Dear XXXXX
This is in response to a memorandum dated June 5, 1996, sent to Joanne Houlahan, Manager, Charities, NPO's and Educational Services, requesting clarification as to what constitutes a "music lesson" and what constitutes a child-care service (rather than a recreational service) under the Excise Tax Act (ETA) . In addition, you have requested our views on the application of the GST to the program activities of XXXXX. We apologize for the delay in responding to your query.
Our understanding of the facts is as follows:
1. XXXXX is a corporation resident in Canada, registered for the purposes of the GST.
2. XXXXX is a for-profit establishment.
3. XXXXX is not a school authority, vocational school, public college or university.
4. The instructor is of the view that she provides music lessons to children.
5. XXXXX provides the following programs:
(A) XXXXX
• XXXXX[;]
• provides music appreciation and experience for children XXXXX[;]
• class meets one time per week XXXXX[.]
(B) XXXXX
• provides an environment for children XXXXX in which emotional, physical, intellectual and creative experiences are offered through a combination of a play school and music program;
• XXXXX[;]
• XXXXX[.]
(C) XXXXX Course for Teachers
• provides instruction to individuals in music education techniques developed by XXXXX[;]
• XXXXX offer the same course which leads to certification recognized internationally;
• XXXXX teaches the first level of three levels of the course each of which is recognized by the granting of a certificate.
(D) XXXXX
• provides a number of activities (music, arts, crafts, drama, games) to children XXXXX[;]
• the camp provides care for children XXXXX
6. Non-refundable fees (listed as "deposits") are paid in respect of XXXXX. The fees are not applied against school fees and is a separate charge levied to support school profits and to help on school supplies and to pay teachers.
Response
Music Lessons
Pursuant to paragraph 9(b) of Part III of Schedule V to the ETA, a supply of a service of instructing an individual in a course that is a prescribed equivalent of a course described in paragraph 9(a) is an exempt supply. The Equivalent Courses (GST) Regulations provide that for the purpose of section 9 of Part III to the ETA, music lessons are prescribed equivalents of music courses that follow a curriculum designated by a school authority.
It is the Department's view that music lessons at all levels are prescribed under the aforementioned regulations. Music lessons include lessons that develop skills in:
• musical performance (involving the use of the human voice or musical instruments);
• conducting an orchestra; or
• musical composition.
Music lessons would not include lessons in music-recording skills, music history or the teaching of techniques of music education.
Child Care Services
As you are aware, pursuant to section 1 of Part IV of Schedule V to the ETA, a supply of child care services (including baby-sitting services, day nursery services or after-school programs), 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, is exempt.
The Department has relied on, and continues to use, the following criteria (referenced in your correspondence) to determine whether the primary purpose (i.e., of the first importance, principal, chief, main, or of the first rank) of a specific program is one of care and supervision of children or alternatively, one of recreation. 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.
While no particular factor is determinant in itself, the following factors are considered:
• the purpose/mandate of the organization/program as set out in its governing documents,
• how the supply is promoted or advertised,
• nature/design and use of facilities,
• proportion of staff time devoted to one activity over another,
• proportion of program schedule devoted to one activity over another,
• proportion of class/session devoted to one activity over another,
• extent of use of assets/resources/overhead to one activity over another,
• motivation of participants to register for program,
• can an individual receive care and supervision only, and if so, what proportion of participants receive only care and supervision,
• qualifications of staff.
Further to the aforementioned criteria, where a program includes an element of child care and an element of education, in order to establish whether the primary purpose of the program was care and supervision, the Department has relied on the following criteria: the nature of the license to operate, the nature of activities as described in promotional literature and the age of the children registered in the program.
Regarding the application of the GST to the program activities of XXXXX, we offer the following:
(A) XXXXX (which includes the XXXXX) are not exempt from the GST pursuant to regulations to paragraph 9(b) of Part III to Schedule V of the ETA as, from the evidence provided, it appears that they do not develop skills in musical performance.
Rationale:
The XXXXX Classes offered by XXXXX constitute a recreational activity rather than music lessons as:
• the activities are not designed to result in a progression or development of skills toward a pre-set lesson goal or objective.
• it would appear from the promotional literature/brochure that the classes involve the children in a "total music experience" rather than music lessons;
• although the brochure states that the program emphasis is on the building of skills there is no indication that the children's performance is measured against pre-set lesson activities or goals;
• it would appear that only a proportion of the program schedule is devoted to music. In addition to singing and the use of instruments, speech (rhymes, poems) and movement (improvisation and dance) activities are provided. Activities including puppets, stories dramatization and hand jives are listed as well.
(B) XXXXX is subject to GST.
The XXXXX offered by XXXXX constitutes a recreational activity rather than music lessons as:
• the activities are not designed to result in a progression or development of skills toward a pre-set lesson goal or objective.
• it would appear from the promotional literature/brochure that the focus of the XXXXX is the social, emotional, physical and intellectual development of the child in an unstructured environment by combining a playschool and music program;
• although the brochure states that the program will emphasize music-singing (games, action songs) and the use of instruments, other non-musical activities will be provided as well: speech (poems, rhymes), movement.
• it would appear that only a proportion of the program schedule is devoted to music;
• since the program is unstructured with the emphasis on the learning process rather than on the final product, it is likely that the motivation of parents in registering their children in the XXXXX is related to recreation and not directly related to the development nor the attainment of any particular goal related to musical skills;
• since the children are able to choose how and which centre to play in and, consequently, what activities to become involved in, it is possible that a child could exclude the musical proportion of the program activities entirely.
Based on the aforementioned criteria developed to distinguish between a recreational service and one of care and supervision, it may be helpful to enquire as to the manner (if any) in which XXXXX is licensed to operate.
(D) XXXXX Course for Teachers is subject to GST.
Rationale:
Music lessons do not include lessons in the teaching of techniques of music education.
(E) XXXXX
Additional information is required to determine the treatment of the day camp under the GST: that is, to determine whether the primary purpose (i.e., of the first importance, principal, chief, main, or of the first rank) of the program is care and supervision of children or recreation. The aforementioned factors may be applied to the day camp activity separately from other activities offered by XXXXX[.] If the camp program is not exempt under section 1 of Part IV of Sch. V of the ETA as a child care service, it will be subject to GST.
Non-refundable Deposits
With respect to the fees regarded as "deposits", a deposit is defined in Memorandum 3008 to mean "an amount given by a recipient as security for the performance of an obligation by the recipient".
Additional information is required to determine whether the amounts in question would be regarded as deposits. It is more likely that if a person is required to pay the amount and it is not subsequently applied to the course fee, the amount would be regarded as consideration for a separate supply (e.g. right to register).
If you require additional information, please feel free to contact me at (613) 952-0420.
Lorrie Grannary
Tax Policy Officer
Charities, NPO's and Educational Services
Public Service Bodies and Governments
| c.c.: |
J. Houlahan
L. Grannary
Subject File
J.A. Venne |
Ref.: Regulations to S. 9, Pt. III, Sch. V, S. 1, Pt. IV, Sch. V
File: 119155
Telephone: (613) 954-5021
Facsimile: (613) 990-1233
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