File # 11925-1(EB)
Doc.# 1200
Leg. Ref.: 123(1)
Dear XXXXX
I am writing in response to the E-mail request dated March 22, 1995 from XXXXX of your office concerning the status under the GST of supplies made by the XXXXX. Specifically, your office has asked whether the XXXXX is carrying on a business and thus, engaged in a commercial activity.
We understand the facts of the situation are as follows:
Statement of Facts:
1) The XXXXX is a non-profit organization established under the XXXXX[.]
2) The XXXXX has registered for the purposes of the GST (registration number: XXXXX[.]
3) The XXXXX has been established to promote the XXXXX by providing a week of social activities (i.e., golf tournament, tennis, dining and dancing) for XXXXX executives to afford them an opportunity to get to know each other and to make contacts that will benefit the industry as a whole.
4) The golf tournament has been held for XXXXX years and the XXXXX has been held annually since XXXXX.
5) The XXXXX charges a fee to attend this event. The amount charged will depend on the activities in which the individual will participate XXXXX[.]
6) Costs associated with the week long tournament exceed the revenue earned from the fees charged.
7) XXXXX[] There are approximately XXXXX supporters, each contributing XXXXX yearly. The XXXXX treats these amounts as gifts to the organization (i.e., no GST is charged in respect of these amounts).
8) An additional payment is required for the right to attend the tournament. There is no link between making a XXXXX donation and acquiring the right to attend the golf tournament. Even though an XXXXX company may make a donation to the XXXXX there is no guarantee that an invitation will be extended to that individual.
9) The only benefit the contributing organizations may receive is acknowledgment of the sponsorship in the tournament program.
10) Invitations are restricted to persons working in the XXXXX industry. An individual does not have to be a member of the XXXXX in order to participate in the golf tournament.
11) Members of the XXXXX consist solely of the XXXXX who are appointed and whose membership is automatically terminated at the subsequent annual general meeting. The only members to remain are the XXXXX who automatically becomes XXXXX for the following year and the XXXXX who remains in office until the end of the fiscal year.
12) Although the by-laws of the XXXXX provide for a membership fee, none is charged by this organization.
13) The XXXXX has charged GST on the right to attend the golf tournament and has claimed input tax credits on all its expenses.
14) The XXXXX does not have a business licence.
15) XXXXX[.]
16) There is no permanent address or premises housing the XXXXX[.] The official address of the XXXXX for a particular year will be the address of the XXXXX holding office at that time.
17) The XXXXX does not advertise its address in any fashion. Interested parties are aware of how to contact the organization's officers.
18) There is no full or part-time staff employed by the XXXXX[.]
19) There is no ongoing office activity at a particular location. The officers of the XXXXX carry on activities on behalf of this organization in their normal individual work locations.
20) The XXXXX does not have ongoing day-to-day activities; however, the officers of the organization may be required to make day-to-day decisions in view of the size and scope of the tournament to be organized. The XXXXX may devote XXXXX to organize this event. Other members of the organizing committee may contribute XXXXX of activity.
21) The XXXXX does not carry on any direct advertising or promotional campaigns to attract interest in its activities. Invitations are sent to persons in the XXXXX XXXXX industry and to other persons in the business community. Because these events are prestigious and exclusive, no advertising is required to attract interested participants.
22) The XXXXX is covered by public liability insurance and obtains insurance for particular tournament events (e.g., hole in one prizes). There is no director's liability insurance.
23) The XXXXX has books and records which are regularly updated XXXXX annually by professional accountants.
24) It has a permanent bank account.
25) There is an ongoing surplus/deficit carried forward by the XXXXX from year to year.
26) There are also ongoing liabilities (e.g., normal trade accounts payable, GST liabilities, etc.).
27) The XXXXX is not a member of any other organization or association.
Question
Is the XXXXX entitled to treat all its expenses as if they are incurred for consumption, use or supply in the course of commercial activities?
Conclusion
Based on the information provided, it is our opinion that the XXXXX is not carrying on a business and is not engaged in a commercial activity. Consequently, it should not charge GST on its supplies or claim input tax credits to recover the GST paid in respect of its purchases.
Analysis
As mentioned in our earlier letter concerning the XXXXX dated January 3, 1995, subsection 123(1) of the Excise Tax Act (ETA) defines a business in part as including a profession, calling, trade, manufacture or undertaking of any kind whatever, whether the activity or undertaking in engaged in for profit. A business that is "carried on" will constitute a commercial activity for the purposes of the GST. The courts have held that to constitute the carrying on of a business, an activity must be considered to occur on a regular or continuous basis. As no definitive criteria or thresholds have been established to determine what constitutes "regular or continuous" this determination must be made on a case by case basis.
Draft policy statement 167 entitled "Meaning of the First Part of the Definition of Business" sets out certain criteria that may be useful in establishing whether an activity will constitute a business. These are:
1) whether the activity is a serious undertaking earnestly pursued or a serious occupation not necessarily confined to commercial or profit making undertakings;
2) whether the activity is an occupation or function actively pursued with reasonable or recognizable continuity;
3) whether the activity is conducted in a regular manner and on sound and recognized business principles and books and records are maintained to that effect;
4) whether the supplies, if any, are of a kind which, subject to differences of detail are commonly made by those who seek to profit by them;
5) whether the particular activity facilitates or promotes the making of supplies (whether by the person itself or by other persons) and
6) whether the particular activity supports other activities which are directed towards earning revenue (be it the organization's revenue or that of other persons).
We recognize that the activities of the XXXXX are an undertaking with a long-standing tradition. Events presented by this organization have been held for many years (XXXXX years for the golf tournament and XXXXX consecutive years for the XXXXX[)]. The XXXXX has XXXXX books and records, a permanent bank account, ongoing liabilities, a surplus or deficit that it carries forward each year and it has been established to facilitate the activities of persons who are themselves involved in commercial activities.
Nevertheless, we feel that the XXXXX is not carrying on a business because it does not pursue its activity in a business like fashion with reasonable and recognizable continuity. Further, in our view, the XXXXX does not conduct its activity in a regular manner on regularly accepted business principles.
This conclusion is based on the following facts:
• the XXXXX does not have a fixed address or permanent premises housing its operations;
• the XXXXX does not have a telephone listing - persons wishing to contact the organization must contact a member of the XXXXX[;]
• the XXXXX does not advertise to the public how it may be contacted - the individuals who are the focus of this organization's activities (i.e., those involved in the XXXXX industry or related businesses) are aware of who the organization's officers are and how to contact them;
• there is no full or part time staff - the XXXXX activities are carried on by its XXXXX[;]
• at the annual General Meeting of the XXXXX the members of the XXXXX are appointed by the XXXXX of the XXXXX[;]
• these members with the exception of the XXXXX and the XXXXX, are automatically terminated at the subsequent annual general meeting;
• there is no ongoing office activity carried on at a particular location;
• there are no specific day to day activities - members of the XXXXXX carry on activities on behalf of the XXXXX in their own office locations as required;
• the XXXXX does not advertise or carry on promotional activities to attract interest in its activities - invitations to the golf tournament are highly prized as only so many are issued. For instance, XXXXX donors contributing XXXXX annually cannot be assured that invitations will be extended to their own executives. If the events were open to the general public there would be a large waiting list so the organization does not consider it necessary to advertise.
Based on the foregoing, it is our position that the XXXXX is not carrying on a business and as there is no indication that it is otherwise engaged in a commercial activity (i.e., it does not appear to be involved in an adventure or concern in the nature of trade or the making of supplies of real property which would be subject to the GST), it should not be registered for the purposes of the GST. Supplies made by this organization are therefore, outside of the scope of the GST and no input tax credits may be claimed to recover the GST paid on its purchases.
I hope that this information will be of assistance. If you would like to discuss this matter further, please contact Joanne Houlahan, A/Manager, Public Service Bodies at (613) 954-7945 or Elaine Bonnah at (613) 952-6761.
Yours truly,
J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations
| c.c.: |
J. Houlahan
E. Bonnah
M. Bloom
D. Courneyea, GST Audit
M. Legare, Finance |
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