12 December 1996 GST/HST Interpretation 11940-4 - Application of the GST to the Activities of a Lodge Operated by the

Dear XXXXX:

Thank you for your letter of July 9, 1996, concerning the application of the Goods and Services Tax (GST) to the activities of a lodge operated by XXXXX[.]

It is our understanding that XXXXX and its lodge are an integral part of the XXXXX and are governed by XXXXX which is a registered charity. The lodge or hostel is operated by the XXXXX and it is our understanding that both were established under the objects of, and are controlled by, the XXXXX as a requirement of XXXXX the governing document of the organization.

Furthermore, we understand that the XXXXX as an entity listed in Schedule XXXXX to the reciprocal tax agreement between Canada and XXXXX does not pay GST on its purchases.

The lodge provides free accommodation to patients and their authorized companions during the course of a patient's treatment. Other patient escorts are charged a nightly accommodation rate which exceeds $XXXXX for each day of occupancy. Since XXXXX 19XX, the lodge has been charging patients for meals on a cost recovery basis.

Request

You have requested whether fees charged by the lodge operated by the XXXXX for a supply of a meal to a XXXXX patient and a supply of accommodation to an escort of a XXXXX patient are exempt from the Goods and Services Tax (GST) under section 14 of Part VI of Schedule V to the Excise Tax Act (ETA).

Response

It is our understanding that the XXXXX and the lodge or hostel operated by the XXXXX, is a registered charity. After 1996, section 14 of Part VI of Schedule V to the ETA will no longer apply to goods and services provided by charities. In order to determine the tax status of supplies made by charities effective January 1, 1997, it is necessary to refer to exemptions set out in the new Part V.1 of Schedule V to the ETA.

Short-term accommodation (less than one month) provided by a charity is currently exempt under section 25 of Part VI of Schedule V to the ETA. Pursuant to a Notice of Ways and Means Motion announced by the Department of Finance on April 23, 1996, and effective January 1, 1997, short-term accommodation provided by a charity will be exempt under section 1 of new Part V.1 of Schedule V to the ETA.

Meals provided by a charity for an amount which is greater than the direct cost of the meal are currently subject to GST. In the case of meals, direct cost currently includes essentially the purchase price (including GST less any rebate or input tax credit amount) paid by the charity for the constituent materials or products.

It is important to note that proposed amendments to the direct cost exemption were included in the Notice of Ways and Means Motion announced in the House of Commons on November 29, 1996. These amendments have been designed to accommodate either tax treatment (exempt or taxable) depending on the wishes of the charity supplying the meals. Pursuant to the proposed amendments and effective for supplies of meals for which the consideration becomes due after 1996, the direct cost rules will apply as follows:

1) Where a charity in XXXXX wishes to make an exempt supply, the direct cost exemption will apply to exempt the meal where the fee for the meal is equal to or less than the direct cost of the meal. In this case, the direct cost will include the purchase price of the constituent materials, the GST and the provincial retail sales taxes (if any) paid on the cost of the materials.

Example of Exempt Supply

Costs

The supply will be exempt if the fee charged is $115 or less and the charity does not charge GST.

2) Where a charity in XXXXX wishes to make a taxable supply, the direct cost exemption will not apply provided the fee for the meal is at least equal to (or more than) the direct cost of the meal. The direct cost in this case, however, will include the purchase price of the constituent materials and the provincial retail sales taxes (if any) paid on the cost of the materials but it will not include the GST.

Example of Taxable Supply

Costs

The supply will be taxable if the fee charged is at least (or more than) $108 and the charity charges GST on the sale of the meal.

In conclusion, the new direct cost rules allow a charity to choose the tax treatment which is appropriate to its situation while allowing the charity to recover its costs.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed or future amendments to the legislation may result in changes to our interpretation. These comments are not rulings and, in accordance with the guidelines set out in GST Memoranda Series 1.4, do not bind the Department with respect to a particular situation.

Should you have further questions of a general nature, please contact the local Revenue Canada Office. If you require additional information on the matters discussed in this response, please feel free to contact me at (613) 952-0420.

L. Grannary
Tax Policy Officer
Charities,
NPO's and Educational Services
GST Rulings and Interpretations

Subject File Ref:                     s. 1, Pt. V.1, Sch. V, s. 5.1, Pt. V.1, Sch. V