel expenses and sought reimbursement for those expenses from XXXXX, XXXXX would not be entitled to claim a Code 8 rebate in respect of the reimbursement paid to the First Nation individual.

It should be noted that B-039R3 does not provide tax relief on services acquired by Indian bands or band empowered entities for real property off a reserve. Therefore, if XXXXX were to acquire services to construct an addition to one of its facilities in XXXXX, for example, XXXXX would not be entitled to acquire the service tax-relieved. As a registered charity, however, XXXXX would be entitled to claim the applicable Public Service Body Rebate to recover a portion of the GST/HST that it paid on its acquisition of the construction service.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-7952.

Yours truly,

Lynn Fournier Renner
Aboriginal Affairs Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

2006/09/29 — RITS 80351 — Independent Medical Examinations and Other Independent Assessments