3 February 1997 GST/HST Interpretation HQR0000470 - Application of the GST to Charitable Donations Tracked Using a Bar Code System

This is in reply to your letter of March 5, 1996 regarding the XXXXX[.] We apologize for the delay in responding to your letter.

I understand from your letter that XXXXX is a registered charity dedicated to raising funds for children with special needs. XXXXX XXXXX is a fund raising activity where for a minimum donation of XXXXX you receive a XXXXX. The XXXXX is distributed throughout XXXXX to corporations, individuals, schools etc. who agree to participate in your program. The distributors are not charged for XXXXX nor do they purchase the XXXXX from the XXXXX. However they are expected to remit to the XXXXX the dollar amount equivalent to the number of XXXXX that were made available to them and they are not entitled to keep any amount for their own use. The distributors and their staff volunteer their time, energy and resources.

In the past years donations received by the distributors were kept in coin boxes, special slots in cash registers, envelopes etc. which were remitted to the XXXXX at the end of the program. This year to facilitate the distribution, the tracking and the collection of donations by your distributors, you incorporated a bar code system.

Recently, one of your distributors, XXXXX was provided a ruling by our XXXXX which was also confirmed to you in a telephone conversation, stating that because the XXXXX were passed through the cash register bar code system, they were subject to GST.

Further to the telephone conversation held on December 17, 1996 between XXXXX and myself, the following facts were provided. Distributors using a bar code system can only take XXXXX for the XXXXX. However, not all distributors are using the bar code system, some still use "coin boxes". The XXXXX is produced in XXXXX and the cost for the XXXXX is approximately XXXXX You request that we review your XXXXX.

Response

The Notice of Ways and Means Motion of April 23, 1996, announced a number of changes to the Excise Tax Act (the ETA) affecting public sector bodies, and particularly charities. These changes are intended to simplify the GST's application in this sector. Some of these proposed changes will come into effect January 1, 1997. Therefore we will provide you with the pertinent information prior to and after January 1, 1997.

However, we would first like to point out that the fact that some of the distributors are using a bar code system does not in itself make the supply of these XXXXX taxable. The supply of the XXXXX is made by the XXXXX. These supplies will be exempt if either of the exemptions described below applies. Furthermore, we advised the office that issued the original letter to your distributor to amend their letter to reflect this position.

Supplies made by a charity before January 1, 1997

Section 3(b) of Part VI to Schedule V, provides that a supply made by a charity of any property or service in the course of an activity engaged in otherwise than in the course of an ongoing business is exempt where the day-to-day administrative functions and other functions performed in carrying on the activity including the sale of property or service are performed exclusively by volunteers.

Therefore, if the activities involved in the XXXXX program are done exclusively by volunteers (generally meaning 90% or more), the supply of the XXXXX would be exempt from the GST.

Supplies made by a charity after January 1, 1997

The volunteer exemption has been replaced by the following proposed amendment introduced by the April 23, 1996 Notice of Ways and Means Motion which applies to supplies for which consideration becomes due or is paid after 1996 without becoming due. Proposed section 3 of Part V.1 of Schedule V exempts many supplies made by charities in the course of fund raising activities. Those supplies will be exempt as long as they are not made on a regular or continuous basis throughout the year or a significant portion of the year and do not entitle recipients to receive property or services on a regular or continuous basis throughout the year or a significant portion of the year. Therefore, the XXXXX program may be exempt if it falls under proposed section 3 of Part V.1 of Schedule V. However, there is no other section that would permit the supply of the XXXXX to be exempt. Consequently, if the XXXXX does not qualify under proposed section 3 of Part V.1 of Schedule V, the supply will be taxable.

The foregoing comments represent our general views with respect to this subject matter. 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 the GST Memorandum Series Section 1.4 do not bind the Department with respect to a particular situation.

I apologize for any inconvenience this may have caused you and hope that our comments will be of assistance to you. If you have any questions, please do not hesitate to contact me at (613) 952-4157.

Yours truly,

Gabrielle Nadeau
Policy Officer
Charities, Non Profit Organizations and Educational Services
GST Rulings and Interpretations