GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Road
Vanier, Ontario
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XXXXX XXXXX
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March 30, 1998
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Subject:
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GST/HST APPLICATION RULING
Life Underwriters Association of Canada
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Dear XXXXX
Thank you for your letter of February 14, 1997 concerning the application of the definition of "vocational school" in section 1 of Part III of Schedule V to the Excise Tax Act (ETA), as it applies to supplies made by the Life Underwriters Association of Canada (LUAC).
Our understanding of the facts is as follows.
Statement of Facts
1. LUAC is a non-profit organization for purposes of the Income Tax Act (ITA) and the ETA .
2. LUAC was incorporated under a federal Act of Incorporation (S.C. 1924, c. 104) with the following objects and powers:
The objects and powers of the Association shall be to promote by all lawful means the proper and efficient practice of the business of life insurance within the Dominion of Canada; and for said purpose,
1. To publish, distribute and sell pamphlets, periodicals, journals, books and other literature relating to the business of life insurance;
2. To devote the funds of the Association to promoting the welfare of its members in such manner as the Association may decide;
3. To hold such examinations on the principles and practice of life insurance or general educational attainments, as may be found expedient;
4. To grant certificates of efficiency to its members;
5. To authorize the use by such of its members as it may be designate of the title and description "Chartered Life Underwriter of Canada."
1. The objects of LUAC as set out in its Constitution are:
2. To foster and preserve those high ideals upon which the principles of life insurance are based.
3. To provide for its members a comprehensive program of training and education designed to enable them to render a high quality of service to the insuring public.
4. To prescribe for its members, and to maintain in the public interest, a high standard of ethical conduct.
5. To seek and uphold equitable laws and regulations relating to the purchase and sale of the products and services of life insurance companies.
6. To promote the common interests of the members of the Association.
7. To give effect to the Constitution as hereinafter set forth.
8. LUAC provides the following designations which certify that a member has attained a requisite level of knowledge and skill in his or her occupational field: Chartered Life Underwriters (CHU), Chartered Financial Consultant (CH.F.C.), Registered Health Underwriter (RHU), and Registered Employee Benefits Consultant (REBC). In addition, in cooperation with the Financial Planners Standard Council of Canada, LUAC provides courses leading to the Certified Financial Planner (CFP) designation.
9. LUAC has a national role in the licensing process including the preparation of training materials and licensing exams in life and health insurance on behalf of the common-law regulators and, in Ontario, the administration of the licensing exams for life and health insurance agents.
10. In provinces which have established insurance councils to regulate the profession of insurance agent, LUAC nominates individuals to serve on the councils as representatives of the profession. LUAC's role in this regulatory process is authorized under statute in Saskatchewan and is established by convention in Alberta, British Columbia, and Manitoba.
11. LUAC encouraged and played a leading role in establishing regulatory continuing education requirements in the provinces of British Columbia, Ontario and Saskatchewan and is currently working with regulators of the remaining common law provinces.
12. LUAC offers pre-licensing courses to candidates for licensing as insurance agents and a basic post-licensing course, the Life Underwrites Association Training Course (LUATC) that leads to the award of a certificate of completion but not a title or designation.
13. LUAC administers its "Professional Achievement through Continuing Education" (PACE) program which outlines the continuing education requirements necessary for members to maintain their designations.
14. Membership fees account for 48% of LUAC's revenue, and course fees account for 29% of its revenue.
1. LUAC believes that a comparison of revenues is not a good measure of the extent of its various activities. It is LUAC's contention that based on the amount of time, energy and effort expended, 55% of its operation relates to the provision of education services and thus LUAC meets the "primarily" requirements in the definition of vocational school in section 1 of Part III of Schedule V to the ETA.
2. LUAC is an educational institution that is certified by the Minister of Human Resources and Development (formerly, Minister of Employment and Immigration) for purposes of subsection 118.5 of the ITA and so, prior to 1997, it met the definition of vocational school in the ETA. The definition of vocational school in the ETA has been amended with respect to supplies made after 1996.
Ruling Requested
You requested a ruling confirming that LUAC is a vocational school as defined in section 1 of Part III of Schedule V.
Ruling Provided
Based on the information submitted it does not appear that LUAC qualifies as a vocational school as defined in section 1 of Part III of Schedule V.
This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST 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.
Analysis
As a result of a legislative amendment, effective for supplies made after 1996, the definition of vocational school no longer automatically includes organizations that are certified by the Minister of Employment and Immigration for purposes of subsection 118.5(1) of the ITA. Consequently, organizations that previously qualified as vocational schools by virtue of that subsection, must examine their status to determine if they meet the amended definition.
The definition of "vocational school" in section 1 of Part III, sets out the requirements an organization must meet in order to be considered a vocational school for purposes of the ETA. Specifically, an organization is considered to be a vocational school if it is "established and operated primarily to provide students with correspondence courses, or instruction in courses, that develop or enhance students' occupational skills." A determination of whether an organization qualifies as a vocational school for purposes of the ETA, will be done on a case by case basis in light of all the facts on hand.
The Department will generally look to the incorporation documents, governing documents (e.g. constitution, etc.) or establishing legislation, to determine whether the organization is established primarily to provide students with correspondence courses, or instruction in courses, that develop or enhances students occupational skills.
With respect to the requirement that an organization be "operated primarily to provide correspondence courses and instruction in courses that develop or enhance students' occupational skills", the Department does not consider a single test (e.g., gross revenue) as sufficient, in and of itself, to determine that an organization is a vocational school. Rather, the Department will look to the organization as a whole and consider a number of factors, such as whether more than 50% of the revenue, expenses, and human resources of the organization are in respect of the provision of correspondence courses or instruction in courses that develop or enhances students' occupational skills. Other factors that may be examined include: use of the facilities, qualifications of staff, courses offered, and the extent to which various activities are promoted.
Based on the information submitted by LUAC, some of the fundamental requirements in meeting the definition of vocational school were not met. In particular, less than 50% of LUAC's revenue relates to the provision of courses that enhance students' occupational skills. Further, the measure of human resources is indeterminate as it does not wholly relate to the instruction in of courses, but also includes time related the preparation and distribution of publications. As discussed above, one of the requirements to be considered a vocational school is that the revenue from the provision of skill enhancing courses is greater than 50% of the total revenue of the organization. LUAC does not meet this condition and therefore cannot be considered a vocational school.
Ruling Requested
You requested confirmation that LUAC's educational activities continue to be exempt after the enactment of the amendments to Part III of Schedule V as they relate to the provision of educational services made after 1996.
Interpretation Provided
There is insufficient information submitted on which to provide a ruling on the tax status of the courses offered by LUAC. However, in order to assist you, we have provided the following comments.
Section 6 of Part III exempts a supply of instruction in courses leading to, or that are for the purpose of maintaining, or upgrading, a professional or trade accreditation or designation recognized by a "regulatory body" where the courses are provided by a trade or professional association. Section 6 also exempts certificates and examinations in respect of a course or in respect of an accreditation or designation recognized by a regulatory body.
Thus some of the courses offered by LUAC may be exempt in accordance with section 6 of Part III. However, instruction in those courses that do not lead to, or maintain or upgrade a professional or trade accreditation or designation will be taxable, unless another provision in Schedule V applies.
The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST Memoranda Series, do not bind the Department with respect to a particular situation.
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
Rulings Officer
Charities, NPOs, and Educational Services
GST/HST Rulings and Interpretations Directorate
| c.c.: |
Dwayne Moore
Mike Place
Paule Labbé
J. A. Venne |
Encl.:
Legislative References: section 1 of Part III of Schedule V
NCS Subject Code(s): R-11915-6, 11915-7
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