11 May 1995 GST/HST Interpretation 11935-2[1] - The Tax Status Under the GST of Fees Paid by Parents in Order That Their Children May Attend a Hockey Camp

                                                                        Doc. XXXXX
Ref.: s. 1/IV/V
File 11935-2(EB)

Dear XXXXX :

This letter is in response to the E-mail requests from XXXXX of your office on February 1, and April 6, 1995 concerning the tax status under the GST of fees paid by parents in order that their children may attend a hockey camp.

Statement of Facts

From the information provided, we understand the following:

1) A hockey camp is operated for one month each summer by a teacher who supplements his regular income with this activity. The camp has been established as a for-profit entity and has operated for fourteen consecutive summers.

2) The camp employs coaches, trainers, etc. to supervise the children and to provide them with fundamental training in hockey, baseball and basketball. The camp provides care, supervision, athletic instruction, social and recreational activities and a hockey sweater or t-shirt for children aged fourteen and under from 7:30 to 5:00 daily. Instructional classes are divided according to age and ability.

3) Fees to attend the week long hockey camp are $240 per child. If parents want to send their child for an additional week, the fee is $215. A third week costs $190. Instruction is also available in baseball or basketball at $160 a week and for $145 for a second child in the same family.

4) The camp is advertised as 100% deductible. It has issued receipts to parents for each year that it has been in existence so that the parents may claim the child care expense deduction provided under section 63 of the Income Tax Act (ITA).

5) The camp is not a GST registrant. It has never charged GST on its supplies and has never claimed input tax credits or rebates.

6) The camp's revenues exceed the small supplier threshold.

7) A number of recreational/instructional day camps in the area have registered, collected the GST on their fees and claimed input tax credits on their purchases.

Question

Are supplies made by a for-profit hockey day camp in respect of children 14 years of age and younger, exempted by section 1 of Part IV to Schedule V of the Excise Tax Act (ETA)?

Analysis

Section 12 of Part VI to Schedule V of the ETA provides an exemption to supplies made by public sector bodies of a membership in, or services supplied as part of a program established and operated by the body that consists of a series of supervised instructional classes or activities involving athletics, outdoor recreation, music, dance, arts, crafts or other hobbies or recreational pursuits, where the supply is provided primarily to children 14 years of age or younger and where there is no overnight supervision throughout a substantial portion of the program. While the hockey school does provide supervised instructional classes involving athletics to children aged 14 and under, it is not a public sector body. Accordingly, this supply will not be exempted by this provision.

Section 1 of Part IV to Schedule V of the ETA provides an exemption to:

"A supply of child care services, the primary purpose of which is to provide care and supervision to children 14 years of age or under for periods normally less than 24 hours a day."

However, the ETA does not provide a definition of "child care services".

Pursuant to subsection 63(3) of the Income Tax Act (ITA) a "child care expense" means an expense incurred for the purpose of providing, for any eligible child of a taxpayer, child care services including baby-sitting services, day nursery services or lodging at a boarding school or camp if the services were provided to enable the taxpayer, or the supporting person of the child for the year, who resided with the child at the time the expense was incurred to perform duties of an office or employment, to carry on a business, to undertake occupational training or to carry out research or similar work.

The term "child care services" is not defined in the ITA.

While the Explanatory Notes for section 1 of Part IV to Schedule V of the ETA indicate that the exemption provided under this section to child care services will cover day camps and other daycare services for children which are eligible for the child care expense deduction under the ITA, it is important to note that section 1 of Part IV to Schedule V does not make reference to services for which a deduction is available under section 63 of the ITA.

Further, the wording in the legislation specifically indicates that in order to be exempt, the primary purpose of the supply must be to provide care and supervision to children 14 and under for periods normally less than 24 hours a day. A child care service which may qualify as a child care expense for purposes of the ITA is not subject to this primary purpose test. Therefore, notwithstanding the reference in the Explanatory Notes, we cannot state that section 1 of Part IV to Schedule V will provide an exemption to all services that give rise to a child care expense deduction under the ITA.

The ETA does not provide direction as to what constitutes a "primary purpose" so we must look to the commonly accepted meaning of "primary" which is generally described as: " of the first importance, principal, chief, main, or of the first rank".

When the courts have had to determine what constituted the "principal business" of a company, whether something was used "primarily" for one purpose or for another and what constituted the "main" purpose for an action or transaction, this determination has generally been made on the basis of all of the pertinent factors in the particular case, including relative levels of effort and activity towards one purpose rather than to the others, the motivation factors (where these can be determined) the revenue generated from particular activities (in the case of businesses) and so on.

Accordingly, in order to establish whether the hockey camp is providing a supply whose primary purpose is to provide care and supervision to children, we must consider the specific facts of the situation.

We appreciate that the provision of child care involves more than simply seeing to the basic needs of the child. Day care centres, day camps and before and after school programs carry on activities to entertain children and to provide them with an interesting and enjoyable environment. However, we feel a distinction can be made between organizations whose supply is primarily the care and supervision of children and organizations providing a supply whose primary purpose is the provision of athletic, academic or recreational instruction.

To this end, we would suggest that additional information be obtained from the hockey camp. While no particular factor is determinant in itself, the following questions may help establish whether the primary purpose of the supply made by the camp is care and supervision or athletic instruction.

i) What is the purpose/mandate of this organization as set out in its governing documents (provision of a child care service or instruction in athletics)?

ii) How is the supply made by this organization promoted or advertised (e.g., in brochures, advertisements, literature, telephone listings, invoices)? Do promotional materials focus on athletic instruction or child care?

iii) What facilities are there? To what extent have the facilities been designed or developed with an aim to provide athletic instruction as opposed to child care?

iv) What proportion of the facilities are used for athletic instruction (e.g., rink, classroom) as opposed to other activities?

v) What proportion of officers, employees, volunteers, etc., are involved in care and supervision of children as opposed to athletic instruction (coaches, trainers, etc.)?

vi) What are the qualifications of staff working with children? Do they have training/education and experience in providing child care or in athletics, physical education?

vii) What proportion of the day is devoted to athletic instruction vs. care/social interaction, etc.?

viii) To what extent can the organization's overhead (inventory, equipment, videos, office supplies, utilities, etc.) be attributed to the care and supervision of children as opposed to athletic instruction?

ix) Can we establish what motivates parents to send their children to the camp (i.e., child care or is there a predominant focus on helping children acquire or improve their athletic skills)?

x) Can parents send children to the camp for care and supervision only?

xi) What proportion of children (if any) do not receive athletic instruction?

If the responses to these questions indicate that the main purpose of the supply made by this for-profit hockey camp is to instruct children in athletic or recreational activities, then the supply will not be exempted by section 1 of Part IV to Schedule V of the ETA.

I trust that this letter will be of assistance. If you have any questions or would like to discuss this issue further upon receipt of additional information from the hockey camp, please do not hesitate to contact Elaine Bonnah at (613) 952-6761.

Yours truly,

J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations