Dear XXXXX
This is in response to XXXXX letter of March 21, 1994 in which she asked for our comments on a draft reply written by XXXXX of your office. XXXXX letter was prepared in response to an enquiry received from XXXXX Commodity Tax Specialist, XXXXX of XXXXX
As the funding agreement between the XXXXX XXXXX and XXXXX and the Trust Agreement between XXXXX and its employees were not provided for our review, we have prepared the following on the basis of the information contained in XXXXX letter and that of the XXXXX XXXXX program description.
Please note that in an attempt to meet XXXXX initial request for a GST ruling, XXXXX of this office contacted XXXXX to obtain copies of the above-mentioned agreements. On January 26, 1995, XXXXX was advised by XXXXX that it was not possible for her to provide us with the documentation required. As such, XXXXX indicated that she is not looking for a binding GST ruling but rather a general interpretation as to the requirement of her client to register for purposes of GST.
Statement of Facts
1. The province of XXXXX established a program entitled XXXXX Under this program, the XXXXX contributes 50 cents for every dollar raised by an industry/association towards its XXXXX All funds contributed to the trust are used to cover employee training costs, with particular emphasis on new skills development, upgrading of existing skills, training for persons whose skills may become obsolete or redundant and training to facilitate adjustment to technological change.
Provincial financial support may be available for a period of three years to a maximum amount of $100,000 over the life of a XXXXX
2. For purposes of The XXXXX program, a XXXXX is put in place by means of a Trust Agreement entered into by an industry/association, as employer and a group of its employees. Both parties contribute to a fund set aside specifically to cover training costs. All contributions are held in trust for this purpose. In some cases, the employer will contribute to the employees' share. Each XXXXX has a joint Board of Trustees consisting of equal employee/employer representation. The Board of Trustees plans and administers the training activities in accordance with an annual training plan formulated by the Board of Trustees.
3. Costs covered by the XXXXX include instructors' salaries, curriculum development, training materials, and tuition fees charged by accredited or licenced educational institutions. A maximum of 15% of the total XXXXX contributions over the full life of the trust can be used to cover the trust's administrative expenses (e.g. banking charges; secretarial costs; stipend/honoraria of Head Instructor or Coordinator).
4. Under The XXXXX program, XXXXX established a XXXXX . Funding contributed to this XXXXX is used for the training and skills upgrading of XXXXX employees. XXXXX Fund is not a "charity" or "public college" for purposes of GST, nor is it a GST-registrant.
5. The training that takes place in respect of the XXXXX established by XXXXX is provided by XXXXX own employees or, in a few cases, by outside organizations. Where training is provided by XXXXX employees, XXXXX bills the XXXXX for the training supplied. XXXXX charges GST on training services supplied by its employees to the XXXXX
OPINIONS REQUESTED
1. Are the contributions made by the XXXXX under The XXXXX program to the XXXXX established by XXXXX consideration for a supply?
2. Are the contributions made by XXXXX and its employees to the XXXXX established by XXXXX consideration for a supply?
3. Is the XXXXX established by XXXXX required to register for purposes of GST?
OPINIONS GIVEN
1. Contributions made by the XXXXX under The XXXXX established by XXXXX are not consideration for a supply.
Analysis
It is our opinion that contributions made by the XXXXX under The XXXXX program to the XXXXX established by XXXXX are not consideration for a supply and therefore GST does not apply to those payments.
Section 165 of the Excise Tax Act (ETA) provides that every recipient of a taxable supply (other than a zero-rated supply) is required to pay tax in respect of the supply equal to 7% of the value of the consideration for the supply.
In order to determine whether contributions made by the XXXXX established under The XXXXX program are subject to GST, it must be established whether the contributions made are in respect of any supply.
Although a supply of training and related activities take place as a result of the contributions made by the XXXXX established by XXXXX the payments are not consideration as there is no direct link between the contribution and these activities or any other supply which may be provided.
The training-related activities that are carried out by XXXXX , as well as the supply of training itself, are not provided to or carried out for the benefit of the XXXXX
Rather, these activities are for the benefit of XXXXX employees. The contributions are made by the XXXXX to improve the skills of workers to enable them to function productively in a changing workplace. The payments are made for a public purpose.
The public purpose of the contributions is reflected throughout the guide on The XXXXX
The four main objectives of the program, as described in the guide, are:
• to introduce the concept and ensure the commitment of long-term, ongoing training.
• to support training initiatives that will lead to measurable economic growth such as increase productivity.
• to support participative management of training between management and labour through the establishment of "Boards and Trustees" who together participate in the planning, development and delivery of long-term training.
• to provide seed money to establish and finance necessary long-term employment related training and re-training which would add to or accelerate an organization's current training initiatives.
The guide goes on to state that contributions by the XXXXX under the program are to be utilized for purposes of establishing "continuous training programs and developing cooperative long range training plans between management and labour ... " and to provide "an opportunity for workers and employers to establish resources for training and retraining ..." Under the program, adaptable long range training plans are encouraged to meet the demand for improved skills in a changing workplace and to create measurable economic growth such as increased productivity.
It is clear from this description of The XXXXX that the contributions made by the XXXXX established by an approved employer/employee group are for a public purpose.
Quarterly reports identifying amounts contributed by approved employer/employee groups to its XXXXX must be submitted by the Board of Trustees of a XXXXX for comparison with the approved training plan. These reports are for accountability purposes and are not seen as the supply for which the contributions are made.
As there is no direct link between the contributions made by the XXXXX established by an approved employer/employee group, it is our opinion that contributions made to XXXXX under the program are not consideration.
2. Contributions made by XXXXX and its employees to the XXXXX established by XXXXX are consideration for a supply.
Analysis
It is our opinion that the contributions made by XXXXX and its employees to the XXXXX established by XXXXX for purposes of The XXXXX Fund program are consideration for a supply as there is a direct link between the contributions made and the supply of training and related activities.
Although a copy of the trust agreement between XXXXX and its employees was not submitted for our review, it is evident from the information provided that the contributions made by XXXXX and its employees to the XXXXX are directly linked to the provision of training and related activities.
In order to obtain provincial funding under The XXXXX funds contributed to a XXXXX by the province of XXXXX and an approved employer and its employees must be used to train employees of the approved employer. Therefore, as an approved employer, it is XXXXX employees who receive the training.
Although employees benefit from the training supplied by the XXXXX the skills they gain are acquired in the course of their employment with XXXXX and are for the benefit of XXXXX benefits from the training services supplied to its employees in that its productivity may increase as a result of the training provided to its employees. In addition, XXXXX is able to keep up with technological change using its own employees, without having to hire skilled workers outside of XXXXX Although The XXXXX program was established as an incentive for companies to commit to the training of its employees, had funding not become available to XXXXX under this program, XXXXX would either have to pay all of its employees' training costs so as to keep up with technological change, or hire skilled workers. Therefore, even though contributions made by the XXXXX under The XXXXX are made for a public purpose and not consideration for a supply, contributions made by XXXXX to its XXXXX are directly related to the purchase of training services for its employees.
As there is a direct link between the contributions made by XXXXX and its employees to XXXXX it is our opinion that the contributions made by employers are consideration for the supply of training services and XXXXX is the recipient of the supply of training.
3. The XXXXX established by the XXXXX is required to register for GST if its revenue from taxable supplies exceeds $30,000 over four calendar quarters.
Analysis
Pursuant to section 240 of the ETA every person who is engaged in a commercial activity in Canada is required to register for GST purposes, with the exception of a small supplier, a non-resident person not carrying on business in Canada, or a person whose only activity is making supplies of real property by way of sale otherwise than in the course of a business.
A "trust" is included in the definition of "person", as found in subsection 123(1) of the ETA.
Under the ETA, "commercial activity" includes a business carried on by a person, except to the extent to which the business involves the making of exempt supplies by the person. "Business" includes an undertaking of any kind whatever, whether the activity or undertaking is engaged in for profit.
Consequently, a trust involved in a commercial activity is required to register where its revenue from the provision of taxable supplies exceeds the small supplier threshold.
In order to determine whether a XXXXX established under The XXXXX is a trust and therefore a person for GST purposes, we looked at the purpose of its creation and the activities it carries out as a result of its existence.
A "trust" is defined in the Houghton Mifflin Canadian
Dictionary of the English Language as "A legal title to property held by one party (the trustee) for the benefit of another (the beneficiary)." Black's Law Dictionary defines "trust fund" as "Money or property set aside as a trust for the benefit of another and held by a trustee."
The XXXXX program guide states that a XXXXX is created by means of a trust agreement entered into between an employer and its employees. As stated in XXXXX February 3, 1994 letter to the Department, under The XXXXX program XXXXX established a XXXXX A copy of the trust agreement between XXXXX and its employees was not provided for our review.
However, it appears from the information provided that contributions made to a XXXXX by the XXXXX program, together with those made by participating employee/employer groups, are held in trust specifically for employee training.
This is evidenced throughout The XXXXX program guide which describes the purpose of the program and the conditions under which contributions will be made by the XXXXX approved under the program.
For example, applications approved for funding under The XXXXX are subject to a funding agreement between the Board of Trustees of the XXXXX This agreement outlines the terms of payment of the provincial contribution and the respective liabilities of all parties.
Under the heading "Guidelines For The Trustees" of the program guide, the responsibilities of the Board of Trustees who receive provincial funds to support a XXXXX are identified. These responsibilities include the requirement to:
• determine usage and application of funds from the trust and formulate an annual training plan
• ensure that contributions by the employees/employers or on behalf of the employees, are made
• maintain a separate bank account for all provincial contributions and corresponding contributions to the trust
• maintain accurate and up-to-date records and documentation as required by the XXXXX such as invoices for expenditures related to the training plan
• submit quarterly reports to the XXXXX identifying the amount of contributions made to the XXXXX by the employees and/or employers, the amount and type of training conducted and the number of employees participating in the training as compared with the approved training plan.
To ensure that the Board of Trustees complies with their responsibilities, the Board must appoint an independent auditor to audit the trust annually. The auditor's report must be submitted to XXXXX In addition, the Province of XXXXX may audit the training activities and related expenditures of a XXXXX
The obligations and responsibilities of the Board of Trustees of a XXXXX are specifically identified in the program description. Although we were not provided with a copy of XXXXX funding agreement with the XXXXX , it is understood from the information provided that, as with all approved applications under the program, their agreement would reflect these obligations and responsibilities together with the terms of payment of the provincial contribution and the respective liabilities of both parties. On this basis it appears that a trust does exist in that contributions made by the XXXXX under XXXXX program are set aside for the benefit of employees (i.e. training services) of approved employee/employer groups and for no other purpose.
As such, a trust created under an agreement entered into between XXXXX and its employees is considered a separate person for purposes of GST.
The XXXXX as a "person" for purposes of GST, is involved in a commercial activity in that it plans, develops and delivers training services to XXXXX and its employees, through the administration of the funds that it holds in trust. As the XXXXX is neither a registered charity for purposes of the Income Tax Act or a public college for GST purposes, supplies of this nature (i.e. training services) are taxable as they are not specifically ex XXXXX Training Trust Fund, as a separate person, is required to register for GST if its revenue from the provision of taxable supplies exceeds $30,000 over four consecutive calendar quarters.
As a GST registrant, the XXXXX established by XXXXX will be entitled to claim input tax credits in respect of GST paid on inputs used in making taxable supplies. For example, GST charged to it by registrants for purposes of supplying training services to XXXXX employees would be recoverable by the XXXXX through this mechanism.
We trust this is of assistance to you. Should you have any questions in this regard, please call me at (613) 954-3551 or Lynn Renner, Policy Officer at (613) 952-9262.
Yours truly,
Marilyn Viger
Manager
Governmental Sectors and Federal/Provincial Relations
Tax Policy - Special Sectors
GST Policy and Legislation
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