28 October 1998 GST/HST Ruling HQR0001323 - Tax Treatment of English Language Instruction

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

Dear XXXXX

This is in reply to your letter of April 16, 1998, to Revenue Canada in Ottawa on the above-noted subject. Your letter was transferred to this office for a 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 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 of your case, based on the documentation submitted and information provided in a telephone conversation between you and I on September 28, 1998, is set out below.

1. XXXXX ("the School") teaches English as a second language to adult students from overseas who are pursing post-graduate studies. This is the School's sole activity. There are no other services provided by the School.

2. The School will employ XXXXX teachers for the foreseeable future on a subcontractor basis. More may be hired in the future if demand for services requires it.

3. The name of the School is registered in XXXXX as a sole proprietorship pursuant to XXXXX registration number XXXXX[.] There is a separate bank account in the School's name and there are separate business records for the School. The School has separate business premises from your personal residence.

4. You have registered the School for GST, only because you were not clear on whether you should, in fact, be registered and charge GST on your supplies.

Ruling Requested

That the supply of the service of instruction in English as a second language offered by the School is exempt of GST pursuant to section 11 of Part III of Schedule V of the Excise Tax Act ("section 11" and "the Act").

Ruling Given

Based on the facts set out above, we rule that supplies of instruction in English as a second language made by XXXXX are exempt of GST pursuant to section 11 of the Act.

Explanation

Section 11 of the Act exempts the service of instructing individuals in language courses that form part of a program of second language instruction in either English or French, where the supply is made by 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 of its establishment. With respect to the operated primarily requirement, the organization's revenues and human resources should be primarily attributed to the supply of instruction in languages.

Based on the description of XXXXX activities, as outlined above, supplies of instruction in English as a second language provided by it qualify for exemption pursuant to section 11. This means that you are not required to charge GST on the tuition fee for providing the supply of instruction in English as a second language.

However, if the School makes other supplies which are not within the exemption in section 11 (for example, provision of translation services or the sale of goods), these are be taxable supplies. As a GST registrant, you will be required to collect GST on any taxable supplies and file a GST return on a regular basis. You will also be able to claim input tax credits for the GST paid on inputs related to your taxable sales.

However, we would point out that registration is optional where revenues from taxable sales are $30,000 per year or less. Persons with taxable sales of $30,000 per year or less who choose not to be registered are not required to collect the GST on their taxable sales. Also, they are not able to claim input tax credits.

In your case, if you expect revenue from taxable supplies to be $30,000 per year or less, you may decide you that you no longer want to be registered. You would then have to apply for cancellation of your GST registration. More information on cancellation can be obtained from XXXXX[.]

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

Legislative Reference:            Section 11/Pt. III/Sch. V

NCS Subject Code:                 119151