28 September 2000 GST/HST Ruling 25362 - Application of the GST/HST to the Supply of an All-inclusive Language Training Package to Non-residents

Dear XXXXX:

Thank you for your facsimile message of September 23, 1999, to the XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the activities of your client. Your inquiry was forwarded to our office for reply. Our comments are set out below.

Statement of Facts

Our understanding of the facts of the case, based on the documentation submitted and information provided in a telephone conversation between you and me on June 9, 2000, is as follows :

1. XXXXX is a business run by XXXXX XXXXX as a partnership and is registered for GST/HST since XXXXX XXXXX. The advertising literature for the XXXXX identifies it as a school providing English language instruction.

2. The main activity of the XXXXX consists of supplying an all inclusive package to non-residents which includes room and board at the XXXXX, English-as-a-second-language (ESL) training along with school supplies (hereinafter be referred to as "the Package"). The period of time that is included in the Package can vary from one to three months.

3. The non-residents purchase the Package from their travel agent in XXXXX.

4. A qualified ESL instructor is retained to provide the language training provided as part of the Package and a certificate is provided to the graduates. Each student receives 6 hours language training daily, 5 days a week.

5. The XXXXX promotional material breaks down the consideration for the various components of the package. However, the components must be acquired together as a package by the non-residents. Supplementary hours of one-on-one instruction in English are also offered at a per hour rate.

6. Currently, the provision of this package represents 90% or more of the XXXXX revenue and human resources requirements. The remaining percentage represents clients coming only for excursions. The XXXXX is planning to diversify its business activities in the future and as a result of this change the percentage could go down.

Ruling Requested

You would like to know if any GST is applicable to the package.

Ruling Given

Based on the facts above, we rule that in supplying the Package the XXXXX is making a single supply of instruction in English as a second language which is exempt pursuant to section 11 of Part III of Schedule V to the Excise Tax Act (section 11 and the ETA).

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 our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

Having determined that the XXXXX is making a single supply of ESL instruction in supplying the Package, we would point out that all elements included in the Package have the same tax status as the supply of ESL instruction.

Tax Treatment of ESL Instruction

Section 11 exempts the service of instructing individuals in language courses that form part of a program of second language instruction in either English or French, where the supply is made by an organization that is established and operated primarily to provide instruction in languages.

To determine whether an organization is established primarily to provide instruction in languages, we will examine an organization's governing documents. These documents include letters patent, articles of incorporation, memoranda of agreement and by-laws and should contain information as to the reason or purpose for the establishment of the organization. If that information is not readily available, how the organization is operated will be evidence of the purpose of its establishment. With respect to the operated primarily requirement, the organization's revenues and human resources should be primarily attributed to the supply of instruction in languages.

Based on the description of the XXXXX activities, as outlined above, supplies of ESL instruction provided by it qualify for exemption pursuant to section 11. This means that it is not required to charge GST on supplies of ESL instruction.

Please note a Ways and Means Motion was tabled in Parliament on December 10, 1998, to amend section 11. The proposed amendment is set out below.

"11. A supply of a service of instructing individuals in, or administering examinations in respect of, language courses that form part of a program of second-language instruction in either English or French, if the supply is made by a school authority, a vocational school, a public college or a university or in the course of a business established and operated primarily to provide instruction in languages."

The reference in section 11 to "organization" is removed to clarify that the exemption is available whenever the supplier is a person whose business is primarily to provide instruction in languages. It does not affect the exempt status of the ESL supplied by the XXXXX. This proposed amendment to section 11 applies to supplies made after April 1999.

We have ruled that the ESL courses offered by the XXXXX are not subject to GST. However, it should be noted that if the XXXXX diversifies its activities and ceases to be operated primarily to provide instruction in languages, the supply of English courses may become taxable. Further, if the XXXXX offers other courses which are not within the exemption in section 11, these courses will be taxable as well as any other supply of excursion supplied otherwise than as part of the ESL instruction package.

It is important to note that a GST/HST registrant is not able to claim input tax credits in respect of the GST/HST paid or payable on purchases and operating expenses related to its exempt supplies.

Also, we would point out that, generally, registration is optional where revenues from taxable sales are $30,000 per year or less. Persons who are registered and have taxable sales of $30,000 per year or less may choose to no longer be registered. If so, they are not required to collect the GST on their taxable sales, but they are also not able to claim input tax credits.

In the present case, if the XXXXX revenue from taxable supplies is $30,000 per year or less, it may apply to cease being registered. Please find enclosed the GST/HST memoranda 2.2 Small Suppliers, 2.3 Voluntary Registration and 2.7 Cancellation of Registration. More information on cancellation of registration can be obtained from the XXXXX. The telephone number is XXXXX.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8223.

Yours truly,

Carolle Mercier
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate