22 September 1998 GST/HST Ruling HQR0001092 - GST Status of Courses Under Section 11, Part III, Schedule V

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

Dear Sir:

Thank you for your letter of August 12, 1997 (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) is as follows:

1. XXXXX was incorporated under the XXXXX[.]

2. XXXXX currently offers courses in English as a second language ("ESL").

3. XXXXX promotional material suggests that other courses may be available in the future. These courses include job finding, settlement, citizenship, business, painting and other languages such as German, Spanish, French, Mandarin, Korean and Japanese.

4. Currently staff are entirely devoted to the ESL courses.

Transaction(s)

XXXXX offers ESL courses.

Ruling Requested

ESL courses offered by XXXXX are not subject to GST.

Ruling Given

Based on the facts set out above, we rule that the ESL courses offered by XXXXX are not subject to GST.

Section 11 of Part III of Schedule V to the Excise Tax Act sets out that a supply of instructing individuals in language courses that form part of a program of second-language instruction in either French or English is exempt of GST where the courses are offered by an organization that is established and operated primarily to provide instruction in languages.

To determine whether an organization is established primarily to provide such language courses, the Department will examine the organization's governing documents. These documents, including letters patent, articles of incorporation, memoranda of agreement and by-laws should contain information as to the purpose for the establishment of the organization. In circumstances where that information is not available, how the organization is operated will be evidence of the purpose for its establishment.

To determine whether an organization is operated primarily to provide such language courses, the Department will review the curriculum and the organization's promotional material. In order to qualify under this criterion, most of the organization's revenue and human resources should be attributed to the provision of second-language courses in English or French.

We have ruled that the ESL courses offered by XXXXX are not subject to GST. However, it should be noted that if XXXXX ceases to be operated primarily as a English language instruction organization, the supply of English courses may become taxable. Further, if XXXXX offers other courses, these courses will be taxable.

Lastly, it should be noted that a GST registrant is not able to recover the GST paid or payable on purchases and operating expenses related to its exempt supplies. In other words there are no input tax credits available when a registrant is making exempt supplies. This point was outlined in more detail in the letter of March 2, 1998 to you from XXXXX of XXXXX TIS Centre.

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