11925-1
R 1179(mp)
August 1, 1995
Dear XXXXX :
We are writing in reply to your request for rulings concerning the GST treatment of the activities and projects undertaken by the XXXXX
Our comments are based upon our current understanding of the Excise Tax Act and its Regulations, and do not take into account the effects of any proposed or future amendments to the Excise Tax Act ("ETA"), or future changes in interpretation.
It should be noted that the rulings herein are based upon the documentation submitted and the matters discussed during our meeting with you on May 31, 1995. The application of the ETA may vary if the facts vary from the information provided.
An application ruling provides the Department's position on specific provisions of the legislation with reference to clearly defined fact situations. An interpretation is a general written explanation as to how the law will apply, without reference to any specific transactions. Where insufficient facts are provided to issue an application ruling, we have provided an interpretation of relative legislative provisions.
Unless otherwise indicated, legislative citations (sections, subsections, etc.) refer to the ETA.
Background Facts
1. XXXXX is a GST registrant XXXXX . It is incorporated as a non-profit organization under the Business Corporations Act of Ontario and, pursuant to subsection 123(1), XXXXX is a non-profit organization for GST purposes. As a non-profit organization, XXXXX is subject to the provisions in the ETA pertaining to "public service bodies" and "public sector bodies".
2. The objects of XXXXX , as set out in its bylaws, are to "promote and secure convention and visitor business; to make available to members services as they may require; to direct this business to the Association members; to create an awareness amongst the members of the roles of the individual members in the visitor industry; and to create an understanding of the economic and social impact of the visitor industry on the community."
3. Based on its 1994 fiscal year financial statements, XXXXX earns approximately 60% of its revenues (cash receipts and in kind revenues) from XXXXX , 30% from advertising, conventions and sponsorships, and 10% from membership fees.
GRANTS
4. The Municipality of XXXXX provides annual funding to XXXXX There is no written agreement for this funding, and no fiscal reporting. The amount of funding is the lessor of the amount set out in XXXXX budget which is pre-approved by the XXXXX , or the actual funding required. The funds may be used for both operations and fixed assets. Other than pre-approving the budgeted amount, XXXXX does not direct how the funds granted are to be expended, and there are no supplies made directly to XXXXX in return for the grants.
5. XXXXX receives a provincial youth employment grant XXXXX in 1994) which is used to pay the summer wages of student councilors.
6. It also receives XXXXX grants XXXXX ) which are applied to administrative costs of consumer promotions and general administration. There is no written agreement for this funding, no fiscal reporting, and there are no supplies made directly to the province in return for these grants.
MEMBERSHIPS
7. The members of XXXXX are enterprises that are engaged in the tourism/hospitality business such as hoteliers, restauranteurs, sports and entertainment outlets, convention facilities, retail outlets, transportation providers and service industries.
8. XXXXX acts as a central resource centre for member organizations. Membership information is compiled and included in the Membership Directory. Co-op advertising, promotions and corporate sponsorship opportunities are presented to the member companies to increase business from visitor markets.
9. Members are entitled to a number of goods and services as a result of their membership, for no fee above their membership fee (e.g.; service of having XXXXX promoted to prospective visitors, receipt of promotional literature such as activity and dining guides, newsletters, membership directories, convention lists). For an extra fee (i.e. participation fees and co-op advertising fees), members receive additional services such as participation in sales and promotional campaigns directly benefiting their enterprises.
10. The organization publishes a membership fee schedule. As indicated in the schedule, the membership fee charged by XXXXX varies according to the type and size of the members establishment. For example, the 1995 fee for a hotel of up to 50 rooms is XXXXX for a hotel of over 50 rooms the fee is XXXXX The fee for a regional airline is XXXXX; for a domestic airline it is XXXXX[.]
11. XXXXX has filed an election with the Department that its memberships will not be exempted under s. 17 of Part VI of Schedule V.
12. XXXXX[.]
Conventions
Sales Missions:
13. XXXXX employs a sales staff that is responsible for making direct contact with businesses (i.e. "clients") that represent convention prospects for XXXXX members involved in this trade (e.g. hoteliers, convention facilities). Clients are generally located in the United States. Typically, a number of XXXXX members will agree to pay a "participation fee" which will offset the costs incurred by XXXXX for these projects. The members accompany XXXXX staff on these trips. The fee is recorded as revenue from Convention Sales.
14. Preliminary services related to these sales missions are performed in Canada. For example, clients outside Canada are contacted by sales staff working in Canada, and discussions and planning with members takes place in Canada. Follow up contacts with clients outside Canada are also done by staff working in Canada.
15. XXXXX staff may also make direct sales calls for which no fee is received from members. These are trips made to contact clients and promote convention business XXXXX but are not made with or on behalf of particular members.
Special Events
16. XXXXX undertakes other activities in order to promote the convention business, such as XXXXX. The organization collects a "participation fee" from its members in order to help offset related costs of these activities.
17. Members pay a fee at the beginning of the year in consideration for "booking notices" issued each week. The booking notices represent leads developed by XXXXX which may be of interest to the member as a business opportunity.
Travel Trade
18. These activities are aimed at attracting visitors to XXXXX but are not directly related to convention activities (as described above). XXXXX contacts travel agents from other countries to promote leisure travel XXXXX and arranges bus tours for visitors. Members interested in participating are charged an up-front fee ("participation fee") to help offset the costs of this activity.
Non-Cash Revenues
19. These revenues represent goods and services that are donated to XXXXX[.] Examples include air fares from XXXXX and free hotel rooms at members' establishments. Although the donor might receive some recognition (media opportunities, ad fillers), such recognition is incidental and is not part of any agreement concerning the donation of the goods and services. The donations are given freely and not as part of a sponsorship or exchange.
20. XXXXX[.]
Marketing
Consumer and Trade Advertising
21. XXXXX places advertisements through various consumer media (particularly the print media) and trade publications for the purpose of promoting XXXXX as a destination for business, convention and leisure travel.
22. The organization has an agreement with the advertising firm of XXXXX to create and produce the advertisements, as well as to market them (i.e. to find media bookings). XXXXX carries out these activities in its own name; that is, it contracts on its own behalf, and not on behalf of XXXXX. It bills XXXXX for its services.
23. Generally, consumer advertising takes two forms: "generic" ads that promote XXXXX generally, and "co-op" ads that promote the businesses of specific members.
24. XXXXX does not charge its members separate fees for generic advertisements.
25. The costs of "co-op" advertisements are partially funded by those members participating in a particular advertising campaign. For example, several hotels, restaurants and a theatre may be involved in an advertising campaign in which their establishments or activities are promoted. Typically, XXXXX will charge a "participation" fee to these particular members when the campaign is initiated. The amount of the fee recovered is normally less than the billing from XXXXX[.]
26. XXXXX collects GST from XXXXX on all its billings.
Publications
27. XXXXX has a written agreement with XXXXX, dated October 20, 1989, concerning the production of, and advertising in, XXXXX publications. Pertinent terms of the agreement are summarized as follows:
• "Designated publications" are those that are owned by XXXXX but are produced with the co-operation of XXXXX (i.e. Visitors Guide, Facilities Guide, Official Guide Map, Summer and Winter Vacation Packages).
• A board consisting of XXXXX representatives oversees the production of the designated publications (e.g. editorial content, photography, lay-out etc.).
• XXXXX is responsible for selling advertising space on behalf of XXXXX in the designated publications at rates specified in the agreement. Members receive a preferential rate. Key Publishers also agrees to provide advertising to XXXXX members in its own publications XXXXX at its current rates.
• Costs incurred by XXXXX and revenues received with respect to the designated publications, are "to the account of" XXXXX. As indicated in our discussions, XXXXX collects GST on the supplies of advertising and pays GST on applicable purchases. The amount of tax collected less the amount paid on purchases is submitted to XXXXX then remits this net tax and reports it on its GST return.
