6 September 2000 GST/HST Interpretation 8384 - Supplies Between a Charity and an Operator Under an Agreement

Dear XXXXX:

Thank you for your letter of November 22, 1999, with a draft contract enclosed, concerning the application of the Goods and Services Tax (GST) to the determination of supplies and their related consideration between a charity and an operator pursuant to an agreement for certain sorting services.

Facts

Based on your letter and our subsequent telephone conversations, we understand the facts to be as follows:

1. A registered charity ("the Charity") collects used and donated goods from members of the general public XXXXX.

2. Goods are left in bags, sacks or special containers in public sites such as shopping malls and are collected by the Charity's vehicles, or by a subcontracted collection company.

3. Typically, a load of used and donated goods contains items ranging from antiques, to good quality items that can be resold, to materials that are only good as raw materials in a recycling process or as mixed rags XXXXX.

4. XXXXX XXXXX, the Charity has XXXXX contracted with an operator to have the operator receive a large proportion of the collected donated goods and sort it for the Charity.

5. The operator is a registrant.

6. XXXXX

7. XXXXX.

8. XXXXX provides that the Operator agrees to sort and process XXXXX delivered "FOB Operator's premises".

9. XXXXX the agreement provides that the operator is entitled to reasonable XXXXX costs for waste disposal fees XXXXX XXXXX.

10. XXXXX XXXXX XXXXX[.]

11. XXXXX.

12. XXXXX.

13. XXXXX of the agreement provides that, XXXXX the value of the sorting and processing services supplied by the Operator is to be calculated as XXXXX.

Interpretation Requested

You have asked us to confirm your following interpretations:

1. The consideration for GST purposes for the sorting and processing services provided by the operator to the Charity XXXXX is equal to:

XXXXX[.]

XXXXX[.]

2. That the Operator must collect GST on the amounts received for XXXXX delivered to the charity where XXXXX.

3. That the Charity is not required to collect GST on the amount required to be paid by the Operator to the Charity under XXXXX of the agreement where XXXXX[.] This would be because the amount payable by the Operator is in respect of a supply of used or donated goods by the Charity, an exempt supply under Section 1 of Part V.[1] of Schedule V to the Excise Tax Act (ETA).

4. That the compensation the Charity is entitled to receive XXXXX returned to the Charity does not meet the criteria is in respect of an exempt supply of used or donated goods by the Charity, an exempt supply under Section 1 of Part V.1 of Schedule V to the ETA.

Interpretation Given

1. Based on section 153 of the ETA and XXXXX of the agreement, the consideration for the sorting and processing services supplied by the Operator in respect of XXXXX consists of the fair market value of the XXXXX not returned to the Charity XXXXX and the amount of the reasonable XXXXX expenses to the Operator for waste disposal XXXXX[.] With respect to the XXXXX retained by the Operator, paragraph 153(1)(b) of the ETA provides that where the consideration for a supply (or part of the consideration) is other than money, the value of the consideration or that part is deemed to be the fair market value of the consideration or that part at the time the supply is made.

We note that under the agreement, once the XXXXX is sorted, the remaining XXXXX becomes the property of the Operator. It is consequently at this time that the consideration for the sorting and processing services is considered to have been paid. Subsection 152(3) of the ETA provides that where consideration that is not money is given or required to be given, the consideration that is given or required to be given shall be deemed to be paid or required to be paid, as the case may be.

As for the payment by the Charity to the Operator for the XXXXX expenses for disposing of the waste product, paragraph 153(1)(a) of the ETA provides that where the consideration or part of it is expressed in money, the value of the consideration is equal to the amount of the money.

2. The amount to be paid, as the case may be, by the Charity to the Operator under XXXXX of the agreement is additional consideration for the sorting and processing services supplied by the Operator. As a registrant, the Operator would be required to collect tax in respect of those services to the extent that they are taxable (other than zero-rated) supplies made in Canada.

3. The Charity would not be required to collect tax in respect of the amount that the Operator is required to pay to the Charity in the circumstance described in XXXXX XXXXX the agreement. Although the supply of XXXXX given to the Operator as consideration for the Operator's services would be an exempt supply under section 1 of Part V.1 of Schedule V, the amount required to be paid under XXXXX the agreement would represent a subsequent reduction of consideration for the supply of the sorting and processing services supplied by the Operator.

4. The Charity would not be required to collect tax in respect of the amount required to be paid to the Operator under XXXXX the agreement. The amount would be considered to be a subsequent reduction of the consideration for the sorting and processing services supplied by the Operator.

Finally, to the extent that the services supplied by the Operator are taxable (other than zero-rated) supplies made in a participating province, the Operator would be required to collect HST at a rate of 15% in respect of those supplies.

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, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency 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) 952-8815.

Yours truly,

Raymond Labelle
A/Technical Officer
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate