22 December 1999 GST/HST Interpretation 8401/HQR2007 - Tax Status of Supplies Made by

This is in reply to your recent inquiry concerning the application of the Goods and Services Tax ("GST") to the supplies of assessment tests and tutoring services made by XXXXX[.] Our comments are set out below. (As you have supplied us with additional information with respect to the XXXXX XXXXX Program, we have revised our memorandum of December 22, 1999, and are reissuing it with the date of January 27, 2000.)

Statement of Facts

Our understanding of the facts of this case is as follows:

1. XXXXX, carrying on business as XXXXX is a franchisee of a tutoring business. XXXXX is not a GST registrant at the present time. XXXXX supplies are set out below.

(a) Assessment Test - This measures the student's academic level. Once a student is assessed, a learning program is designed for their needs. There is a fee for the assessment. A lower fee is charged if the student signs up for a program. There is a higher fee if only the assessment is performed.

(b) Learning Programs - In each program, as part of the fee charged, XXXXX. XXXXX (for ages 3 to 6) - XXXXX[.]

After School Program (Grades 1 to 8, 1 hour, twice a week) - XXXXX.

After School Program (Grades 9 to University Entrance, 1 hour, twice a week) - XXXXX.

2. XXXXX has developed its own curriculum and its programs are not approved for credit by any school authority. However, XXXXX clearly provides many courses (e.g. reading, writing, mathematics, French) that are meant to, and will, assist students in doing well in their specific regular school courses.

3. An assessment was issued by the XXXXX to the XXXXX for GST on its supplies. This assessment was appealed.

4. The XXXXX issued an interpretation letter to the XXXXX XXXXX on the tax treatment of its supplies. The interpretation letter stated that supplies of tutoring services in courses that follow a curriculum that has been designated by a school authority would be exempt of GST pursuant to section 9 of Part III of Schedule V to the Excise Tax Act ("section 9" and "the Act"). The interpretation letter also referred to a headquarters ruling, dated January 30, 1996, to the law firm of XXXXX XXXXX on the tax treatment of supplies of math tutoring services by a franchise called the XXXXX (to be referred to as the XXXXX ruling). The interpretation letter to XXXXX stated "... tutoring need not be limited to tutoring in the material contained in the course but could also include tutoring in material from lower grades or tutoring in general concepts dealing with relevant subject matter in order to assist the student to understand the material contained in a credit course or a course designated by a school authority".

5. The XXXXX used the interpretation letter to reverse the assessment for GST on tutoring services provided by the XXXXX.

Information Requested

1. What is the tax treatment of the supplies of tutoring services made by XXXXX. That is, are these supplies exempt pursuant to section 9 of the Act?

2. What is the tax treatment of the assessment tests administered by XXXXX?

Information Provided

1. Tax Treatment of Tutoring Services

(Note: "tutoring services" includes tutoring and any supplies incidental to the learning programs described in XXXXX brochures, such as workbooks, program supplies and accessibility to computers.)

Reference is made to the exemption for tutoring services in section 9 of the Act. Where the supply of tutoring services made by XXXXX meets the required conditions in paragraph 9(a), those supplies will be exempt.

Further, we confirm that the XXXXX ruling is valid and should be applied where appropriate. The quoted statements from the ruling which appear in the Statement of Facts, No. 4, above, indicate that the subject matter in which the student is being tutored must relate to a course which the student is taking in school. For example, if a student seeks tutoring to help him or her in a Grade 11 math course, the XXXXX ruling indicates that tutoring in math material from a lower grade or in general math concepts which help with the Grade 11 course would qualify for exemption pursuant to paragraph 9(a).

During our recent telephone conversations, you indicated that the XXXXX school system has courses for 4 and 5 year olds comparable to the XXXXX XXXXX Program for 4 and 5 year olds. It is our view that the tutoring offered to 4 and 5 year olds by XXXXX would be exempt pursuant to paragraph 9(a) since the program "follows a curriculum" designated by a school authority.

Further, since the tutoring by XXXXX for 3 year olds is part of the same program offered the 4 and 5 year olds, and this program meets the requirements of paragraph 9(a), the tutoring for the 3 year olds may also be exempt under this provision. That is, given our broad interpretation of "follows a curriculum designated by a school authority", it is clear that the instruction given to the 3 year olds may meet this requirement notwithstanding that the school authority programs are for 4 and 5 year olds.

For example, XXXXX reading lessons for 3 year olds may be more elementary than that offered 4 or 5 year olds, but nevertheless may be similar in nature. On this basis, in reviewing the nature of the instruction provided to XXXXX preschoolers, it is open for you to find sufficient linkage or nexus between XXXXX preschool program (for all ages), and the similar curriculum offered by the school system for the exemption to apply. In fact, at this age level, it appears most likely that the instruction given to the 3 to 5 year olds at XXXXX would "follow a curriculum" of the school system's preschool program, unless the instruction given by XXXXX is found not to be educational, or unless it is a radically different method of instruction that does not resemble the school system's program.

2. Tax Treatment of Assessment Tests

In our view, where the assessment tests are supplied alone, the supply is taxable, since no exemptions in the Act apply.

However, where both an assessment test and a tutoring service are supplied together, reference should be made to the administrative policy, Single and Multiple Supplies, P-077R. It is our view that, where the assessment test and the tutoring service are supplied together, this policy would indicate that this is a single supply. Thus, the assessment test would take on the tax status of the tutoring service.

On the other hand, if, after application of the Single and Multiple Supply Policy, it was found that the supply of the assessment test and the tutoring service together were two separate supplies, section 138 of the Act should be considered to determine if it is applicable. If the assessment test is found to be incidental to the supply of the tutoring service, then the assessment test will be deemed to be part of the tutoring service and will have the same tax status as the tutoring service.

Although we are not aware of all the details concerning the assessment tests, it is most likely that we would find that such tests have the same tax status as the tutoring service where the two are supplied together, whether that finding is based on there being a single supply or through the application of section 138.

If you have any further questions or require clarification in this matter, please do not hesitate to call me at (613) 952-9215.