20 May 1999 GST/HST Ruling HQR0001505 - General Exemption for Property and Services Supplied by a Charity

GST/HST Rulings and Interpretations Directorate Place Vanier, Tower C, 10th Floor 25 McArthur Avenue Vanier, ON K1A 0L5XXXXXAttention: XXXXX XXXXX

Case: HQR0001505May 20, 1999

Subject:

GST/HST APPLICATION RULING XXXXX

Dear XXXXX

We are writing in reference to the letter of September 22, 1998, from our XXXXX XXXXX copy enclosed, which provided a ruling concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your operations. Upon further review, it has come to our attention that our letter requires clarification.

This ruling replaces our letter of September 22, 1998, in its entirety. However, you are entitled to rely upon the September 22, 1998 ruling until the date (noted above) of this revised ruling. We have described the differences between the two rulings in the second last paragraph of this letter.

Statement of Facts

Based on the information on hand, our understanding of the facts is as follows:

1. XXXXX is a registered charity and has a membership consisting mostly of XXXXX[.] The XXXXX is also registered for GST/HST purposes.

2. The XXXXX has developed a methodology called the XXXXX, for recording and tracking professional development and continuing medical education activities.

3. The XXXXX consists of a CD ROM, a manual or workbook explaining how the process works and a one year subscription to the XXXXX is a web site where all the professional development activities are entered, using the formatting from the CD ROM.

4. The one year subscription to the XXXXX will allow individuals to access the web site and compare their activities to those undertaken and recorded by their peers.

5. The XXXXX will be provided as part of the membership free of charge. The XXXXX will also sell the XXXXX to non-members. In a telephone conversation, you mentioned that the subscription fee for non-resident non-members is XXXXX (plus handling and shipping fees) and that the subscription fee for resident non-members, is approximately XXXXX[.]

6. When the XXXXX sold to a non-resident non-member, the individual is outside Canada at the time the supply is made.

Ruling Requested

The XXXXX requests the following rulings:

1. What is the tax status of the XXXXX when supplied as part of the membership?

2. What is the tax status of the XXXXX when supplied to resident non-members?

3. What is the tax status of the XXXXX when supplied to non-resident non-members?

Ruling Given

Based on the facts set out above, we rule that:

1. The XXXXX supplied as part of the membership is an exempt supply under section 1 of Part V.1 of Schedule [V] to the Excise Tax Act (the "ETA").

2. The XXXXX supplied to resident non-members is an exempt supply under section 1 of Part V.1 of Schedule V to the ETA.

3. The XXXXX supplied to non-resident non-members is a zero-rated supply under section 7 of Part V of Schedule VI to the ETA.

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

1. Section 1 of Part V.1 of Schedule V to the ETA, is a general exemption for property and services supplied by a charity, although it sets out certain exceptions to the general exemption. Since none of the exceptions apply to the XXXXX memberships, they are exempt under this provision. This exemption includes the provision of XXXXX, since it is part of the supply of memberships. For your general information and reference, we have attached the text of section 1, the "general exemption" for charities.

2. When provided to non-members, the supply of the XXXXX is considered a supply of a service for GST/HST purposes. As mentioned previously, section 1 of Part V.1 of Schedule V exempts all supplies made by a charity of personal property and services, except those specifically listed in paragraphs 1(a) to (m) (see attachment). As the XXXXX is not a service that is listed as an exception, it will be exempt for GST/HST purposes when supplied to resident non-members.

3. Schedule VI of the ETA sets out certain supplies that are "zero-rated" for GST/HST purposes. A zero-rated supply is a supply taxable at the rate of 0%. A supply of a service such as the XXXXX made to a non-resident person is a zero-rated supply pursuant to section 7 of Part V of Schedule VI to the ETA provided that the individual is not in Canada at the time the supply is made. Please note that pursuant to paragraph 1(a) of Part V.1 of Schedule V of the ETA, the general charity exemption does not apply to zero-rated supplies. Accordingly, this supply is "zero-rated" rather than exempt.

Tax is not exigible on either a zero-rated or exempt supply. The distinction between the two concerns related purchases. Since a zero-rated supply is a taxable supply, the tax on related purchases may be recovered by input tax credits. However, input tax credits may not be claimed for tax paid on purchases used to make exempt supplies, although a charity such as the XXXXX may claim XXXXX rebate of such tax.

We will now briefly address the differences between this ruling and the ruling of September 22, 1998. That prior ruling described the application of the "direct cost exemption" which provides that a supplier of a good sold on a cost recovery basis has a choice of treating the supply as either taxable or exempt. However, as described above, it is now our view that the supply of XXXXX is not a "good" but rather is either a supply of a membership (i.e., is a component of the membership) or a service, depending on the circumstances. The direct cost exemption does not apply to memberships, and has very limited application to services (applying only to those that are purchased and resupplied in the same form).

Even though the supply of XXXXX will not be exempt under the direct cost exemption, it is nevertheless exempt under the general charity exemption in the circumstances described in the first two rulings above.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-0329.

Yours truly,

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

Encl.:

Section 1 of Part V.[1] of Schedule V

EXEMPT SUPPLIES BY CHARITIES

A supply made by a charity of any property or service, but not including a supply of

(a) property or a service included in Schedule VI;

(b) property or a service where the supply is deemed under Part IX (other than section 187) of the Act to have been made by the charity;

(c) personal property (other than property that was acquired, manufactured or produced by the charity for the purpose of making a supply by way of sale of the property) where, immediately before the time tax would be payable in respect of the supply if it were a taxable supply, the property was used (otherwise than in making the supply) in commercial activities of the charity or, in the case of capital property, primarily in such activities;

(d) tangible personal property that was acquired, manufactured or produced by the charity for the purpose of making a supply of the property and was neither donated to the charity nor used by another person before its acquisition by the charity, or any service supplied by the charity in respect of such property, other than such property or such a service supplied by the charity under a contract for catering;

(e) an admission in respect of a place of amusement unless the maximum consideration for a supply by the charity of such an admission does not exceed one dollar;

(f) a service involving, or a membership or other right entitling a person to, supervision or instruction in any recreational or athletic activity except where

(i) it could reasonably be expected, given the nature of the activity or the degree of relevant skill or ability required for participation in it, that such services, memberships or rights supplied by the charity would be provided primarily to children 14 years of age or under and the services are not supplied as part of, the membership is not in, or the right is not in respect of, a program involving overnight supervision throughout a substantial portion of the program, or

(ii) such services, memberships or rights supplied by the charity are intended to be provided primarily to individuals who are underprivileged or who have a disability;

(g) a membership (other than a membership described in subparagraph (f)(i) or (ii)) where the membership

(i) entitles the member

(A) to an admission in respect of a place of amusement the supply of which, were it made separately from the supply of the membership, would be a taxable supply, or

(B) to a discount on the value of consideration for a supply of such an admission, or

(ii) includes a right to participate in a recreational or athletic activity, or use facilities, at a place of amusement, except where the value of the admission, discount or right is insignificant in relation to the consideration for the membership;

(h) services of performing artists in a performance where the supply is made to a person who makes taxable supplies of admissions in respect of the performance;

(i) a right, other than an admission, to play or participate in a game of chance where the charity is a prescribed person or the game is a prescribed game of chance;

(j) a residential complex, or an interest therein, where the supply is made by way of sale;

(k) real property where the supply is made by way of sale to an individual or a personal trust, other than a supply of real property on which is situated a structure that was used by the charity as an office or in the course of commercial activities or of making exempt supplies;

(l) real property where, immediately before the time tax would be payable in respect of the supply if it were a taxable supply, the property was used (otherwise than in making the supply) primarily in commercial activities of the charity; or

(m) real property in respect of which an election under section 211 of the Act is in effect at the time tax would become payable in respect of the supply if it were a taxable supply.

c.c.:

M. Place G. Nadeau XXXXX J. Frobel Carolle Mercier

Encl.:
Legislative References:
NCS Subject Code(s):	R-