File: 11925-8(MB)
Doc: XXXXX
Ref: Ss 169(1) & (4),
S. 10 of Pt. VI to Sch. V,
Ss 141.01(2) & (5)
XXXXX
This is in reply to your letter dated November 17, 1994 and accompanying documentation sent to this office, inquiring whether XXXXX is entitled to claim input tax credits (ITC) on certain purchases.
Statement of facts:
Pertinent facts are taken from the correspondence provided and telephone conversations with XXXXX of Revenue Canada-GST.
1) XXXXX is incorporated under the XXXXX and qualifies as a non-profit organization (NPO) as defined in subsection 123(1) of the Excise Tax Act (ETA);
2) XXXXX is not a "qualifying non-profit organization" as defined in subsection 259(1) as it does not receive at least 40% of its annual revenue from government funding;
3) once a year, XXXXX coordinates and hosts a softball tournament on the July long weekend;
4) XXXXX raises funds by charging entry fees to teams wishing to participate in the softball tournament, and by selling dance tickets, alcoholic beverages, food, T-shirts, souvenirs and other supplies connected to the tournament;
5) XXXXX revenues are raised as the result of this one weekend activity and a twice a year casino event;
6) proceeds from these events are used to support the Special Olympics, construct playgrounds, ballfields, donate hospital equipment and maintain community baseball fields throughout the season;
7) the baseball fields used in the tournament are on the XXXXX
8) XXXXX has an Agreement for June 30, July 1, 2 and 3, 1995 (copy provided) with the XXXXX (i.e., "Regional District") stating as follows:
XXXXX
Questions to be resolved:
1. Are supplies made by XXXXX taxable supplies pursuant to subsection 165(1) or exempt supplies pursuant to section 10 of Part VI of Schedule V?
2. Is XXXXX entitled to claim ITCs for GST paid on purchases related to softball fields and recreation areas which are owned by other entities but used by them during the July long weekend tournament?
3. Is XXXXX entitled to claim ITCs for GST paid on purchases where invoices for the purchases are addressed to organizations other than XXXXX Reply:
Eligibility to claim ITCs
Subsection 123(1) of the ETA defines a business in part as "... including a profession, calling, trade, manufacture or undertaking of any kind whatever, whether the activity or undertaking is engaged in for profit, and any activity engaged in on a regular or continuous basis ...". In accordance with the definition of "commercial activity" in subsection 123(1), a business that is "carried on" will constitute a commercial activity. The policy statement P-167, "Meaning of the First Part of the Definition of Business", provides a conceptual framework and some general guidelines to be used in determining whether a particular person is carrying on a business.
Based on these guidelines and on the fact that the activities carried on by XXXXX are conducted in a regular manner, books and records are maintained to that effect and that XXXXX makes supplies, it is our opinion that XXXXX is carrying on a business and therefore is engaged in a commercial activity to the extent that XXXXX makes taxable supplies.
Nature of supplies
XXXXX is involved in making numerous supplies within the scope of the GST. These supplies may be classified as being either taxable or exempt as follows:
Taxable supplies:
XXXXX raises funds by charging entry fees to teams wishing to participate in the softball tournament, and by selling dance tickets, alcoholic beverages, food, T-shirts, souvenirs and other supplies connected to the tournament. Entry fees and dance tickets are supplies of admission and are taxable when supplied by an NPO.
Alcoholic beverages, food, T-shirts and other supplies are taxable where the "direct cost" rule, or the "no consideration" rule does not apply.
Exempt supplies:
A supply will be exempt pursuant to section 10 of Part VI of Schedule V where: " A supply made by a public sector body of any property or service where all or substantially all of the supplies of the property or service by the body are made for no consideration." Accordingly, where XXXXX acquires supplies of property such as baseball or hospital equipment, and donates that equipment to other organizations for no consideration, XXXXX will be considered to have made an exempt supply. Anything used exclusively and directly in the making of such exempt supplies is not used or consumed in the course of a commercial activity and, therefore, cannot give rise to an input tax credit. XXXXX may not claim input tax credits on related purchases or expenses.
Casino proceeds raised by XXXXX are also exempt pursuant to section 5.2 of Part VI of Schedule V of the ETA and therefore, GST paid on related purchases and expenses are not eligible for ITCs.
A more difficult issue arises where XXXXX incurs expenditures in relation to improvements made to real property owned by the Regional District. It is necessary to determine whether these expenditures are either current or capital expenditures. A major factor in determining the nature of these expenditures is the Agreement entered into between XXXXX and the Regional District for the use of the real property.
We have reviewed the Agreement provided, dated February 7, 1995 between the Regional District and XXXXX and have determined that the Agreement is a licence. Under common law, a licence is in the nature of a right or privilege to enter upon and use the grantor's land in a certain manner or for a specified purpose. It is a personal right between the licensor and licensee and does not create any estate or interest in the property. Where an agreement is a licence, improvements are excluded from the definition of "capital property" under subsection 123(1) of the ETA; therefore, it is our opinion that expenditures made by XXXXX during the softball tournament are current expenditures and are not capital expenditures.
It is our opinion that permanent improvements made by XXXXX (such as building baseball diamonds, building stands and score boards) to real property owned by the Regional District are supplies made to the Regional District for no consideration and therefore are exempt supplies pursuant to section 10 of Part VI of Schedule V. We support this conclusion by the following facts: first, such permanent fixtures to real property owned by the Regional District become the property of the Regional District and not XXXXX and secondly, XXXXX has no ownership interest in the fixtures because they only hold a licence to the real property during the baseball tournament. In accordance with paragraph 141.01(2)(b) of the ETA, XXXXX may not claim ITCs for purchases or current expenditures related to making these improvements.
Current expenditures other than these real property permanent improvements which are in direct relationship to the baseball tournament should be apportioned based on the extent to which the inputs are used or consumed, or acquired or imported for consumption or use, for the purpose of making taxable and non-taxable supplies in a fair and reasonable manner consistently throughout the year pursuant to subsection 141.01(5) of the ETA. Only if, and to the extent that, those costs are incurred for the purpose of making taxable supplies are they eligible for input tax credits.
Documentary requirements
Based on discussions with XXXXX it is our understanding that some of the invoices are not addressed to XXXXX The Excise Tax Act states that four conditions must be met in order for a claimant to claim an ITC in respect of the tax payable on supplies:
1. the claimant must be the recipient of the supply in respect of which an ITC is claimed;
2. tax becomes payable or is paid without having become payable by the claimant;
3. the supply is for use, consumption or supply in the course of the claimant's commercial activities; and
4. the claimant has obtained sufficient evidence, including prescribed information, satisfactory to the Department to support the claimant's ITC claim.
In order for XXXXX to claim the ITCs, it would be necessary to demonstrate from documentation acceptable to the Department, that XXXXX was the recipient of the supply, that the tax was payable by XXXXX and that the supply received was for consumption, use or supply in the commercial activity of XXXXX If these conditions are met, then XXXXX would be entitled to claim the ITCs in question.
For a more detailed analysis on documentary requirements and for your convenience, we are attaching a letter from the Earl database, Rulings 2 on the subject: "ITC Entitlement - Documentary Requirements - GAF - Interest and Penalties", dated August 11, 1994.
Please do not hesitate to contact Joanne Houlahan at (613) 954-7945 or Michèle Brûlé at (613) 952-9208 if you have any concerns or would like to discuss this matter further.
Yours truly,
J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations
| c.c.: |
J. Houlahan
M. Brûlé |
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