26 February 2001 GST/HST Ruling 31464 - Entitlement by to Claim Input Tax Credits

Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th Floor 320 Queen Street Ottawa, ON K1A 0L5XXXXX XXXXX XXXXXAttention: XXXXX

Case: 31464February 26, 2001

Subject:

GST/HST APPLICATION RULING Entitlement by XXXXX to claim Input Tax Credits

Dear XXXXX:

Thank you for your letter of February 25, 2000 (with attachments) and additional documents provided on January 25, 2001, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below.

Statement of Facts

Our understanding of the facts, the transactions, and the purpose of the transactions is as follows:

1) XXXXX is a for profit partnership that is not currently registered for the purposes of the GST/HST.

2) The XXXXX established the XXXXX XXXXX for the purpose of providing midwifery services in XXXXX.

3) The XXXXX is a government entity that comprises part of the provincial government of XXXXX. As such, it is not required to pay GST/HST on its purchases.

4) XXXXX[.]

5) XXXXX[.]

6) XXXXX is a registered charity. It is not part of the provincial government.

Agreement between XXXXX

7) The preamble to this Agreement states that the XXXXX has established the XXXXX for the purpose of ensuring that midwifery services are provided in XXXXX. It also states that the XXXXX has as its object the aim of providing health services to its community and wishes to operate a program to make midwifery services available to residents in the XXXXX area.

8) XXXXX provides that the XXXXX shall operate a midwifery program that offers midwifery services to XXXXX residents in the XXXXX area; and provides midwifery services to women in the XXXXX area.

9) XXXXX states that in order to operate the program, the XXXXX shall engage one or more XXXXX on a contract basis (i.e., an XXXXX) to provide midwifery services under the program. The XXXXX will enter into a contract (i.e., a XXXXX Agreement) with each XXXXX. The XXXXX agrees to operate the program in accordance with the Agreement and to provide copies of any agreement and amendments thereto to the XXXXX upon request.

10) XXXXX states that the XXXXX shall conduct itself in accordance with all applicable law, keep and maintain all financial records, invoices and other financially related documents related to the XXXXX funding and shall maintain such records and keep them available for review by the XXXXX for a period of seven years from the date of termination of the Agreement.

The XXXXX shall also maintain all non-financial documents and records and authorizes the XXXXX upon 24 hours' notice and during normal business hours, to enter its premises to review the status and manner of operation of the program and to inspect and copy any financial records, invoices, financially related documents and subject to patient's consent, non-financial records and documents related to XXXXX funding or otherwise to the program. The XXXXX agrees that the XXXXX has the right to perform a full or partial audit of any kind.

Compensation to XXXXX

11) XXXXX states that the XXXXX shall pay fees on a periodic basis to each XXXXX for XXXXX during the period.

12) XXXXX states that the XXXXX shall also fund the following costs, expenses and amounts subject to limits and restrictions set out in XXXXX of the Agreement:

•   travel expenses incurred by the XXXXX in providing midwifery services pursuant to their respective XXXXX Agreements;

•   fees incurred for engaging second attendants for births or obtaining the services of other persons as permitted by their XXXXX Agreements;

•   malpractice liability insurance; and

XXXXX

13) XXXXX states that the XXXXX shall use its best efforts to ensure that no woman to whom services are provided under the program is charged or pays any fee of any kind for such services unless the woman insists on paying for religious, cultural or other particular reasons.

XXXXX Funding

14) XXXXX states that the XXXXX shall provide funds, during each contract year, to the XXXXX of up to the maximum amount specified in the annual budget for such contract year for the purpose of operating the program.

15) XXXXX requires that the XXXXX provide a draft budget for the contract year setting out the XXXXX that the XXXXX recommends be completed by the XXXXX pursuant to their respective XXXXX Agreements and the aggregate amount of fees the XXXXX recommends payable by it to the XXXXX s, the types and number of XXXXX that the XXXXX recommends as eligible XXXXX, the types and amounts of disbursements the XXXXX recommends be incurred by the XXXXX in providing midwifery services, the aggregate amounts of XXXXX grants which are recommended by the XXXXX to be paid, the fee to the XXXXX for operating the program and the amount of any non-recurring costs reasonably anticipated to be incurred by the XXXXX in operating the program.

16) XXXXX funding is deposited directly into the XXXXX bank account where it will be kept in a separate account. Any unused portion of the funding and any interest accrued remains the property of the XXXXX and shall either be paid to the XXXXX upon request or used by the XXXXX as the XXXXX directs.

17) XXXXX states that the XXXXX shall expend the XXXXX funding only for the purpose of operating the program in accordance with the annual budget for the contract year and in accordance with this Agreement.

18) XXXXX stipulates that the XXXXX shall not, without prior written consent of the XXXXX, sell, lease, or otherwise dispose of assets acquired using XXXXX funding which was provided for non-recurring costs in operating the program, unless the assets in question were less than XXXXX at time of acquisition.

XXXXX Agreement between the XXXXX and XXXXX[.]

19) The Preamble to the XXXXX Agreement states that the XXXXX has established the XXXXX for the purpose of providing midwifery services in XXXXX. The XXXXX is being funded by the XXXXX for the purposes of operating a program to provide midwifery services. The XXXXX has the capacity and is willing to enter into an agreement with the XXXXX to offer and provide midwifery services to residents of XXXXX.

20) XXXXX of the Agreement states that the XXXXX shall: offer and be available to provide midwifery services to residents of the services area, provide in each contract year up to the number of XXXXX indicated in the annual budget and offer and provide midwifery services in each contract year to the minimum number of women who are referred to the XXXXX by the XXXXX.

21) Where the XXXXX exercises its right under XXXXX to refuse to provide midwifery services to a resident referred by the XXXXX, the XXXXX shall within 10 days of receiving a written request provide written reasons to the XXXXX for its refusal to provide such services to the resident.

22) You advised in our telephone conversation on February 15, 2001, that the XXXXX does not in fact refer selected clients to XXXXX. Rather, it determines the number of XXXXX. Expectant mothers who would like to receive midwifery services will contact XXXXX directly to arrange for these services. The number of patients to receive care is negotiated with the XXXXX and figures into the calculation of the budget prepared by XXXXX for the XXXXX and in the XXXXX budget which is sent for approval by the XXXXX.

23) XXXXX of the Agreement states that midwifery services provided to a person who is not a resident of the service area shall constitute a XXXXX only if the XXXXX obtains the written consent of the XXXXX prior to commencing the services. Written consent must also be obtained from the XXXXX in the case of a resident who was in the care of the XXXXX and who moves out of the services area during her pregnancy.

24) XXXXX states that each midwife is expected to provide midwifery services as primary caregiver for up to XXXXX and as secondary caregiver for up to XXXXX. The compensation for members of the XXXXX acting as secondary caregivers is included in the annual fee and no additional compensation is payable to the XXXXX.

25) XXXXX states that the XXXXX agrees to provide midwifery services and non-clinical services in a manner consistent with the mission statement, philosophy and operating values of the XXXXX, provided they do not conflict with rules of the XXXXX.

26) XXXXX states that the XXXXX provides midwifery services to the XXXXX on a non-exclusive basis. The XXXXX may provide midwifery services in connection with any other transfer payment agency during the term. However, the XXXXX shall not be entitled to be paid more than the fee payable for one XXXXX.

27) XXXXX states that nothing in the Agreement prevents the XXXXX from providing midwifery services to persons who are not covered by the Agreement, provided that the XXXXX is not paid by the XXXXX for services to such persons.

28) XXXXX states that the XXXXX shall pay to the XXXXX in each contract year, an annual fee for the provision of XXXXX completed by the XXXXX. The fee is calculated according to the fee schedule set out in XXXXX XXXXX of the Agreement and shall not exceed the maximum aggregate amount specified in the Annual Budget for the Contract Year.

29) Under XXXXX, the XXXXX also agrees to fund the following disbursements to the XXXXX, up to limits set out in XXXXX: travel expenses, fees for engaging second attendants for births or to obtain the services of other persons as permitted under the Agreement, malpractice liability insurance XXXXX[.]

30) XXXXX provides that the XXXXX may apply to the XXXXX for a grant of money in any contract year up to the maximum amount indicated in the annual budget to fund the purchase of capital assets and leasehold improvements and other non-recurring costs of establishing or maintaining the operation of the XXXXX. XXXXX XXXXX contains the list of capital assets for which grants are available.

31) XXXXX states that any assets purchased by the XXXXX to provide midwifery services pursuant to this Agreement (whether or not with the use of grants from the XXXXX) shall belong to the XXXXX (and for greater certainty, to each of the Partners of the XXXXX jointly in accordance with their respective interests in the XXXXX). Assets listed in XXXXX shall belong to the individual midwife for whom they were purchased during the term and after the expiry or termination of the Agreement.

32) Under XXXXX, the XXXXX may review the financial records, invoices and related documents for a period of seven years after the expiry of the Agreement. The XXXXX and its agents may inspect and copy any financial records and related documents and subject to consent by patients, non-financial records and documents relating to midwifery services and non-clinical services provided pursuant to the Agreement. The XXXXX is also entitled to perform full or partial audits of any kind on the XXXXX.

Ruling Requested

Is XXXXX entitled to register for the purposes of the GST/HST and claim input tax credits?

Ruling Given

Based on the facts set out above, we rule that XXXXX is making taxable supplies of midwifery services for no consideration.

The payments provided to XXXXX by the XXXXX through the XXXXX are grants and are not consideration for the supply of midwifery services. Therefore, GST/HST does not apply to these payments.

By virtue of subsection 141.01(1.2) of the Excise Tax Act (i.e., the ETA), these payments would nevertheless be deemed to be consideration for taxable supplies made by XXXXX.

Subsection 141.01(1.2) provides that if a registrant receives an amount that is not consideration for a supply from a government and that assistance can reasonably be considered to be provided for the purpose of funding an activity that involves the making of taxable supplies for no consideration, then the amount is deemed to be consideration for those taxable supplies.

As XXXXX is making taxable supplies of midwifery services, it is involved in a commercial activity. As such, it will be required under section 240 of the ETA to register for the purposes of the GST/HST, unless it is a small supplier. XXXXX will be a small supplier if its total taxable revenues are $30,000 or less in the last four consecutive calendar quarters, or in a single calendar quarter. However, even if XXXXX meets the definition of a small supplier, it may choose to register voluntarily.

Because XXXXX is deemed under subsection 141.01(1.2) to be making taxable supplies for consideration, it would be entitled as a GST/HST registrant to claim input tax credits to recover the GST/HST paid or owed on purchases and expenses incurred to provide the midwifery services.

Additional information on the registration process is contained in the enclosed guide, General Information for GST/HST Registrants.

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 ETA, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9590.

Yours truly,

Elaine Bonnah
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

c.c.:

O. Newell E. Bonnah S. Eastman R. Osudar

Legislative References:	141.01, 148, 165, 169, 240
NCS Subject Code(s):	R-11846-3,