24 August 2000 GST/HST Ruling 13378 - Tax Status of Agreement with

Dear XXXXX:

Thank you for your letters of April 17, and August 8, 2000 in which you ask that we review our ruling of March 31, 2000, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the agreement you have entered into with XXXXX. Your letters, subsequent fax and telephone conversations with you and representatives of XXXXX have provided us with further information regarding this agreement.

Statement of Facts

Our understanding of the facts is as follows: (New information, provided by you and confirmed by XXXXX during our discussions, is marked by an asterisk.)

1. Under one of XXXXX programs, a person may present a proposal and receive funding in order to provide negotiated financial assistance (NFA) to eligible individuals. XXXXX presented a proposal under this program and is one of a few organizations which receives funding from XXXXX office under this program.

2. XXXXX entered into a contribution agreement with XXXXX for the period of XXXXX, under which the XXXXX acts as a community coordinator and receives a contribution of XXXXX. This amount is broken down as follows: XXXXX towards support for individuals; and XXXXX to cover overhead costs of the XXXXX.

3. The agreement states that its objective is to provide guidance and assistance to unemployed XXXXX clients who enquire about, or request, XXXXX financial assistance, to enable them to achieve employment self sufficiency.

* The financial assistance, is in fact, provided to any eligible client, not just XXXXX clients. Nor is it XXXXX assistance, rather it is assistance provided by the XXXXX.

4. According to the agreement the activities which must be undertaken by the XXXXX include the following.

(a) Ensure client eligibility for requested intervention(s) with XXXXX.

(b) Negotiate personal supports and/or contributions towards tuition and training with eligible clients on behalf of XXXXX.

* Agreements for financial support are not negotiated or signed on behalf of XXXXX. The agreements for personal support are between XXXXX and the client. Other than being assured that a XXXXX client meets the eligibility for assistance under the program, XXXXX has no input as to whether an eligible XXXXX client receives assistance or the level of assistance provided by XXXXX. XXXXX clients have no recourse to XXXXX if XXXXX decides to alter or refuse assistance.

(c) Administer payments of personal supports and contributions using risk management techniques to minimize risks of overpayments or financial losses to XXXXX.

* As financial assistance is paid to clients by XXXXX, overpayments to clients are not financial losses to XXXXX.

(d) Ensure client awareness of income tax implications regarding financial assistance received, and ensure that all required records and forms are completed and maintained as prescribed by the governing regulations.

(e) Maintain complete and detailed records of all client interactions relating to this agreement. As part of this service, the XXXXX must manage all clients through the XXXXX client management system. This requires that a staff person and a trained back-up be required to do the following:

•   manage the XXXXX process to ensure accurate, timely and complete data entry of clients into the system;

•   be responsible for regular maintenance and updating of client information;

•   remain current with XXXXX practices and procedures;

•   regularly liaise with the community case manager to report system related problems or administration difficulties; and

•   provide discs containing new or updated client information to the community case manager by the last business day of each month.

XXXXX system. Rather XXXXX collects information regarding its clients on a diskette and provides this information through another organization to XXXXX which then transfers it to its own XXXXX System.

(f) Monitor client progress to ensure clients and XXXXX are receiving fair value for the investment. This includes identifying areas of concerns that may impede course completion, verifying clients' attendance on course to determine the level of commitment, and detecting early course departure, termination or suspension in order to minimize financial loss to XXXXX and/or client overpayments.

* The reference to XXXXX is incorrect. As an accountability measure XXXXX monitors client progress to ensure that the funding provided to XXXXX is being used in accordance with the agreement (i.e. to provide financial assistance to eligible clients).

5. The XXXXX is also required to provide group information sessions to inform clients on the basic programs and services offered by XXXXX and its contractors, as well as providing guidance and assistance on how to apply for assistance.

* Contractors, as referred to in this clause, are other organizations providing employment services, which receive contributions from XXXXX.

6. The expected outcome of this agreement is an administratively sound, and fully accountable, negotiated financial assistance agreement for XXXXX clients in the XXXXX area.

* The reference to XXXXX clients is meant to convey that the XXXXX clients provided with financial assistance meet the eligibility criteria set out by XXXXX.

7. XXXXX manages all of the activities pertaining to the financial assistance without XXXXX direction and chooses its own methods to deliver financial assistance and other services (such as the information sessions) to its clients. The XXXXX hires and trains its own staff, sets its own hours of operation, obtains its own facilities and uses its own equipment. XXXXX has no access to XXXXX computer systems.

Ruling Requested

Is the payment provided to the XXXXX by XXXXX, to provide negotiated financial assistance to unemployed individuals in XXXXX, subject to the GST/HST.

Ruling Given

Based on the facts set out above, we rule that the entire amount provided to XXXXX by XXXXX under the contribution agreement, is not consideration for a supply and is not subject to the GST/HST.

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

The payments made by XXXXX are for the public purpose of ensuring that eligible clients receive financial assistance. The additional information provided indicates that XXXXX does not supply a service to XXXXX as a result of the payment. Although XXXXX funds the activities of the XXXXX which result in XXXXX providing financial assistance to eligible individuals, XXXXX cannot be said to be administering an XXXXX program. XXXXX is not a party to the financial assistance agreement into which XXXXX and an eligible client enter. Other than requiring XXXXX clients to meet the eligibility criteria for financial assistance under the program, XXXXX has no influence as to whether an eligible XXXXX client receives assistance or the level of assistance provided by XXXXX. Therefore, it cannot be said that XXXXX is purchasing the service of the XXXXX or that XXXXX is providing the financial assistance on behalf of XXXXX. The information XXXXX provides to XXXXX regarding its clients is for accountability purposes only, to show XXXXX that the funding is being used for the intended purpose.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-7947.

Yours truly,

Darlene Wladyka
Senior Technical Analyst
Governments Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate