GST/HST Rulings and Interpretations Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Avenue
Vanier, Ontario
K1A 0L5
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May 12, 1998
XXXXX Case: 0000746
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Subject:
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GST/HST APPLICATION RULING
XXXXX
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Dear XXXXX
This is in response to your letter (with attachments) of April 14, 1997, to the XXXXX Tax Services Office (TSO) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the activities of the XXXXX . The XXXXX TSO has asked us to respond to certain queries included in your letter. Where possible, a ruling has been provided. Since there are no GST implications with respect to the supply of cattle, rather than providing a ruling on specific matters related to the contract between XXXXX and the Province, we have provided an interpretation explaining the tax status of such a supply.
Our understanding of the facts from documentation included with your letter as well as conversations with XXXXX is as follows.
Statement of Facts
1. XXXXX was incorporated under the XXXXX on XXXXX
2. Pursuant to XXXXX of XXXXX
"... upon dissolution...any property remaining after the satisfaction of all debts and other liabilities...shall be conveyed to the XXXXX for the benefit of the XXXXX and the XXXXX
3. Pursuant to XXXXX
"... The Corporation shall not carry on any activities other than:
i) to initiate, undertake, coordinate and promote research, experiments, and education related to the housing, reproduction, nutrition, welfare, rearing, health, management utilization, and marketing of beef and related products and by-products;
ii) to undertake programs of developing and disseminating production technology and management information arising from the Corporation's own research project or research and experiments carried on by other beef producers and research institutions, all in a manner consistent with servicing the interests of the beef industry in XXXXX and Canada;
iii) any activities or undertakings which are incidental to and necessary for the accomplishment of any of the foregoing, including, without limitation, the leasing, purchasing and or construction of facilities and equipment necessary to rear, produce and market beef;
iv) those activities which in the opinion of the board of directors of the Corporation, are related to or incidental to or which will assist the Corporation in the attainment of the foregoing. Any determination by the board of directors in this regard shall be conclusive and not subject to review; and
v) soliciting, receiving, investing, managing and disbursing monies, gifts, bequests and government grants and any other support to assist the Corporation in the attainment of any of the foregoing.
4. Anticipated sources of revenue for the XXXXX are as follows:
i) contract research;
ii) income from sale of animals
iii) grants (government and industry)
iv) technology transfer (1-900 telephone line, printed materials, workshops, demonstration programs).
5. According to XXXXX of the XXXXX 19 xx Business Plan, the XXXXX operates under the auspices of the XXXXX . It is governed by a Board of Directors appointed by the XXXXX . More specifically, a nominating committee of the XXXXX selects nominees from the XXXXX the producers and at large. The nominating committee submits these names to the governors of the XXXXX who appoint the Directors.
6. According to XXXXX of the XXXXX 19 xx Business Plan:
The XXXXX Board of Directors will be nominated by committee and ...will have no more than XXXXX seats in total....The XXXXX will have XXXXX seats, XXXXX will have XXXXX seats, the Government of Canada will have one seat held by x Agriculture and Agri-Food Canada Prairie Farm Rehabilitation Agency (AAFCPFRA), primary beef producers will hold XXXXX eats and two members-at-large will represent the value-added beef sector.
7. On XXXXX , 19 XXXXX signed an agreement with the XXXXX as represented by the Minister of Agriculture and Food for the period from XXXXX 19 xx to XXXXX , XXXXX
8. Pursuant to XXXXX of the agreement, the Province will loan its herd of approximately XXXXX head of beef cattle to the XXXXX The herd will be located on the premises of the XXXXX but will remain the property of the Province at all times. XXXXX may, from time to time, enter into arrangements with third parties wishing to use the herd provided that XXXXX shall be responsible for establishing and supervising such arrangements, and for ensuring that the Province's property in the herd is protected at all times.
9. Pursuant to XXXXX of the agreement, the XXXXX will, from time to time, arrange for the sale of livestock from the herd on behalf of the Province. All proceeds from such sales will be directed by XXXXX to the Province for deposit into the XXXXX , and the Province will, from time to time, pay to XXXXX an equivalent amount (e.g., an amount equivalent to a particular sale of cattle) from the XXXXX shall deposit all such moneys received from the Province from the XXXXX into a XXXXX established by the XXXXX All Revenues received by XXXXX from projects carried out under the agreement, including revenues from any third party arrangements mentioned in XXXXX , shall be credited to the XXXXX and shall be used in accordance with XXXXX
10. Pursuant to XXXXX of the agreement, "The XXXXX will use funds from the XXXXX for the sole purpose of beef research and technology transfer, including such activities as purchasing new beef cattle for the herd; hiring staff, veterinary services; purchasing feed, materials, supplies and equipment; repair and upkeep of equipment; travel in support of the beef research and technology transfer projects...."
11. Pursuant to XXXXX of the agreement, "The XXXXX will provide to the Province a quarterly expenditure statement and an annual expenditure statement for all expenses ... The Province may, at any time, carry out an audit of the books, records and accounts of XXXXX that relate to this Agreement.
12. Pursuant to XXXXX of the agreement, all inventions, designs, methods and processes and other intellectual property rights related to the Projects that are conceived, developed, or first reduced to practice in the carrying out of the Project will be the property of the XXXXX and, subject to XXXXX will be treated as confidential.
13. Pursuant to XXXXX of the agreement, XXXXX shall provide the Province, on request and without charge, with final research project results with respect to any projects carried out under this Agreement. For non-confidential information the Province may make any use of this information as it considers fit, including disseminating it to the public. XXXXX may wish to consider parts of the information to be confidential. Release of confidential information shall be negotiated on case by case basis.
14. Pursuant to XXXXX of the agreement, at the expiration or termination of the agreement, the XXXXX will return the herd and the remaining funds in the XXXXX to the Province. Any amounts paid to XXXXX by the Province, but not expended by XXXXX in accordance with the agreement, shall, on expiration or termination of the Agreement or wind down of the XXXXX be recoverable by the Province as a debt due to the Crown.
15. The XXXXX may, at some point in the future, purchase its own herd for research purposes and at that time would have some animals on loan from the province and some which it owns directly.
16. XXXXX does not submit its operating budget to the XXXXX
Rulings Requested
In its letter of June 19, 1997, the XXXXX Tax Service Office issued a number of interpretations. As you were advised in that letter, the TSO has asked that we respond to the following ruling requests:
(1) Is XXXXX a university for purposes of the GST? At what rate may it recover the tax paid on inputs?
(2) What is the tax status of the supply of cattle obtained through the loan agreement to the XXXXX
Ruling Given
(1) Status as "University"
Based on the facts set out above, we rule that:
XXXXX falls within the meaning of "university" as defined in subsection 123(1) of the Excise Tax Act.
XXXXX is entitled to an input tax credit to the extent (expressed as a percentage) to which an acquisition is for consumption, use or supply in the course of its commercial activities (i.e., for use in making taxable supplies). Where substantially all (generally 90% of more) of the consumption or use of the acquisition is in the course of commercial activities, all of the consumption or use is deemed to be in the course of those activities.
As a non-profit university, XXXXX is entitled to a 67% GST/HST rebate of tax paid on purchases for which it is not entitled to an input tax credit (e.g., purchases related to the making of an exempt supply).
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.
Explanation
In order for a separate entity to be a research body of a university, the entity must be established and operated primarily to perform research and the research body must be owned and controlled by a university.
An organization will be considered to be owned by a university if:
(a) the university owns all or substantially all (at least ninety percent) of the shares or capital of the organization; or
(b) the university holds title to the assets of the organization or controls its disposition, such that in the event of wind-up or liquidation, these assets are vested in the university.
An organization will be considered to be controlled by a university if:
(a) the university appoints a majority of the members of the governing body of the organization (e.g. directors, governors, commissioners); or
(b) the entity is required, by virtue of legislation, by-laws or an operating agreement to submit to the university its operating and, where applicable, capital budget, for review and approval.
Based on the information provided in XXXXX is established primarily to perform research. In any year in which it in fact operates on that basis, XXXXX will be regarded as operated primarily to perform research. Further, the Department is of the view that XXXXX is owned by the XXXXX in that in the event of dissolution, property of XXXXX shall be conveyed to the XXXXX Lastly, XXXXX is controlled by the XXXXX in that the University selects and appoints a majority of the XXXXX
Interpretation
(2) Sale of Cattle
Section 1 of Part IV of Schedule VI to the ETA zero-rates the supply of farm livestock (other than rabbits), poultry or bees that are ordinarily raised or kept to produce, or to be used as, food for human consumption or wool. As cattle is considered to be livestock (Under the Feeds Act and according to ordinary meaning), and is ordinarily raised as food for human consumption, the sale of cattle is zero-rated.
If an animal is considered to be livestock that is ordinarily raised or kept for human consumption, it is zero-rated even if it is intended for other purposes (e.g. research) in certain cases. There would have to be a distinguishable breed biological scientific breed of a particular livestock animal (e.g. inedible breed) before we could conclude that the livestock animal would not be ordinarily raised or kept to produce, or to be used as, food for human consumption.
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) 952-0420.
Yours truly,
Lorrie Grannary
Charities, Non-Profit Organizations and Educational Services Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate
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E. Vermes
J.M. Place |
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Legislative References: 123(1); 10VIV
NCS Subject Code(s): R 5
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