• In consideration for its services, XXXXX is entitled to retain 50% of the net profits (and will be reimbursed by XXXXX for 50% of any losses) of this publishing/advertising activity. That is, XXXXX retains 50% of the net revenues and the other 50% is returned to XXXXX. In its accounting records, XXXXX records only the net revenue earned (its 50% portion).
• With respect XXXXX in consideration for the rights and services provided by XXXXX in particular the business opportunities provided through XXXXX members who advertise in XXXXX[.]
28. XXXXX contracts with XXXXX for the storage and distribution of XXXXX publications. XXXXX retains ownership of the publications. XXXXX pays a fee XXXXX for this service. XXXXX distributes most of these publications to the members of XXXXX on behalf of XXXXX and the members distribute them to the public for free. XXXXX directly distributes a small number of publications to the public for free (e.g. through an "event" van).
29. XXXXX also directly distributes other publications (newsletters, membership directories, convention lists) to its members as part of membership (i.e. for no additional fee). Some minimal advertising revenue is earned.
Merchandising
30. The rights to market products in which XXXXX has intellectual property has been assigned to a retailer. XXXXX receives a 10% royalty on sales. All sales of this merchandise take place in Canada. Most of XXXXX expenses concerning merchandising relate to products that are given away for free to its clients in the course of XXXXX general activities and promotional campaigns.
Information Services
31. XXXXX employs "councilors" who staff a telephone information service. Callers from the United States, for example, are able to phone the XXXXX
"1-800" number and receive information about accommodations and activities XXXXX[.] Often, the call will be transferred by the councilor to a member's establishment. In this situation, XXXXX charges the member a fee to help offset the costs of this service.
32. XXXXX provides its membership directory to an enterprise called XXXXX uses the membership list to contact organizations in order to obtain brochures for XXXXX to distribute in its brochure racks which are strategically placed at various hotels, motels, retail outlets, etc. XXXXX pays XXXXX consideration for the membership directory.
33. XXXXX earns revenue from a gateway XXXXX staffs an information booth belonging to XXXXX in the service station and XXXXX pays XXXXX for the staffing costs. The XXXXX staff provides information (printed and verbal) to inquiring visitors.
Research
34. XXXXX undertakes market research projects (e.g. economic impact studies of various activities). When this is done for a particular member, or if a particular member requests a market report that XXXXX has done, XXXXX collects a fee from the member. For example, XXXXX may request an economic impact on XXXXX will carry out this research project, and will partially recover its costs from the fee charged to XXXXX[.]
Consumer Promotions
35. Certain members pay a fee to XXXXX to participate in the publication by XXXXX of a coupon book, offering discounts at the members' establishments. The fee paid helps offset the costs of publishing the coupon book.
36. XXXXX has bought and sold XXXXX tickets at face value (i.e. there was no mark up on the tickets).
Sponsorships
37. XXXXX has paid a fee to have its corporate symbol appear on XXXXX publications and to have its corporate name mentioned by XXXXX phone receptionists XXXXX[.]
38. XXXXX receives other revenues as well, in return for advertising a corporate name, product or logo. For example, some businesses have their name, product or logo emblazed on XXXXX special events van.
XXXXX Program
39. This was a program aimed at persuading XXXXX residents to invite their friends and relatives to visit XXXXX printed up "XXXXX" which were distributed freely to the public in shopping malls etc. Costs were offset by donations from corporate sponsors representing industry, science, trade and technology. These donors received nothing directly in return.
General Legislative Provisions
Pursuant to sections 221 and 225, GST registrants are required to collect and remit tax on taxable supplies made in Canada.
Pursuant to the definitions under subsection 123(1), a "supply" is defined as "... the provision of property or a service in any manner ...." A "taxable supply means a supply that is made in the course of a commercial activity." A "commercial activity" is "a business carried on by the person ... except to the extent to which the business involves the making of exempt supplies." A "business" is defined as including "a profession, calling, trade, manufacture ... and any activity engaged in on a regular or continuous basis ...." An "exempt supply" is one that is "included in Schedule V".
Under section 165(1), the value of the consideration for taxable supplies is subject to tax at the rate of 7%. If the taxable supply is "zero-rated" (e.g. exports), the rate is 0%.
Section 17 of Part VI of Schedule V provides a general exemption for memberships in a public sector body. However, this exemption does not apply where members are entitled to benefits as a result of membership, other than the types of benefits enumerated under section 17 (e.g., the right to vote at meetings, the right to acquire property for a fee equal to the fair market value of the property, the right to newsletters of insignificant value). Also, an organization may elect that the exemption under section 17 will not apply.
Pursuant to section 10 of Part VI of Schedule V, a supply by a public sector body is exempt "where all or substantially all of the supplies of the property or service by the body are made for no consideration."
Pursuant to section 6 of Part VI of Schedule V, a supply by a public service body of tangible personal property and services is exempt where "the consideration for the supply ... is equal to the usual charge by the body for such supplies ... and does not, or could not reasonably be expected to, exceed the direct cost of the supply."
It should be noted that the definition of "direct cost" under section 1 of the same part indicates that only "articles or materials" and a "service that was previously purchased by the supplier" is to be included as a "direct cost". Accordingly, overhead and employee salaries, for example, are not components of direct cost.
It should also be noted that the place where a taxable supply is made may determine whether there is a requirement to collect tax on the supply. Supplies made in Canada are subject to tax. Supplies may be also deemed to be made in Canada pursuant to subsection 142(1). For example, a supply of intangible personal property (rights, admissions, etc.) is deemed to be made in Canada if the property may be used in whole or in part in Canada and the recipient is resident in Canada or is a GST registrant. A supply of a service is deemed to be made in Canada if the service is, or is to be, performed in whole or in part in Canada.
Rulings Requested
1. XXXXX is a qualifying non-profit organization.
Ruling Given
XXXXX is a qualifying non-profit organization for its 1994 fiscal year, the year for which financial statements have been submitted for our review. This ruling does not pertain to other fiscal years since we have examined the financial statements for 1994 only.
Pursuant to subsection 259(2) and the Public Service Body Rebate Regulations, a non profit organization is a qualifying non-profit organization in its fiscal year, and thereby eligible for a 50% rebate of non-creditable tax, if it receives at least 40% government funding for the year or for the average of its two preceding fiscal years.
The determination as to whether XXXXX is a qualifying non-profit organization is one that must be made annually.
2. Municipal and provincial Funding described under Facts 4 to 6 are not subject to GST.
Ruling Given
Funding received from the Municipality of XXXXX (Fact 4), from provincial XXXXX (Fact 5) and from XXXXX (Fact 6) are not consideration for supplies, and therefore are not subject to GST.
3. Memberships supplied by XXXXX are taxable supplies.
Ruling Given
Memberships in XXXXX are taxable supplies. XXXXX has filed an election that the exemptions under section 17 of Part VI of Schedule V will not apply.
4. Participation fees charged for sales missions and special events described under Facts 13 to 17 represent consideration for taxable supplies.
Ruling Given
Participation fees paid by members in respect of sales missions and special events represent fees for services provided to the members of XXXXX as described under the Background Facts (para's 13 to 17).
These supplies by XXXXX re taxable supplies, so that GST must be collected and remitted on consideration paid or payable by participating members for these supplies, including where the participation fee relates to an event in the United States.
These services will be viewed as being supplied in Canada, or deemed to be supplied in Canada. As previously noted under General Legislative Provisions, a service performed in whole or in part in Canada is deemed to be made entirely in Canada. Thus, for example, a service of visiting New York and arranging a XXXXX to non-residents is deemed to be a supply made in Canada, since at least part of the service is performed in Canada. Similarly, at least part of the service related to sales missions is carried out in Canada (preliminary planning, contacts, follow-up)
Since these are taxable supplies deemed to be made in Canada, GST must be collected and remitted on any consideration (e.g. participation fees) for these supplies.
5. Generic advertising (advertisements that promote XXXXX supplied by XXXXX as described under Facts 21 to 24, represents a taxable supply and co-op advertising (advertisements that promote the businesses of specific members), as described under Fact 25, represents an exempt supply.
Ruling Given
(i) generic advertisements: the supply of generic advertising XXXXX to its members is a service provided in respect of the supply of its memberships. As the supply of memberships is a taxable supply, expenses incurred for generic advertising are incurred in the course of commercial activities.
Generic advertisements acquired by XXXXX in its agreement with XXXXX are services provided in respect of the supply o[f] XXXXX memberships. That is, in return for their membership fee, all members acquire the right to certain goods (or other property) and services. The provision of these goods and services is not viewed as a separate supply, but rather is a component of the supply of the membership. The determination of which goods and services are components of membership is made by examining the objects or mandate of the organization. In viewing the objects of XXXXX as set out in the Background Facts, it is apparent that generic advertisements are among the services provided to members as part of the mandate of the organization.
(ii) Co:op advertisements: the supply of co:op advertisements that promote the businesses of specific members, for which these members pay a participation fee, represent a supply apart from membership. These supplies do not represent rights acquired as part of membership, but rather are services acquired separately by "participating" members. As this service is one that is purchased from XXXXX and is then resupplied to participating members at or below direct cost, the supply is exempt pursuant to section 6 of Part VI of Schedule V.
6. Rights and services acquired from, and supplied to, XXXXX as described under Fact 27, represent taxable supplies.
Ruling Given
(i) Based on the agreement between the parties, as outlined under Fact 27, XXXXX produces and distributes publications on XXXXX behalf, and in consideration for this service, it retains a 50% portion of net profits from this activity. The amount of net profit retained represents consideration received by XXXXX for its taxable services. Assuming XXXXX is a GST registrant, it is required to collect GST on consideration it receives for its taxable services. On this basis, XXXXX should collect GST from XXXXX based on the any net profits retained.
(ii) XXXXX is required to collect and remit GST on taxable supplies of advertising sold by XXXXX behalf.
The supplies of advertising by XXXXX are on behalf of XXXXX[.] That is, XXXXX is the supplier. The clearest indication of this, as indicated in the Facts, is that all advertising revenues are to the account of XXXXX. There are no exemptions that apply to these supplies: they are taxable supplies. Since XXXXX is the supplier, it is responsible for ensuring that GST is collected and remitted on these supplies.
(iii) With respect to any portion of XXXXX net profit from its publications of XXXXX is entitled to under the terms of the agreement, this amount represents consideration for the rights and services supplied by XXXXX under the agreement. For example, XXXXX assists in the production and design of the publications, and provides commercial opportunities to XXXXX through access to XXXXX members and the right to produce XXXXX publications. Therefore this amount is also consideration for a taxable supply, and XXXXX is required to collect and remit GST on this amount.
7. The publications stored and distributed by XXXXX, as described under Fact 28, are part of XXXXX commercial activities (supplying taxable memberships.
Ruling Given
On the basis of the facts presented, XXXXX retains ownership of the publications until they are distributed to the members. That is, the supply of the publications to members is made by XXXXX and XXXXX is contracted to provide a storage and distribution service. The supply of these publications by XXXXX is part of the supply of its memberships; accordingly, it is part of the commercial activity of supplying taxable memberships.
As discussed under Ruling 5 above, supplies made to members pursuant to the mandate of the organization are components of the supply of memberships. In return for their membership fees, all members of XXXXX acquire the right to certain goods and services, including the supply of these publications.
8. Pamphlets, brochures etc. that are supplied to the public for no consideration by XXXXX are part of XXXXX commercial activities.
Ruling Given
The supply of these publications by XXXXX is part of the supply of its memberships; that is, similar to the comments under 7 above, this activity is part of the mandate of the organization in servicing its members, and so is an input into a commercial activity (supplying taxable memberships).
9. Revenues earned by XXXXX as royalties from merchandising, as described under Fact 30, represents consideration for a taxable supply.
Ruling Given
Merchandising royalties earned by XXXXX represent consideration for a supply made by XXXXX to the retailer of the right to market products in which XXXXX has intellectual property. Since there is no exemption for this supply, it is taxable. XXXXX is required to collect and remit GST on royalties earned from merchandising.
10. Merchandise that is supplied for no consideration to clients or to the public by XXXXX is an exempt supply.
Ruling Given
Merchandise that is supplied for no consideration is an exempt supply, pursuant to section 10 of Part VI of Schedule V.
11. Charges to members that are used to offset the costs of fixed line charges for XXXXX "1-800" numbers, as described under Fact 31, are consideration for taxable supplies.
Ruling Given
Pursuant to section 178, the reimbursement of an expense incurred in making a supply of a service is deemed to be part of the consideration for the supply of the service. On this basis, the reimbursements received from members represent consideration for a taxable supply. XXXXX is required to collect and remit GST on the consideration paid or payable for these services.
12. Fees paid to XXXXX as described under Fact 32, are consideration for taxable supplies.
Ruling Given
XXXXX is required to collect and remit tax on the fee paid by XXXXX since this fee represents consideration for taxable supplies. The supplies made by XXXXX are the right to distribute the brochures and access to XXXXX membership list.
13. The supply by XXXXX of information services at the gateway XXXXX, as described under Fact 33, is a taxable supply.
Ruling Given
The services supplied by XXXXX are taxable. XXXXX is required to collect and remit GST on amounts received from XXXXX for this service.
14. The fee paid by members in order to participate in the "coupon book" promotional activity, as described under Fact 35, is consideration for taxable supplies.
Ruling Given
With respect to this activity, XXXXX is supplying a promotional right (or service) to participating members. Since there is no provision that would exempt this supply, XXXXX is required to collect and remit GST on the fees paid by participating members.
15. XXXXX that are bought and resupplied by XXXXX at face value, as described under Fact 36, represent taxable supplies by XXXXX[.]
Ruling Given
The supply of these tickets by XXXXX is taxable. XXXXX is required to collect and remit GST on the amount it receives for each ticket.
16. Property and services supplied by XXXXX as part of the XXXXX, as described under Fact 39, is not subject to GST.
Ruling Given
(i) The distribution of free XXXXX to the general public represents an exempt supply.
(ii) The contributions from corporate sponsors in funding this program are not subject to GST. The submissions indicate that the contributions from corporate sponsors are in the nature of donations; that is, this funding is not consideration for a supply. On the basis that this funding is not consideration, it is not subject to GST.
Interpretations
There are insufficient facts on hand to provide an application ruling with respect to the following activities. However, we will provide the following interpretations to assist you in determining how the GST applies in these situations.
1. What is the tax status of supplies made by a non-profit organization to a sponsor, such as advertising the corporate name, product or logo of the sponsor in the organization's publication?
Pursuant to section 135, where a public service body ("PSB") supplies a service or, by way of licence, the use of its copyright, trade-mark, trade-name or other similar property, to someone who is a sponsor for use by the sponsor exclusively in publicizing the sponsor's business, the supply by the PSB is deemed not to be a supply. That is, the PSB will not be required to collect GST on the funds (or property) received from the sponsor.
An exception to the above deeming provision is where the consideration for the supply by the PSB is primarily for a service of advertising by means of radio or television or in a newspaper, magazine or other periodic publication. This supply will be a taxable supply and the PSB, if it is a GST registrant, will be required to charge GST.
The provision described above, where a supply is "deemed" not to be a supply, applies only in the case where the recipient of the supply is a "sponsor"; that is, one who supports an activity of the PSB. The deeming provision would not apply where, for example, a company purchases advertising space in one of the PSB's publications where there is no objective of supporting PSB's activities.
2. What is the tax status of "non-cash revenues" (receipt of goods and services in kind)?
Contributions of goods and services received by a non-profit organization that are donations and are not consideration for supplies made by the organization are outside the scope of the GST - they are not taxed and do not affect entitlement to input tax credits.
If goods or services are received by the organization that are, in fact, consideration for supplies made by the organization, the transaction will subject to tax. For example, if Company A transfers goods valued at $1000 to an NPO in consideration for services supplied by the NPO, the NPO will be required to collect GST on the $1000 (the consideration it receives for its services). Company A will be required to collect GST on the value of the NPO's services (the consideration Company A receives for its goods). The example assumes both parties are GST registrants.
However, as previously outlined, and pursuant to section 135, if the NPO receives goods and services (or funds) as part of a sponsorship, these are outside the scope of the GST, unless the goods and services represent consideration for a service of advertising primarily by means of television or radio, or in a newspaper, magazine or other periodic publication supplied by the NPO.
3. What is the tax status of supplies of research by a non-profit organization to its members?
If the research services are provided to a specific member or members for a separate fee (i.e. a fee that is not part of the membership fee), the supply will be one of a taxable service since there is no exemption that would apply (the nominal consideration exemption would not apply since this activity does not represent a resupply of services).
Where the services represent an activity carried out on behalf of all members in the course of the NPO's mandate, and is funded from the membership fees, the supply of research services is viewed as part of the supply of taxable memberships.
4. To what extent may a non-profit organization claim input tax credits and rebates with respect to the GST paid on its purchases?
Pursuant to subsection 169(1), a person may claim an ITC for the tax paid on a purchase or service to "the extent (expressed as a percentage) to which the person acquired or imported the property or service for consumption, use or supply in the course of commercial activities. ..." Subsection 141.01(2) provides a further requirement whereby a purchase is deemed to be consumed or used in the course of commercial activities to the extent that it is acquired for the purpose of making taxable supplies. Subsection 141.01(5) requires that the method used for determining the extent of use in commercial activity be "fair and reasonable and ... used consistently throughout the year."
As previously indicated, a commercial activity does not include an activity that involves making exempt supplies. No input tax credit may be claimed with respect to purchases used to make exempt supplies. A qualifying non-profit organization may, within a four year limitation, claim a 50% rebate of this "non-creditable tax" as defined under subsection 259(1).
It should also be noted that, in accordance with subsection 141(1), if "substantially all (i.e. at least 90%) of a the consumption or use of property or service ... is in the course of ... commercial activities, all of the consumption or use of the property or service by the person shall be "deemed to be in the course of those activities." Similarly, subsection 141(3) provides that where substantially all of a purchase is used in activities that are not commercial activities (e.g. exempt activities), than all of the purchase is deemed to be for other than commercial activities.
Final Comments
From the provisions described above, XXXXX may conclude, in summary, that:
(i) it is entitled to ITCs with respect to the tax paid on purchases that are wholly or substantially used or consumed in the course of a business of making the taxable supplies;
(ii) for its 1994 fiscal year, XXXXX is a qualifying non-profit organization, and subject to the rebate restrictions set out in the Public Service Body Rebate Regulations, XXXXX is entitled to 50% rebates with respect to the tax paid on purchases that are wholly or substantially used or consumed otherwise than in the course of a business of making taxable supplies. XXXXX must determine whether it is a qualifying non-profit organization for other years.
(iii) with respect to purchases that are used to make both taxable and exempt supplies (but not "substantially" one or the other), XXXXX is required to allocate the GST paid or payable on the purchase in determining its ITC and rebate entitlement, using a reasonable method.
(iv) The receipt of sponsorships that are subject to the deeming provisions of section 135, or donations or grants, will not affect XXXXX entitlement to ITCs or rebates.
If you have any questions concerning our comments and rulings, please contact Michael Place at (613) 954-7936. Thank you for your co-operation and hospitality during our recent visit to your offices.
Yours truly,
J.A. Venne
Director
Special Sectors
GST Rulings & Interpretations
| c.c.: |
J.A. Venne
J. Houlahan
M. Place |
XXXXX
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