TELEPHONE 954-8585
FACSIMILE 990-1233
11715-5(sn)
Dear Ms. XXXXX
Further to a telephone conversation between Lalith Kottachchi, Revenue Canada, Headquarters and XXXXX of your office, on April 26, 1994 and XXXXX fax of the same day, the following summarizes our current policy with respect to the application of GST to voluntary payments.
Background
1. A non-profit organization ("NPO") provides a data retrieval service to persons who request various types of information.
2. When providing their response, the NPO also provides the costs incurred to provide the information and make the following statement:
"If you find the information useful, we ask you to please consider making a donation of at least part of this amount to ensure the long-term viability of the Crafts Information Service".
3. The NPO has not collected and remitted GST in respect of any payments actually received on the assumption that the payment is "a donation as opposed to a charge".
Question
How does the GST apply to voluntary payments?
Discussion
Subsection 165(1) of the Excise Tax Act ("the Act") states in part, that a recipient of a taxable supply shall pay tax on the value of the consideration for the supply. Subsections 153(1) and 123(1) provide definitions of "value of consideration" and "consideration", however it is the definition of consideration contained at subsection 123(1), which is of particular relevance to any discussion of the application of tax to voluntary payments.
The definition of consideration states that the word "includes any amount that is payable for a supply by operation of law". The use of "includes" in the definition effectively makes the definition expandable and therefore potentially, very broad. Essentially, it means that although consideration would clearly be any amount that is payable for a supply by operation of law, the definition is broad enough to encompass any amount payable for a supply, whether or not it is payable by law. Therefore, in the case of a voluntary payment, there is nothing in the Act which precludes such an amount from being treated as consideration as long as the voluntary payment is paid for a supply.
When an amount paid is being called a voluntary payment, it is sometimes difficult to identify a supply for which the voluntary payment is paid for. The best example of a true voluntary payment is a charitable donation. A person paying a donation to a charity does not directly receive any sort of supply in return for making the payment. However, many so called "voluntary" payments are in fact paid because the payor is receiving a supply. The payor may not have an legal obligation to pay for the supply he has received, but the particular circumstances surrounding the transaction are such that the payor is somehow motivated to pay an amount of money as a result of receiving the supply. If the supply that was made, was a taxable supply, the amount of money paid would be treated as consideration and tax would apply.
In the case at hand, the person who has requested the data retrieval service, has received the information and the details of the costs which were incurred to find and assemble the requested information. The person has no legal obligation to pay an amount to receive the retrieved data, however, he is encouraged to pay an amount which would cover the costs of the data retrieval, or at least some portion of those costs, so that the data retrieval service could continue to be available in the future. If the person who has received the retrieved data, chooses to make a payment, although the payment may be "voluntary", the Department would see the payment as being consideration for a supply, which in this case, is a taxable supply. Tax is therefore exigible.
Clearly, a decision as to whether any particular voluntary payment has in fact been made by a person as a result of receiving a supply, is dependent on the facts and circumstances surrounding the transaction. The Department is anticipating a release of a policy which will provide guidance when making such a determination.
Should you require any further assistance in this matter, please contact one of the members of the Application Team in the Taxing Provisions Unit. They are: Ken Mathews (613) 952-9585 and Sara Nixon (613) 954-4397.
Yours truly,
H.L. Jones
Director
General Applications Division
GST Rulings & Interpretations 896(REG)
Mitch Bloom (signoff)
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