Dear XXXXX
This is in response to your request for information concerning the application of the GST to federal political parties. I regret the delay in our reply, but as explained in your telephone conversation with Elaine Bonnah of this office, this issue required extensive consultation and policy development.
As you may be aware, a non-profit organization that makes a taxable supply in the course of a commercial activity is generally required to register to collect and remit the GST on their sales of taxable goods and services. A non-profit organization is not required to register if it has less than $30,000 in taxable sales in its current fiscal quarter, or in its preceding four fiscal quarters, but it may register voluntarily.
GST registrants are entitled to claim input tax credits to recover the GST paid on purchases used in the course of their commercial activities. When the registrant completes its GST return, it deducts the amount it may claim as an input tax credit from the GST it collects on its taxable sales. If the amount of GST charged by the registrant on its taxable goods or services exceeds the amount of input tax credits that may be claimed, the registrant must remit the difference. On the other hand, if the amount of input tax credits that may be claimed is in excess of the GST charged, the registrant claims a refund for the difference.
Input tax credits may not be claimed to recover the GST paid on purchases used in making supplies of exempt goods and services. However, certain public service bodies may claim a partial rebate of the GST paid in respect of purchases used in making exempt supplies.
The GST applies to candidates in a federal election, to candidate campaign committees and to federal political parties as follows:
1) Candidates
A candidate in a federal election is not considered to be engaged in a commercial activity as that term is defined in subsection 123(1) of the Excise Tax Act (ETA). Therefore, candidates or official agents acting on behalf of candidates, cannot register for the purposes of the GST. As a result, the candidate will not be able to claim input tax credits to recover any part of the GST paid on election expenses.
2) Candidate Campaign Committees
A candidate may establish a campaign committee to coordinate activities in the course of his or her election campaign. In our view, it is reasonable to conclude that a campaign committee is not a separate person in its own right for the purposes of the GST.
Activities carried on by a candidate's campaign committee before an election writ is issued will be viewed as those of the local constituency association. The activities carried on by the campaign committee after the election writ has been issued will be viewed as those of the candidate. Therefore, regardless of the degree of organization and the number of persons involved in campaign activities on behalf of the candidate, a campaign committee is not an autonomous entity and is not a person in its own right.
As only "persons" are entitled to register for GST purposes, the candidate campaign committee will not be entitled to register and will not be able to claim input tax credits in respect of the GST paid on purchases made in the course of the campaign.
As explained above, if the candidate, or the official agent acting on behalf of the candidate, make purchases in the course of the campaign, no portion of the GST paid may be recovered through input tax credits.
On the other hand, if purchases in the course of an election campaign are made by the political party, then the entitlement to input tax credits will depend on whether the party is a GST registrant and whether these acquisitions are incurred in the course of a commercial activity. See discussion below.
3) Political Parties
Single vs. Separate Persons
There are certain advantages available to GST registrants under the Excise Tax Act (ETA); however, in determining whether a political party is entitled to register for the GST, the first question that must be asked is whether it constitutes a single person or a number of separate persons for the purposes of the GST.
"Person" is defined in subsection 123(1) of the ETA to mean "an individual, partnership, corporation, trust or estate, or a body that is a society, union, club, association, commission or other organization of any kind". This definition encompasses not only such recognized legal entities as natural persons and corporations, but also such quasi-legal entities as trusts and partnerships and unincorporated organizations such as clubs and associations. Because this definition is so broad, the determination of whether a particular entity is a separate person under the GST can be extremely difficult and will depend on the facts of the particular situation.
Accordingly, it will be a question of fact as to whether a political party will constitute a single person or a number of separate persons under the GST. The various divisions of a political party (i.e. national associations, constituency associations and other affiliated organizations) may, depending on the manner in which the party is constituted and the degree of control exercised by the national association, be considered to be a single person. However, if these divisions are sufficiently autonomous, they may constitute separate persons in their own right under the GST. Any division of a political party that is separately incorporated would also constitute a separate person for the purposes of the GST.
The question of whether a political party is a single person or whether it is made up of different persons is extremely important as a political party that is a single person must make only one application for registration for the purposes of the GST. If the party is a single person, GST will not apply to any supplies of goods or services made between the various branches or divisions of that party. However, if the various branches and divisions of the party are themselves separate persons, then separate applications for registration must be made by each branch and division. The branches and divisions that constitute separate persons would also be required to make separate elections to have their memberships deemed to be non-exempt and any transactions made in the course of a commercial activity between these branches and division will be subject to GST.
Registration and Input Tax Credits
A political party that is a single person may register for the GST if it conducts its activities on a regular and continuous basis and if it makes supplies in the course of these activities such as admissions to conventions and fund-raising events and supplies of non-exempt memberships.
National associations, local constituency associations and other divisions of federal political parties that are separate persons under the GST must review their activities separately to determine if they are engaged in regular and continuous activities, and if they make supplies in the course of these activities such as admissions to conventions, fund-raising events and supplies of non-exempt memberships. If they are carrying on such activities, we will consider that they are engaged in a commercial activity and they may register for the purposes of the GST.
For example, a national association of a political party may perform different functions than those performed by a local constituency association. Each association must determine if it is engaged in a commercial activity and if it makes taxable supplies in the course of that activity in order to establish whether it may become a GST registrant.
As registrants, a political party, or branch or division of that party, may claim input tax credits in respect of purchases acquired for the purpose of making taxable admissions to fund-raising events or to conventions.
These organizations also acquire property and services in the course of activities such as research, strategic planning, policy development advertising and election campaigns. In our view, these purchases are acquired for the purpose of making supplies of memberships in the party. Input tax credits may be claimed if these purchases have been acquired for consumption or use by the person for the purpose of taxable supplies of memberships. Therefore, where an exempt supply of membership is made by the political party, or any branch or division of the party that is a separate person, the purchases acquired for the purpose of making these supplies (e.g. research, strategic planning policy development, etc.) will not be acquired for consumption or use in the course of commercial activities and thus, input tax credits may not be claimed.
Finally, the GST paid on overhead costs must be apportioned between their consumption or use in exempt and commercial activities.
XXXXX
I hope that the foregoing will be of assistance. While the Department does not have any publications which specifically address the application of the GST to political parties, I am enclosing for your information a copy of the guide Information for Non-Profit Organizations which discusses in general terms the effect of the GST on these organizations.
If any further information or clarification is required, please do not hesitate to contact me at 954-7656 or Joanne Houlahan at 954-7945.
Yours truly,
J.A. Venne
Director
Tax Policy - Special Sectors
Policy and Legislation
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