2 February 1999 GST/HST Interpretation HQR000008 - Qualifying Non-profit Organization

Dear XXXXX

This letter is in response to the request of June 27, 1996 from XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the XXXXX[.] We apologize for the delay in responding to the request.

In his letter, XXXXX states that the XXXXX was created pursuant to Article 38 of the Agreement between the XXXXX. The XXXXX has no "regular function" and is not an "instrument of public government." However, parties to a dispute may apply to the XXXXX to resolve the dispute in an informal and expeditious manner. A panel of one or three members from the XXXXX is formed to address the dispute. The cost of the process is borne by the parties to the dispute, who pay an advance to the XXXXX equivalent to the anticipated costs. It is the XXXXX responsibility to make arrangements to hear the disputes; this includes arranging for a meeting space, as well as interpretation and transcription services.

Pursuant to my telephone conversation of November 23, 1998 with XXXXX XXXXX it was agreed that responses were not required for the questions concerning whether the XXXXX[.] With respect to the remaining queries, we are unable to provide a GST/HST application ruling since certain facts are not ascertainable at this time. However, in order to provide some guidance, we will provide the following interpretations. Please note, it is Departmental policy to not issue a ruling on whether an organization is operated otherwise than for profit, as such a determination may only be made upon review of the organization's books and records.

Interpretation Requested

Should GST be charged on the fees levied on the parties and can input tax credits (ITCs) be claimed on expenditures?

Interpretation Given

Subsection 165(1) of the Excise Tax Act (ETA) imposes the GST on all taxable supplies made in Canada by GST registrants. A "taxable supply" as defined in subsection 123(1) of the ETA, means "a supply that is made in the course of a commercial activity." In subsection 123(1), "commercial activity of a person" is defined as "a business carried on by the person ... except to the extent to which the business involves the making of exempt supplies by the person."

A supply of arbitrating disputes, other than as a right of membership, is not an exempt supply. However, a fee charged for the filing of documents in order to start an arbitration process is exempt pursuant to subsection 20(b.1) of Part VI of Schedule V, if the filing of the document is in accordance with legislative requirements. As well, if in order to file the documents requesting an arbitration, the applicant must agree to pay all costs that relate to the arbitration process, those fees may be consideration for the exempt filing of the documents, whether they are paid at the time of the filing or after the arbitration is concluded.

The XXXXX was established pursuant to the XXXXX an act respecting an agreement between the XXXXX[.] Thus, as a body established by a XXXXX, if the XXXXX supplies the service referred to in subparagraph 20(b.1) of the ETA, the supply of that service will be an exempt supply.

Where a person is engaged in making taxable supplies for consideration in the course of commercial activities, the person is eligible to fully recover the tax paid or payable on purchases acquired for use, consumption and supply in the course of making the taxable supplies by claiming input tax credits (ITCs). However, no ITCs are available for property or services acquired for use, consumption, or supply in the course of making an exempt supply.

Please note, should the XXXXX be included as part of the XXXXX XXXXX, it will not be required to pay tax on purchases made for purposes of fulfilling its mandate. Furthermore, it will not be entitled to any ITCs.

Interpretation Requested

As a non-profit organization, is the XXXXX eligible for a rebate on a portion of the GST it has paid?

Interpretation Given

Under section 259 of the ETA, qualifying non-profit organization may claim a rebate equal to 50% of tax paid or payable on purchases (i.e., the "non-creditable tax charged") where they are not otherwise entitled to ITCs, rebates, refunds or remissions in respect of these purchases. Please note, in order to be considered a qualifying non-profit organization an entity must receive at least 40% of its annual revenue from government funding and must be a non-profit organization as defined in subsection 123(1) of the ETA.

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%. Good and services acquired or supplies made in a participating province may be subject to tax at the harmonized rate.

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, do not necessarily 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) 954-4206.

Yours truly,

Dwayne Moore
Charities and Non-profit Organizations Unit
Public Service Bodies & Governments Division
GST/HST Rulings and Interpretations Directorate