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.
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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5XXXXX
XXXXX
XXXXX
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Case Number: 56497XXXXX
XXXXXAugust 15, 2006
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Subject:
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GST/HST RULING
Fund-raising campaign
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Dear XXXXX:
Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of t-shirts in a fund-raising campaign by XXXXX. We apologize for the delay in responding to your enquiry.
Statement of Facts
We understand that:
1. XXXXX is a national, private, non-profit organization committed to XXXXX.
2. XXXXX is registered for GST/HST purposes XXXXX with the effective date of XXXXX. XXXXX fiscal year end is XXXXX.
3. XXXXX is a registered charity within the meaning assigned by subsection 248(1) of the Income Tax Act and, therefore, XXXXX is also a charity for purposes of the Excise Tax Act (ETA).
4. XXXXX makes supplies of various merchandise as part of its fund-raising activities. It operates an XXXXX store called XXXXX offering XXXXX merchandise for sale including clothing, sporting goods, collectibles, jewellery, home accents, books and stationery.
5. You indicated that clothing for sale in the store is generally marked up on a XXXXX; for example, an item of clothing costing $XXXXX would generally sell for $XXXXX. XXXXX currently has long-sleeved t-shirts on sale for $XXXXX from its XXXXX store. XXXXX also has sales of clearance merchandise, including clothing, at reduced prices from time to time.
6. Another fund-raiser is XXXXX auction, where customers can bid on XXXXX merchandise XXXXX. In addition, XXXXX merchandise can be acquired at XXXXX fund-raising events which are held across Canada and from its gift shop located at XXXXX.
7. In the fall XXXXX, XXXXX began a fund-raising campaign with a solicitation mailed out to XXXXX on XXXXX. The solicitation letter stated that XXXXX was making a very special, limited-time offer and with a donation of $XXXXX or more, the person would receive a free XXXXX t-shirt. The donation would go towards continuing XXXXX efforts.
8. The reply form included with the solicitation gave a person the option to make a gift of $XXXXX or more and be sent the t-shirt in a desired size XXXXX or to make a gift of any amount with no t-shirt required. The reply form also indicated that an official tax receipt would be issued for donations of more than $XXXXX or on request.
9. The solicitation was also posted on XXXXX web site and offered through XXXXX toll-free XXXXX number XXXXX from XXXXX to XXXXX. XXXXX.
10. The t-shirts for this fund-raising campaign were acquired new from a supplier XXXXX regularly purchases XXXXX from to sell in its XXXXX store. However, the t-shirts were a special order and were only available through this fund-raising campaign and were not available for purchase from XXXXX store, auction or gift shop.
11. You indicated that this fund-raising campaign was the first time XXXXX offered an advantage. As the advantage was more than 10% and less than 80% of the contribution, you stated that XXXXX issued a tax receipt for $XXXXX to a person who made a contribution of $XXXXX and received the t-shirt, which XXXXX estimated had a fair market value of $XXXXX.
12. The solicitation mailed out XXXXX did not indicate the value of the t-shirt nor did it specify that the tax receipt would only be $XXXXX to those persons receiving the t-shirts.
13. XXXXX also allowed a person, who enquired about obtaining additional t-shirts, to acquire extra t-shirts for $XXXXX each after the initial contribution of $XXXXX.
14. XXXXX ordered a total of XXXXX t-shirts for this fund-raising campaign on XXXXX purchase orders: XXXXX. The cost to XXXXX on a per t-shirt basis was: XXXXX.
15. XXXXX received contributions and requests for the t-shirts on a weekly basis into the spring of XXXXX. XXXXX did a mail-out of the t-shirts to persons who sent in contributions and requested the t-shirts once each week from XXXXX until the last t-shirt was mailed out in XXXXX. All the t-shirts ordered for this fund-raising campaign were supplied to persons making contributions and there was no leftover stock.
16. Due to the success of the t-shirt fund-raising campaign, XXXXX offered a XXXXX in return for a contribution of $XXXXX for its fall XXXXX campaign and a XXXXX in return for a contribution of $XXXXXfor its spring XXXXX campaign. XXXXX.
Rulings Requested
1. Were the t-shirts mailed by XXXXX to persons who made contributions of $XXXXX exempt supplies?
2. Were the extra t-shirts mailed by XXXXX to persons who made additional contributions of $XXXXX exempt supplies?
Rulings Given
Based on the facts set out above, we rule that:
1. The t-shirts mailed by XXXXX to persons who made contributions of $XXXXX were taxable supplies and the GST or HST applied on the consideration of $XXXXX for each supply of a t-shirt mailed to an address in Canada.
2. The t-shirts mailed by XXXXX to persons who made additional contributions of $XXXXX were taxable supplies and the GST or HST applied on the consideration of $XXXXX for each supply of an extra t-shirt mailed to an address in Canada.
These rulings are subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by these rulings 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
All following legislative references are to the ETA and the regulations therein, unless otherwise specified.
Under the ETA, the GST or HST is imposed on the value of the consideration for a taxable supply of property or a service made in Canada. "Consideration" is defined under subsection 123(1) to include any amount (monetary or non-monetary) that is payable for a supply by operation of law.
However, the GST or HST does not apply to gifts. A gift may be defined at common law as a voluntary transfer of property made without consideration. No right, privilege or material benefit may be conferred on the donor or on a person designated by the donor as a consequence of the gift, except where the benefit is of nominal value (e.g., a token of appreciation such as a pin or flower).
It is a question of fact whether a contribution made by a person to a charity is a gift.
In general, where a charity receives a contribution of money from a person made voluntarily and gratuitously and the charity does not provide anything in return for the contribution, then the amount contributed is considered a gift at law. If the charity provided the person with an item of nominal value as a token of appreciation that did not serve as an inducement to make the contribution, the amount contributed will still be considered a gift. As well, the item of nominal value given by the charity will be considered a gift made for no consideration.
However, where the charity provides the person making the contribution with property or a service of more than nominal value that served as an inducement to make the contribution, then for ETA purposes, the amount of the contribution is not regarded as a gift but as consideration for the supply of the property or service given in return by the charity. As well, the supply of the property or service made by the charity to the contributor is not a gift made for no consideration.
Based on the facts provided, XXXXX were solicited for contributions of $XXXXX with the offer of receiving a XXXXX t-shirt in return. The offer of the t-shirts to members served as an inducement to make a contribution to XXXXX. The t-shirts were not nominal in value and a person could only receive the t-shirt upon making a contribution. XXXXX did not offer the t-shirts unconditionally and only mailed out the t-shirts to persons after receiving their contributions. As a result, XXXXX supplies of the t-shirts were not gifts made for no consideration.
Therefore, where a person made an initial contribution of $XXXXX and was supplied with a t-shirt by XXXXX, the consideration for the supply of the t-shirt was $XXXXX. Where a person made an additional contribution of $XXXXX for the supply of an extra t-shirt, the consideration for the supply was $XXXXX. Whether tax applied on the consideration for the supplies of the t-shirts depends on whether XXXXX supplies of the t-shirts were taxable supplies or exempt supplies.
Exempt supplies are not subject to the GST or HST and are listed in Schedule V. Most supplies of property or services made by a charity are exempt supplies under section 1 of Part V.1 of Schedule V unless the supply is excluded in any of the paragraphs (a) to (n) of that section.
In particular, excluded from exemption under paragraph 1(d) of Part V.1 of Schedule V is a supply of tangible personal property (e.g., a t-shirt) acquired by a charity for the purpose of making a supply of the property and the property was neither donated to the charity nor used by another person before its acquisition by the charity.
As the t-shirts were not used or donated before being acquired by XXXXX, the supplies of the t-shirts to persons making contributions of $XXXXX and $XXXXX are excluded from exemption under paragraph 1(d) of Part V.1 of Schedule V.
However, there are other exemptions listed in Schedule V that may apply to certain supplies made by a charity. Particularly, section 3 of Part V.1 of Schedule V exempts a supply by way of sale of personal property or a service made by a charity in the course of a fund-raising activity except for supplies listed in paragraphs (a) to (c) of that section. For instance, excluded from exemption under paragraph 3(a) of Part V.1 of Schedule V is a supply by way of sale of any personal property or service made by a charity in the course of a fund-raising activity where:
• the charity makes supplies of such property or services in the course of that activity on a regular or continuous basis throughout the year (any period of twelve consecutive months) or a significant portion (30% or more) of the year; or
• the agreement for the supply entitles the recipient to receive from the charity property or services on a regular or continuous basis throughout the year or a significant portion of the year.
