12 May 1998 GST/HST Interpretation HQR0000630 - Tax Status of Contributions for the

                                                                        GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Avenue
Vanier, Ontario
Agriculture and Agri-Food Canada                                 K1A 0L5              
871-930 Carling Ave,
Sir John Carling Building                                                  
Ottawa, Ontario                                                                   Case: HQR0000630
K1A 0C5                                                                              

Dear XXXXX

This is in response to XXXXX letter of April 2, 1997 (with attachments) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transaction(s) described below. Our response to XXXXX query is being sent to you as GST/HST Coordinator for Agriculture and Agri-Food Canada.

Our understanding of the facts, the transaction(s), and the purpose of the transaction(s) is as follows.

Statement of Facts

1. The Farm Credit Corporation of Canada is a Crown corporation established under the Farm Credit Corporation Act (the "Act") and is for all purposes of that Act an agent of her Majesty in right of Canada. The Farm Credit Corporation is a separate legal entity and is registered for GST/HST purposes.

2. Subsection 4(1) of the Act states that "The purpose of the Corporation is to enhance rural Canada by providing specialized and personalized financial services to farming operations, including family farms, and to those businesses in rural Canada, including small and medium-sized businesses, that are related to farming."

3. Subsection 4(2) of the Act states that "In carrying out its purpose, the Corporation has the power to ... (h) carry out such other duties or functions as may be assigned to it by the Minister of Agriculture and Agri-Food in relation to the administration of any program benefiting rural Canada ..."

4. On June 11, 1996, HER MAJESTY THE QUEEN IN RIGHT OF CANADA, represented by the Minister of Agriculture and Agri-Food Canada (the "Minister") entered into an agreement (Agreement) with The Farm Credit Corporation (FCC).

5. The preamble to the Agreement states that

"WHEREAS April 12, 1995 the Minister announced a new business planning program for Canada to assist farmers and agri-business operators to access business planning expertise;

WHEREAS the Minister hereby authorizes and assigns to FCC, pursuant to Section 4 (2) (h) of the Farm Credit Corporation Act, responsibility for the administration of a new program known as the XXXXX as defined and set out in this Agreement ..."

6. Sections 2.1 and 2.2 of the Agreement state that the objectives of the Program are

"2.1 To provide eligible Clients, Farmers and non-Farmers working jointly with Farmers, access to building planning expertise in order to prepare XXXXX XXXXX for use in accessing credit and managing the expansion or diversification of existing, or new XXXXX business operations.

2.2 To increase the number and success rate of new, diversifying or expanding farm and non-primary XXXXX located in rural Canadian communities, contributing to an increased number of jobs, income and welfare for Canadians."

7. Under the heading "Eligibility", section XXXXX of the Agreement states that "Eligible Clients, who shall be Canadian residents, include[:]

3.1 Farmers, individually, or as members of partnerships or corporations, and,

3.2 Non Farmers, in cooperation with Farmers, where the non-Farmers may be individuals, or members of partnerships, corporations, associations or other organizations, wanting to expand or diversify an existing XXXXX or start a new XXXXX is defined in section 1.0 of the Agreement as "businesses or services that are part of the agriculture or agri-food sector and have a rural orientation ..."

8. Section XXXXX of the Agreement states that "FCC shall be responsible for the overall administration of the Program in accordance with the provisions of this Agreement."

9. Section XXXXX states that "FCC is responsible for ... XXXXX Paying up to one-half of the cost of the service provided by the Program approved Consultants contracted by the Clients. The Client shall pay the other half of the cost of the service to the Consultant." "Client" is defined in section 1.0 of the Agreement as "the individual(s) or entity applying for Assistance in the preparation of Business Plans under the Program ..."

10. Section XXXXX of the Agreement states that "Assistance to each Client shall not exceed 50% of the total cost of the expenses incurred by the Client, to the following maximums:

 XXXXX

11. Section XXXXX of the Agreement states that "Subject to the Minister approval and acceptance, all incremental administrative and Program delivery costs incurred by FCC shall be reimbursed, including but not limited to: wages; administrative expenses; disbursements; marketing and promotional expenses; implementation and start-up costs related to the Program."

12. Section XXXXX of the Agreement states that "The maximum payable by the Minister to FCC under this Agreement ... shall not exceed ...

 XXXXX

Ruling Requested

Is GST applicable to the contributions made by Agriculture and Agri-Food Canada to FCC under the Agreement?

Ruling Given

Based on the facts set out above, we rule that GST does not apply to contributions made by Agriculture and Agri-Food Canada to FCC under the Agreement.

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.

Explanation

The contributions by Agriculture and Agri-Food Canada to FCC are made to carry out the public purpose of the Program of providing assistance to farmers, as well as non-farmers in cooperation with farmers, in business planning expertise so as to increase the number and success rate of new, diversifying or expanding farm and non-primary XXXXX As the payments made are for a public purpose and not for a purchase purpose, they are not consideration for a supply and therefore GST/HST does not apply.

Since Agriculture and Agri-Food Canada's purpose in providing contributions to FCC is to enable FCC to provide financial assistance to eligible Clients under the Program and FCC uses all but a portion of the funding for this reason, FCC is seen as an intermediary under the Department's "Extension of Transfer Payment Policy" P-[0]61 (enclosed). Although part of the contributions made to FCC is used to cover its administrative costs, all of the contributions it receives from Agriculture and Agri-Food Canada under the Agreement are viewed as not being consideration for a supply. The contributions retain their status as not consideration for a supply as they flow through from FCC to a final recipient (i.e. an eligible Client).

For your reference, I have enclosed Technical Interpretation Bulletin B-067 which addresses the treatment of grants and subsidies for GST/HST purposes. Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 954-7952.

Yours truly,

Lynn F. Renner
Rulings Officer
GST/HST Rulings and Interpretations Directorate

Encl.:

c.c.:      E. Vermes
D. Harding
L. Renner
ATIP

Legislative References: Grants & Subsidies - TIB067 & P-061

NCS Subject Code(s): 11846-3