11846-3 (LFR)
XXXXX
Manager, Interpretation and Services XXXXX
Tax Services Office
XXXXX June 30, 1995
Dear XXXXX :
This is reply to XXXXX enquiry of March 16, 1994 in which he asked whether we agree with the opinions expressed in his letter regarding the application of GST to funding received by the XXXXX . XXXXX request for our comments is as a result of an enquiry received by the XXXXX Tax Services Office from XXXXX .
XXXXX provided us with a copy of a pamphlet explaining the XXXXX mission; a copy of the contribution agreement (the Agreement) between the XXXXX and the XXXXX ; as well as a sample copy of an invoice given by the XXXXX to local employers who contribute to the XXXXX s funding.
Under the headings "Case Specifics" and "Funding" of his letter, XXXXX provided a summary of the facts respecting the XXXXX three sources of revenue and a rationale regarding the application of GST to each. The XXXXX revenue is derived from payments made by:
1) the XXXXX (pursuant to the Agreement)
2) local employers acquiring counselling services for use by their employees
3) individuals
From the information submitted, it is our understanding that the XXXXX is a non-profit organization involved in various counselling and related activities. It is registered for GST purposes.
The XXXXX provides assessment and counselling services to employees of local employers through its XXXXX
Each calendar quarter, the XXXXX invoices each employer participating in its XXXXX an amount per employee. Employees and their dependents are provided with assessment and counselling services free of charge where their employers make financial contributions towards the provision of this service. A wide variety of personal problems are addressed by XXXXX through this service.
The XXXXX also provides its services to individuals not employed by participating employers. The XXXXX charges a fee to individuals in respect of this service.
In addition to the above, the XXXXX receives funding from the XXXXX for purposes of operating an alcohol and drug program. Under this program, XXXXX offers recovery services free of charge to chemically dependent persons. As indicated in Schedule B of the Agreement between the XXXXX and the XXXXX , " XXXXX ."
For 1993, the XXXXX received approximately XXXXX from the XXXXX ; XXXXX from employers who contributed to the XXXXX and XXXXX from individuals who were not employed by participating employers on a fee-for-service basis.
XXXXX posed the following questions:
1. Does GST apply to payments received by the XXXXX from:
(a) the XXXXX under the Agreement?
(b) the employers who contribute XXXXX per employee?
(c) the individuals who are not employed by the participating employers (i.e. those who are charged a fee for service)?
2. Is the XXXXX eligible to claim full ITCs for the GST paid on purchases relating to the operation of the XXXXX ? If not, what percentage can be claimed as an ITC and what percentage can be claimed as a rebate?
The following comments are in response to the above:
Question 1
(a) We agree with XXXXX opinion, as reflected in his analysis, that the payment made to XXXXX under the Agreement with the XXXXX is not consideration as there is no direct link between the supply of recovery services (e.g. recovery planning; individual, family and group counselling) to chemically dependent persons under the alcohol and drug abuse program and the payment made. The payment is made for the benefit of individuals residing the province of XXXXX , particularly those living in the XXXXX area. The payment is made for a public purpose.
We noted that neither the Statement of Facts nor the analysis make reference to sections 38 and 39 of the Agreement.
Section 38 of the Agreement states that XXXXX will not charge any type of fee to XXXXX residents using the service.
Section 39 of the Agreement indicates that the XXXXX will charge a per diem fee based on their current per diem operating costs to individuals who are not residents of XXXXX , XXXXX , but who receive in-patient treatment (including detox and halfway houses) from the XXXXX . Where the XXXXX provides in-patient services to persons other than those for which the funding is provided, any fee collected from the non-residents may be deducted from the grant given to the XXXXX or paid back to the XXXXX by the XXXXX .
As these facts are relevant in determining the status of the payment made by the XXXXX as well as the XXXXX 's entitlement to relief on its taxable purchases, they should be referenced in your response.
(b) We agree with XXXXX opinion, as reflected in the analysis, that the payment made by employers to the XXXXX is consideration for a supply as there is a direct link between the payment made and the supply of assessment and counselling services to employees of contributing employers.
We also agree that XXXXX is required to charge GST to participating employers for the provision of this service to their employees since none of the exempting provisions available to non-profit organizations within Part VI of Schedule V to the Excise Tax Act (ETA) applies. (Since the fee charged to participating employers includes labour and overhead costs, the exempting provision of section 6 of Part VI of Schedule V to the ETA does not apply.)
(c) It is our understanding that the fee charged to individuals who are not employed by the participating employers is not in respect of a service supplied under the XXXXX s alcohol and drug abuse program. As such, we agree with XXXXX opinion, as reflected in the analysis, that the XXXXX is required to collect GST on the amount charged to individuals for its services since none of the exempting provisions within Part VI of Schedule V to the ETA applies.
Question 2
Although we agree with XXXXX opinion that XXXXX is eligible to claim input tax credits for GST paid on expenses relating to its operation, it is our opinion that its entitlement to ITCs is limited to its commercial activities. We suggest that the following be incorporated into the analysis as support of this conclusion.
As indicated in the draft policy statement (P-167) entitled "Meaning of the First Part of the Definition of Business", activities carried on by person can be categorized as either commercial activities, exempt activities or non-commercial/non-exempt activities.
"Commercial activity" of a person is defined in subsection 123(1) of the ETA as
"(a) a business carried on by the person (other than a business carried on by an individual or a partnership, all of the members of which are individuals, without a reasonable expectation of profit), except to the extent to which the business involves the making of exempt supplies by the person,
(b) an adventure or concern of the person in the nature of trade (other than an adventure or concern engaged in by an individual or a partnership, all of the members of which are individuals, without a reasonable expectation of profit), except to the extent to which the adventure or concern involves the making of exempt supplies by the person, and
(c) the making of a supply (other than an exempt supply) by the person of real property of the person, including anything done by the person in the course of or in connection with the making of the supply;".
Commercial activities are those activities which fall within paragraphs (a), (b) or (c) of the definition or otherwise deemed to be commercial activities pursuant to some other provision of the ETA.
Exempt activities are those activities associated with the making of supplies listing in Schedule V to the ETA while non-commercial/non-exempt activities are those activities that neither fall within the definition of commercial activity or constitute activities associated in making of supplies included in Schedule V to the ETA.
Persons engaged in exempt, or non-commercial/non-exempt activities are not considered to be engaged in a commercial activity and are not required to charge tax in respect of supplies made in the course of those activities. No input tax credits are available to registrants for tax paid or payable in the course of their exempt or non-commercial/non-exempt activities.
"Business" is defined in subsection 123(1) of the ETA as including "a profession, calling, trade, manufacture or undertaking of any kind whatever, whether the activity or undertaking is engaged in for profit, any activity engaged in on a regular or continuous basis that involves the supply of property by way of lease, licence or similar arrangement, but does not include an office or employment;".
Therefore, unless a particular business activity takes place under the conditions comprising an activity that is not a commercial activity (i.e. activities involving the making of exempt activities, activities engaged in by an individual or partnership composed solely of individuals with no reasonable expectation of profit, or the performance of a duty relating to an office or employment), the business is a commercial activity. Generally, all of the activities undertaken by a person are viewed as being carried out to achieve a single or primary goal.
Consequently, a non-profit organization such as XXXXX , will be considered to be engaged in a commercial activity in respect of all of its activities where it carries on these activities in an organized and structured manner, except to the extent that it is involved in a non-commercial activity. Input tax credits will be available to it to the extent that GST incurred is in respect of activities that fall within the definition of commercial activity in subsection 123(1) of the ETA and not in respect of exempt or non-commercial/non-exempt activities.
The XXXXX runs two types of counselling-related activities.
The first of which is its alcohol and drug abuse program - a recovery service offered free of charge to chemically dependent persons. Funding for this program is provided to the XXXXX by the XXXXX . Non-residents may, for a fee, receive in-patient treatment under this program although there is no indication in the information submitted whether the XXXXX realizes any revenue in respect of this service to non-residents.
With respect to the activities carried out by XXXXX under its drug and alcohol abuse program, it is our view that the provision of recovery services to chemically dependent individuals is exempt pursuant to section 10 of Part VI of Schedule V to the ETA since, in accordance to the Agreement, this service is supplied free of charge to individuals residing in XXXXX .
In addition, it is our view that although XXXXX is required to charge a non-resident individual a fee in respect of its in-patient treatment, the XXXXX will not be required to charge GST in respect of this supply. The non-applicability of GST to this supply is based on the condition that this type of service is the same type as that offered free of charge to residents of XXXXX under its drug and alcohol abuse program and the conditions outlined in section 10 of Part VI of Schedule V to the ETA continue to be met, that is, substantially all of the supplies of in-patient treatment are made for no consideration.
The XXXXX also provides assessment and counselling services to persons in need through its XXXXX . These services are offered for a fee to employees of employers participating in the XXXXX XXXXX . In addition, the XXXXX also provides its services to individuals who are not employed by participating employers. The XXXXX provides a number of services relating to a variety of personal problems such as marital/relationship conflict, parent/child conflict, emotional/psychological concerns (i.e. stress, depression, grief, aggressive behavior, suicide, etc.), financial and legal concerns and problems associated with the use of alcohol, illegal drugs and prescription medications.
Payments made by participating employers under the XXXXX , as well as by those individuals not employed by participating employers, are consideration for a taxable supply of counselling and related services.
With respect to entitlement to GST relief of taxable purchases made by the XXXXX , section 169 of the ETA provides that a GST registrant is entitled to claim input tax credits for GST paid or payable by the person with respect to any property or service acquired or imported by the person to the extent that the property or service is for consumption, use or supply in the course of commercial activities. No input tax credits are available to GST registrants who incur tax in the course of their exempt and non-commercial/non-exempt activities.
All of the activities carried out by the XXXXX are made in furtherance of its principal goal of providing confidential assistance, through counselling and other related services, to individuals experiencing personal problems (e.g. emotional/psychological concerns; marital/relationship conflict; drug & alcohol abuse problems). As such, all of the activities it carries out would be characterized as being part of that single business activity. However, because certain activities that the XXXXX carries out are exempt under the ETA, these activities are excluded from the definition of "commercial activity". Therefore, entitlement to input tax credits with respect to these activities is not available to the Society.
Since the XXXXX is involved in the both taxable and exempt activities, it is required to apportion property or services acquired for use in these activities in a reasonable and consistent manner throughout any given year. As indicated in Policy Statement P-063 entitled "Output Based Method of Input Tax Credit Allocation", the method or methods used by a GST registrant should, as much as possible, link the property or service on which the tax was paid to its use in commercial activities.
We hope these comments will be of assistance to you. Should you have any questions, please call me at (613) 954-3551 or Lynn Renner, Policy Officer at (613) 952-9262. Please note that in accordance to draft policy P-167, a copy of your district's GST interpretation or ruling to the Society will have to be sent to the General Application Division for review.
Yours truly,
Marilyn Viger
Manager
Governmental Sectors and Federal/Provincial Relations
Special Sectors
GST Rulings and Interpretations
| c.c.: |
J.A. Venne
L. F. Renner XXXXX
J. Houlahan |
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