28 April 2003 GST/HST Ruling 40597 - Status as a Non-profit Organization Under Section 259 of the Excise Tax Act

Dear XXXXX:

Thank you for your letter XXXXX concerning the XXXXX Organization's eligibility for meeting the definition of qualifying non-profit organization (NPO) under the Excise Tax Act (the ETA). We apologize for the delay in our response.

Although you have asked for a ruling on this issue, we are unable to provide the Organization with such, given that we have not been provided with complete financial information for the XXXXX fiscal year. We are, however, pleased to provide you with a ruling on the Organization's eligibility to meet the definition of non-profit organization under subsection 259(1) of the ETA, and an interpretation that will explain how a person meets the requirements of a qualifying NPO and the different mechanisms available to recover the Goods and Services Tax (GST)/Harmonized Sales Tax (HST).

Our understanding of the facts is as follows:

XXXXX

•   The Organization is a federal Crown corporation and reports to the Minister XXXXX. XXXXX will regulate and monitor the performance of XXXXX.

•   The Organization meets the definition of "agent corporation" as that term is defined in the Financial Administration Act.

•   According to subsection 99(1) of the Financial Administration Act, where title to property is held in the name of an agent corporation, that property is the property of Her Majesty in right of Canada.

•   The Organization is included in Schedule III to the Financial Administration Act.

Ruling Requested

Is the Organization an NPO under subsection 259(1) of the ETA?

Ruling Given

Based on the facts set out above, we rule that the Organization is a prescribed government organization. It is a specified Crown agent and is organized and operated solely for a purpose other than profit with no part of its income payable to or otherwise available for the personal benefit of any proprietor, member or shareholder. Therefore, in any year in which it, in fact, operates on such basis, the Organization will qualify as a non-profit organization as described in subsection 259(1) of the ETA.

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.

Explanation

The definition of NPO in subsection 123(1) of the ETA excludes a government. Government in subsection 123(1) is defined as Her Majesty in right of Canada or a province. Where a Crown corporation is an agent of Her Majesty in right of Canada, then it qualifies as a government under the ETA and thus will not meet the definition of an NPO for purposes of subsection 123(1).

However, the definition of NPO in subsection 259(1) is extended to include certain government organizations. Under this subsection, an NPO is defined to include a prescribed government organization. Section 2.1 of the Public Service Body Rebate (GST/HST) Regulations (the Regulations) provides that, for the purpose of the definition of NPO under subsection 259(1), a prescribed government organization will include a specified Crown agent that would be an NPO within the meaning assigned by subsection 123(1) if the definition of that expression were read without reference to a government.

A specified Crown agent is defined in subsection 123(1) to include a prescribed agent of Her Majesty in right of Canada. Paragraph 1(e) of the Specified Crown Agents (GST/HST) Regulations lists "every agent of Her Majesty in right of Canada that is included in Schedule III to the Financial Administration Act" as a prescribed agent of Her Majesty in right of Canada. As the Organization is a prescribed agent of Her Majesty in right of Canada, it is a specified Crown agent. As a result the Organization will be considered an NPO for purposes of section 259 where it meets the definition of NPO in subsection 123(1) when read without reference to a government.

If we read the definition of an NPO in subsection 123(1) without reference to government, then an NPO means "a person that was organized and is operated solely for a purpose other than profit, no part of the income of which is payable to, or otherwise available for the personal benefit of, any proprietor, member or shareholder thereof unless the proprietor, member or shareholder is a club, a society or an association the primary purpose and function of which is the promotion of amateur athletics in Canada." Therefore, in any year in which it in fact operates on such a basis, the Organization will qualify as an NPO as described in subsection 259(1) of the ETA.

Interpretations Requested

Is the Organization a qualifying NPO under subsection 259(2) of the ETA for the fiscal year ending XXXXX?

What other methods are available to the Organization to recover GST/HST?

Interpretations Given

Although the Organization is an NPO for purposes of subsection 259(1), it does not mean that it automatically meets the requirements for the public service body (PSB) rebate. Only "qualifying NPOs", as defined in subsection 259(2), may apply for a PSB rebate.

PSB rebates and qualifying NPOs

Subsection 259(3) of the ETA provides that a person who is a qualifying NPO on the last day of a claim period, or fiscal year that includes that claim period, is eligible to claim a PSB rebate of 50% of the non-creditable tax charged in respect of property or services (other than those that are prescribed). "Non-creditable tax charged" is generally tax paid on property or services that is not recoverable by way of an input tax credit (ITC). Under subsection 259(2) of the ETA, an NPO is a qualifying NPO if its percentage of government funding for the year is at least 40%.

Government funding

For purposes of determining whether it meets the 40% funding threshold, an NPO may base its calculations either on its current year's revenues and government funding, or the average of the amounts over the two preceding years.

"Government funding", as defined in the Regulations, includes an amount of money paid or payable to a NPO by a municipal, provincial or federal government for the purpose of:

(a) financially assisting the NPO in carrying out its objectives and not as consideration for supplies made by the NPO, or

(b) consideration for exempt supplies of property or services provided to persons other than the grantor or a person related to the grantor.

The Regulations also require that an amount of government funding be "... identified in the annual financial statements of the particular person for the year as government funding ..." and that it "was received or became receivable in the year (depending upon the method used by the particular person for determining revenue for the year) ...."

Status of appropriations from the Government of Canada

To determine if the funds received by the Organization from the Government of Canada qualify as "government funding" one must determine if they are consideration for a supply made by the Organization. Generally, where a person is legislatively mandated to fulfill certain responsibilities and receives funds from a government for those purposes, the funds will not be consideration for a supply.

Summary

Where the amounts received or receivable from the Government of Canada fall within the meaning of "government funding", represent at least 40% of the Organization's annual revenues, and the Organization meets the definition of NPO under subsection 259(1) of the ETA, it will be regarded as a qualifying NPO in respect of that fiscal year for purposes for the PSB rebate.

Please refer to the enclosed guide RC4034(E) GST/HST Public Service Bodies' Rebate and form GST523, Non-Profit Organizations - Government Funding.

GST Federal Government Departments Remission Order [SI/91-13]:

The GST Federal Government Departments Remission Order grants full relief of the GST/HST paid or payable under the ETA to a "department" within the meaning of section 2 of the Financial Administration Act. It is our understanding that the Organization does not meet the definition of "department" under the Financial Administration Act and it is therefore not eligible to use this remission order. Should you wish to confirm this information please contact XXXXX the Treasury Board of Canada Secretariat XXXXX.

Eligibility for Input Tax Credits

Although the Organization is currently not registered for purposes of the GST/HST, we will review the recovery of GST/HST through the ITC mechanism.

Generally, section 169 of the ETA permits a registrant to claim an ITC to the extent that a good or service is consumed, used, or supplied in the course of a commercial activity of the registrant.

According to section 141.01, generally, the extent to which property or a service is consumed or used, or is to be consumed or used, in the course of a commercial activity depends on the extent to which the consumption or use, or intended consumption or use, is for the purpose of making taxable supplies for consideration. However, subsection 141.01(1.2) of the ETA provides that where a government grant is provided for the purpose of funding an activity of a registrant which results in the making of taxable supplies for no consideration, the grant is deemed for purposes of the section to be consideration for those supplies. Thus, the amounts the person receives from a grantor are deemed to be consideration for the person's taxable supplies. As a result, the person is entitled to claim ITCs for the GST/HST paid on purchases related to the activities undertaken as a result of the funding received from the grantor, provided that the conditions in section 169 of the ETA are met.

However, where the Organization makes supplies for no consideration the supplies would generally be exempt pursuant to section 10 of Part VI of Schedule V to the ETA. A taxable supply is defined in subsection 123(1) of the ETA as a supply made in the course of a commercial activity. From the definition of commercial activity in subsection 123(1) of the ETA, it is understood that the making of exempt supplies does not constitute commercial activity. Where this, or any other exemption applies to supplies made by the Organization, no ITCs will be available for the GST/HST paid or payable on purchases of property or services to the extent that the property or service is acquired for consumption or use in the making of exempt supplies.

Where the Organization is not entitled to claim ITCs for the GST/HST paid on its purchases, it may be entitled to claim a rebate of the GST/HST paid on purchases under the provisions in Division VI of the ETA, the most common being the previously described PSB rebate.

GST/HST Registration Requirements

Under section 240 of the ETA, every person who makes a taxable supply in Canada in the course of a commercial activity in Canada is required to be registered for GST/HST, unless they are a small supplier. Section 148 of the ETA determines a government to be a small supplier if the taxable goods and services it provides does not exceed $30,000 in the immediately preceding four consecutive calendar quarters or in a single calendar quarter. As the Organization meets the definition of government for purposes of the ETA, the $50,000 small supplier limit will not apply to it.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, 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 CCRA 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) 954-4206.

Yours truly,

Carol A. Gaudet
Charities, Non-Profit Organizations and Educational Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate