GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 9th Floor
25 McArthur Avenue
Ottawa ON
XXXXX K1A 0L5
XXXXX
XXXXX
XXXXX Case: HQR0000929
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Attention: XXXXX
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May 29, 1998
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Subject:
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GST/HST APPLICATION RULING
XXXXX
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Dear XXXXX :
This is in reply to the letter of October 27, 1997, with attachments, which we received from XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to XXXXX " (the "Project"). Based on the information provided, as well as several telephone conversations with XXXXX our understanding of the facts is as follows.
Statement of Facts
1. A group of XXXXX institutions are working together on a joint research project to study XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
2. The Project XXXXX However, a proposal submitted in October 1996 to the XXXXX describes the activities of the Project.
3. The purpose of this XXXXX Project is XXXXX . The Project began on XXXXX , and its objectives are:
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
4. Each of the XXXXX participants has agreed to contribute resources, such as property, knowledge, time, and skill to the Project:
a) XXXXX provides financial management services.
b) XXXXX provides expertise regarding standards, contributes space and technical services, provides storage (memory) on the XXXXX server, acts as a site for the transmission of information, provides a central referral and information centre for the research results and final report.
c) XXXXX provides office space.
d) XXXXX l provides research services.
5. Each of the XXXXX participants obtains a copy of the final report. In addition, XXXXX and other XXXXX interested in XXXXX will have access to the results of the Project at no charge.
6. The Project is managed by a joint Steering Committee constituted of representatives of the XXXXX participating institutions. The Steering Committee selected the project manager to whom it provides general direction. It reviews the management of all funds, oversees the development of the research, reviews reports provided by the researchers and consultants, represents the project to other interested parties as well as in written reports for the Web and for conferences, and will approve the final report.
7. The project manager is an employee of t XXXXX oversees the general operation of the Project and bills the Project for time spent working on its business pursuant to an agreement between XXXXX
8. XXXXX signed a Letter of Agreement with XXXXX with respect to the Project in which XXXXX offered to engage the consultant and to pay XXXXX per hour for the services rendered under the agreement.
9. XXXXX signed a Letter of Agreement with XXXXX care of the Project in which XXXXX on behalf of the Project, offered to engage XXXXX and to pay XXXXX per hour for the services rendered under the agreement. XXXXX assists in the development of the costing and usage studies.
10. With respect to accounting practices, the Project maintains its own set of records and operates within a budget approved by the Steering Committee.
11. The Project's revenues are generated solely from donations and grants. The Project's largest sponsor is the XXXXX which gave XXXXX on behalf of the Project, a cheque for XXXXX . XXXXX is to provide annual financial and narrative reports on the uses made of the grant funds and, shortly after the funds have been fully expended, a final financial accounting and assessment of the Project's results.
12. All donations and grants are used exclusively for the Project. The Project does not generate revenue from sales. Cheques donated from fundraising activities are made payable to the Project.
13. All funds from grants and donations are deposited into a separate bank account in the name of the Project that is maintained exclusively for the Project. All interest earned on the grant funds is used exclusively for the Project. All disbursements related to the Project are made through this account.
14. It was decided by the Steering Committee that XXXXX maintain the accounting records for the Project, including managing the bank account and investment account. The Project's accounting records are to be audited jointly with XXXXX records. XXXXX does not "own" the funds (including the funds from the XXXXX and it does not charge the Project for its accounting services.
15. XXXXX , former accountant for XXXXX has advised that any funds remaining once the Project is completed do not belong to XXXXX or to any of the other participating institutions. Similarly, once the Project is completed, none of the participating institutions have the right to the capital assets acquired by the Project. The Steering Committee will determine how to dispose of any unused funds as well as the capital assets.
16. The Project established a working group which includes representatives from all XXXXX institutions as well as other parties.
Rulings Requested
1. Is the Project a person and is it required to be registered for the GST?
2. If the Project is required to be registered, what is the required filing frequency of the Project's GST reports?
3. Is the Project entitled to claim input tax credits?
4. Is the Project entitled to claim a GST rebate?
Rulings Given
Based on the facts set out above, we rule the following:
1. Is the Project a person and is it required to be registered for the GST?
It is our view that the Project is not a "person" pursuant to the Excise Tax Act (the "ETA"). As only "persons" are entitled to register, the Project cannot register in its own right. Each institution accounts separately for the GST in proportion to its individual interest in the Project.
2. If the Project is required to be registered, what is the required filing frequency of the Project's GST reports?
As stated above, the Project is not a "person" and therefore cannot register. Thus, the Project does not file GST returns.
3. Is the Project entitled to claim input tax credits?
Since the Project is not a "person" under the ETA, it cannot claim input tax credits. Furthermore, since there is no evidence of the Project making taxable supplies for consideration, none of the participants will be eligible for input tax credits for purchases related to the activities of the Project.
4. Is the Project entitled to claim a GST rebate?
Since the Project is not a "person" under the ETA, it cannot claim rebates. However, as explained below, each of the participants who are eligible for rebates under section 259 of the ETA may apply for a rebate for purchases related to the activities of the Project.
These rulings are subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST Memoranda Series. We are bound by these rulings 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 transactions for which you requested a ruling.
Explanation
It is the Department's view that the Project is not a "person," pursuant to the ETA, apart from the participants. See the enclosed Chapter 2.4, Branches and Divisions, of the GST Memoranda Series for guidelines that the Department uses to determine when an entity is a "person" as defined in the ETA. Based on the information on hand, the Project appears to be an arrangement whereby XXXXX institutions (i.e., XXXXX ) are working together in a limited endeavour, which does not constitute a "person" in the ETA. For this reason, the Project is not permitted to register for the GST since it is not viewed as a "person" pursuant to the ETA.
The Project participants include XXXXX which, for the purposes of the ETA, are defined as public institutions XXXXX , is a public sector body. The participants are carrying out research activities and making available to interested parties the project results for no consideration. Such supplies made by charities are exempt pursuant to section 1 of Part V.1 of Schedule V to the ETA, which is the general exempting provision for charities. Similarly, section 2 of Part VI of Schedule VI exempts such supplies made by public institutions. The same supplies made by public sector bodies are exempt pursuant to section 10 of Part VI of Schedule V to the ETA if provided for no consideration.
Please note that for the purposes of the ETA, a university is included in the definition of a public service body. Furthermore, the definition of a public sector body also includes a public service body. Thus, the exemption provided in section 10 of Part VI of Schedule V applies to supplies made for no consideration by XXXXX
Consequently, as the Project participants are not making taxable supplies for consideration and because they are engaged in exempt activities with respect to the Project, no portion of the GST paid on project-related expenses may be recovered through input tax credits. Thus, these institutions are not eligible to claim input tax credits for any tax they have paid as a recipient of taxable purchases they consumed, used, or supplied in the course of the Project's activities.
Section 259 of the ETA provides for a rebate of the non-creditable tax charged (i.e., tax paid for which the person is not entitled to claim an input tax credit) for charities, qualifying non-profit organizations, and selected public service bodies, such as not-for-profit universities. Since the individual institutions are, in essence, treated as the recipients of the purchases, each may include the GST it paid or owes on goods and services it purchased in respect of the Project, or in respect of the allocation discussed in the following paragraph. If the institution is entitled to rebates under section 259 of the ETA, the GST paid on these expenses may be included in that institution's rebate claims. For example, as a charity, XXXXX may claim a rebate of 50% of the tax it paid or owes as the recipient of the taxable purchases related to the Project.
Based on the facts provided, most of the purchases made with respect to the activities of the Project are made from the Project funding which is considered to be funding received by XXXXX on behalf of the Project. Some purchases, however, are made directly by the participants, in their own right. That is, they have, individually, incurred the liability for some Project purchases so that they are entitled to rebates, respectively. With respect to purchases made from the Project funding, normally, the tax and rebate eligibility with respect to these purchases should be allocated on a reasonable basis to each participant (i.e., such an allocation should reflect the extent of a participant's interest in the Project).
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6761.
Yours truly,
Susan Eastman
Charities, Non-Profit Organizations and Educational Services Unit
Public Service Bodies and Governments Division
Enclosure: GST Memoranda Series, Chapter 2.4
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E. Vermes, A/Director
M. Place
S. Eastman |
Legislative References: ETA: subsection 123(1); subsections 141.01(2) and (3); section 259; section 1 of Part V.1 of Schedule V; section 10 of Part VI of Schedule V
NCS Subject Code(s): R - 119253, 11940-1, 11690-1, 11650-1
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