15 March 1999 GST/HST Ruling HQR0001370 - Application of HST to payments received from

Dear XXXXX

Thank you for your letters of June 2, 1998 and March 1, 1999 (with attachments), concerning the application of the Harmonized Sales Tax (HST) to your company's supplies made to The XXXXX under the mentorship program.

Statement of Facts

Our understanding of the facts and transactions, is as follows:

The XXXXX is a registered charity that is currently mandated by the XXXXX XXXXX and its Regulations to provide services in respect of families and children up to 16 years of age. Prior to April 1, 1998 the XXXXX offered a mentorship program to its clients by employing a number of individual mentors to provide in home support in a variety of situations such as: one on one with a child to provide a positive role model, work on behavioural problems, tutoring in home or in school. Mentors also assisted the XXXXX in facilitating supervised access for parental visitation of children as well as transporting children when required such as for medical appointments.

Effective April 1, 1998, individual mentors became employees of XXXXX following a proposal by your company to provide services in respect of the XXXXX mentoring program. In your letter of March 1, 1999, you confirmed that the mentors are salaried employees of your company. A number of the mentors are understood to be university students who plan to pursue careers in social work or related fields. Your letter states that the primary purpose of the mentorship program is to work one on one with a child to: provide supervised access visitation; tutoring; transportation for the child when necessary; parent aid; and youth support services.

Under the draft agreement provided by your company, XXXXX agrees to pay XXXXX at a rate of $XXXXX per hour for each mentor. The payments are based on the hours invoiced by XXXXX and pre-approved by XXXXX for time spent by the mentors with the children. XXXXX authorizes all out-of-pocket expenses incurred by the mentors for mileage etc. and reimburses XXXXX pursuant to a separate billing. XXXXX pays this amount to the mentors either at the time expenses are approved or when the funds are received from XXXXX[.]

Ruling Requested

Should XXXXX add HST to the amounts invoiced to XXXXX under the twelve month agreement with XXXXX to administer their mentoring program effective on April 1, 1998?

Ruling Given

We rule that XXXXX is making a taxable supply of a service to XXXXX for consideration in a participating province. Therefore, pursuant to subsections 165(1), 165(2) and 221(1) of the Excise Tax Act (ETA), all payments received from or invoiced to XXXXX for the delivery of the mentorship program (including the reimbursement of mentor out of pocket expenses) under the draft mentoring services agreement will be subject to HST at the current rate of 15%.

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

Under the draft agreement, XXXXX has contracted with your company to assist in providing mentoring services to XXXXX clients (parents and children). In other words, XXXXX is contracting out to your company its responsibilities for mentoring clients. For purposes of the Department's policy on grants and subsidies, there is a direct link between the payments made by XXXXX to XXXXX and the contracted services provided to XXXXX under the draft agreement. These payments are therefore consideration for a taxable supply of those services.

In reviewing your request, we considered whether the payments made by XXXXX to your company under the draft agreement are otherwise exempted or relieved from the application of HST. We considered whether your company's services could qualify for exemption as a child care service under section 1 of Part IV of Schedule V to the ETA. However, we concluded that your company's services consist of several components and when taken together constituted a single supply of a service which does not fall within this exemption. Your company provides a service which generally involves families and children, however, the service does not meet the criteria for exemption as your company is not supplying a child care service the primary purpose of which is the care and supervision of children in this case.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9580.

Yours truly,

Fred Adair
Governments Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate