8 September 1998 GST/HST Ruling HQR0001175 - Eligibility for Input Tax Credits

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

                                                                        September 8, 1998

Dear XXXXX

Thank you for your letter of December 5, 1997 concerning the applicable percentage that XXXXX, may use in order to claim a refund of the Goods and Services Tax (GST) paid on its purchases.

Our understanding of the facts is based on the information provided in your letter and our telephone conversation of August 13, 1998, and is as follows:

Statement of Facts

1. XXXXX is a non-profit organization engaged in providing telecommunication services including teleconferencing and videoconferencing services to educational institutions and private industry.

2. Universities or school authorities offering courses to remote sites contact XXXXX to provide telecommunication links with the students in those sites. Similarly, private business may use XXXXX to connect with individuals in remote locations (e.g. arranging videoconference interviews between potential employees and companies).

3. XXXXX is not a public college, university, or school authority.

4. XXXXX charges a fee to its clients for the services it provides; however, this represents a small portion of its operating budget.

5. XXXXX receives a large portion of its operating budget from the Minister of Education and Training, approximately XXXXX yearly.

6. XXXXX is registered for purposes of the GST (BN # XXXXX and collects tax on the fee charged to educational institutions and private industry.

7. XXXXX has been claiming an input tax credit (ITC) equal to XXXXX of the GST paid on goods and services acquired for use in its business.

Ruling Requested

XXXXX is entitled to a refund of the full amount of the GST paid on property and services used in making its taxable supplies.

Ruling Given

Based on the facts set out above, we rule that XXXXX is entitled to claim input tax credits to fully recover GST paid on purchases acquired for use in making taxable supplies.

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 the departmental interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

Under the Excise Tax Act (ETA), the provision of goods and services in any manner including "sale, transfer, barter, exchange, licence, rental, lease, gift or disposition" is referred to as a supply. Generally a supply of goods and services is, unless specifically exempted, taxable at a rate of 7%, or 15% in the participating provinces of Nova Scotia, New Brunswick, and Newfoundland. Some supplies of goods and services, such as basic groceries, are taxable at a rate of 0%.

A non-profit organization which makes taxable supplies of property and services is required to register and collect the tax on the value of the consideration charged for its supplies. However, if the NPO is a small supplier (i.e., revenue from taxable supplies in four consecutive calendar quarters does not exceed $50,000), it is not required to register and collect tax.

Most supplies of property and services provided by a non-profit organization are generally subject to tax. However, there are circumstances under which a non-profit organization may make an exempt supply of property and services. For example, if a non-profit organization acquired services which it in turn supplies to a recipient, without charging the recipient tax, at a cost not exceeding the direct cost to the organization, the supply of the service may be exempt by section 6 of Part VI of Schedule V to the ETA.

If a non-profit organization makes exempt supplies, it is not entitled to ITCs for the tax paid on property and services used in the course of making those supplies. However, the non-profit organization may recover a portion of the tax paid on the property and services if it is a qualifying non-profit organization. A qualifying non-profit organization is entitled to a rebate of 50% of the tax paid on the goods and services used in making its exempt supplies. Note, in order to be considered a "qualifying non-profit organization", pursuant to subsection 259(2) of the ETA, an organization must be a non-profit organization as defined in subsection 123(1) of the ETA, and 40% of its annual revenues must be derived from government funding.

It appears that XXXXX is not currently making any exempt supplies and thus is required to charge tax on its supplies. XXXXX as a registrant is entitled to claim ITCs for the tax paid on property and services acquired for use in making its taxable supplies. The amount of the ITC that may be claimed is calculated by multiplying the tax paid or payable by the extent (expressed as a percentage) to which the property is consumed, used or supplied in the registrant's commercial activities. Please note, separate rules apply for capital property and real property.

Section 141.01 of the ETA clarifies that a registrant will be entitled to claim an ITC in respect of a purchase only to the extent that it has been acquired for the purpose of making taxable supplies for consideration and not for the purpose of making supplies that are not taxable or for purpose other than the making of supplies. Please note, the term "consideration" does not include "nominal consideration"; consequently supplies for nominal consideration will not be eligible for ITCs. Government funding received by XXXXX has no affect on its entitlement to ITCs.

Under the reporting requirements, XXXXX calculates its net tax by deducting its ITCs from the total GST collected. XXXXX will either remit an amount if the tax collected exceeds the ITCs claimed or request a refund if the ITCs exceed the amount of GST collected.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-4206.

Yours truly,

Dwayne Moore
Charities and Non-Profit Organizations Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate

NCS Subject Code(s)[:]          I[-]11925[-]3