23 January 2013 GST/HST Interpretation 132321 - Ballet Lessons

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 letter of [mm/dd/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to ballet lessons. We apologize for the delay in responding to your letter.

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.

We understand that your concern is that some dance lessons, particularly certain ballet lessons, are taxable. You would like to see a change in the tax status of ballet lessons so that they are all exempt. Such a change would require a change to the ETA. The Canada Revenue Agency (CRA) is responsible for administering and enforcing the legislation passed by Parliament. Matters relating to tax policy and changes to the ETA are the responsibility of the Department of Finance. We have made the Department of Finance aware of your concern.

Although you were not asking specifically about the tax status of dance lessons, please find attached Appendix A outlining the CRA's position on the tax status of dance lessons.

The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

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 613-954-7954. 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,

K. Bennett
Aboriginal Affairs and Educational Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

Appendix A

The following information outlines the CRA's position on the tax status of dance lessons.

Section 8 of Part III of Schedule V to the ETA provides that the supply of a course is exempt of the GST/HST if the supply is made by a vocational school and the course is a supply of a service of "instruction in, or administering examinations in respect of, courses leading to certificates…that attest to the competence of individuals to practise or perform a trade or vocation...."

It is first necessary to look at the organization to determine whether it qualifies as a vocational school. The ETA defines "vocational school" as follows: "vocational school" means an organization that is established and operated primarily to provide students with correspondence courses, or instruction in courses, that develop or enhance students' occupational skills. GST/HST Policy P-229, Definition of "Vocational School" in Section 1 of Part III of Schedule V to the Excise Tax Act, explains how to determine if an organization is a "vocational school" within the meaning of the ETA:

The above definition sets out three principle criteria that an organization must meet to be considered a vocational school:

(a) the organization must be established primarily to provide correspondence courses or instruction in courses, that develop or enhance students' occupational skills;

(b) the organization must be operated primarily to provide correspondence courses, or instruction in courses that develop or enhance students' occupational skills;

(c) the correspondence courses or instruction in courses must develop or enhance students' occupational skills.

To ascertain whether an organization is "established primarily" to provide correspondence courses or instruction in courses that develop or enhance students' occupational skills, the CRA will review the organization's governing documents. These documents, which include the letters patent, articles of incorporation, memoranda of agreement, by-laws, and articles should reveal the purpose of the organization. Where these documents are not available or are not determinative, the CRA will look to the activities of the organization (i.e., the extent to which the organization provides courses that develop or enhance students' occupational skills) as evidence of the purpose for its establishment.

The CRA will consider an organization to be "operated primarily" to provide correspondence courses or instruction in courses that develop or enhance students' occupational skills, if more than 50% of its total annual revenues are derived from tuition for courses, or may be attributed to the provision of instruction in courses, that develop or enhance students' occupational skills. Consequently, revenues earned from the provision of property or services that are related to, or dependent on, the provision of the instruction in such courses will be included in the revenue calculation for determining the primary purpose of the organization.

The determination of whether more than 50% of a dance school's total annual revenue is derived from courses which develop or enhance a student's occupational skills can be somewhat complex and is ultimately a question of fact to be decided on a case-by-case basis. This income stream may include fees for the provision of property or services that are related to, or dependent on, the provision of courses or instruction which clearly develops or enhances a student's occupational skills such as the purchase of a curriculum or syllabus, an examination or testing fee or a certification fee. It may also include courses which develop or enhance a student's occupational skills but which are not exempt of tax because they do not meet the requirements of section 8 which are described in more detail below.

For the purposes of this income test, income from non-vocational dance courses (e.g. courses taken for general interest, fitness or recreation) cannot be included in the amount of revenue derived from courses that develop or enhance a student's occupational skills, even if the dance school uses this source of added income as a means to defray the costs of providing courses which are vocational in nature.

With respect to the courses being offered, policy P-229 states:

To be considered a vocational school the…instruction in courses offered by an organization must develop or enhance students' occupational skills. On this basis, "occupational courses" must have a direct link to skills that are essential for an individual to gain or retain employment.

The CRA does not consider the following courses to develop or enhance a student's occupational skills:

• sports

• games

• hobbies; or

• other recreational or cultural pursuits, that are designed for personal interest.

The CRA generally examines the curriculum and promotional material of an organization to identify the type of courses provided, whether the courses lead to certificates, diplomas or similar documents, and whether the courses are marketed as providing skills needed for employment or for recreational or personal interest. How the organization promotes its activities (e.g., in its brochures, advertisements, literature, course calendar, telephone listings) also provides insight into whether its courses "develop or enhance students' occupational skills".

An organization should review its operations on a yearly basis to ascertain whether it continues to satisfy the "operated primarily" requirement for a "vocational school". If an organization meets the requirements as a vocational school in its previous fiscal year, and its intent continues to be primarily to offer courses that develop or enhance students' occupational skills, it will continue to be a vocational school for the following fiscal year. If, however, in that following year the organization fails to meet the "operated primarily" requirement, it will cease to be a vocational school for supplies made after that year.

It is a question of fact whether a school of dance is operated primarily to provide instruction in dance courses that develop or enhance students' occupational skills in any given fiscal year.

Dance lessons as courses leading to certificates…that attest to the competence of individuals to practise or perform a trade or vocation

Once it has been determined that an organization meets the definition of a "vocational school", this does not necessarily mean that the dance lessons it supplies are exempt. That is, meeting the definition of vocational school does not necessarily relieve an organization from collecting and remitting the GST/HST as the dance lessons must also meet the requirements of the exempting provisions of section 8 of Part III of Schedule V to the ETA.

In order for a course to be exempt of GST/HST, section 8 requires that a certificate, diploma, licence or similar document be issued to each student upon successful completion of the course of study and that the document attests to the competence of the students to practice or perform a trade or vocation.

For instruction in dance to meet the requirements of section 8 the instruction would generally be part of a full time program which provides an individual with the competence to practise or perform the vocation of a professional dancer or dance instructor. This instruction must further be attested to by a certificate, diploma, licence or similar document.

Where dance lessons meet the requirements of the exempting provisions of section 8, the GST/HST is not collected and a GST/HST registrant may not claim input tax credits for any GST/HST paid or payable on purchases or expenses related to making the exempt supplies.

Courses for which students are not issued some form of documentation at their conclusion do not satisfy the "certificate, diploma, licence or similar document" criterion, and are therefore not exempt under section 8.

Generally, courses in sport, games or hobbies or other recreational or cultural pursuits, or courses designed for personal interest are not considered to be part of a full time program which provides an individual with the competence to practise or perform a trade or vocation.

We hope the information provided above has been helpful. For further information the GST/HST Policy P-229, Definition of "Vocational School" in Section 1 of Part III of Schedule V to the Excise Tax Act, referred to above; and GST/HST Policy P-231, Courses that Qualify for exemption Pursuant to Section 8 of Part III of Schedule V to the Excise Tax Act are available on the CRA's website: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/frmspbs/menu-eng.html.