25 January 2013 GST/HST Ruling 140259 - Application of the GST/HST to sponsorship revenue and advertising services

Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.

Dear [Client]:

Thank you for your fax of November 23, 2011, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to sponsorship revenue and advertising services. We apologize for the delay in responding to your enquiry.

HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.  

All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.

Statement of Facts

We understand

1. The […]([…][Association]) is registered for GST/HST purposes with registration number[…].

2. [The Association] has stated that it is a non-profit organization.

3. [The Association] accepts corporate sponsorships. [The Association's]"Main Sponsor" is […]([…][the Sponsor]).

4. [The Association] has entered into an "[…][agreement]" with [the Sponsor]. The [agreement] can be summarized as follows:

[…] [Describes the obligations of the Association and the Sponsor]

[…] [Describes the general provisions of the agreement]

[…] [Identifies which province's laws govern the agreement]

5. [The Association] has additional corporate sponsors whose logos appear in the […] of [the Association's] website.

6. [The Association] provided a sample agreement between [the Association] and a sponsor. The sponsor is referred to in the agreement as "[…]". The terms of the sample agreement provides as follows: […]

7. In a telephone conversation on [mm/dd/yyyy], […] explained that the sponsorship money paid by the […][other corporate sponsors] was only in exchange for the placement of the sponsor's logo on the [Association's] website.

8. Sponsors of [the Association] may submit a request for advertising in [the Association's] newsletter, referred to as a bulletin. The sponsor provides [the Association] with the information to be included in the bulletin. The bulletin is added to [the Association's] newsletter and sent to all [Association] members.

Ruling Requested

You would like to know if the supplies made by [the Association] to its sponsors are subject to GST/HST.

Ruling Given

Based on the facts set out above, we rule that the promotional service supplied by [the Association] to [the Sponsor] under the [agreement] is deemed not to be a supply under section 135 and is not subject to GST/HST.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

Under section 135 of the ETA, where a public sector body (which includes a non-profit organization) makes

(a) a supply of a service, or

(b) a supply by way of licence of the use of a copyright, trade-mark, trade-name or other similar property of the body,

to a person who is the sponsor of an activity of the body for use by the person exclusively in publicizing the person's business, the supply by the body of the service or the use of the property shall be deemed not to be a supply, except where it may reasonably be regarded that the consideration for the supply is primarily for a service of advertising by means of radio or television or in a newspaper, magazine or other publication published periodically or for a prescribed service.

We find that the [agreement] is for the supply of a promotional service by [the Association] to [the Sponsor]. The supply is not primarily for a service of advertising by means of radio or television or in a newspaper, magazine or other publication published periodically. Therefore, the promotional service supplied by [the Association] to [the Sponsor] is deemed not to be a supply under section 135 and is not subject to GST/HST.

Interpretation Given

We can also provide an interpretation with respect to the supplies made by [the Association] to its other sponsors. Generally, pursuant to section 135 of the ETA, where a public sector body, (which includes a non-profit organization), receives a sponsorship from a business in return for which the body undertakes to provide a service or the right to use its logo or similar property, the provision of the service or right is deemed not to be a supply and is not subject to GST/HST. However, where a payment by a sponsor may reasonably be regarded as being primarily (greater than 50%) for advertising on a radio or television or in a newspaper, magazine or periodical, the supply of that advertising service by the public service body is treated as a taxable supply. Therefore, where a payment by a sponsor is primarily for advertising in [the Association's] newsletter, section 135 will not apply and [the Association] will be required to charge GST/HST on the supply.

For section 135 to apply, the person to whom the public sector body makes the supply must be a sponsor of an activity of the body. The term "sponsor" is not defined in the ETA and so the CRA accepts the general meaning of the term, which usually indicates either a person who supports or accepts responsibility for another, or more commonly in the commercial sense, one who agrees to provide financial support with respect to another's activities or events while, or by, acquiring advertising or certain promotional rights.

The CRA may find a distinction between a "sponsorship" and a purchase of advertising. A payment made in exchange for the listing of a business's name or logo on a web page may be consideration for a supply of advertising rather than a "sponsorship" where it is a commercial transaction at fair market value. In another case, such a payment may be viewed as a sponsorship, where the sponsor supports the event or activity of an organization while, or by, acquiring some promotional rights. Therefore, where the [other corporate sponsors] are merely purchasing advertising on the [Association's] website section 135 will not apply and [the Association] will be required to charge GST/HST.

For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-3158. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Heather Reardon
Charities, Non-profit Organizations and Educational Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate