8 August 2000 GST/HST Interpretation 26933 - Application of the GST/HST to the Establishment of a Business Trust

Dear XXXXX

Thank you for your letter of February 7, 2000, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the establishment of a business trust,

XXXXX (the Trust), by XXXXX (the Association) which is a charity under the Excise Tax Act (ETA). An interpretation rather than a ruling has been provided since the matter at issue relates to numerous agreements between the Trust and various provincial councils of the Association, and the central issue relates to a question of agency.

Statement of Facts

Based on your letter of February 7, 2000, and on our subsequent telephone conversation, our understanding of the facts is as follows:

1. The Association is divided into ten provincial and territorial councils plus XXXXX (national headquarters). These councils, in turn, are divided into many local branches or divisions ("branches"). The Association is comprised of XXXXX professionals and program development specialists who develop XXXXX courses and who, through its branches, supply training courses and XXXXX training materials to consumers.

2. The Trust was established, XXXXX, by the Association because the Association understood that it was necessary to transfer its business activities related to the supply of training courses and XXXXX to a trust in order to retain its charitable status under the Income Tax Act. The Association subsequently learned that establishing the Trust was unnecessary, and so commenced unwinding the Trust effective XXXXX.

3. The Trust is not a charity, nor a vocational school under the ETA. The Trust is a separate person from the Association and was registered for GST/HST purposes effective XXXXX. The provincial and territorial councils, you have advised, are separate persons; however, the branches are not separate persons, but rather, are part of the provincial councils.

4. Prior to the establishment of the Trust, the provincial and territorial councils of the Association, through their branches, made supplies of training courses which were exempt under the general exemption for charities, and supplies of XXXXX (tangible personal property) for a fee which was subject to GST/HST. Tax continues to be collected and remitted on the sale of XXXXX.

5. Agreements were drafted on XXXXX (with various effective retroactive dates in the period between XXXXX and XXXXX), with the intention of transferring the Association's business activities, related to the supply of training courses and XXXXX, to the Trust. Pursuant to the agreements, branches belonging to the participating provincial and territorial councils would continue to make supplies of training courses XXXXX but now they would be made on behalf of the Trust.

Five provincial councils (XXXXX) initially participated and four of those provincial councils, at various times, signed agreements. However, not all the branches of the participating provincial councils agreed to make supplies on behalf of the Trust. The XXXXX did not sign an agreement, nor did it ever charge tax on its courses.

6. It is important to note that if the Association provided the training courses, they would be tax exempt under the general exemption for charities (section 1 of Part V.1 of Schedule V). However, since the Trust is not a charity any courses supplied by it are taxable.

7. Most branches belonging to the four participating councils charged GST/HST on all supplies of courses commencing on various dates between XXXXX and XXXXX of XXXXX. Generally, Trust invoices were used (except where a branch had only Association invoices on hand), monies were deposited in Trust accounts and the Trust remitted tax collected on a consolidated return completed by its national headquarters based on information provided by the participating councils. Input tax credits were claimed by the Trust on purchases related to the supply of these courses.

8. Branches belonging to the four participating councils ceased to charge GST/HST on courses supplied after XXXXX; and no input tax credits were claimed on purchases related to courses supplied subsequent to that date.

9. Effective XXXXX, the Association (i.e., its branches) treated all supplies of training courses as exempt and supplies o fXXXXX training materials as taxable.

Interpretation Requested

For the period from XXXXX (the date that the Trust was established) to XXXXX, were the branches of the various participating provincial councils supplying the training courses on behalf of (i.e., as agents of) the Trust or on their own account?

Interpretation Given

It is the Canada Customs and Revenue Agency's (CCRA's) position that a person will be considered and treated for GST/HST purposes as an agent based on fact and the principles of law. Moreover, while a person may act as an agent for some matters, it cannot be concluded that that person is acting as an agent in all matters. The CCRA will not rule on whether an agency relationship exists where the relationship in question is already established or ongoing. Where a GST/HST ruling turns on the question of agency, there must be a representation of fact as to whether an agency relationship exists. The CCRA will rely on such representation when providing the ruling as to the application of GST/HST. Should this representation not be correct, the ruling may not be binding. For your further information on the essential qualities and indicators of an agency relationship, we are enclosing Policy Statement P-182 Determining the Meaning of the Terms "Agent" and "Agency" as Used In Relevant Sections of the Excise Tax Act and Identifying Those Factors That May Be Used To Determine the Likelihood of Agency.

One factor in determining whether the branches were supplying training courses on their own account or as agents of the Trust is ascertaining who is liable with the recipient for the supply under the Trust agreement. For a branch to be making a supply as agent of the Trust, the branch must be able to "bind" the Trust legally with respect to that supply (i.e., the Trust will be liable, under the agreement, to the recipient for the supply). In short, if there is an agency relationship, the Trust would be the "principal" in the transaction and as such would be at risk legally if there is non-performance of the contract.

The manner of invoicing the recipient may or may not be relevant. For example, even if a branch is using the Association's invoices in billing the recipient (e.g., if these are the only invoices in stock), it is still quite possible that the supply by the branch is being made on behalf of the Trust where an agency relationship between the council and the Trust has been established.

The fact that revenues from the courses are deposited to the Trust's bank account and that the Trust is reporting the revenue on its own return are also indicators, although not necessarily determinative ones, that the Trust is the supplier, and the branch is acting as an agent of the Trust.

Accordingly, if a branch supplies a training course and through its provincial council is party to an agreement with the Trust and there are indications that the branch is making the supply as agent of the Trust (e.g., the consideration is deposited to the Trust's account, the Trust reports tax calculated on consideration for the supply on its GST/HST return), then we would likely view the Trust as the supplier (i.e., the branch is acting as agent in making the supply) even if the invoice is in the name of the Association. Tax would be exigible on the supply since no exemptions in the ETA apply.

It is possible, as you have pointed out, that a branch of one of the participating councils (i.e., one of the councils that have entered an agency agreement with the Trust) may not have regarded itself as acting as agent of the Trust, or at least may not have treated its supplies as such. That is, some branches did not charge tax under the understanding that they were making the supplies in their capacity as part of a charity, rather than as an agent of the Trust (which was not a charity). We would concur with this viewpoint if, in this situation, it could be demonstrated that based on the essential qualities and indicators of an agency relationship set out in the enclosed Policy Statement P-182, that the branches were not acting as agents of the Trust. Again, the manner of invoicing is not determinative on the question of whether a branch is the supplier or is acting as agent of the Trust.

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) 952-0420.

Yours truly,

Lorrie Grannary
Charities, NPO's and Educational Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate