File 11925-1
Doc. 499
Leg. Ref.: s. 230.2
XXXXX
January 12, 1995
Dear XXXXX
This letter is in response to your queries which were forwarded to this office from the XXXXX Excise GST Office concerning whether XXXXX (operating under the name XXXXX ), is entitled to claim the transitional special GST credit available under the Excise Tax Act (ETA) to certified institutions. We regret the delay in our response due to extensive discussions on this issue.
Ruling Requested
Is XXXXX entitled to claim the special GST credit available to certified institutions?
Statement of Facts
The pertinent facts as we understand them are as follows:
1) XXXXX is a factory employing handicapped persons. It was originally a project carried on by the XXXXX
2) The XXXXX was registered as a certified institution pursuant to Part XIV of Schedule III of the ETA. It was assigned registration number XXXXX
3) XXXXX purchased the assets of XXXXX
4) XXXXX and employs handicapped persons who comprise at least 70% of its employees.
5) XXXXX is a GST registrant - (Registration XXXXX
Ruling Given
The registered institution certificate, XXXXX originally issued to the XXXXX in respect of XXXXX is, by virtue of this letter, transferred to XXXXX effective the date of purchase, October 22, 1991.
Consequently, XXXXX is entitled to claim the special GST credit available to certified institutions effective the date of purchase, October 22, 1991.
This ruling is given subject to the general limitations and qualifications set forth in GST Memorandum 100-3 issued by the Department of National Revenue. Also, this ruling is based upon the ETA and regulations thereunder in their present form and does not take into account the effects of any proposed or future amendments thereto.
Analysis
Institutions that were certified pursuant to Part XIV of Schedule III and that are registered for the purposes of the GST are entitled to claim a special GST credit on a declining basis as follows:
• 100% of the GST collectible in 1991 on the sale of specified property manufactured by handicapped individuals,
• 75% in 1992,
• 50% in 1993,
• 25% in 1994,
• 25% in 1995 and
• 0% for calendar years after 1995.
This credit may be applied against the GST collectible on "specified goods" (i.e., goods manufactured or produced by these organizations where a substantial part of the sale price is attributable to the labour of handicapped individuals). The Department, when interpreting the word "substantial", takes into consideration elements such as raw materials, labour and overhead but excludes profit.
Section 2 of Part XIV of Schedule III provides that in order to qualify as a certified institution, an organization must be an institution that has as its main purpose the care of mentally or physically handicapped individuals and it must hold a valid certificate that has been issued by the Department.
In order to qualify as a certified institution, an organization must have applied and received from the Minister of National Revenue prior to January 1991, a certificate with a two letter, four digit identification number under Schedule III of Part XIV of the ETA. The certificate specified the name and address of the holder and was issued only after an audit visit to the organization where the organization's activities and labour components were examined.
In the event of a change of ownership, the Department was to be advised and a new application for certification had to be submitted by the new owner. A new certificate and new identification number would subsequently be issued by the Department to the new owner.
The XXXXX ) was a certified institution under the FST and as such, was entitled to claim the special GST credit available to these organizations until the time in 1991 that it sold its assets to the new entity.
When XXXXX purchased these assets from the XXXXX that organization's status as a certified institution and its certification number XXXXX did not transfer to XXXXX
As XXXXX was not certified under Part XIV of Schedule III of the ETA, it technically cannot meet the definition of a certified institution in its own right for the purposes of the special GST credit.
Nevertheless, we recognize that there have been no changes to the management, location, activities, products or staff of the factory since XXXXX assumed ownership from the XXXXX In view of this unique situation, the Department is transferring the certification originally provided to the XXXXX in respect of this factory to XXXXX , effective October 22, 1991, the date that this organization acquired the assets of the factory. The registration number remains the same as that appearing on the original certificate XXXXX
Claiming the Special GST Credit
The special GST credit is restricted to the GST collectible on the sale of goods manufactured by a certified institution where a substantial part of the sale price is attributable to the labour of handicapped individuals. Therefore, your organization will be required to keep track of these sales separately from any other sales made. You will continue to claim input tax credits in the normal manner; however, the special GST credit in respect of the GST collectible on specified goods should be claimed as an ITC Adjustment on line 107 of the GST return. The special credit may be claimed up to four years after the reporting period during which the organization was entitled to claim it (i.e., the special credit for claim periods in 1991 must be claimed by the end of the corresponding claim period in 1995).
This letter will serve as authorization that we consider your organization to be a certified institution that is entitled to claim the special GST credit. You should therefore, retain this letter in your records.
I trust that this will be satisfactory. If you have any further concerns on this matter or would like any clarification of the procedures to be followed in claiming the special GST credit, please do not hesitate to contact your local Excise Office XXXXX
Yours truly,
J.A. Venne
Director
Tax Policy - Special Sectors
GST Policy and Legislation
XXXXX
J. Houlahan
E. Bonnah
XXXXX
Audit Headquarters
Email this Content