GST/HST Ruling

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

THE ENGLISH TRANSLATION FOLLOWS:

XXXXX
XXXXX
XXXXX
XXXXX

XXXXX,

Nous vous remercions de votre lettre XXXXX dans laquelle vous nous avez présenté des commentaires concernant l'ébauche du bulletin d'information technique sur la TPS/TVH, Application de la TPS/TVH aux biens et aux services de cimetière (le BIT). À titre d'information, nous avons joint un exemplaire de la version finale du BIT. Veuillez noter que le titre du BIT a été modifié afin de tenir compte de la terminologie utilisée par les exploitants de cimetière.

Droits d'inhumation

La partie du BIT traitant des droits d'inhumation a été modifiée à la suite de consultations auprès des associations de l'industrie. Par exemple, les exploitants de cimetière nous ont informés qu'ils ne fournissent pas des droits d'inhumation par vente. Par conséquent, le BIT ne touche qu'aux fournitures de droits d'inhumation par bail, licence ou accord semblable. Les exploitants de cimetière nous ont également informés que les montants reçus à titre de paiement total ou partiel pour des droits d'inhumation ne sont pas déposés en fiducie.

Comme vous le savez, les lois concernant la fourniture de droits d'inhumation varient d'une province à l'autre. Par exemple, dans certaines provinces, seule la partie touchant à l'entretien d'un montant reçu pour la fourniture de droits d'inhumation ou de droits d'inhumation future doit être déposée en fiducie. À cet égard, l'article 22 de la Loi sur les arrangements préalables de services funéraires et de sépulture (L.R.Q., chapitre A-23.001) (la Loi) est unique. Il stipule que les montants reçus au Québec en paiement d'un contrat d'achat préalable de sépulture doivent être déposés en fidéicommis lorsque les coordonnées permettant de distinguer la sépulture ne sont pas précisées au contrat (p. ex. un lot dans un cimetière) ou que cette sépulture n'est pas actuellement disponible.

Le BIT a pour but de clarifier l'application de la TPS/TVH aux biens et services de cimetière fournis en vertu d'un accord de prévoyance. De plus, dans la section concernant les droits d'inhumation, nous n'avions pas l'intention d'aborder toutes les situations prévues par les lois provinciales, mais plutôt de donner des renseignements sur les éléments les plus communs des fournitures effectuées par les exploitants de cimetière. Le BIT ne touche pas à la situation visée par l'article 22 de la Loi parce que la situation n'entre pas dans le cadre du BIT.

Fonds d'entretien

Comme vous l'avez suggéré dans votre lettre, nous avons modifié le premier paragraphe traitant des fonds d'entretien afin d'indiquer que parfois, les lois provinciales exigent que les exploitants de cimetière déduisent une partie du montant reçu pour la fourniture de droits d'inhumation pour l'entretien du cimetière. De plus, nous avons modifié le texte pour indiquer que les montants payés pour les droits d'inhumation et l'entretien du cimetière constituent la contrepartie pour la fourniture unique des droits d'inhumation, même si les montants sont indiqués séparément sur la ou les factures.

Plans de services de cimetière

À la suite de consultations auprès des associations de l'industrie, le BIT utilise maintenant l'expression "accords de prévoyance pour biens et services de cimetière" pour décrire une entente conclue avec une personne pour fournir des biens de cimetière ou des services de cimetière particuliers à une ou plusieurs personnes nommées à la suite de leur décès. Comme vous l'avez mentionné dans votre lettre, ce type d'arrangement ferait l'objet d'"un contrat d'arrangements préalables de services funéraires" aux fins de la Loi.

Le fait qu'un accord de prévoyance pour biens et services de cimetière soit connu sous un autre nom au Québec ne signifie pas nécessairement que les règles établies dans le BIT ne s'appliquent pas à la fourniture préalable de biens et services de cimetière au Québec. Par exemple, en fonction des faits, un "contrat d'arrangements préalables de services funéraires" aux fins de la Loi pourrait en substance être un "accord de prévoyance pour biens et services de cimetière" aux fins de la TPS/TVH. Par conséquent, les règles établies dans le BIT s'appliqueraient à ce "contrat d'arrangements préalables de services funéraires" particulier.

Fournitures effectuées par des organismes de bienfaisance, des institutions publiques et d'autres organismes de services publics

Tel que vous l'avez suggéré dans votre lettre, nous avons modifié le dernier paragraphe sous le sous-titre "Organismes de services publics" afin d'indiquer que l'exonération en vertu de l'article 25 de la partie VI de l'annexe V de la Loi sur la taxe d'accise ne s'applique pas aux fournitures d'immeubles effectuées par une municipalité.

Si vous avez d'autres questions ou commentaires concernant ce Bulletin d'information technique B-093, n'hésitez pas à communiquer avec moi, au (613) 954-7959.

Je vous prie d'agréer, XXXXX, l'assurance de mes meilleures salutations.

John Sitka
Directeur
Division des opérations générales et questions frontalières
Direction de l'accise et des décisions de la TPS/TVH

TRANSLATION OF ORIGINAL FOR CASE 61872

XXXXX,

Thank you for your letter XXXXX in which you provided comments regarding draft GST/HST Technical Information Bulletin, Application of the GST/HST to Cemetery Products and Services (the TIB). For your information, we have attached a copy of the final version of the TIB. Please note that the title of the TIB has been changed to reflect terminology used by cemetery operators.

Interment Rights

The portion of the TIB dealing with Interment Rights has been amended following consultations with various industry associations. For example, cemetery operators advised us that they do not supply Interment Rights by way of sale, thus the TIB only deals with supplies of Interment Rights made by way of lease, licence or similar arrangement. Cemetery operators also advised us that amounts received as full or partial payment for supplies of Interment Rights are not deposited in trust.

As you know, the laws regarding supplies of Interment Rights vary from province to province. For example, in some provinces, only the care and maintenance portion of an amount received for supplies of Interment Rights or future Interment Rights must be deposited in trust. In this regard, section 22 of An Act respecting prearranged funeral services and sepultures (R.S.Q., c. A-23.001 - the Act) is somewhat unique as it provides that amounts received in Quebec for a prepurchased sepulture contract must be deposited in trust where the particulars by means of which the sepulture (e.g., a lot in a cemetery) can be located are not specified in the contract, or where the sepulture is not then available.

The purpose of the TIB is to clarify the application of the GST/HST to cemetery products and services supplied under pre-need arrangements. Furthermore, we did not intend for the section on Interment Rights to address all situations contemplated under provincial laws, but rather to provide information on the most common aspects of those supplies made by cemetery operators. The TIB does not address the situation contemplated in section 22 of the Act because that situation is outside of the scope of the TIB.

Care and maintenance trust

As suggested in your letter, we have amended the first paragraph dealing with care and maintenance trusts to indicate that only some provincial laws require cemetery operators to deduct a portion of the money received from the supply of Interment Rights for the care and maintenance of the cemetery. In addition, we have also amended the text to indicate that the amounts paid for the Interment Rights and the care and maintenance of the cemetery is consideration for a single supply of the Interment Rights, whether the amounts are identified separately on an invoice, or in one or more invoices.

Cemetery services plans

As a result of consultations with industry associations, the TIB now uses the expression "pre-need arrangements for cemetery products and services" to describe arrangements where a cemetery operator agrees to supply specific cemetery products or services in respect of one or more named individuals upon the death of the individual(s). As you mentioned in your letter, this type of arrangement would be characterized as a "prearranged funeral services contract" for the purposes of the Act.

The fact that a pre-need arrangement for cemetery products and services is known by a different name in Quebec does not necessarily mean that the rules set out in the TIB do not apply with respect to pre-need supplies of cemetery products and services in Quebec. For example, depending on the facts, a "prearranged funeral services contract" for the purposes of the Act could in substance be a "pre-need arrangement for cemetery products and services" for GST/HST purposes. As a result, the rules set out in the TIB would apply to that particular "prearranged funeral services contract."

Supplies made by charities, public institutions and other public service bodies

As suggested in your letter, we have amended the last paragraph under the subheading "Public Service Bodies" to indicate that the exemption under section 25 of Part VI of Schedule V to the Excise Tax Act does not apply to supplies of real property made by a municipality.

If you have any questions or comments concerning Technical Information Bulletin B-093, please do not hesitate to contact me at (613) 954-7959.

Sincerely,

John Sitka
Director
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/02/07 — RITS 62015 — Application of GST to a Game of Chance

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

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to hemp protein powder and hemp seed oil.

All legislative references are to the Excise Tax Act (the Act) and the regulations therein, unless otherwise specified.

Statement of Facts

You have asked us to review the following products:

Hemp Protein Powder (Product A)

1. Product A has a gourmet nutty flavour. It is used to create protein shakes, and is added to juices, smoothies and green drinks.

2. Product A is a whole food protein powder. It is rich in complete protein XXXXX, XXXXX and healthy dietary fibre. It is gluten free.

3. Product A is XXXXX hemp seed that is grown sustainably without the use of herbicides or pesticides.

4. The suggested use is XXXXX taken daily for life. Refrigerate after opening. XXXXX.

5. Ingredients are XXXXX Hemp Protein Powder. Contains No Additives or preservatives.

Hemp seed oil (Product B)

1. Product B is a rich source of the XXXXX. Hemp Seed Oil offers a good balance of XXXXX, suitable for life long consumption.

2. Product B has a XXXXX color and a gourmet nutty flavor, a tasteful compliment to a variety of foods. It can be added to juices, smoothies, soups and sauces to create a rich creamy texture. Hemp Seed Oil is an excellent base for any salad dressing. You can substitute Hemp Seed Oil for other oils in recipes that are not heated above XXXXX.

3. Product B is cold pressed from XXXXX hemp seed that is grown sustainably without the use of herbicides or pesticides. Contains no Genetically Modified Organisms (GMOs).

4. Ingredients are XXXXX Hemp Seed Oil. Contains no additives or preservatives.

5. The suggested use is XXXXX, taken daily for life.

Ruling Requested

You would like to know the GST/HST tax status of Product A and Product B.

Ruling Given

Based on the facts set out above, we rule that Product A is a taxable supply at 7%, or (15 % as applicable) pursuant to section 165 the Act and Product B is a zero-rated supply (taxable at 0%) pursuant to subsection 165(3) and section 1 of Part III of Schedule VI to the Excise Tax Act (the "Act").

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

Explanation

Taxable supplies of goods and services made in Canada are generally subject to tax at 7% GST or 15% HST, as applicable. However, "zero-rated" supplies of goods and services are subject to tax at 0%. A zero-rated supply is any supply included in Schedule VI to the Act.

Section 1 of Part III of Schedule VI to the Act zero-rates supplies of food or beverages for human consumption (including sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such food or beverages) unless one of the exclusions set out in paragraphs 1(a) through 1(r) applies.

The terms "food" and "beverage" are not defined in the Act. However, the position of the Canada Revenue Agency (CRA) is that these terms are to be construed according to their ordinary meaning. That is, a food or a beverage is a good that an average consumer would recognize and purchase as such in the ordinary course of buying basic groceries. Products that meet special dietary needs of certain segments of the population such as those with restricted or special purpose diets, high performance athletes and dieters may not necessarily be viewed as a food or a beverage.

Consumers usually consume beverages for enjoyment or to quench thirst. Therefore, the CRA generally considers 'beverages' as goods consumed to sustain or maintain life, to allay thirst, or for enjoyment rather than for therapeutic or preventative effects or to achieve specific beneficial effects related to performance or physique.

Generally, it is the view of the CRA that an average consumer would consider a product to be an ingredient if the product added to flavour, texture or appearance of the final product; that is, if it was integral to the final product. Moreover, in order to be regarded as an ingredient to a food or beverage, the final product, in and of itself, must be considered to be a food or beverage by the average consumer.

Additionally, a product that is marketed for its beneficial effects, and that is added to a food or beverage simply as a means of consuming it, would not be considered as an ingredient to a food or beverage simply because it is ingested in this manner.

Among other factors, the CRA will consider labelling, packaging and marketing to determine whether a product would be considered a "food", "beverage", or "ingredient".

The main ingredient of Product A is a hemp protein powder. Products that are labeled or marketed as products to be consumed to facilitate the intake of certain ingredients (nutritive or otherwise) or which place an emphasis on claims relating to the benefits of the product such as therapeutic or preventative effects, or claim to enhance performance or physique are not considered to be a food or beverage. We have noticed on the XXXXX web site that Product A is generally taken by athletes or people that need to supplement their diets with protein because they are vegetarian or vegan.

The CRA considers that Product A is not a food, beverage or an ingredient and is therefore not within the preamble of Section 1 of Part III of Schedule VI to the Act. Products A is taxable at 7% GST or 15% HST, as applicable, pursuant to section 165 of the Act.

The CRA considers Products B to be an ingredient that is added to other foods or ingredients and adds to the flavour, texture or appearance of the final product, that is, it is integrated to the final product. As such, it is within the preamble to Section 1 of Part III of Schedule VI to the Act and is zero-rated.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-9585.

Yours truly,

Gabrielle Nadeau
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/03/16 — RITS 78140 — Importation of [Food Items]

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

This is in response to your XXXXX to Owen Newell, Manager, General Operations Unit. You have three questions with respect to tax paid in error. It is my understanding that the Border Issues Unit will be responding to your remaining questions.

What is the legal definition of "tax paid in error"?

There is no legal definition of the phrase "tax paid in error" in the Excise Tax Act (ETA). In the context of the GST/HST, the phrase is generally accepted to mean an amount paid as or on account of tax that is not payable under the ETA. For example, if a supplier charges a recipient 15% HST instead of 7% GST on a taxable supply made in a non-participating province and the recipient pays the tax at the rate of 15%, the amount of tax paid in excess of 7% is considered to be tax paid in error.

Is tax paid in error at the time of purchase?

Depending on the nature of the supply, tax may or may not be tax paid in error at the time of purchase. For example, if a consumer buys a loaf of bread at a bakery and pays 7% GST on this zero-rated supply, the tax is considered to be tax paid in error at the time of purchase (when the consumer actually pays the tax).

Can tax become tax paid in error at a time after purchase?

Depending on the terms of the agreement for a supply, an amount may be tax paid in error at a time after the purchase. For example, if a supplier delivers zero-rated goods to a retailer and invoices the retailer for consideration and tax that becomes due 30 days after the time of purchase and the retailer pays the consideration and the tax 30 days after the purchase, it is not tax paid in error at the time of purchase. In these circumstances the amount is not tax paid in error until the retailer actually pays the amount (30 days after the purchase).

Please note that an amount cannot be considered to be tax paid in error until the recipient actually pays it.

Should you have any further questions, please do not hesitate to contact me at (613) 954-7931.

2006/03/13 — RITS 78535 — Precious Metals

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

Dear XXXXX:

Thank you for the information you provided concerning the application of the Goods and Services Tax/Harmonized Sales Tax (GST/HST) to the activities of your client, the XXXXX Group Inc. XXXXX. We regret our delay in responding to your request.

All legislative provisions cited below refer to the Excise Tax Act (the "ETA"), which is the legislative authority for the GST/HST.

You have provided the following information:

XXXXX is incorporated in the United States and its offices are located in XXXXX. It provides management information systems services to banks, as well as to software vendors and developers who service the banking industry and related enterprises. It is not registered for the GST/HST.

XXXXX Inc. XXXXX is a Canadian company with offices in the province of XXXXX. XXXXXprovides item processing (check processing, payment processing, statement production, document management) and customer communication services to residents of Canada and to non-residents. It is registered for the GST/HST.

XXXXX and XXXXX entered a pro forma "consulting services agreement" XXXXX (the "Agreement") whereby XXXXX retains XXXXX in an advisory capacity and XXXXX has agreed to provide, as required, certain services listed in XXXXX the Agreement.

In XXXXX, XXXXX began work on a project whereby it provided XXXXX:

-    XXXXX.

-    XXXXX.

-    XXXXX.

-    XXXXX.

You also advised us that XXXXX has not carried out any other projects nor otherwise made any supplies ^[xxvi]1 in Canada, and at present XXXXX has no other Canadian projects planned. It does not have any employees or agents in Canada, has no assets in Canada, has no Canadian office or telephone number, and does not maintain a bank account in Canada.

Interpretation Requested

You would like to know if XXXXX is required to register for the GST/HST and, if XXXXX is not required to register, you would appreciate receiving a succinct description of our registration requirements in case XXXXX, in the future, undertakes other projects involving services performed in Canada.

As we discussed, since we do not have all the documentation concerning the project, and since you are interested in receiving general guidelines concerning our registration requirements, our reply is in the nature of an interpretation letter rather than an application ruling.

Interpretation Given

Based on the information provided, XXXXX is not required to register for the GST/HST. Accordingly, XXXXX is not required to collect and remit GST/HST in respect of the supplies made to XXXXX.

Pursuant to subsection 240(1), every person ^[xxvii]2 who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to be registered for GST/HST unless:

•   the person is a small supplier (generally, a person with annual worldwide taxable sales, including those of associates, of $30,000 or less);

•   the only commercial activity of the person is the making of supplies of real property by way of sale otherwise than in the course of a business; or

•   the person is a non-resident person who does not carry on any business in Canada.

As set out in the enclosed GST/HST Policy Statement P-051R2: Carrying on Business in Canada, whether a non-resident is carrying on business in Canada for GST/HST purposes is a question that requires consideration of all relevant facts. The factors to consider in determining whether, for GST/HST purposes, a non-resident person is carrying on business in Canada in a particular situation include:

•   the place where agents or employees of the non-resident are located;

•   the place of delivery;

•   the place of payment;

•   the place where purchases are made or assets are acquired;

•   the place from which transactions are solicited;

•   the location of assets or an inventory of goods;

•   the place where the business contracts are made;

•   the location of a bank account;

•   the place where the non-resident's name and business are listed in a directory;

•   the location of a branch or office;

•   the place where the service is performed, and

•   the place of manufacture or production.

