18 February 1999 GST/HST Interpretation HQR0000989 - Definition of Vocational School

This memorandum is in response to the Memorandum of December 11, 1997, from XXXXX concerning the definition of vocational school in section 1 of Part III of Schedule V to the Excise Tax Act (ETA). We apologize for the delay in responding to the query.

The Memorandum was submitted as a result of a correspondence from XXXXX XXXXX to your office. In the letter, XXXXX raised concerns regarding the "operated primarily" requirement in the definition of vocational school. In particular, they indicate that in any given year, they are not able to ascertain whether the school would meet the "operated primarily" test (i.e., revenues from commercial flight instruction exceeds revenue from private pilot instruction and other sources). XXXXX was audited and it was determined that the majority of their revenue was not realized from commercial flight instruction, thus XXXXX was not a vocational school.

Our position regarding the definition of vocational school is outlined below:

An organization will qualify as a vocational school if it meets all the requirements in the definition. Pursuant to section 1 of Part III, a "vocational school" means "an organization that is established and operated primarily to provide students with correspondence courses, or instruction in courses, that develop or enhance students' occupational skills."

To determine whether an organization is established primarily to provide courses that enhance students' occupational skills, we will examine its governing documents. These documents including letters patent, articles of incorporation, memoranda of agreement, and by-laws should contain information as to the reason or purpose for the establishment of the organization. In circumstances where that information is not readily available, how the organization is operated will be evidence of the purpose for its establishment.

In order to be considered to be operated primarily, more than 50% of an organization's total annual revenues must be derived from tuition for courses, or should be attributable to the provision of instruction in courses, that develop or enhance students' occupational skills. In this regard, revenues earned from the provision of property or services that are directly related to, or dependent on the provision of the instruction will, be included in the revenue calculation for determining the primary purpose of the organization. For example, if a flight school earns revenue from the rental of an aircraft to an individual to complete the solo flying requirement of the commercial pilot's license, that revenue will be included in the calculation of revenues received for providing instruction in courses that develop or enhance students' occupational skills. Please note, grants and contributions received from government bodies to provide occupational training courses to individuals will also be included in the calculation of revenues received for providing instruction to individuals.

The Department will consider an organization to be providing instruction in courses that develop or enhance students' occupational skills, if the courses it provides are not in respect of sports, games, hobbies, or other courses that are designed to be taken for recreational purposes or for personal interest. The purpose or the intent of the courses may be obtained from a review of the curriculum and the organization's promotional material.

It is our opinion that a private pilot's license simply allows the holder to operate a particular mode of transportation for personal use (similar to a private passenger vehicle license). The holder of a private pilot's license does not normally derive an occupational benefit from having that license. It is only where the person acquires a commercial pilot's license that an occupational benefit may be realized. Thus, it is our opinion that private pilot lessons do not develop or enhance students' occupational skills. Therefore, revenues from the provision of property or services that are directly related to, or dependent upon the provision of private pilots' licence will not be included.

Where a flight school derives most of its revenue from the provision of private pilot lessons, the school will not be considered to be operated primarily to provide instruction in courses that develop or enhance students occupational skills. Hence, the flight school will not be considered a vocational school. In which case, a supply of instruction in courses leading to a commercial pilot's license provided by the flight school would not qualify for the exemption under section 8 of Part III of Schedule V to the ETA.

An organization should review its operation on a yearly basis to ascertain whether it qualifies as a vocational school. If an organization meets the requirements as a vocational school in its previous fiscal year, it will continue to be a vocational school for the following fiscal year. However, if in that following year the organization fails to meet the requirements in the definition (i.e., it is not operated primarily), it will cease to be a vocational school for supplies made after that year.

In the case of XXXXX the revenues earned from the provision of property and services that are directly related to, or dependent on, the provision of commercial pilot's licenses should be included in the revenue calculation along with tuition amounts to determine whether the XXXXX is operated primarily.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-4206.