3 September 1999 GST/HST Interpretation HQR0001904 - Bingo Associations

Dear XXXXX

Thank you for your letter of August 6, 1998, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the activities of bingo XXXXX associations XXXXX[.] The following is our understanding of how bingo associations XXXXX operate. The bingo associations, in question, are incorporated under the XXXXX as umbrella organizations to conduct and manage bingo events for member charities and non-profit organizations. More specifically, the bingo associations collect revenues from bingo events, pay expenses related to the bingo events and distribute net proceeds to member charities and non-profit organizations on a monthly basis.

Certain XXXXX use their own employees to conduct the bingo events, others use management firms. In the latter situation, the bingo association pays a fee to the management firm, the expense is "allocated" to the member charities and non-profit organizations who, subsequently, claim input tax credits or rebates in respect of the tax paid on the management fee.

Interpretation Requested

1. Are the member charities and non-profit organizations entitled to claim input tax credits on a pro-rata basis in connection with the management fee incurred by the bingo associations?

2. Are the bingo associations entitled to claim input tax credits?

Interpretation Given

1. The member charities and non-profit organizations are not entitled to claim input tax credits (nor rebates) for the management fee incurred by the bingo associations.

2. As GST/HST registrants, the bingo associations would be entitled to claim input tax credits for expenses (including the management fee) related to the provision of the taxable service of the conducting of bingo events to member charities and non-profit organizations.

Analysis

Generally, input tax credits and rebates are paid to the recipient of the supply (i.e., the person who incurs the expense). Based on the information above, it is our view that the bingo associations incur the expense of the management fee in their own right, and, in turn, they provide to their member charities and non-profit organizations, services necessary to operate bingo events. Therefore, as indicated above, it is the bingo associations and not the member charities or non-profit organizations who, as GST/HST registrants, are entitled to claim input tax credits for tax paid on the management fee.

Please note that amounts retained by the bingo associations from bingo revenues are, generally, regarded as consideration for those taxable services. In this situation, the bingo associations may register for GST/HST purposes, collect GST/HST on the amounts retained from revenues and claim input tax credits for the GST/HST paid on expenses (including the management fee).

On a related matter, member charities would be entitled to a 50% Public Service Body rebate in respect of tax paid on the consideration for services provided by the bingo associations. Member non-profit organizations would be entitled to the 50% Public Service Body rebate in respect of that amount if they were qualifying non-profit organizations; that is, if they received at least 40% of their annual revenues in the form of government funding.

Finally, it is our view that the bingo associations are earning bingo revenues on behalf of their member charities and non-profit organizations, and, therefore, distribution of net proceeds by the bingo associations is not subject to GST/HST.

On April 1, 1997, the harmonized sales tax (HST) replaced the goods and services tax (GST) and the provincial sales tax (PST) in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%. If you supply goods that are delivered or made available in a participating province, services to be performed in a participating province or intangible personal property that may be used in a participating province, please contact the undersigned for further information regarding the application of HST to your particular situation.

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