Please note that "sale", in respect of property, is defined under subsection 123(1) to include any transfer of the ownership of the property and a transfer of the possession of the property under an agreement to transfer ownership of the property.
As XXXXX transferred possession and ownership of the t-shirts to persons making contributions, its supplies of the t-shirts were made by way of sale for ETA purposes. Further, as XXXXX supplied the t-shirts to contributors on a weekly basis from XXXXX to early XXXXX, it sold the t-shirts on a regular and continuous basis throughout a significant portion of the year. As a result, XXXXX supplies of the t-shirts to persons making contributions of $XXXXX and $XXXXX were not exempt supplies under section 3 of Part V.1 of Schedule V.
As there are no other provisions to exempt these supplies, XXXXX supplies of t-shirts made in Canada were taxable supplies. The GST or HST will apply to the consideration XXXXX for the supply of a t-shirt to a contributor unless the supply was a zero-rated supply.
Zero-rated supplies are listed in Schedule VI and are taxable supplies subject to a tax rate of 0% (in other words, the GST or HST is not collected on the consideration for a zero-rated supply). For example, under paragraph 12(c) of Part V of Schedule VI, a supply of tangible personal property (e.g., a t-shirt) is a zero-rated supply where the supplier sends the property by mail or courier to an address outside Canada.
Thus, where a charity makes a supply of tangible personal property in Canada that is not an exempt supply under any provision in Schedule V and the charity sends the property by mail or courier to an address outside Canada, then the supply will be a zero-rated supply and the GST or HST will not apply to the consideration for the supply. However, section 12 of Part V of Schedule VI does not apply where the charity sends the property by mail or courier to an address in Canada.
As there are no other provisions in Schedule V or VI that apply, XXXXX supplies of the t-shirts to contributors that were mailed to addresses in Canada were taxable supplies and the GST or HST applied on the value of consideration XXXXX for the supplies of the t-shirts.
The HST will apply on the value of the consideration for supplies of the t-shirts XXXXX made in the participating provinces of Nova Scotia, New Brunswick and Newfoundland and Labrador. In general, a supply by way of sale of tangible personal property is considered to be made in a participating province if the property is delivered or made available in a participating province (including by means of mail, courier, or common carrier retained by the supplier) to the recipient of the supply. Alternatively, the GST will apply on the value of the consideration for supplies of t-shirts XXXXX delivered or made available in the rest of Canada.
More information on the application of the HST to taxable supplies can be found in our Technical Information Bulletin B-078, Place of Supply Rules under the HST, available on the Canada Revenue Agency's (CRA's) web site at http://www.cra-arc.gc.ca.
Effective July 1, 2006, the rate of the GST has been reduced from 7% to 6% and the rate of the HST from 15% to 14%. The new rates apply to supplies for which the GST or 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 on the CRA web site at http://www.cra-arc.gc.ca/agency/budget/2006/gstrateqa-e.html.
Other Information
You enquired whether similar fund-raising activities by XXXXX would attract the GST or HST where XXXXX offers an advantage. Whether the GST or HST would apply is determined on a case-by-case basis. However, where a charity that is a GST/HST registrant supplies tangible personal property in Canada to a person in return for a contribution in the course of a fund-raising activity and the property:
• is more than nominal in value;
• was acquired by the charity for the purpose of making a supply of the property;
• was neither donated nor used by another person before its acquisition by the charity; and
• is supplied by way of sale on a regular or continuous basis throughout the year or a significant portion of the year or the recipient is entitled to receive from the charity supplies of the property by way of sale on a regular or continuous basis throughout the year or a significant portion of the year;
then, generally the supply of the property will be a taxable supply subject to the GST or HST on the consideration for the supply (other than a zero-rated supply).
For more information on the tax status of supplies made by a charity, please refer to our guide RC4082, GST/HST Information for Charities, available on the CRA's web site.
As a note, we are aware that there are proposed amendments to the Income Tax Act to recognize that part of a contribution made by a person to a charity may qualify as a gift where the charity provides the person with an advantage in return and certain conditions are met under the proposed income tax legislation. However, at this time, there are no similar proposed amendments to the ETA.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9592.
Yours truly,
Nadine Kennedy, CMA
Charities, Non-profit Organizations and Educational Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
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