23 April 1999 GST/HST Interpretation HQR 0001704 - Qualifying Non-profit Organization

Dear XXXXX

Thank you for your facsimile of February 25, 1999, with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to certain operations performed by XXXXX a GST/HST registrant. We apologize for the delay in responding to your request.

The XXXXX entered into an agreement with XXXXX hereby the XXXXX will fund the construction of XXXXX in certain XXXXX[.] The XXXXX will provide $XXXXX in funding over a XXXXX. XXXXX will be responsible for the construction of the XXXXX XXXXX[.] There will be no charge to the communities who benefit from the improvements. The goal of the XXXXX[.]

Interpretation Requested

You wish to know whether XXXXX may claim a credit for all or a portion of the GST/HST that it will pay on goods and services acquired to construct the XXXXX XXXXX within the terms of the agreement.

Interpretation Given

To determine whether XXXXX is eligible to claim a credit for all or a portion of the GST/HST that it will pay on goods and services acquired to construct the XXXXX XXXXX we must first determine whether XXXXX is making a supply and if so, the tax status of the supply.

Grants, contributions, subsidies and similar payments, often called transfer payments, are made for many reasons. If it is established that a supply takes place in return for a transfer payment, the payment may be regarded by the Department as "consideration" for a supply. However, in general, transfer payments made in the public interest or for charitable purposes will not be regarded as consideration for a supply.

Based on the information described above, the transfer payments made by the XXXXX XXXXX appear to be in the public interest and would not be regarded as consideration for a supply.

Nonetheless, the supply of construction services by a registrant would generally be a taxable supply and, in those circumstances, the registrant would be eligible to claim input tax credits. However, because XXXXX is a non profit organization that will not be charging for its services, XXXXX would not be eligible to claim input tax credits for GST/HST paid on inputs acquired for its construction services.

Nevertheless, under certain circumstances, a "qualifying non-profit organization" may be eligible for a 50% rebate of tax for which it is not eligible to claim an input tax credit. However, in order to be considered a "qualifying non-profit organization," the organization must receive at least 40% of its annual revenues as "XXXXX in either its current fiscal year or over its two immediately preceding fiscal years. XXXXX includes any payment from a grantor, including the XXXXX XXXXX that is intended to assist a non-profit organization in the pursuit of its objectives. Amounts paid by grantors to a non profit organization as payment for goods or services purchased by the grantor cannot be included as funding for purposes of the calculation of the forty-per-cent threshold. Detailed information concerning the eligibility of qualifying non profit organizations is enclosed for reference.

Based on our discussions it is our understanding that XXXXX receives significant revenues from commercial operations undertaken by its subsidiary companies: XXXXX XXXXX[.] Therefore it appears that XXXXX is not a "qualifying non-profit organization". If XXXXX is not a qualifying non-profit organization, it is not eligible for a rebate of a portion of the tax under this program.

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 957-1175.

Yours truly,

Don Gagnon
Technical Analyst
Educational Services and Indians Unit
Public Services Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate