4 October 1999 GST/HST Interpretation HQR0001735 - Bingo Associations

Dear XXXXX

Thank you for your letter (with attachment) of April 9, 1999, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to reimbursements received by XXXXX[.] We are providing this letter in the form of an interpretation rather than a ruling since we have not been provided information particular to any specific bingo association. However, it is our understanding that, since the operation of bingos falls under strict provincial regulation, the structure and functions of bingo associations XXXXX is fairly standard XXXXX, so that our comments will likely have broad application.

XXXXX XXXXX

The following outlines, in summary, our understanding of how bingo associations XXXXX XXXXX operate:

1. The authority for the regulation of bingos is found under section 207 of the Criminal Code of Canada. Under this authority, it is lawful for a charitable or religious organization to conduct bingos if the proceeds are used for a charitable or religious purpose. The authority to regulate bingos XXXXX has been delegated to the XXXXX and it is this body that establishes policy with respect to the operation of bingos. The XXXXX enforces licences' terms and conditions XXXXX[.]

2. If an organization XXXXX wishes to conduct bingo events in a commercial gaming venue, it is required to be a member of a bingo association. The functions of a bingo association typically include leasing a facility, procuring supplies, hiring personnel, allocating bingo games to member clubs, maintaining financial records and distributing bingo net proceeds to member clubs.

[3]. A bingo association typically recovers its costs of bingo related expenditures from its member clubs typically as cash advances or direct reimbursements. Net proceeds are distributed to the bingo association's member clubs on a frequency determined by the bingo association's membership.

Interpretation Requested

You have asked for our views on whether an agency agreement between bingo associations and their member clubs, similar to the sample you provided with an effective date of XXXXX would have the result of there being no GST exigible on salary reimbursements paid by the member clubs to the associations XXXXX[.] If not, you have asked whether another "settlement proposal" is possible?

As we understand it, you submit that the agreement establishes that the bingo staff in question are employees of the member clubs, and that the bingo associations are agents of the member clubs in paying the staff.

Interpretation Given

Based on the information provided:

(i) The presence of a written agency agreement is an indication of, but is not necessarily determinative of, an agency relationship. Further, where an agency relationship is created at a certain point in time, inserting a retroactive effective date in the agency agreement (i.e., "backdating the agreement") could not, of itself, bring into effect an agency relationship prior to that time.

(ii) The sample agreement submitted would apply with respect to "Staff employed by the Principals (i.e., the member clubs)," assuming that employees of the member clubs assist at the bingo events. However, staff such as bingo callers, cash advisors and hall managers are, to our knowledge, employees of the bingo associations and not the member clubs, so that the sample agreement would not apply to them. Further, the existence of the agency agreement alone, such as the one you have submitted, would not change the employer/employee relationship between the bingo association and its staff.

(iii) XXXXX[.]

Explanation <(i) and (ii) only>

(i) The presence of a written agency agreement is an indication of, but is not necessarily determinative of, an agency relationship. Further, where an agency relationship is created at a certain point in time, inserting a retroactive effective date in the agency agreement (i.e., "backdating the agreement") could not, of itself, bring into effect an agency relationship prior to that time.

It is the Department's position that a person will be considered as an agent for GST/HST purposes based on fact and the principles of law. The essential qualities and indicators of agency are outlined in our draft Policy Statement P-182 Determining the Meaning of Terms "Agent" and "Agency" (copy enclosed). In summary, these factors are:

•   consent of both the principal and the agent;

•   authority of the agent to affect the principal's legal position; and

•   the principal's control of the agent's actions.

The Department may rule on whether an agency relationship exists where all the relevant documentation and facts are available by applying the essential qualities and indicators of agency.

[(]ii) The sample agreement submitted would apply with respect to "Staff employed by the Principals (i.e., the member clubs)," assuming that the employees of the member clubs assist at the events. However, staff such as bingo callers, cash advisors and hall managers are, to our knowledge, employees of the bingo associations and not the member clubs, so that the sample agreement would not apply to them. Further, the existence of the agency agreement alone, such as the one you have submitted, would not change the employer/employee relationship between the bingo association and its staff.

The fact that the mandate of the bingo associations is to provide a service of operating bingos "on behalf of" member clubs does not necessarily result in the bingo associations being regarded as agents of the member clubs for all transactions. Rather, it is our view that the bingo associations typically incur expenditures, such as staff salaries, rent and equipment in their own right and that these expenditures are inputs into the taxable services that the associations provide of organizing and operating the bingo events.

While we recognize that member clubs may have their employees assisting at bingo events, we have in the past ruled that the bingo callers, cash advisors and hall managers are employees of the associations and not the members, based on our review at that time of bingo associations in XXXXX and the regulations governing them. Further, signing an agency agreement alone would not change our view of this relationship. That is, it is important to consider all the factors related to the meaning of agency outlined in Policy Statement P-182 as well as the factors used in determining an employee-employer relationship. As long as nothing has changed in respect of the employer-employee relationship, the existence of an agency agreement would not change the previous finding of fact.

You have also asked whether some other version of a "settlement proposal" is possible. If you are referring to how the GST applies presently and for past reporting periods, I do not believe that we have any choice but to conclude that the tax must apply as we have previously described. That is, it is our view that the bingo associations in XXXXX provide taxable services to their member clubs, and that these services are carried out by the associations' employees. Further, reimbursements and advances received from members for these services represent taxable consideration for these supplies and so are subject to the tax.

With regards to future reporting periods, it is beyond our authority to suggest ways to restructure transactions in order to achieve different tax results. However, we will be pleased to reply to any submissions you wish to make to the extent that our reply can be in the form of an interpretation or application ruling.

Finally, you contend that the agency agreement that you have submitted would avoid the "cascading of GST on salary expenses funded by the Members." In our view this is not "cascading" tax. Rather, as noted above, it appears that the tax properly applies to the consideration (reimbursements, advances) paid by member clubs for the taxable services provided by bingo associations through their employees, since the associations are generally GST registrants. We recognize that many member clubs may not be eligible for a partial rebate of this tax, but it is an attribute of our tax system that only certain public service bodies, such as charities, are entitled to partial rebates of non-creditable tax.

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