25 September 1998 GST/HST Ruling HQR0001050 - Tax Treatment of English Language Instruction

Dear XXXXX

This is in reply to your letter of January 2, 1998, to Ms. XXXXX of the XXXXX Tax Services office concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the activities your business, XXXXX[.] Your inquiry was forwarded to our office for reply. We apologize for the delay in responding to you. Our comments are set out below.

On April 1, 1997, the harmonized sales tax (HST) replaced the goods and services tax (GST) and the provincial sales tax (PST) in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%. It is our understanding that you do not make any supplies in the participating provinces and for this reason our response will address only the GST.

Statement of Facts

Our understanding of the facts from the documentation submitted is set out below.

1. XXXXX is a sole proprietorship with registration in XXXXX under the XXXXX[.] The company was established and is operated exclusively to provide instruction in English as a second language.

2. Revenue from XXXXX is reported on your personal income tax return.

3. The clients of XXXXX are departments of the Government of Canada and private sector firms whose employees require courses in English as a second language.

Ruling Requested

That the supplies of instruction in English as a second language made by XXXXX are not subject to GST pursuant to the exemption in section 11 of Part III of Schedule V of the Excise Tax Act ("section 11" and "the Act").

Ruling Given

Section 11 exempts supplies of a service of instructing individuals in, or administering examinations, in respect of, language courses that form part of a program of second language instruction in either English or French, where the supply is made by a school authority, public college, or university or an organization that is established and operated primarily to provide instruction in languages.

"School authority", "public college" and "university" are terms which are defined in subsection 123(1) of the Act. XXXXX does not fall within these definitions. Therefore, to qualify for exemption, it must qualify as an "organization that is established and operated primarily to provide instruction in languages".

To determine whether an organization is established primarily to provide instruction in languages, we will examine an organization's governing documents. These documents include letters patent, articles of incorporation, memoranda of agreement and by-laws and should contain information as to the reason or purpose for the establishment of the organization. If that information is not readily available, how the organization is operated will be evidence of the purpose for its establishment. With respect to the operated primarily most of the organization's revenue and human resources should be attributed to the supply of instruction in languages.

Based on the description of the activities of XXXXX as outlined above, supplies of instruction in English as a second language made by this business qualify for exemption pursuant to section 11. This means you are not required to charge GST on supplies of English as a second language. However, if there are other supplies made by this business, they may be taxable and you may be required to charge GST on them. (For example, some language instructors also supply translation services.) If there are taxable supplies made by your business and consideration for them exceeds $30,000 in a particular year, you will be required to register for GST purposes and file a GST return on a regular basis. More information on registration can be obtained from the Ottawa Tax Services office at 333 Laurier Ave. West, Ottawa.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 954-5125.

Yours truly,

Pauline Greenblatt
Educational Services and Indians Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate