FILENAME: XXXXX
11846-3(LFR)
11848-7 XXXXX
XXXXX July 18, 1995
Dear XXXXX :
This is in response to XXXXX letter of January 26, 1994 in which he requested our comments on a draft reply prepared by your office in response to an inquiry received from XXXXX
For our reference, XXXXX provided the following documents with his request:
1. Original letter from XXXXX
2. Contribution Agreement between XXXXX - and the XXXXX
(a) Application for Funding
(b) Schedule A - Objectives and Activities
(c) Contribution Terms
3. Excerpt from agreement between XXXXX and the XXXXX
On December 24, 1993 XXXXX wrote to the XXXXX seeking an opinion regarding the application of GST to funding it receives from the XXXXX (Chamber). The funding provided to XXXXX is as a result of an agreement entered into between it and the Chamber for the purchase of business training services.
The acquisition of XXXXX services stems from an agreement dated XXXXX entered into between the Chamber and XXXXX under the XXXXX . Under this agreement, the Chamber agreed to be responsible for the recruitment of small business managers in need of skill development training; to coordinate the delivery of Human Resource Planning in the XXXXX area and to provide classroom space for training. The Chamber was to carry out these activities with the objective of ensuring that skills are transferred to employers so they can carry out human resource planning upon completion of the training.
In its agreement with XXXXX , the Chamber indicated that it will contract with XXXXX for the provision of training to those individuals identified by the Chamber and agreed to by XXXXX .
XXXXX requested that we review the analysis prepared by your district in response to the following three questions.
1) Does GST apply to payments received by the Chamber from XXXXX under the XXXXX agreement dated XXXXX ?
Does GST apply to payments received by the Chamber from the individuals receiving the training (i.e. the employers) for their portion of the tuition for the course (i.e. their 40% of the full tuition)?
Does GST apply to payments received by XXXXX from the Chamber for providing the training?
Analysis
Question 1
Having reviewed the information submitted to us, we agree with XXXXX opinion that the payments made to the Chamber by XXXXX under the XXXXX are not consideration as there is no direct link between payments made and the supply of training services.
Schedule A of the agreement (Agreement) between the Chamber and XXXXX states that the Chamber "will provide XXXXX with a list of Employers who are interested and the XXXXX will make the final selection of who will participate." Since the XXXXX of XXXXX selects who will be trained, it suggests that the payment made by XXXXX to the Chamber is for a "purchase purpose" (i.e. for the benefit of particular individuals.) As further support to our opinion that the payment is not directly linked to a supply of training services, may we suggest that this provision of the Agreement be addressed in the analysis. A statement to the effect that while specific individuals may benefit or receive a supply of a service as a result of the payment, the purpose of the XXXXX and the payment is to benefit a particular class of individuals (i.e. small business managers) and not a specified third party. Although XXXXX does select those individuals who will be trained, it chooses them from a list of those participants selected/referred by the Chamber. The provision of this list to XXXXX is merely a control mechanism employed by XXXXX to ensure that the Chamber utilizes the funding for the purpose for which it is given. It serves to verify those individuals who most closely fit within the program criteria (i.e. small business managers who qualify under the program).
Other than this minor addition, the analysis is complete and does not require change.
Please note that a GST interpretation was issued by the department to XXXXX on November 10, 1992 regarding contributions made under its XXXXX . This interpretation, which was based upon a generic agreement, is available on the department's EEIS/EARL database for your reference.
Question 2
We agree with XXXXX opinion that the fee charged to participants by the Chamber for purposes of acquiring business training services is consideration for a supply.
With respect to XXXXX question of whether section 6 of Part VI of Schedule V to the Excise Tax Act (ETA) could apply to exempt the fee charged by the Chamber, we provide the following comments:
From the information provided, we understand that the Chamber receives XXXXX from XXXXX for each course participant. XXXXX provides the business training services and charges the Chamber XXXXX for each course participant. Course participants pay the Chamber XXXXX to attend.
For purposes of section 6 and 7 of Part VI of Schedule V to the ETA, the "direct cost" of a service includes only the costs of material components of the service, and does not include costs associated with capital, labour or overhead. In addition, direct cost includes the cost of acquiring a service (other than from an employee) if resupplied in the same form.
The Chamber contracts with XXXXX for the provision of its business training services to course participants. As explained below, the Chamber is considered to have contracted out/purchased the services from XXXXX and then resupplied them to its course participants. Since the services are being resupplied in the same form by the Chamber (a non-profit organization) to the participants and at a cost of XXXXX per participant - which is less than the XXXXX charged per participant to the Chamber by XXXXX - the direct cost exempting provision of section 6 of Part VI of Schedule V to the ETA would apply.
Question 3
We agree with XXXXX opinion that the business training services are being contracted out to XXXXX by the Chamber. We offer the following comments with respect to the analysis prepared in this regard.
The XXXXX is a human resource planning program that was implemented by XXXXX to provide funding to recipients who implement select initiatives resulting from human resource planning processes. The beneficiaries of the activities funded under this program are members of a particular industrial sector. Payments made to recipients under this program are for a public purpose and not consideration for a supply.
In accordance with the "Extension of Transfer Payment Policy" dated May 25, 1993, transfer payments which are not consideration for a supply should maintain that status as they flow through intermediaries as long as no direct link can be made between the payments and a supply to the grantor, the intermediary or a specified third party. However, the provision of program or fund administration provided to the grantor or intermediary are not viewed as separate supplies in the transaction, nor is it seen as the supply for which the payments are made.
Therefore if the payments made by the Chamber to XXXXX are not directly linked to a supply (other than program or fund administration) as determined under the GST treatment of grants and subsidies as outlined in Technical Information Bulletin B-067, the Chamber would be an intermediary for purposes of the Extension of the Transfer Payment Policy and the payments would not be consideration for a supply.
Similar to the agreement between XXXXX and the Chamber, a supply of training takes place under the agreement between XXXXX and the Chamber. XXXXX does not simply agree to administer the program or the funds as required under the "Extension of Transfer Payment Policy". There are several indications that the Chamber has purchased the supply of training services from XXXXX or in other words the supply of training services is made by XXXXX to the Chamber not to the course participants.
No agreement exists between XXXXX and the course participants for training. Therefore it cannot be said that XXXXX is "supplying" training to the course participants. However, an agreement for training does exist between the course participants and the Chamber.
The Chamber markets the training program, recruits and selects the course participants and holds the training in its own premises. Course participants apply to the Chamber for the training, enter into an agreement with the Chamber and pay a fee set by the Chamber for the training.
In order to carry out its obligation to the course participants the Chamber has contracted with XXXXX for its services. As the Chamber makes the payment to XXXXX in order to carry out its obligations to the course participants it can be said that the Chamber makes the payment to XXXXX for a purchase purpose.
As the Chamber has a purchase purpose in making the payment to XXXXX (in that it requires the services of XXXXX in order to fulfill its obligations to the course participants), there is a direct link between the payment made to XXXXX and a supply of training services which XXXXX supplies to the Chamber. Therefore, the payment the Chamber makes to XXXXX is consideration for the supply of training and the Chamber is not an intermediary for purposes of the "Extension of Transfer Payment Policy". As XXXXX supply of training is not designated otherwise within the ETA it is taxable at the rate of 7%.
We hope these comments are 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.
Yours truly,
Marilyn Viger
Manager
Governmental Sectors
GST Rulings and Interpretations
| c.c.: |
J.A. Venne
J. Houlahan
L.F. Renner XXXXX |
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