File 11905-3
Ref. s. 2/ Pt. III /Sch. V
Document 992
November 1995
Dear XXXXX
This concerns your facsimile message to Don Dawson on October 25, 1994, concerning the GST status of supplies of services made by XXXXX .
Facts
(1) The Pre-school accepts children between 2.5 years and 6 years of age. The advertising literature of the organization refers to it as a pre-school, and discusses the calibre of its educational services for children attending the school. The material suggests that all students attending the facility will receive instruction.
(2) The Pre-school supplies a service of teaching children practical life skills, sensory-motor learning, language, mathematics, science, geography, culture of the child's community, music and art. Each child progresses at their own pace.
(3) The Pre-school has been issued a licence under the provisions of section 4 and section 5 of the XXXXX to operate a nursery school. Section 4 states
"No person shall operate a social care facility providing accommodation or care for 4 or more persons unless he holds a subsisting licence issued by the Director under this Act."
Subsection 5(4) states:
"A licence issued under this Act shall
(a) identify the social care facility that may be operated under the licence, and
(b) state
(i) the name of the person who may operate the social care facility,
(ii) the maximum number of persons who may be accommodated or cared for in the social care facility,
(iii) the term of the licence, if the term is other than one year from the date of issue, and
(iv) in the case of a conditional licence, the conditions to which the conditional licence is subject.
Paragraph 1(f) of the XXXXX states that "social care facility" means
(i) a place of care for persons who are aged or infirm or who require special care,
(ii) a day care facility ..."
Paragraph 1(a.01) states:
(a.01) "day care facility" means a day care centre and any other facility defined in the regulations as a day care facility for the purposes of this Act: ..."
Section 2 of the Day Care Regulation made pursuant to the XXXXX states:
"For the purposes of the Act, "day care facility" means, in addition to a day care centre, a family day home, a nursery school or a drop-in centre."
Therefore, for purposes of the XXXXX , a nursery school is considered a day care facility.
(4) During your telephone conversation with Don Dawson on October 25, 1994, you confirmed that the organization is not a charity or a school authority as defined in subsection 123(1) of the Excise Tax Act (ETA).
(5) You indicated in your telephone conversation with Don Dawson on December 2, 1994, that the Pre-school issues child care income tax receipts for fees charged as consideration for the supply of the service.
Request
You enquired as to whether the supplies made by the Pre-school to the children enrolled at the school or to their parents would be exempt of tax pursuant to Part IV of Schedule V to the ETA.
Response
Section 1 of Part IV exempts 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 per day. However, the ETA does not define "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 of Schedule V to the ETA indicate that the exemption provided under this section to child care services will cover day camps and other day-care 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 of 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 may qualify as a child care expense for purposes of the ITA without meeting this primary purpose test. Therefore, notwithstanding the reference in the Explanatory Notes, some services that give rise to a child care expense deduction pursuant to the ITA are not child care expenses that would be exempted from GST pursuant to section 1 of Part IV of Schedule V to the ETA.
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 Pre-school is providing a supply whose primary purpose is to provide care and supervision to children, we must consider the specific facts of the situation.
In the case at issue, the Pre-school is licensed as a nursery school only for children aged 2.5 to 6 years, so the children attending the Pre-school would be under the usual age at which formal education is commenced in elementary school. Also, a nursery school is not recognized as an elementary school XXXXX . These facts would support the view that a nursery school is not primarily an educational institution, and must therefore be primarily concerned with the care and supervision of children. Our administrative view is that the "educational" portion of the activities provided by the Pre-school, such as the learning of colours and numbers, represents only the type of learning normal for pre-school children, whether they are in a nursery school, a day care or a home environment. For these reasons, we believe that the primary purpose of the services supplied by the Pre-school is one of care and supervision. Therefore, its supplies of services are exempt of tax pursuant to section 1 of Part IV of Schedule V to the ETA.
We trust that this letter will be of assistance. If you require any further information concerning this matter, please contact Ms. Joanne Houlahan at (613) 954-7945 or Mr. Don Dawson at (613) 954-4393.
Yours truly,
J. A. Venne
Director
Special Sectors
GST Policy and Legislation
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