File: 11925-3-1(DRM)
Doc: 958
This is in reply to your letter of November 16, 1994, concerning the tax treatment of bingo revenues received by an NPO from the XXXXX Statement of facts:
Pertinent facts are taken from information provided by XXXXX as well as telephone conversations with XXXXX, and XXXXX of Revenue Canada-GST.
1. The authority for the regulation of bingos is found under section 207 of the Criminal Code of Canada. Pursuant to that section, the authority to regulate bingos in XXXXX has been delegated by the Federal Government to the "Lieutenant Governor of the province or by such other person or authority in the province as may be specified by the Lieutenant Governor in Council thereof, ...". This delegation of responsibility led to the establishment of the XXXXX pursuant to XXXXX[.]
2. Pursuant to the paragraph 207(a) of the Criminal Code of Canada, "... it is lawful for the government of a province, either alone or in conjunction with the government of another province, to conduct and manage a lottery scheme (by definition in the criminal code includes bingos) in that province, in accordance with the law enacted by the legislature of that province."
3. Pursuant to XXXXX "... may conduct and manage lottery schemes for the government."
4. Paragraph XXXXX of the same Act states that the net proceeds realized by XXXXX from the government lotteries shall be distributed as follows:
"(a) transfer to the government such part thereof as may be determined by the Lieutenant Governor in Council to be held in trust in the Consolidated Fund to be used and applied in accordance with subsection XXXXX and
(b) pay the balance thereof in the form of outright grants to persons, organizations, societies, associations, bodies or groups, in accordance with general guidelines prescribed by the Lieutenant Governor in Council."
5. Pursuant to subsection XXXXX of the same Act, the Lieutenant Governor in Council may direct that the proceeds held in trust be expended by the minister (or other members of the Executive Council as delegated by the minister):
"(a) in the form of such outright grants for cultural or recreational purposes to organizations, societies, associations, bodies or groups; or
(b) in the form of such expenditures, including salaries, for cultural or recreational purposes; or
(c) in the form of such outright grants to persons, organizations, societies, associations, bodies or groups or in the form of such expenditures, including salaries, for any purpose."
6. Umbrella groups (i.e.; Umbrellas) were established to distribute gaming revenues to organizations, societies, associations, etc., in accordance with XXXXX[.]
7. An NPO which requires government funding for projects or events it undertakes must submit a written application to their Umbrella.
8. The Umbrella may agree to fund all or a portion of the amount requested. In either case the NPO is granted a specific amount either as cash, bingo revenues or a combination of the above.
9. An NPO which receives bingo revenues is required to provide volunteers to assist the XXXXX in conducting a bingo on a night specified by the XXXXX[.]
10. Prior to 1993, an NPO was assigned the "net bingo revenues" of a particular night(s). However, in order to avoid fluctuating revenues, due to the fact that some nights proved more popular (profitable) than others, a schedule identifying the types of bingo games and the associated revenue was established. Beginning in 1993, the NPO received a predetermined amount based on the 1992 and 1993 average bingo earnings. The bingo games and associated revenue are as follows:
XXXXX
11. The XXXXX owns the bingo halls and the bingo equipment. The bingo is held and managed by XXXXX employees with the assistance of volunteers provided by the NPO. However, if there is a shortage in funds which may be traceable to a volunteer, XXXXX invoices the NPO for the amount of the shortage.
12. XXXXX does not consider the bingo revenues as payment for volunteer workers.
13. Cheques are issued directly from XXXXX to the NPO.
14. XXXXX also issues licenses to charitable or religious organizations to conduct bingos in accordance with section 270 of the Criminal Code. The bingos must comply with the terms and conditions of the licence application issued by XXXXX[.] These bingos are held by the organizations in publicly owned premises, premises owned by another charity, or premises that the charity owns. The bingos are not held at the bingo halls owned by XXXXX The ruling provided does not pertain to these licensed lotteries.
Issue:
1. Are payments received by an NPO from XXXXX consideration for the supply of volunteers, a grant, or consideration for the supply of the right to participate in a game of chance?
2. Is XXXXX a grantor as defined in the "Public Service Body Rebate (GST) Regulations" (Regulations) of the Excise Tax Act (the Act)?
3. Does the payment from XXXXX to the NPO qualify as government funding?
Conclusion:
Bingo revenues received by an NPO from XXXXX are not consideration for a supply but are instead "grants" in accordance with XXXXX[.] These grants qualify as "government funding" in the calculation of Percentage of Government Funding pursuant to XXXXX of the Regulations.
Analysis:
1. It is our opinion that the payment to the NPO from XXXXX is a grant for the following reasons:
• The amounts distributed by XXXXX are not directly linked to the number of volunteers provided by the NPO.
• The application for funding is made to the umbrella organization. It is not an application for service contract (i.e., not bidding on a service contract).
• XXXXX is making the supply of rights to participate in a game of chance (i.e., the NPO is not issued a licence to hold a bingo. Rather, XXXXX holds the bingo and pays the net proceeds to the organizations).
• As part of its mandate, money earned as a result of the right to participate in a game of chance may be distributed by XXXXX as grants to charitable and non-profit organizations.
Pursuant to XXXXX "... may conduct and manage lottery schemes for the government." The Act, further stipulates that the net proceeds of any lottery scheme managed by XXXXX may be distributed as direct grants to organizations, and associations, etc., in accordance with the general guidelines, or may be transferred to the consolidated revenues of the government to be provided as grants to organizations and associations for cultural or recreational purposes or as direct expenditures for cultural or recreational purposes. In essence, XXXXX is fulfilling one of its primary duties as established under the aforementioned Act, by providing money to the NPO.
Simply, the requirement that an NPO must provide volunteers to assist with the bingo, is as stated; a requirement for funding. It is not, an should not be considered a supply of labour by the NPO to XXXXX nor should the amount paid by XXXXX to the NPO be considered consideration in respect of a supply.
2. A "grantor" as defined in paragraph 2(b) of the Public Service Body Rebate (GST) Regulations means:
."(b) a corporation that is controlled by a government or by a municipality and one of the main purposes of which is to fund charitable or non-profit endeavours,
XXXXX is a grantor as established in XXXXX[.] Pursuant to subsections XXXXX of the aforementioned Act, XXXXX uses the proceeds from lotteries to fund charitable or non-profit endeavours (see facts 4 and 5).
3. Paragraph (a) in section 2 of the Regulations defines the term "government funding" as follows:
"(a) an amount of money, ... that is readily measurable and is paid or payable to the particular person by a grantor ...
(i) for the purpose of financially assisting the particular person in carrying out the purposes of the particular person and not as consideration for supplies made by the particular person, ..."
As stated above, XXXXX is a grantor as defined in section 2 of the Regulations. As the amount provided to the NPOs is not consideration for a supply, the amount qualifies as government funding. Such amounts constitute grants in accordance with the Regulations.
If you have any questions or comments, please do not hesitate to contact Joanne Houlahan, Manager, Public Service Bodies, at (613) 954-7945 or Dwayne Moore, Tax Policy Officer, at (613) 954-4206.
J.A. Venne
Director
Special Sectors
GST Rulings & Interpretation
c.c.: D. Moore
96.01.15
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