The importance or relevance of a given factor in a specific case depends upon the nature of the business activity under review, and the facts and circumstances of each case.

Based the information provided, there do not appear to be any factors present in this case other than the performance of the service in Canada to support a conclusion that XXXXX is carrying on business in Canada for GST/HST purposes. In particular, XXXXX does not appear to have any presence in the form of employees or agents in Canada.

Since XXXXX does not appear to be carrying on business in Canada, it is not required to register for GST/HST purposes. If XXXXX at some point undertakes to make taxable supplies in Canada using its own employees, it may then be considered to be carrying on business in Canada for GST/HST purposes and would be required to register for the tax.

XXXXX situation appears similar to that described in Example #21 of the enclosed policy statement. Other examples in the policy dealing with the supply of services are examples # 18, #19 and #20.

In the circumstances described, XXXXX may voluntarily register for the tax pursuant to subsection 240(3). Under this subsection, a non-resident person may voluntarily apply for registration where, in the ordinary course of carrying on business outside Canada, the non-resident has entered into an agreement for the supply by the person of services to be performed in Canada. If XXXXX registers, it would be required to collect tax on its taxable supplies of services performed in whole or in part in Canada, but would also be entitled to input tax credits to recover the tax, if any, that it pays on expenses related to its commercial activity.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, 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 Canada Revenue Agency with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-954-4291.

Yours truly,

Michael Place
Senior Rulings Officer
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/02/20 — RITS 53901 — Sale of Intermodal Cargo Containers in Canada

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

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to royalty payments.

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

Facts

A corporation proposes to sell all of its assets, as opposed to its shares, to a prospective purchaser. In general, the assets are to comprise of: leasehold improvements; fixtures and furnishings; computer equipment; inventory; intellectual property, patents, trademarks, etc.; accounts receivable and goodwill. The parties propose to make an election pursuant to subsection 167(1) of the Excise Tax Act to treat the transaction free of GST.

The vendor and purchaser propose to also enter into a Royalty Agreement whereby a XXXXX% or XXXXX% royalty rate will be paid on the future sales of certain products.

Interpretation Requested

You would like to know the GST treatment for the various payments (both royalties at XXXXX% and XXXXX%) pursuant to the proposed Royalty Agreement that you have submitted with your request. You do not request an opinion and we will make no comments in relation to the applicability of the section 167 election to the sale of the assets.

Interpretation Given

As you indicated, since we do not have all the relevant information we can only provide a general interpretation of the legislation.

Where the conditions of subsection 167(1) are met and where the purchaser and vendor make a joint election under section 167(1) in respect of a supply of a business, and the recipient files the election as required under subsection 167(1.1), no tax is payable in respect of the supply of any property or service made under the agreement other than those supplies of property or services listed in subsection 167(1.1). The exclusions listed in section 167(1.1) include a taxable supply of a service that is to be rendered by the supplier, and a taxable supply of property by way of lease, licence or similar arrangement.

If under the agreement for the supply of a business, the consideration for the sale of all the assets (including intangible personal property) of the business includes payments based on future sales of certain products, and if the section 167 election applies to the supply, that consideration may not be subject to GST under section 167.

Alternatively, if the payments are for a taxable supply of property (including intangible personal property) by way of lease, license or similar arrangement, they would be excluded from the section 167 election and subject to GST.

In addition, the definition of "service" in section 123, "means anything other than property, money, and anything that is supplied to an employer by a person who is or agrees to become an employee ...". If a taxable supply by the vendor to the purchaser meets that definition of service, then it would be excluded from the section 167 election and subject to GST.

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, Goods and Services Tax Rulings, 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.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 952-9220.

Yours truly,

Larry Springstead
Corporate Reorganizations Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2006/03/24 — RITS 63749 — GST Exemption Certificate

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

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the operations of a multi-discipline clinic.

You have requested a ruling on whether the GST/HST applies to certain supplies made by the clinic. However, as we have not been provided with specific information or documentation concerning the operation of the clinic and the nature of the services to be provided in this facility, including signed contracts or agreements, we are unable to provide you with a ruling.

This letter will provide an interpretation with our general views of the application of the GST/HST to the questions in your letter. All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

Interpretation Requested

We understand XXXXX are planning on opening a clinic in which they will provide physiotherapy services to individuals. They also plan to hire professionals to provide additional services.

You would like to know if the clinic would have to charge GST for services provided by a XXXXX and other professional services.

You also asked if the clinic must charge GST for office space rented to other professionals XXXXX.

Interpretation Given

Part II of Schedule V to the ETA exempts certain health care services made by practitioners.

Specifically, section 7 of Part II of Schedule V to the ETA provides exemptions from the GST/HST to the supply of an optometric, chiropractic, physiotherapy, chiropodic, podiatric, osteopathic, audiological, speech-language pathology, occupational or psychological service rendered to an individual when a practitioner provides the service.

The ETA defines a practitioner in respect of a supply of optometric, chiropractic, physiotherapy, chiropodic, podiatric, osteopathic, audiological, speech-language pathology, occupational or psychological services as a person who practises the profession of one of these services and who is licensed or otherwise certified to practise that profession if required in the province where the service is supplied, or who has qualifications needed to be licensed or certified in another province, if this is not required in the particular province where the service is supplied.

Because the exemptions from tax in section 7 of Part II to Schedule V do not apply to services supplied by persons who do not qualify as practitioners, the tax status of these services will vary depending on the qualifications of the supplier.

In some provinces, a corporation may qualify as a practitioner for purposes of the ETA where the corporation practises the particular profession and is licensed or otherwise certified to practise the particular profession in the province in which its services are provided. Therefore, the exemptions from the GST/HST in section 7 of Part II of Schedule V may apply to supplies made by a corporation that meets the definition of practitioner in the ETA. However, supplies of services by corporations who do not meet the definition of practitioner will not fall under this provision.

A corporation, other than a corporation that meets the definition of practitioner, may supply health care services through its employees or through independent contractors engaged to perform services on its behalf. The corporation is a separate legal entity from its owners, directors, employees and subcontractors. Therefore, while an employee or a subcontractor hired by the corporation may be licensed to practise a particular health care profession, and thus meets the definition of a practitioner in his or her own right, the status of practitioner does not extend to the corporation for purposes of the ETA. The tax status of a corporation's supplies is considered separately from the activities of its owners, directors, employees or subcontractors.

For example, a corporation (that is not a practitioner) provides health care services to individuals. It enters into an agreement with an independent contractor who is a licensed practitioner of physiotherapy to render physiotherapy services to its client. As the GST/HST is a multi-stage tax, each transaction is a supply. The supply by the independent contractor to the corporation is exempt under section 7 described above. However, this will have no effect on the tax status of the supply by the corporation to the client because the corporation's supply to the client is a distinct supply from the independent contractor's supply to the corporation. The service supplied by the corporation to the client will be taxable because the corporation is not a practitioner as defined in the ETA and no exemption in the ETA applies to the service.

Therefore, the tax status of supplies made to clients through the clinic described in your letter depends on who is actually making the supply to the individual client and the qualifications of that person.

In this connection, we would mention that there are no exemptions in the ETA for XXXXX.

However, we would point out that section 9 of Part II of Schedule V exempts a supply of any property or service, other than a zero-rated supply, if, and to the extent that, the consideration for the supply is payable or reimbursed by the government of a province under a plan established under the Act of the legislature of a province to provide for health care services for all insured persons of the province.

Turning to your second question, the supply by the clinic of office space to health care professionals, XXXXX, is a supply of real property that will be subject to the GST/HST. Assuming the clinic is a GST/HST registrant, it is required to collect and remit the tax on this supply.

While there are certain exemptions in the ETA for supplies of real property made by public service bodies, there is no indication in your letter that the clinic is a charity, qualifying non-profit organization, or otherwise qualifies as a public service body for purposes of the GST/HST.

For additional information on the tax status of supplies of real property, you may refer to GST/HST Memorandum 19.1, Real Property and the GST/HST. A copy is enclosed for your reference.

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, Goods and Services Tax Rulings, 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.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly 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

2006/04/04 — RITS 64473 — Tax Status of Memberships

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

Dear XXXXX:

Thank you for your fax XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a variety of situations involving trade-ins against the purchase or lease of a vehicle.

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

Interpretation Requested

You have provided eight (8) scenarios relating to the application of the GST/HST to transactions where the trade-in rules apply. You want us to confirm your understanding of how the rules would apply and provide you our views on the application of the tax where we do not agree with your conclusions. For each scenario, you have also provided an Exhibit illustrating the application of the GST/HST to the transaction.

With respect to the scenarios relating to a sales transaction, we understand that a customer (the "Customer") is purchasing a motor vehicle from a dealer (the "Dealer") where the balance of the purchase price, after any cash down payment and/or trade-in, is to be financed. Further, immediately after the sale, the balance being financed together with title to the vehicle (as security for the loan) is transferred to a finance company (the "Financeco.").

