Extension of Transfer Payment Policy

Please note that the following Policy Statement, although correct at the time of issue, may not have been updated to reflect any subsequent legislative changes.

GST/HST Policy Statement P-061

DATE OF ISSUE

May 25, 1993

SUBJECT

Extension of Transfer Payment Policy

LEGISLATIVE REFERENCE(S)

Definitions of 'consideration' and 'supply', subsection 123(1)
of the Excise Tax Act.

NATIONAL CODING SYSTEM FILE NUMBER(S)

11846/3
11846/1 Forestry
11735/5

EFFECTIVE DATE

January 1, 1991

This statement of interpretive policy will discuss whether a transfer payment (or any portion of it) which passes through intermediaries to a final recipient is consideration for the services of fund and program administration performed by the intermediaries; or is the payment not consideration for these services because of the original grantor's intention that the funds be used for a public purpose, rather than for the purchase of fund and program administration.

Transfer payments which are viewed as 'not consideration' should maintain that status regardless of the number of intermediaries through which the payment passes, as long as no direct link can be made between the payment and a supply to the grantor or the intermediary. Therefore, activities of 'program' and 'fund' administration provided to grantors and/or intermediaries are not viewed as separate supplies in the transaction; nor are they seen as the primary supply for which the payment is made.

However, in agreements where administrative services provided to the grantor are clearly set out separately from supplies provided to a third party, such services should be viewed as separate supplies, and classified according to normal rules.

SAMPLE RULING

STATEMENT OF FACTS:

1. Financial assistance, technical advice, and some services are provided to commercial companies within a particular industry by regional Non-Profit organizations. These organizations are under contract to a provincial Non-Profit organization, which originally received the money from a federal government department as part of an agreement between the federal and the provincial government.

2. The objective of the federal-provincial government agreement is to increase the economic viability of the particular industry.

3. The objective of the agreement between the federal government and the provincial NPO is to carry out programs which increase the economic viability of the industry's commercial companies.

4. The provincial NPO provides money to the regional NPOs; the regional NPOs provide money and technical assistance through their staff to the commercial organizations. The provincial NPO keeps less than 5% of the total funding for its own purposes.

5. The regional NPO either provides the commercial company with funding to purchase technical assistance, or provides the assistance itself.

6. The regional NPO provides up to 90% of the cost of the assistance required; the commercial company must bear the rest of the cost.

7. The commercial company agrees to carry out activities which are specified in the federal provincial agreement as addressing the objective of that agreement.

8. The funds are approved by, and the cheques for assistance written by the regional NPO; but the federal and/or provincial government bears the liability for the payments, not the regional or provincial NPO.

RULING REQUESTED:

Is the provision of financial assistance which flows from a government department through several levels of non-profit organizations to commercial companies, and which is accompanied by technical services a taxable supply, an exempt supply, or not a supply? Furthermore, is the financial assistance not consideration for a supply and therefore outside the scope of the ETA?

RULING GIVEN:

None of the financial assistance is consideration for a supply, nor is it a supply in itself. The technical services which are provided are viewed as part of the financial assistance, and are not seen as separate supplies. The administration of the government funds by the provincial and regional NPOs is seen as part of the provision of the financial assistance, and is not a supply in itself.

Because the provision of the assistance is not a supply, the entitlement of the NPOs and the commercial owners to relief of tax is determined without reference to the payments which are received or made.

Date modified:

2002-08-01