29 June 2000 GST/HST Ruling 26931 - Tax Status of Supplies

XXXXX

Thank you for your letter of November 18, 1999, which was addressed to the Summerside Tax Centre and wherein you objected to the classification of XXXXX (the "Association") as a charity for purposes of Goods and Services Tax (GST)/Harmonized Sales Tax (HST) rebate. We have been asked to respond to the issue raised in that letter, as well as the issues discussed in our telephone conversation of May 25, 2000.

Statement of Facts

Our understanding of the facts is as follows:

1. The Association was incorporated under the Non-Profit Corporations Act XXXXX[.]

2. The Association is a registered charity within the meaning assigned under subsection 248(1) of the Income Tax Act (ITA).

3. The Association carries on a number of activities including the operation of a sheltered workshop, a recycling depot, a group home, and a supportive living home.

4. Under the auspices of the sheltered workshop, the Association manufactures lawn furniture and ornamental woodwork, operates a XXXXX and provides maintenance and janitorial services.

5. The Association currently charges GST on the supply of the lawn furniture and the ornamental woodwork.

6. The Association charges a fee XXXXX which exceeds one dollar; GST is added to the fee.

7. The Association charges GST on the supply of the maintenance and janitorial services.

Rulings Requested

Pursuant to our telephone conversation of May 25, 2000, you requested a ruling on the following issues:

1. Whether the Association is a charity for purposes of the Excise Tax Act (ETA).

2. Whether the Association should charge tax on the supply of property and services made through its sheltered workshop.

Ruling Given

1. Based on the facts set out above, we rule that the Association is a charity as defined in subsection 123(1) of the ETA.

2. Based on the facts set out above, we rule that the Association, since it is a GST/HST registrant, should charge GST on the supply of the lawn furniture, ornamental woodwork and XXXXX. However, the supply of the maintenance and janitorial services is exempt from tax.

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

XXXXX

1. The Association is a charity as defined in subsection 123(1) of the ETA.

For purposes of the ETA, a charity is defined as "a registered charity ... within the meaning assigned ... by subsection 248(1) of the Income Tax Act, but does not include a public institution." Accordingly, the Association is a charity for purposes of the ETA by virtue of the fact that it is a registered charity as defined under subsection 248(1) of the ITA, and it is not a public institution as defined in the ETA. For your information, a public institution is a registered charity that is a public college, school authority, university, hospital authority, or a determined municipality.

2. The Association should charge GST on its supply of lawn furniture and ornamental woodwork, but not the supply of the janitorial and maintenance service.

Generally, supplies of property and services made by a charity are exempt from tax in accordance with section 1 of Part V.1 of Schedule V to the ETA, unless such supplies are excluded under paragraphs 1(a) through (m) of Part V.1 (a transcript of this provision is attached). Pursuant to paragraph 1(d), a supply of tangible personal property that was acquired, manufactured or produced by a charity for the purpose of making a supply is excluded from the general exemption. This exclusion does not apply to tangible property that was previously used by another person or that was donated to the charity. Therefore, supplies of used or donated goods remain exempt.

In accordance with paragraph 1(d), the supply of lawn furniture and ornamental woodwork produced by the Association is excluded from the general exemption since it is neither used, nor donated, but is instead manufactured by the Association for the purpose of making a supply. As such, the supply of the products are taxable since it appears that no other exempting provision applies.

Similarly, where a charity makes a supply of admission to a place of amusement, the supply is exempt unless, pursuant to paragraph 1(e), the admission fee exceeds one dollar. Admission as defined in subsection 123(1) of the ETA, means "a right of entry, or access to, or attendance at, the place of amusement ... activity or event." A "place of amusement" which is also defined in subsection 123(1) means "any premise or place, whether or not enclosed, at or in any part of which is staged or held any ... race, game or chance, athletic contest, or other contest or game, and includes ... any place, structure, apparatus, machine or device the purpose of which is to provide any type of amusement or recreation." On this basis, the XXXXX fee charged by the Association is consideration for admission to a place of amusement. Since the XXXXX fee exceeds one dollar, the supply of the admission is excluded from the general exemption, i.e., it is a taxable supply.

With respect to the services provided by the Association through its sheltered workshops, such services are exempt in accordance with section 1 of Part V.1 of Schedule V to the ETA. As a result, the Association should not charge tax on these services, nor is it eligible for input tax credits (ITCs) with respect to the GST paid on related purchases.

If the Association has collected tax in respect of the supply of these exempt services, the tax has been collected in error. Tax collected in error must either be remitted to the Canada Customs and Revenue Agency (i.e. to the extent that it is required to be included in the Association's net tax calculation), or in accordance with subsection 232(1) of the ETA, refunded or credited to the recipient (i.e., normally the purchaser). If the latter option is chosen, the Association has up to two years from the end of the reporting period in which tax was erroneously collected to issue a credit or to refund the amount collected as tax. A credit note in the amount of the refund or credit and containing specified information (e.g. description of the items, date the note is issued, business name and Business Number) must be issued to the recipient. If the amount refunded or credited was included in the net tax of the Association, that amount may be deducted from net tax for the reporting period in which the credit note was issued to the purchaser.

Furthermore, if the Association has claimed ITCs on property or services used, consumed, or supplied in the course of its exempt activities, it has done so in error. Please contact your local Tax Services Office for assistance on adjusting your returns if such claims have been made. That office may also assist you if you require more information about tax collected in error.

Effective for reporting periods after 1996, the Association was required to calculate its net tax in accordance with the method set out in subsection 225.1 of the ETA. This is referred to as the Net Tax Calculation for Charities. Generally, under this method, a charity remits 60% of the tax collected on its taxable supplies, excluding supplies of real property and capital property. If the charity makes taxable supplies of real and capital property it must remit 100% of the tax collected. Similarly, it must account for 100% of any tax collected in error.

Further, under this method, a charity is entitled to claim ITCs only in respect of the acquisition and improvements to real property and capital property. However, it is entitled to a 50% rebate for most other purchases including those related to making taxable supplies. Please find enclosed, a copy of the information booklet "GST/HST Information Guide for Charities" which provides more information on the Net Tax Calculation for Charities.

Pursuant to proposed amendments in the 1998 Federal Budget, certain charities may apply to be designated for the purpose of having their otherwise exempt supplies of services made to GST/HST registrants treated as taxable. A charity may make an application to be designated if one of the main purposes of the charity is the provision of employment, training for employment or employment placement services for individuals with disabilities, or the provision of instructional services to assist such individuals in securing employment, and the charity supplies, on a regular basis services that are performed in whole or in part, by individuals with disabilities. Such services supplied to a public sector body or a board, commission, or other body established by a government or a municipality will remain exempt.

An application for designation may be made to the Charities, NPOs, and Educational Services Unit, Public Service Bodies and Governments Division, at the above address. We are unable to formally process applications until this legislative provision receives Royal Assent. However, we have initiated certain interim measures that we will describe upon application.

Please note that where a charity is designated for purposes of proposed section 178.7 of the ETA, it is not required to determine its net tax in accordance with the Net Tax Calculation method described above.

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

Yours truly,

Dwayne Moore
Charities, NPOs, and Educational Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate