14 October 1998 GST/HST Ruling HQR0001268 - HST Application for School Lunch Programs

                                                                        GST/HST Rulings and Interpretations
 Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Avenue
Vanier, ON K1A 0L5

Dear Sir:

This letter is in response to the letter from XXXXX Tax Services Office of April 8, 1998, (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transaction(s) described below. I apologize for the delay in responding.

Statement of Facts

Our understanding of the facts, the transaction(s), and the purpose of the transaction(s), based on the above-mentioned letter and a telephone conversation of September 30, 1998, is as follows:

1. A supplier (e.g. fast-food chain) makes available a supply of hot lunches to students within a school in the school cafeteria.

2. Alternatively, a school district office purchases food from a supplier. The school district office sells this food at cost to a parent volunteer group who prepares food for all students within a school. The parent volunteer group reimburses the school district office for the cost of the food or beverages.

3. In XXXXX the school district offices are part of XXXXX.

Ruling Requested

1. There is no HST on the supply of hot lunches by a fast-food chain to all students within a school in the school cafeteria.

2. The school district office may purchase the food for the student lunches from a supplier exempt of HST. The reimbursement by the parent volunteer group is not subject to HST.

Ruling Given

Based on the facts set out above, we rule that:

1. There is no HST on the supply of hot lunches by a fast-food chain to students.

Section 12 of Part III of Schedule V to the Excise Tax Act ("ETA") sets out that a supply of food or beverages, other than prescribed food or beverages or food or beverages supplied through a vending machine, is exempt where the supply is made in an elementary or secondary school cafeteria primarily to students of the school, except where the supply is for a private party, reception, meeting or similar private event. Prescribed food and beverages include carbonated beverages, non-carbonated fruit juice beverages or fruit flavoured beverages, other than milk-based beverages, candies and snack foods. For purposes of part 12, paragraphs c, d and e to l of Part III of Schedule VI are prescribed. For your convenience, I have enclosed GST Memoranda Series 4.3: Basic Groceries; the relevant sections are described in detail on pages 6 to 9. Therefore, except as noted above, the supply of hot lunches by a supplier (e.g. fast-food chain) to students is exempt of HST.

2. The school district office may purchase the food for the student lunches from a supplier exempt of HST. Further, the reimbursement by the parent volunteer group is not subject to HST.

Section 14 of Part III of Schedule V to the ETA sets out that a supply of food and beverages made to a person that is a school authority under a contract to provide food or beverages in an elementary or secondary school cafeteria primarily to the students of the school is exempt, except to the extent that the food, beverages and services are provided for a reception, conference or other special occasion or event. A school authority is defined in subsection 123(1) of the ETA as an organization that operates an elementary or secondary school in which it provides instruction that meets the standards of educational instruction established by the government of the province in which the school is operated. For purposes of section 14, we rule that the Department of Education in New Brunswick is a school authority as that term is defined in the ETA. Accordingly, supplies made to school district offices for purposes of this provision are interpreted as being made to a school authority. The school district office may, therefore, purchase the food for the student lunches from a supplier exempt of HST if the other requirements of the exemption are satisfied.

It is the Department's position that food or beverages supplied by a vendor to a school authority is an exempt supply in accordance with section 14 where the supplier has entered into a contract with the school authority to provide food or beverages in a school cafeteria (where the school does not have a cafeteria, a classroom or gymnasium may be considered as such) and the food or beverages are to be provided primarily to students of the school. Generally, the provision of food or beverages by a supplier for the school cafeteria is made pursuant to a written agreement between the supplier and the school authority. However, we will accept that in certain circumstances, a written agreement for the supply of food or beverages may not exist, but that the supply of food or beverages may still qualify for the exemption.

It should be noted that the onus is on the supplier to know where and to whom the supply is being made. The supplier must also know the purpose for which the supply is being made since the exemption does not apply, as is noted above, to the acquisition of food or beverages for special functions where the primary purpose is other than the provision of food and beverages to students.

Consequently, in order to satisfy the requirements of section 14, the contract for the supply must indicate that the food or beverages are for consumption primarily by students in a school cafeteria. Where there is no written contract for the supply of food and beverages, we recommend that the school authority provide a letter to the supplier indicating that the conditions necessary to exempt the supply of food or beverages have been met.

With respect to the second part of the second ruling, the reimbursement by the parent volunteer group is not subject to HST. Section 6 of Part VI of Schedule V to the ETA exempts a supply by a public service body, i.e. a school authority, where the total charge does not exceed the direct cost of the supply. Since the parent volunteer group purchases the food and beverages at cost from the school authority, section 6 applies, and the supply will not be subject to HST.

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 Paule Labbé, Manager at (613) 954-7957 or me at (613) 952-0370.

Yours truly,

Joyce M. Crago, LL.B.
Educational Services and Indians Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate

Encl.:

Legislative References:           Sections 12 and 14 of Part III of Schedule V to the ETA.