With respect to the scenarios relating to a lease transaction, we understand that a Customer is leasing a motor vehicle from a Dealer. Immediately after the lease is entered into, the lease and title to the vehicle are assigned to a Financeco.

Interpretation Given

Pursuant to section 165 of the ETA, every recipient of a taxable supply (other than a zero-rated supply), made in Canada, is required to pay GST calculated at the rate of 7% or HST at the rate of 15% for a supply made in a participating province (i.e., Nova Scotia, New Brunswick, and Newfoundland and Labrador) on the value of the consideration for the supply.

Under subsection 153(4) of the ETA, where, at the time a supplier makes a supply of tangible personal property to a recipient, the supplier accepts, in full or partial consideration for the supply, other property (referred to as the "trade-in") that

(a) is used tangible personal property or a leasehold interest therein, and

(b) is acquired for consumption, use or supply in the course of a commercial activity of the supplier,

and the recipient is not required to collect tax in respect of the supply of the trade-in, the value of the consideration for the supply made by the supplier is deemed to be equal to the amount, if any, by which the value of the consideration for that supply exceeds

(c) except where paragraph (d) applies, the amount credited to the recipient in respect of the trade-in, and

(d) where the supplier and the recipient are not dealing with each other at arm's length at the time the supply is made and the amount credited to the recipient in respect of the trade-in exceeds the fair market value of the trade-in at the time ownership thereof is transferred to the supplier, that fair market value.

Information on the "trade-in approach" is found in GST/HST Technical Information Bulletin B-084 (TIB B-084), Treatment of Used Goods.

Our response to each scenario, based on the information provided is as follows. Please note that we cannot comment on the XXXXX provincial sales tax as it is not within our jurisdiction.

Scenario 1  Customer owns a vehicle he/she intends to trade-in as partial payment for the vehicle he/she is purchasing. The Customer still has a loan outstanding against the vehicle being traded in which is secured by a lien on that vehicle. The loan balance is less than the value of the vehicle being traded in. The Dealer agrees to accept the trade-in and pays off the outstanding loan on behalf of the Customer.

It is your view pursuant to TIB B-084 that the value of the trade-in is not affected by any outstanding loan or lien. The full value of the trade-in is applied to reduce the consideration for the new vehicle subject to tax. After reviewing the Exhibit, your application of the GST/HST in this scenario is accurate based on our interpretation of subsection 153(4) and our position in TIB B-084.

Scenario 2  Customer owns a vehicle he/she intends to trade-in as partial payment for the vehicle he/she is purchasing. The Customer still has a loan outstanding against the vehicle being traded in which is secured by a lien on that vehicle. The loan balance is greater than the value of the vehicle being traded in. The Dealer agrees to accept the trade-in and pays off the outstanding loan on behalf of the Customer.

It is your view pursuant to TIB B-084 that the value of the trade-in is not affected by any outstanding loan or lien even though the amount of the outstanding loan is greater than the current value of the trade-in. The full value of the trade-in is applied to reduce the consideration for the new vehicle subject to tax. After reviewing the Exhibit, your application of the GST/HST in this scenario is accurate based on our interpretation of subsection 153(4) and our position in TIB B-084.

Scenario 3  Customer has an existing lease of a vehicle and wishes to purchase a new vehicle. The amount required to buy out the existing lease is less than the current market value of the Customer's vehicle (such that the Customer is said to have "positive equity" in the lease). Customer assigns his/her lease to the Dealer who would then buy out the lease, sell the vehicle and apply the difference to the Customer's purchase of the new vehicle.

It is your view that subsection 153(4) of the ETA applies where there is a trade-in of used tangible personal property or a leasehold interest therein. In this scenario the Dealer agrees to credit the Customer with the value of that interest (i.e., the current market value less the buyout price on the Customer's leased vehicle). The consideration for the new vehicle subject to tax is therefore reduced by the amount of the leasehold interest. After reviewing the Exhibit, your application of the GST/HST in this scenario is accurate based on our interpretation of subsection 153(4) and our position in TIB B-084.

Scenario 4  Transaction is identical to Scenario 3 except that in this case the lease buyout amount is greater than the current market value of the leased vehicle (such that the Customer is said to have "negative equity" in the lease). Where the Customer assigns the lease to the Dealer and the Dealer sells the vehicle, the Dealer will add the difference to the amount to be financed.

You have identified that the issue in this scenario is whether GST/HST should apply to the additional amount payable by the Customer relating to the negative equity in the lease. It is your view that the scenario is analogous to the situation of a trade-in with a lien in that the buyout of the existing lease and subsequent sale, at a loss, should be considered a separate financing transaction. The alternative would be for the Customer to borrow the amount necessary to buy out the lease less the amount received on selling the leased vehicle. GST/HST should not apply to the additional amount payable by the Customer.

After reviewing the Exhibit, your application of the GST/HST in this scenario is not correct based on our interpretation of subsection 153(4) and our position in TIB B-084.

It is our general view that the payment made by the Customer in respect of the negative equity in the lease is similar to making a payment is respect of a "lease deficiency" amount. We consider a lease deficiency payment to be an amount paid to a Lessor that is part of the consideration for the lease of the vehicle, which is a taxable supply. TIB B-084 states: "Where a lessee is obligated under the terms of a lease agreement to pay the lessor for any shortfalls below the guaranteed amount in the vehicle's value at the termination of the lease period, any shortfall in that amount is considered for GST/HST purposes to be additional consideration paid in respect of the vehicle." Using your analogy, when the Customer borrows the amount necessary to buy out the lease, the individual will pay GST/HST on the amount paid to buy out his/her existing lease pursuant to the agreement. Where the Customer supplies the leasehold interest in the existing lease to the Dealer and the Dealer then includes the difference between the buyout amount and what it gets for the subsequent supply of the vehicle into the amount financed, it is the same as if the Customer was paying the original Lessor for a lease deficiency, the Customer is now just paying the amount to the Dealer.

Further information, such as the sale documentation and the Customer's existing lease would be required to properly determine the correct application of the tax (i.e., when tax is payable) to this transaction.

Section 168 of the ETA outlines when the recipient of a taxable supply is required to pay the GST/HST on that supply. Subsection 168(2) of the ETA applies with respect to the lease of a vehicle that involves multiple payments, including payments made periodically over the course of the lease, and in some instances, a lease deficiency due at the end of the lease. As stated previously, a lease deficiency is part of the consideration for the supply of a vehicle by way of lease. Therefore, GST/HST must be calculated on that part of the consideration on the earlier of the day the lease deficiency is paid or the day it is due pursuant to section 152 of the ETA. Generally, a lease deficiency is due on the date that the individual is required to pay the lease deficiency under the lease agreement.

Scenario 5  Customer owns a vehicle he/she intends to trade-in as partial payment for the vehicle he/she is leasing and the trade-in has an existing lien that is less than the value of the trade-in. The Dealer agrees to accept the trade-in and pays off the outstanding loan balance on behalf of the Customer.

It is your view pursuant to TIB B-084 that the value of the trade-in is not affected by any outstanding loan or lien. The full value of the trade-in is applied to reduce the consideration for the new vehicle subject to tax. After reviewing the Exhibit, your application of the GST/HST in this scenario is accurate based on our interpretation of subsection 153(4) and our position in TIB B-084.

Scenario 6  Transaction is identical to Scenario 5 except that in this case the loan outstanding on the Customer's trade-in is greater than the current value of the trade-in.

It is your view pursuant to TIB B-084 that the value of the trade-in is not affected by any outstanding loan or lien even though the amount of the outstanding loan is greater than the current value of the trade-in. The full value of the trade-in is applied to reduce the consideration for the new vehicle subject to tax. After reviewing the Exhibit, your application of the GST/HST in this scenario is accurate based on our interpretation of subsection 153(4) and our position in TIB B-084.

Scenario 7  Customer has an existing lease of a vehicle and wishes to lease a new vehicle. Customer has "positive equity" in his/her existing lease. Customer assigns the existing lease to the Dealer who then buys out the lease, sells the vehicle and applies the difference to the Customer's new lease.

It is your view that subsection 153(4) of the ETA applies where there is a trade-in of used tangible personal property or a leasehold interest therein. In this scenario the Dealer agrees to credit the Customer with the value of that interest (i.e., the current market value less the buyout price on the Customer's leased vehicle). The consideration for the new vehicle subject to tax is therefore reduced by the amount of the leasehold interest. After reviewing the Exhibit, your application of the GST/HST in this scenario is accurate based on our interpretation of subsection 153(4) and our position in TIB B-084.

Scenario 8  Transaction identical to Scenario 7 except that the Customer has "negative equity" in the lease. Where the Customer assigns the lease to the Dealer and the Dealer sells the vehicle, the Dealer will add the difference to the amount to be repaid under the lease.

You have identified that the issue in this scenario is whether GST/HST should apply to the additional amount payable by the Customer relating to the negative equity in the lease. It is your view that the scenario is analogous to the situation of a trade-in with a lien in that the buy out of the existing lease and subsequent sale, at a loss, should be considered a separate financing transaction. The alternative would be for the Customer to borrow the amount necessary to buy out the lease less the amount received on selling the leased vehicle. GST/HST should not apply to the portion of the monthly lease payment that relates to this additional amount payable by the Customer.

After reviewing the Exhibit, your application of the GST/HST in this scenario is not correct based on our interpretation of subsection 153(4) and our position in TIB B-084.

It is our general view that the payment made by the Customer in respect of the negative equity in the lease is similar to making a payment is respect of a "lease deficiency" amount. As noted in Scenario 4, we consider a lease deficiency payment to be an amount paid to a Lessor that is part of the consideration for the lease of the vehicle, which is a taxable supply. Using your analogy, when the Customer borrows the amount necessary to buy out the lease, the individual will pay GST/HST on the amount paid to buy out his/her existing lease pursuant to the agreement. Where the Customer supplies the leasehold interest in the existing lease to the Dealer and the Dealer then includes the difference between the buyout amount and what it gets for the subsequent supply of the vehicle as part of the lease agreement, it is the same as if the Customer was paying the original Lessor for a lease deficiency, the Customer is now just paying the amount to the Dealer. Depending on the lease agreement, the amount may become a part of the monthly lease payment or could be an amount due at signing.

Further information, such as the lease agreement for the new vehicle and the Customer's existing lease would be required to properly determine the correct application of the tax to this transaction for the reasons mentioned in our views on Scenario 4.

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, Goods and Services Tax Rulings, 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.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-8814.

Yours truly,

Robert Douthwright, CGA
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/04/05 — RITS 60463 — GST/HST Info Sheet on ABM Services: Interchange

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

Dear XXXXX:

Thank you for your letter XXXXX concerning the calculation of government funding by your client, XXXXX, for purposes of determining whether it is a qualifying non-profit organization pursuant to subsection 259(2) of the Excise Tax Act (ETA). We apologize for the delay in responding to your request.

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

Statement of Facts

Our understanding of the facts from the information in your letter, attachments and the related legislation is as follows:

1. XXXXX was created XXXXX as a result of a funding agreement ("Funding Agreement") XXXXX. The XXXXX is not an agent XXXXX.

2. XXXXX.

3. The XXXXX is not registered for the GST/HST.

4. The XXXXX business number is XXXXX.

5. The XXXXX mission is to act as the XXXXX in Canada. Its purpose is to:

•   XXXXX;

•   XXXXX;

•   XXXXX.

6. The XXXXX has received grants of various amounts from the Consolidated Revenue Fund (the Funding) upon the requisition of the XXXXX. The Funding is provided in lump sum amounts rather than on a regular annual basis. There are restrictions imposed on the XXXXX as to how and when the Funding is to be used, as well as budgeting and reporting requirements.

7. XXXXX.

8. The XXXXX provides funds for qualifying XXXXX related projects to eligible recipients. The recipients must sign a contractual agreement with the XXXXX outlining the obligations of the parties to the agreement, the terms and conditions of the funding allocation, and the recovery of funds in the event of default, XXXXX. There is no retention of commercial assets by the XXXXX or individual members of a project. If the XXXXX does recover any funding, the funds return to the "pool" for allocation to other eligible projects.

9. XXXXX.

10. XXXXX.

11. XXXXX is wound up or dissolved, remaining funds would be divided amongst eligible recipients involved in projects or repaid to the credit of the Consolidated Revenue Fund.

12. The XXXXX uses the "deferral method" of accounting in its financial statements to recognize restricted contributions received from the federal government under the Agreement. This method is outlined in the Canadian Institute of Chartered Accountants Handbook. The XXXXX defers restricted contributions represented by the Funding amount as liabilities and recognizes the amount as revenue in the same period as the related expenses are recognized XXXXX.

Ruling Requested

You would like to know if XXXXX is entitled to calculate the percentage of its government funding for purposes of section 259, based on the amount identified as a contribution using the deferral method as recorded in its financial statements?

Ruling Given

Based on the facts set out above, we rule that to calculate the percentage of government funding for the year for purposes of section 259, XXXXX may use the deferral method whereby it records in its financial statements the restricted contributions granted pursuant to the Funding Agreement, as revenue in a year subsequent to the year received.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by this ruling provided that none of the above issues is 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

Subsection 259(3) provides for a rebate of a percentage of the GST/HST paid by certain persons, including a qualifying non-profit organization (NPO). Subsection 259(2) specifies that a person is considered a qualifying NPO at any time in a fiscal year of the person if, at that time, the person is a NPO, and the percentage of government funding for the fiscal year is at least 40% of its total revenue.

Under subsection 123(1) "non-profit organization means a person (other than an individual, an estate, a trust, a charity, a public institution, a municipality or a government) 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."

It is our view that the XXXXX would be considered to be operating solely for a purpose other than profit provided it operates in compliance with its articles of incorporation, its by-laws and the XXXXX. Whether an organization operates solely for a purpose other than profit is a question of fact, which must be determined on an ongoing basis.

For purposes of the rebate under subsection 259(3), the percentage of government funding of a person for a fiscal year is to be calculated in accordance with section 3 of the Public Service Body (GST/HST) Regulations ("the Regulations"). In the calculation formula, the amount identified in the financial statements of the particular person for the year as government funding is specified as the government funding that "... is received or became receivable in the year (depending upon the method followed by the person in determining the particular person's revenue or funding for the year), ...".

Where a NPO receives restricted contributions in a lump sum amount during a fiscal year and the NPO defers and recognizes the amount in a later period, rather than in the period in which it was received, the CRA, on a case by case basis, may accept this method of revenue recognition for purposes of the percentage of government funding formula pursuant to the Regulations and section 259 under the following conditions:

•   The contribution received is government funding as defined in the Regulations.

•   The contribution is subject to restrictions in the funding agreement that specify the specific conditions on the expenditure of the funding, when the amount must be expended, and the expenditure of certain amounts is thereby deferred until subsequent reporting periods.

•   The NPO complies with accepted accounting and reporting requirements (i.e. as outlined in the CICA Handbook) with respect to using a deferral method of accounting to recognize restricted contributions as revenue in its financial statements; and

•   The deferred contribution is identified as government funding for the period in which it is recognized as revenue in the financial statements.

Based on a review of the XXXXX, the contribution amounts are intended to assist the XXXXX in carrying out its purpose and are considered government funding for purposes of the Regulations and section 259. Interest income earned on investment of the Funding does not qualify as government funding.

The XXXXX is restricted from distribution of the contribution amount except for the purposes and under the conditions specified in the XXXXX. The XXXXX is required to provide annual statements detailing its funding activities. It identifies the restricted contribution amounts as government funding in its financial statements XXXXX. These amounts are recorded using the deferral method of accounting, and recognized as revenue in the same periods as the related expenses that they were intended to fund are recognized.

Accordingly, as the XXXXX meets the above noted conditions with respect to restricted contributions, it is entitled to utilize the deferred method of accounting for revenue recognition of the contributions when calculating the percentage of government funding in the period pursuant to the Regulations and section 259.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 952-0420.

Yours truly,

Debra Murphy
Charities, NPO & Educational Services Unit
PSB & Governments Division
Excise and GST/HST Rulings Directorate

XXXXX

2006/03/10 — RITS 46083 — Importation of Donated Works of Art XXXXX

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

Dear XXXXX:

Thank you for your letter XXXXX (with attachments) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the treatment of goods sent to Canadian Forces Post Office Boxes (5000 series). We apologize for the delay in replying.

The following is our understanding of the relevant information:

•   Your client, XXXXX a resident, is registered for GST/HST purposes.

•   XXXXX supplies goods and sends them to Canadian Forces Post Office Boxes (for which a particular 5000 series number is assigned to each Canadian Forces deployment outside Canada) via the Canadian Forces Post Office XXXXX. The goods shipped to such post office boxes are exported from Canada for delivery to the address of the corresponding Canadian Forces Post Office outside Canada.

Interpretation Requested

The supply of goods XXXXX, shipped to Canadian Forces Post Office Boxes (5000 series), is zero-rated (taxed at 0%) pursuant to section 12 of Part V of Schedule VI to the Excise Tax Act ("the Act").

Interpretation Given

A taxable (other than zero-rated) supply made in Canada is subject to GST at a rate of 7%, or HST at a rate of 15%, if it is made in the participating provinces of Nova Scotia, New Brunswick and Newfoundland and Labrador.

Pursuant to paragraph 142(1)(a) of the Act, a supply by way of sale of tangible personal property ("TPP") is deemed to be made in Canada if the TPP is, or is to be, delivered or made available in Canada to the recipient of the supply. A supply by way of sale of TPP is deemed to be made outside Canada, under paragraph 142(2)(a) of the Act if the TPP is, or is to be, delivered or made available outside Canada.

If TPP that is supplied by way of sale is deemed to be made in Canada, it may be zero-rated as an export under section 12 of Part V of Schedule VI to the Act if the supplier:

•   ships the TPP to a destination outside Canada that is specified in the contract for carriage of the TPP;

•   transfers possession of the TPP to a common carrier or consignee that has been retained by the supplier on behalf of the recipient or by the recipient's employer to ship the TPP to a destination outside Canada; or

•   sends the TPP by mail or courier to an address outside Canada.

Based on the information provided, the goods supplied XXXXX that it sends to the Canadian Forces Post Office Boxes (5000 series) are considered to have been sent to an address outside Canada for purposes of section 12 of Part V of Schedule VI to the Act. As a result, the supply of the goods would be zero-rated (taxed at 0%) pursuant to section 12 of Part V of Schedule VI to the Act.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, 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 Canada Revenue Agency with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6743.

Yours truly,

Cheryl R. Leyton
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/03/13 — RITS 50387-1 — Revision to Interpretation [Re Applicability of the GST/HST on the Lease of a Parking Authority]

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

Dear XXXXX:

This is in reply to the facsimile transmission XXXXX by the XXXXX concerning the application of the Goods and Services Tax/Harmonized Sales Tax ("GST/HST") to the XXXXX Cochlear Implant System. We have addressed our reply to you at the request of XXXXX, which has granted you third party authorization to represent them in this matter.

XXXXX has asked the XXXXX Rulings Centre XXXXX to reconsider the ruling given in its XXXXX. Our office advised XXXXX on technical aspects of that letter, and XXXXX has forwarded XXXXX letter to us for a direct response.

All legislative references are to the Excise Tax Act (the "ETA").

Statement of Facts

We have reviewed the additional facts and analysis presented by XXXXX in its XXXXX letter. Our understanding of the facts and the transaction is as follows.

XXXXX corporation that develops and manufactures the XXXXX Cochlear Implant System.

We understand that a cochlear implant system consists of battery powered internal and external components. The external components, which are worn on the head, over or next to the ear, include:

•   a microphone, which picks up sound from the environment and converts that sound into an electrical signal;

•   a speech processor, which selects and arranges the signals into a special code; and

•   a transmitter, which sends the coded electrical signal to the internal components of the cochlear implant system.

The internal components are surgically implanted into the skull behind the ear and tiny wires are inserted into the cochlea. The internal components include:

•   a receiver, which decodes the signal from the speech processor; and

•   an electrode array, which stimulates the cochlea with electrical current.

We understand that the cochlear implant system compensates for damaged or non-working parts of the inner ear by electronically finding useful sounds, bypassing damaged inner ear structures and sending electrical signals directly to the auditory nerve. The electrical signals are transmitted to the brain and interpreted as sound. Speech-language pathologists and audiologists are frequently involved in helping system recipients to interpret the sounds created by a cochlear implant.

We understand the following facts in regards to the subject system, as listed in the Statement of Facts in case number XXXXX.

The XXXXX Cochlear Implant System is intended to enable severe to profoundly hearing-impaired individuals to detect and recognize auditory information through electrical stimulation of the auditory nerve.

The XXXXX Cochlear Implant System is surgically implanted behind the ear, under the skin, in a trough in the skull. The body of the implant contains a computer chip and a magnet. Coming off the body of the implant is a soft silicone tapered strand with several electrodes imbedded inside of it. This is called the "electrode array".

The electrode array is then inserted into the cochlea (inner ear) through a small hole drilled in the cochlea. Approximately six weeks after the insertion of the implant, the patient is fitted with the processor. The processor has a microphone and additional computer chips. A cable attaches to the processor and on the other end to a small disk-shaped component that also has a magnet in it. This is referred to as a "coil". The coil then attaches, by magnetic attraction, to the patient's head just over the spot where the implant lays.

The microphone on the processor picks up sound, processes those acoustical signals into electronic signals using a sophisticated software strategy called XXXXX, then sends those electronic signals down the cable, through the coil to the implant, and down the electrode array into the cochlea. Those signals then stimulate the auditory nerve and the brain "hears" the sound.

The implant is of no use without the processor, and vice versa. In addition, there are many additional smaller parts and accessories that are used with the systems: battery packs, ear hooks, and different length cables. All of these parts are custom made to work with the XXXXX Cochlear Implant System and have no alternative uses. The software is also a critical component of the system and is specially developed for use only with this particular product.

XXXXX.

Ruling Requested

XXXXX has asked us to confirm the tax status of the XXXXX Cochlear Implant System for purposes of the GST/HST.

Rulings Given

Based on the facts set out above, we rule that the supply of the XXXXX Cochlear Implant System is zero-rated pursuant to section 2 of Part II of Schedule VI to the ETA.

Based on the facts set out above, we rule that importations of the XXXXX Cochlear Implant System do not attract GST/HST.

Explanation

Supplies of medical and assistive devices that are described in Part II of Schedule VI are zero-rated supplies, meaning that they are taxable at a rate of 0% for purposes of the GST/HST.

Section 2 of Part II of Schedule VI zero-rates "a supply of a communication device, other than a device described in section 7 ^[xxiii]1, that is specially designed for use by an individual with a hearing, speech or vision impairment". Based on the information provided, the XXXXX Cochlear Implant System qualifies as a communication device for purposes of the aforementioned section.

Goods the supply of which is included in Part II of Schedule VI are not subject to the GST/HST upon importation, by virtue of section 6 of Schedule VII to the ETA.

These rulings are 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 these rulings provided that none of the 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 XXXXX has fully described all necessary facts and transactions for which it requested a ruling.

Should you have any further questions or require clarification on this matter, please do not hesitate to contact me at 613-954-4280. Collect calls are accepted.

Yours truly,

(Mrs.) S.C. Cahill
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

2006/04/24 — RITS 59859 — Bulk Dried Cranberries

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

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a convention that was to be held XXXXX by your client, XXXXX (the Association). XXXXX. We apologize for the delay in responding to your enquiry.

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

Statement of Facts

We understand the following:

1) The Association is a non-resident that is registered for GST/HST purposes. XXXXX.

2) The Association holds an annual meeting.

3) For its annual meeting, the Association has two departments coordinating different aspects of the annual meeting - one department deals with the organization and registration for the annual meeting and the other (Accommodation) reserves blocks of hotel accommodation for members of the Association and other delegates. These two departments are separate from each other.

4) The Association convened its annual meeting XXXXX (the Convention).

5) At the time of convening the Convention, it was anticipated that XXXXX% or more of the delegates would be non-residents.

6) During the organizational phase of the Convention, the Accommodation department entered into agreements to reserve blocks of hotel rooms XXXXX (collectively referred to as the Hotels). Under the agreements, the Association was able to obtain favourable rates for its members and other delegates with the Hotels (the Hotel Agreements).

7) You have advised that the Association also entered into additional agreements with other hotels XXXXX and that these additional agreements were similar to the Hotel Agreements.

8) Delegates reserved rooms with the Accommodation department.

9) The cancellation policies in the Hotel Agreements were similar in that if a block of rooms was cancelled, the Hotel would charge the Association a cancellation fee based on a percentage of anticipated revenue.

10) During the organizational phase of the Convention, the Association and the XXXXX (Centre) entered into XXXXX (the Convention Facility Agreement) XXXXX.

11) Under the Convention Facility Agreement, the Association was to be entitled to use the Centre's facilities during the "Occupancy Period" for the fees stipulated XXXXX (Fees). The Fees were related to the Association's right to use the Centre's facilities.

12) XXXXX prior to the first day of the Occupancy Period, the Association was required to provide the Centre with an estimate for food, beverages and additional services required (collectively referred to as the "Costs").

13) Under the Convention Facility Agreement, the Association acknowledged that reductions or deletions of space or failure to take possession of any part of the Centre's facilities, as detailed in the Convention Facility Agreement, would be considered to be a cancellation of the Convention Facility Agreement.

14) In the event that the Convention or part of the Convention was cancelled by the Association, the Fee and any Costs were to remain due and payable by the Association as liquidated damages and not as a penalty to compensate the Centre for loss of revenue in connection with all or part of the Centre's facilities, subject to a payment schedule depending upon when the Convention was cancelled.

15) In addition, in the event of a cancellation by the Association of all or any part of the Convention Facility Agreement, the Centre was allowed to, but was not under any obligation to, make alternative arrangements for the use of the space. If the Centre was able to make such arrangements, and provided that the Association had complied with the provisions under the Convention Facility Agreement, the Centre agreed to take the new licence agreement into account when calculating the damage payments for the cancellation of the Convention.

16) The Association registered some delegates for the Convention.

17) The Convention was not held on the scheduled dates.

18) The Association, the Hotels and the Centre attempted to reschedule the Convention, but after extensive negotiations, the Association decided that it was not able to re-schedule the Convention.

19) The Association breached the Hotel Agreements and the Convention Facility Agreement.

20) XXXXX.

21) XXXXX.

22) XXXXX:

a) The Association agreed to pay the Hotels, the additional hotels and the Centre an amount XXXXX, inclusive of interest (the Settlement); and,

b) The Association agreed to pay to the Hotels, the additional hotels and the Centre XXXXX GST payable on the Settlement, on the undertaking that the Hotels, the additional hotels and the Centre provides any additional documentation that may be required to permit the Association to claim an input tax credit (ITC).

23) The Settlement included an amount related to the amount paid to the Hotels (the Hotel Settlement) and an amount that was related to the amount paid to the Centre (the Centre Settlement).

24) XXXXX the Association paid a total amount XXXXX to the Hotels, the additional hotels and the Centre for the release of all actions related to the cancellation of the Convention.

25) XXXXX the Hotels, the additional hotels and the Centre released and forever discharged the Association of and from all manner of actions, causes of action, suits, debts, duties, accounts, bonds, covenants, contracts, claims, demands, damages, losses and expenses of whatever kind or nature which the Hotels, the additional hotels and the Centre had that related to the supplies under the Hotel Agreements, the additional hotel agreements that were not submitted and the Convention Facility Agreement, or that were related to the cancellation of the Convention by the Association.

XXXXX.

Rulings Requested

You would like to know if the Association is entitled to claim ITCs on the GST paid through the Settlement to the Hotels and the Centre. In addition, if it is not entitled to ITCs on this tax, is it entitled to a rebate under subsection 261(1) or any other rebate?

Rulings Given

Based on the facts set out above, we rule as follows:

1) The Association is entitled to claim an ITC for the portion of the Settlement that is the GST deemed paid, pursuant to section 182, in respect of the deemed consideration paid under the Hotel Settlement, provided that all of the legislative requirements for claiming an ITC are met.

2) The Association is not entitled to claim an ITC, nor is it entitled to a rebate under Part IX of the ETA, for any tax deemed paid pursuant to section 182 on the deemed consideration paid for the Centre Settlement.

These rulings are subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by these rulings provided that none of the above issues is 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

The Convention falls within the definition of "foreign convention" and the Association meets the definition of "sponsor", as these terms are defined in subsection 123(1). Furthermore, the Association is deemed to have supplied admission to the Convention under section 133 and, pursuant to section 189.2, the Association's supply of admission to the Convention is deemed to have been otherwise than in the course of a commercial activity of the Association.

As the sponsor of a foreign convention, the Association would have been entitled to claim a rebate under section 252.4 (the Convention Rebate) of any GST/HST paid on the space in the Centre. The Association had one year after the day the convention ended to file for the Convention Rebate.

Based on the information provided, we determined that, since the Convention was not rescheduled and the Convention Facility Agreement was not amended, the day the Convention ended was the day the Convention Facility Agreement was breached XXXXX. However, as the Association had not paid any tax until after the one-year deadline, it is not entitled to the Convention Rebate.

There are no other rebates available to the Association and it is not entitled to an ITC on the GST deemed paid on that part of the Settlement that is the Centre Settlement.

If you require clarification with respect to any of the issues discussed in this letter, please call Michèle Routhier at 613-954-9700.

Yours truly,

Marjorie Stevens
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/04/18 — RITS 60676 — Ice Cream Products

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

Dear XXXXX:

Thank you for your letter XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of XXXXX and XXXXX memberships by the XXXXX. We apologize for the delay in responding to your enquiry.

Statement of Facts

We understand that:

1. XXXXX is a non-profit trade organization that was incorporated under the XXXXX Act of XXXXX. XXXXX mission is to promote the member XXXXX as the premier distributor of XXXXX products and services in XXXXX.

2. XXXXX is registered for GST/HST purposes XXXXX with the effective date of XXXXX.

3. XXXXX indicated that it meets the criteria as a non-profit organization as that term is defined under subsection 123(1) of the Excise Tax Act (ETA).

4. XXXXX is not a registered charity within the meaning assigned by subsection 248(1) of the Income Tax Act.

5. According to XXXXX its Constitution, the purposes of XXXXX are:

(a) XXXXX;

(b) XXXXX;

(c) XXXXX;

(d) XXXXX; and

(e) XXXXX.

6. XXXXX is a member of the XXXXX. As a member, XXXXX participates in XXXXX Program XXXXX which is a national advertising campaign.

7. XXXXX has a registered trademark, the XXXXX logo, that it uses for brand identity in its XXXXX campaign to differentiate and promote XXXXX who are members of their provincial XXXXX associations from those who are not.

8. XXXXX and XXXXX Members of XXXXX are entitled to use and display the XXXXX logo. XXXXX also uses the XXXXX logo in its own local advertising campaign promoting its XXXXX Members.

9. XXXXX who are not members of XXXXX, or any other XXXXX member association, are not entitled to use and display the XXXXX logo.

10. XXXXX charges XXXXX a XXXXX assessment fee based on the population of the province. Members of XXXXX are not required to pay a XXXXX assessment fee to XXXXX.

11. Membership in XXXXX is voluntary. XXXXX the By-laws sets out XXXXX categories of membership which include the following:

XXXXX Member - A XXXXX and its affiliates who have satisfied the requirements of XXXXX Membership as determined by the Directors of XXXXX from time to time may become XXXXX Members. A XXXXX and its affiliates will be entitled to only one XXXXX Membership and one XXXXX Membership in respect of the XXXXX and all of its affiliates, which membership will be in the name of the XXXXX (as represented by its main office) regardless of how many corporations, partnerships, individuals, employees or offices are represented by the XXXXX and its affiliates. Each XXXXX Member will be entitled to an additional number of XXXXX Memberships on the basis of one XXXXX Membership for every other office of the XXXXX and its affiliates in XXXXX (other than the main office) as determined by the Directors.

A XXXXX is defined under XXXXX By-laws to mean a corporation, partnership or individual which holds a valid licence XXXXX to transact XXXXX issued by the XXXXX and has not entered into XXXXX agreements which prohibit the representation of other XXXXX. However, a XXXXX does not include a XXXXX.

XXXXX Member - XXXXX who are unable to meet the requirements for XXXXX Membership or XXXXX Membership but who satisfy the requirements of XXXXX Membership as determined by the Directors from time to time may become XXXXX Members of XXXXX. XXXXX located outside the province of XXXXX who satisfy such requirements may also be XXXXX Members of XXXXX.

12. According to XXXXX the By-laws, every XXXXX Member in good standing is entitled to vote at a general meeting and to vote to elect a representative Director, President, First Vice-President, Second Vice-President and Treasurer. An XXXXX Member is not entitled to vote at a general meeting or to vote to elect a representative Director, President, First Vice-President, Second Vice-President and Treasurer.

13. Under XXXXX the By-laws, the Directors will determine from time to time the "fees" for each category of membership. "Fees" are defined in XXXXX the By-laws to mean any fees, including membership fees, dues or other amounts which may be assessed of the members by the Directors from time to time.

14. In part, under XXXXX the By-laws, a member ceases to be a member in good standing of XXXXX days following the payment date relating to any fees, if the member has not either paid any such fees in full or made arrangements for the payment of any such fees which are satisfactory to XXXXX in its sole discretion. According to XXXXX the By-laws, a member ceases to be a member of XXXXX upon being a member not in good standing for a period of XXXXX consecutive months.

15. The XXXXX membership fee structure for a XXXXX Member was comprised of the following: a charge per XXXXX, plus a charge for the XXXXX. The maximum charge for the number of XXXXX and the maximum charge for the number of XXXXX. The XXXXX charges were identical amounts based on the number of XXXXX.

16. For XXXXX, the membership fee structure for XXXXX Members was XXXXX. The maximum charge for the number of XXXXX. The charges for the XXXXX were the same as in XXXXX.

17. XXXXX charges, both XXXXX, are mandatory components of the membership fee for XXXXX Members. Membership billing for the XXXXX charges and the XXXXX is issued yearly in XXXXX while billing for the XXXXX is issued in XXXXX of each year. The XXXXX is billed separately in order to alleviate or minimize the initial cost of membership billing to members; however, as with the other membership fee charges, they cover the period from XXXXX to XXXXX of XXXXX fiscal year.

18. For an XXXXX Member, a XXXXX% discount applies to the total amount of billing per the membership fee structure under XXXXX Membership excluding charges for the XXXXX. XXXXX Members are not eligible for XXXXX benefits.

19. Members and potential members are made aware of the benefits of membership in XXXXX from information available on its website and in its XXXXX kit (the Membership Kit). The following are some of the benefits of membership in XXXXX:

XXXXX - In addition to the benefit of being identified and promoted through the XXXXX advertising campaigns which direct consumers to shop where they see the XXXXX logo, XXXXX Members also receive a XXXXX, which is a two-CD package of marketing and media support tools. XXXXX also has XXXXX promotional products such as pens, decals, posters, pins, notes, shirts, etc., that can be ordered by XXXXX Members, either free of charge or for a small fee.

Education - XXXXX provides educational programs in the XXXXX field for industry stakeholders and continuing education opportunities for current and prospective members. Members are eligible for discounts from XXXXX% to XXXXX% on the fees charged to non-members for educational programs such as the XXXXX course, the XXXXX course, seminars, videos, online learning and correspondence courses. The following are examples of the educational programs offered by XXXXX according to its website and Membership Kit:

Program      Member Price  Non-member price

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

XXXXX also sells textbooks and workbooks at discounted prices to members (e.g., the XXXXX workbook is $XXXXX for members and $XXXXX for non-members). XXXXX rents videos on XXXXX seminars for a charge of $XXXXX to members and $XXXXX to non-members. Equipment used for XXXXX seminars via video conferencing is available for rent for corporate meetings.

Publications - The XXXXX magazine is published XXXXX times per year with the latest industry news, events and opportunities and is distributed free of charge to all XXXXX members. For non-members, the annual subscription rate for the magazine is $XXXXX plus GST. Also, according to the magazine's website, classified advertising rates are $XXXXX per column inch and XXXXX members pay XXXXX.

Members also receive a free periodic e-newsletter that provides timely updates on XXXXX activities, education events and industry news. XXXXX also has resource materials available to members on compliance issues and legislation and regulations pertaining to the XXXXX industry. Members are also able to download and print handy XXXXX reference guides that cover a variety of topics from XXXXX website.

Annual events - XXXXX holds an annual conference. This event includes XXXXX seminars, a trade show, entertainment, the annual general meeting and networking opportunities with colleagues from XXXXX and beyond. XXXXX also hosts an annual golf tournament.

Online Resources - With the XXXXX function on XXXXX website, consumers can search online by postal code to find the XXXXX closest to them. XXXXX is an online marketplace for XXXXX with openings and people looking for work where positions available can be posted as well as resumes of available personnel.

Various scholarships - XXXXX offers various scholarships from $XXXXX to $XXXXX toward studies at a post-secondary institution for students with family ties to the XXXXX industry.

Advocacy - XXXXX promotes the interests of its members at all levels of government. XXXXX represents members' interests with the XXXXX and maintains positive, professional relationships with the XXXXX and several business-coalition groups.

XXXXX Program - XXXXX provides funding and support to the XXXXX which offers mediation, arbitration and mini-trial services as an alternative to costly litigation in the event of XXXXX disputes. An initial half-hour consultation is free to members as well as non-members. XXXXX, manages the activities of the XXXXX

XXXXX coverage - Special rates are available for members for XXXXX insurance provided through XXXXX.

Group benefit plan and RSP program - XXXXX is the insurer and, through XXXXX, members are eligible to participate in a group benefit plan (health, dental, life and disability insurance). XXXXX indicates that XXXXX% of its members would not be eligible for a quotation on the plan except for the fact that they are part of a larger group. Further, the coverage that is available would not be available to most member firms individually. In addition, each member XXXXX can choose to set up a group RSP as either employees only contribute, employers only contribute or both contribute. There is no policy set-up fee for member XXXXX joining the group RSP program.

Financial and banking services - XXXXX members offering premium financing from XXXXX to their small and medium-sized business clients are eligible to receive a XXXXX% commission per financed transaction of small-business XXXXX. The XXXXX offers key banking products and services for member XXXXX and their employees including access to capital at preferred rates, XXXXX valuation services and cash management services. In addition, through XXXXX, XXXXX members receive a XXXXX merchant discount rate of XXXXX%, a XXXXX merchant discount rate of XXXXX% and debit card transactions at XXXXX per transaction.

Software - XXXXX offers discounts on XXXXX, its XXXXX rate comparison software program and on XXXXX, its XXXXX program. XXXXX members are entitled to a one-time XXXXX% discount at time of purchase and to ongoing software renewal discounts of XXXXX%. Also, new XXXXX members are entitled to receive a free, XXXXX single workstation licence of either XXXXX or XXXXX.

20. Members of XXXXX are also eligible to receive discounts on gasoline and diesel fuel purchases, car rentals, hotel accommodations, valet parking at the airport, office and stationery supplies, internet services, advertising specialty items, travel services, cellular phone coverage and human resource services from various suppliers.

21. Pursuant to the XXXXX Act and its XXXXX Regulation, the XXXXX has delegated authority and responsibility to the XXXXX for the purposes of licensing and regulating XXXXX in the province of XXXXX. While an XXXXX must be licensed through the XXXXX to transact XXXXX in the province, the XXXXX does not have to be a member of XXXXX to be licensed nor is membership in XXXXX required to maintain a professional status recognized by statute.

22. XXXXX has not made an election under section 17 of Part VI of Schedule V to the ETA in respect of its memberships.

23. XXXXX indicated that it has been collecting GST on its XXXXX and XXXXX Memberships since its fiscal year starting XXXXX.

Rulings Requested

1. What is the tax status of XXXXX Memberships and XXXXX Memberships supplied by XXXXX?

2. If the supply of memberships is taxable, would the Canada Revenue Agency (CRA) accept that GST/HST is only applicable on future transactions made by XXXXX?

Please note that a ruling provides the CRA's position on specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person. The CRA reserves the right not to issue a ruling where it considers that one would not be appropriate. As your second ruling request does not involve a specific provision of the legislation and how it relates to a clearly defined factual situation we are unable to issue a ruling on this matter.

Ruling Given

Based on the facts set out above, we rule that XXXXX supplies of XXXXX Memberships and XXXXX Memberships made in XXXXX are taxable supplies subject to the GST at 7%.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by this ruling provided that none of the above issues is 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

All following legislative references are to the ETA and the regulations therein, unless otherwise specified.

A XXXXX that becomes a XXXXX Member in XXXXX is a participant in the XXXXX. This program is an integral and interdependent element of the supply of a XXXXX Membership in XXXXX. Further, the XXXXX dues are mandatory components of the annual membership fee for a XXXXX Membership in XXXXX and a XXXXX cannot acquire a XXXXX Membership without paying all the components of the membership fee (that is, the charge per XXXXX plus the charge per XXXXX plus the charge for the XXXXX). As a result, the XXXXX is not a separate supply from the supply of a XXXXX Membership even where the XXXXX is billed half-way through the year.

In general, a supply of a membership made in XXXXX by an association will be taxable supplies subject to GST at the rate of 7% unless the supply meets the conditions for exemption under a provision in Schedule V.

Section 17 of Part VI of Schedule V exempts a supply of a membership in a "public sector body" (other than a membership in a club the main purpose of which is to provide dining, recreational or sporting facilities or in a registered party) where each member does not receive a benefit by reason of the membership other than the "allowable benefits" listed in paragraphs 17(a) to 17(f) of that section. An organization that is a "non-profit organization" as defined in subsection 123(1) is also a "public sector body" for ETA purposes.

Under paragraph 17(a) of Part VI of Schedule V, a member of a non-profit organization may receive an "indirect benefit" that is intended to accrue to all members collectively without causing an otherwise exempt membership to be taxable.

Generally, a "benefit" of membership is the right to any property or service of value regardless of the extent to which the right is actually exercised by individual members. All possible benefits, both direct and indirect, accruing to members must be taken into consideration in determining the tax status of a membership.

A XXXXX Member's right to be identified by the XXXXX and use the XXXXX logo and promotional materials is not an indirect benefit as contemplated under paragraph 17(a) of Part VI of Schedule V. This benefit has commercial applications for XXXXX Members, who are XXXXX, as it identifies, distinguishes and promotes the XXXXX Members from their competitors in the XXXXX industry. As such, this benefit could not be considered a secondary or unintended consequence of membership and is therefore not an indirect benefit. The XXXXX logo brands the XXXXX Member and is a marketing tool. Non-members do not have the right to use or be identified by the XXXXX logo.

Also, XXXXX Members as well as XXXXX Members have the right to receive or acquire educational programs at reduced rates from XXXXX. Member rates for some of XXXXX educational programs are discounted up to XXXXX% from non-member rates. These are not insignificant discounts when compared to the consideration for a XXXXX or XXXXX Membership in XXXXX.

For instance, a member has the right to take the XXXXX correspondence course for $XXXXX, which is a discount of $XXXXX from the non-member rate of $XXXXX. The member also has the right to take the XXXXX online course for $XXXXX which is a discount of $XXXXX from the non-member rate of $XXXXX. For a XXXXX Member XXXXX, these discounts totalling $XXXXX account for XXXXX% of the member's annual membership fee of $XXXXX, without even considering the cumulative value of all available discounts. For an XXXXX Member XXXXX, these discounts alone exceed the member's annual membership fee of $XXXXX. As a result, this benefit exceeds the allowable benefit in paragraph 17(e) of Part VI of Schedule V since XXXXX and XXXXX Members have the right to receive educational programs at discounts that are not insignificant in relation to their annual membership fees.

Therefore, as XXXXX and XXXXX Members receive benefits that exceed the "allowable benefits" listed in paragraphs 17(a) to (f) of Part VI and Schedule V and, as there are no other provisions in Schedule V to exempt XXXXX supplies of these memberships made in XXXXX, they are taxable supplies subject to GST at 7%.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9592.

Yours truly,

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

2006/04/24 — RITS 64810 — Dried Fruits