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GST/HST Rulings and
Interpretations Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Avenue
Vanier, ON K1A 0L5
Saskatchewan
S4S 7H9XXXXX
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Case: HQR0001311February 5, 1999
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Subject:
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GST/HST APPLICATION RULING
Tax Status of Sponsorship Funds and Advertising Services
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Dear XXXXX
This is in response to your letter of June 24, 1998 (with attachments), sent to the XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to revenues received by XXXXX. The XXXXX has requested that we respond to two ruling requests included in your letter.
Statement of Facts
Our understanding of the facts is as follows:
• XXXXX incorporated under the XXXXX and is registered for GST/HST purposes.
• According to a pamphlet issued by XXXXX, its vision and mission, respectively, are
• to increase the competitiveness of XXXXX agriculture through the use of today's information technologies, like the Internet; and
• to be the first point of contact for the brokering of electronic information, communication and services important to XXXXX agriculture.
• Article 3 - OBJECTIVES of XXXXX by-laws lists the following objectives:
1. to develop and maintain a strategic "vision" for XXXXX;
2. to develop and maintain a strategic "mission" for XXXXX;
3. to identify strategic "issues" or "constraints" which prevent the mission from being accomplished, to describe the scope, nature, causes and other reasons for the existence of these issues or constraints and to establish priorities for the resolution of these issues or constraints;
4. to secure resources from a broad base to ensure the long term viability of XXXXX;
5. to undertake effective working relationships with public and private agencies and companies who provide information and services to the agricultural industry provincially and nationally. To establish, maintain and enforce standards for XXXXX members;
6. to encourage the use of Internet technology to promote development within the agricultural industry. To maintain an Internet "home page" containing references to all members "home pages" on the Internet and to provide other information and services on the Internet as deemed necessary to accomplish the stated objectives;
7. to manage the evaluation of the XXXXX program;
8. to provide such services as deemed necessary to achieve the objectives of the corporation.
• Article 4 of XXXXX indicates that membership in XXXXX is composed of two classes, active members (regular and enhanced) and honorary members. Active members are eligible to apply for one of five levels of active membership: Regular Profile, Enhanced Profile Level I, Enhanced Profile Level II, Enhanced Profile Level III and Enhanced Profile Level IV.
• Article 5 of XXXXX indicate that regular active members receive
• a listing on the corporation's web site,
• a link to the member's web site, if any, and
• a listing on some of the corporation's promotional material.
• Article 5 of XXXXX indicate that enhanced active members receive
• a profile on the XXXXX web site and in other promotional material, in accordance with the level of enhanced membership.
• Members selecting enhanced membership may choose to support XXXXX through three levels of "sponsorship":
• According to the Sponsorship Rate Sheet submitted to XXXXX once completed by a sponsor, the rates and benefits of the three levels of sponsorship include:
Category I - $XXXXX and benefits to sponsoring members include:
• the sponsor's company logo and link to the Official Major Sponsors recognition page on XXXXX's home page;
• acknowledgment and logo on the Official Major Sponsor Recognition Page;
• the sponsor's logo (prominently displayed) in the members' directory.
Category II - $XXXXX and benefits include:
• the sponsor's banner on one of a number of XXXXX site features; and
• the sponsor's logo (prominently displayed) in the members' directory.
Category III - $XXXXX and benefits include:
• the sponsor's logo (prominently displayed) in the Members' Directory.
• Article 6 of XXXXX sets out that active members, honorary members or non-members who choose to sponsor specific XXXXX initiatives shall be entitled to recognition commensurate with the extent of the sponsorship.
• One common arrangement concerns "program sponsors." Program sponsorship may include sponsoring the printing of XXXXX pamphlets where the sponsor may pay a portion of the cost. When XXXXX is billed for the printing costs from its supplier, it will rebill the agreed upon portion of the costs to the program sponsor. In return, the program sponsor is given recognition in the pamphlet and its logo is included in the pamphlet.
• The terms and conditions set out on the "Sponsorship Rate Sheet" completed by sponsors state:
• all sponsors must be XXXXX members;
• membership and sponsorship commences on the date the application form is received and due yearly thereafter;
• banner location is subject to availability;
• current sponsors retain first right of refusal on location of their banner;
• sponsors are responsible for supplying XXXXX with their own digital logo or banner;
• XXXXX reserves the right to deny membership and sponsorship.
Ruling Requested
1. Are revenues from annual sponsorships (Category I to III) subject to GST/HST?
2. Are revenues from program sponsorships subject to GST/HST?
Ruling Given
Based on the facts set out above, we rule that
1. Revenues from annual sponsorships (Category I to III) are not subject to GST/HST.
2. Revenues from program sponsorships are 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 local Tax Services Office for further information regarding the application of HST to your particular situation.
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
Section 135 of the ETA provides that where a public sector body (e.g. a non-profit organization) supplies either a promotional service or a right to use its logo or similar property to a sponsor of an activity of the non-profit organization, for use by the sponsor exclusively in publicizing it's business, the supply is deemed not to be a supply. An exception to this deeming provision is where the payment for the supply is primarily for a service of advertising by means of radio or television or in a newspaper, magazine or other publication published periodically.
The term "sponsor" is not defined in the ETA and so the Department accepts the general meaning of the term which usually indicates either a person who supports or accepts responsibility for another, or more commonly in the commercial sense, one who agrees to provide financial support with respect to another's activities or events while, or by, acquiring advertising or certain promotional rights.
In the context of the above, the Department may find a distinction between a "sponsorship" and a purchase of advertising. For example, the purchase of an advertisement in a magazine may not be a sponsorship, whereas the purchase of an advertisement in the programme of a theatrical event may well be. The listing of a business's name on a web page may be a supply of advertising rather than a "sponsorship" where it is a commercial transaction at fair market value. In another case, the listing on a web page may be viewed as a sponsorship, where the sponsor supports the event or activity of an organization while, or by, acquiring some promotional rights.
It is the Department's view that enhanced members (Categories I, II and III) are "sponsors" of activities undertaken by XXXXX in the achievement of its objectives and are not simply purchasing advertising. Therefore, enhanced members fall within the meaning of the term "sponsor" in section 135 of the ETA.
Furthermore, the following promotional supplies made by XXXXX to enhanced members (Categories I, II and III) fall within the parameters of section 135 of the ETA and, consequently, are deemed not to be supplies:
• the sponsor's company logo and link (incidental) to the Official Major Sponsors recognition page on XXXXX home page;
• acknowledgment and logo on the Official Major Sponsor Recognition Page;
• the sponsor's banner on one of a number of XXXXX site features; and
• the sponsor's logo (prominently displayed) in the Members' Directory.
Finally, where XXXXX provides a promotional service to a person who pays a portion of the cost of the printing of XXXXX pamphlets, that person is sponsoring the production of the pamphlet and, consequently, the promotional service is deemed not to be a supply under section 135 of the ETA.
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
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate
| c.c.: |
P. Bertrand
J.M. Place
L. Grannary
XXXXX |
| Legislative References: |
s. 135, s. 17/VI/V |
| NCS Subject Code(s): |
R-11925-6 |
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