GST/HST Ruling

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 supplies made by your client, XXXXX. We apologize for the delay in our response.

Statement of Fact

Our understanding of the facts, the transaction(s), and the purpose of the transaction(s) is as follows:

1. XXXXX (the Association) is a non-profit organization incorporated on XXXXX, in the province of XXXXX.

2. The Association receives the vast majority of its revenues in the form of membership fees. Membership fees for the year ending XXXXX totalled XXXXX.

3. The Association has not elected to have the supply of memberships be taxable.

4. The Association has not indicated any charge for GST on its invoices for memberships, but has taken 7/107 of the membership fees and reported the amount as GST on the Association's GST/HST returns.

5. The Association has claimed full input tax credits (ITCs) for all the GST/HST paid or payable on its purchases.

6. The Association promotes and protects the rights of XXXXX.

7. The objects of the Association state, in part, that the Association was established to protect the rights XXXXX and for these purposes XXXXX.

8. Documentation provided by you states that membership in the Association XXXXX It also states that the Association pays all legal fees and associated costs.

9. XXXXX Ruling Requested

Memberships supplied by the Association are exempt from GST/HST pursuant to section 17 of Part VI of Schedule V to the Excise Tax Act (the ETA).

Ruling Given

Based on the facts set out above, we rule that, pursuant to section 17 of Part VI of Schedule V to the ETA, memberships supplied by the Association are taxable supplies and therefore not exempt.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the ETA, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

Section 17 of Part VI of Schedule V to the ETA exempts the 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

a) an indirect benefit that is intended to accrue to all members collectively,

b) the right to receive services supplied by the body that are in the nature of investigating, conciliating or settling complaints or disputes involving members,

c) the right to vote at or participate in meetings,

d) the right to receive or acquire property or services supplied to the member for consideration that is not part of the consideration for the membership and that is equal to the fair market value of the property or services at the time the supply is made,

e) the right to receive a discount on the value of the consideration for a supply to be made by the body where the total value of all such discounts to which a member is entitled by reason of the membership is insignificant in relation to the consideration for the membership, or

f) the right to receive periodic newsletters, reports or publications the value of which is insignificant in relation to the consideration for the membership, or that provide information on the activities of the body or its financial status, other than newsletters, reports or publications the value of which is significant in relation to the consideration for the membership and for which a fee is ordinarily charged by the body to non-members, except where the body has made an election under the section in prescribed form containing prescribed information.

In other words, memberships in public sector bodies are taxable if members receive any benefits other than those described in section 17 as listed above.

As noted above, paragraph (a) allows an indirect benefit only. The free legal services provided by the Association are a direct benefit to XXXXX. The legal services provided also constitute a benefit going well beyond the investigation of complaints or the conciliation of disputes involving members referred to in paragraph (b).

Thus, the legal services provided by the Association are excluded from the exemption by virtue of both paragraphs (a) and (b) of section 17 of Part VI of Schedule V to the ETA.

Additional Information

We would like to clarify some points mentioned in your letter. First, although the type of organization making a supply may have an impact on the determination of the tax status of a supply, it is the supply that is either taxable or exempt, not the organization making the supply.

Secondly, while for most persons the small supplier threshold amount is $30,000, for a public service body the threshold amount is $50,000.

If the taxable supplies of a public service body registered for GST/HST fall below the $50,000 threshold, the public service body has the option of cancelling its registration. Once deregistered, the public service body would generally no longer charge GST/HST on its taxable supplies and would not be eligible to claim ITCs.

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,

Helena Ingr
Charities, NPOs and Educational Services Unit
PSBs and Governments Division
Excise and GST/HST Rulings Directorate

Dear XXXXX:

We are writing to revoke the Application Ruling sent to your client XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of XXXXX spacing devices.

Your letter XXXXX asked for a review of the XXXXX ruling XXXXX concerning the status of the XXXXX product under the Excise Tax Act (ETA). This letter amends and replaces our earlier ruling. We regret the delay in this response.

Statement of Facts

Our understanding of the facts from your letter and the product literature provided is as follows:

1. XXXXX.

2. The XXXXX product line is used in the treatment of asthma.

3. The XXXXX products are spacing devices, also known as aerosol chambers, that attach to inhalers and deliver metered dose inhaler medication.

Ruling Requested

You have requested a ruling on the GST/HST status of the XXXXX products.

Ruling Given

Based on the information provided, we rule that the XXXXX products are conditionally zero-rated medical devices under section 5.1 of Part II of Schedule VI to the ETA. That is, where the supply of XXXXX product is made on the written order of a medical practitioner for use by a consumer named in the order, it will be zero-rated, meaning it will be taxable at 0%. However, throughout the distribution chain where the two conditions have not been met, the supply of the XXXXX product will be taxable at 7% or 15% depending on where it is supplied, pursuant to section 165 of the ETA.

This ruling is XXXXX subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

Part II of Schedule VI to the ETA provides a listing of supplies of medical and assistive devices that are unconditionally or conditionally zero-rated.

Medical devices that are unconditionally zero-rated are zero-rated in their own right or because they have certain design features. An unconditional zero-rating provision attaches no restrictive conditions upon the supply of that product; therefore, the supply stated in the particular provision will be taxed at a rate of 0% throughout the distribution chain. The manufacturer may sell the device to a distributor, the distributor to the retailer and the retailer to the final consumer - all on a zero-rated basis.

Conditionally zero-rated provisions are more restrictive in that the medical device will only be zero-rated when supplied under the specific terms described in the provision. Where the requirements of a conditional provision are met, the supply stated in the particular provision will be zero-rated to the extent allowed in the provision. In circumstances where the terms of a conditional zero-rating provision are not met, the medical device will be taxable at 7% GST or 15% HST depending on where it is supplied, pursuant to section 165 of the ETA.

After reviewing the product literature relating to the XXXXX products, it is our conclusion that the products are aerosol chambers used in the treatment of asthma and therefore conditionally zero-rated under section 5.1 of Part II of Schedule VI to the ETA.

Section 5.1 of Part II of Schedule VI to the ETA reads:

A supply of an aerosol chamber or a metered dose inhaler for use in the treatment of asthma when the chamber or inhaler is supplied on the written order of a medical practitioner for use by a consumer named in the order.

Where a provision zero-rates a supply with a condition that it is "... supplied on the written order of a medical practitioner for use by a consumer named in the order", both requirements must be met in order for the supply to be zero-rated.

Relating the foregoing to the supply of the XXXXX product line, XXXXX product will be zero-rated only in circumstances where it is supplied on the written order of a medical practitioner for use by a consumer named in the order (which generally occurs at the retail level). Conversely, where XXXXX product is not supplied on the written order of a medical practitioner for use by a consumer named in the order, for example where XXXXX product is supplied to a distributor, retailer, hospital or other health care organization, it will be subject to the GST at 7% or HST at 15%, pursuant to section 165 of the ETA.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-4395.

Yours truly,

Angela K. Lovric
Municipalities and Healthcare Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

Dear XXXXX:

Thank you for your facsimile XXXXX in regards to the rules found in Technical Information Bulletin ("Bulletin") B-091, concerning the timing of the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to prepaid funeral arrangements.

Statement of Facts

Our understanding of the facts is as follows:

The second paragraph on page one of the Bulletin stipulates that GST/HST in respect of prepayments (for property and services not yet provided) is payable at the time the payment becomes due or is paid, whichever is earlier. It then goes on to state that this rule does not apply to contributions held in trust pursuant to prepaid funeral arrangements.

In respect of your prepaid contracts, your customers have the option of paying the purchase price in full at the time of entering into the contract or electing to purchase on an instalment basis.

Typically, the terms can range up to five years and payments are made on a monthly basis.

In accordance with statutory requirements, which vary among jurisdictions, the company is required to set aside with a corporate trustee, anywhere from 85% to 100% of the receipts from prepaid funeral arrangements.

According to the Bulletin, amounts not held in trust are considered part of the consideration payable by the customer and as such, the company must include GST/HST in respect of the amount in determining its net tax for the reporting period.

The section titled Amounts not held in trust in the Bulletin seems to indicate that the GST/HST should be remitted the earlier of when an instalment payment is due or paid, but you would like this confirmed.

The second issue is in respect of trusting the GST/HST collected. The Bulletin does not specify that any estimate of the GST/HST owing under the prepaid funeral arrangement must be placed into trust with the principal contributions.

Ruling Requested

1. When does the company have to remit the GST/HST pertaining to that portion of an instalment payment, which does not have to be trusted, is it at the time that the instalment payment is due or when it is actually paid?

2. From a system/record keeping standpoint you may want to keep the GST in a separate trust account. If the GST/HST collected was not put into trust with the principal contributions would you have to remit up front?

3. As well, you may wish to pool the GST collected as opposed to keeping it in individual accounts. Does the CCRA see any problems with this approach?

Ruling Given

Based on the facts set out above, we rule that:

1. The funeral home is required to include GST/HST in respect of that portion of an instalment payment, which does not have to be trusted, in determining its net tax for the reporting period in which that portion of an instalment is paid or becomes due, whichever is earlier.

2. Any contribution amount held in trust is not subject to GST/HST until the amount is withdrawn from trust. This would include any amount equal to the estimate of GST/HST that will eventually be payable, whether or not the amount is kept in a separate trust account.

3. Any amount equal to an estimate of the GST/HST eventually payable that is pooled in a trust with other trusted amounts would not attract tax until withdrawn from the trust, provided it meets provincial legislation requirements as a trusted amount for a person.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8223.

Yours truly,

Carolle Mercier
Services and Intangibles Unit
General Operations & Border Issues Division
Excise and GST/HST Rulings Directorate

Dear XXXXX:

Thank you for your letter XXXXX (with attachments XXXXX addressed to our XXXXX XXXXX and the XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transaction described below.

Statement of Facts

Our understanding of the facts, is as follows:

1. The XXXXX was incorporated in XXXXX and received its Order to Commence and Carry on Business in XXXXX[.]

2. On XXXXX the XXXXX was continued as a bank under the name XXXXX and received its Order to Commence and Carry on Business.

3. The XXXXX is an indirectly wholly owned subsidiary of XXXXX[.]

4. The XXXXX is authorized to operate as a bank in Canada XXXXX[.]

5. On XXXXX, the XXXXX launched a new XXXXX.

6. On XXXXX, the XXXXX entered into an agreement with XXXXX XXXXX XXXXX[.]

7. The XXXXX has entered into another agreement with XXXXX an electronic commerce and payment service, to deliver the technical platform that delivers the product to market.

8. XXXXX Agreement sets out the services required to issue, support and maintain the accounts opened under the XXXXX program. XXXXX Agreement lists these services as follows:

a. XXXXX

b. XXXXX

c. XXXXX

d. XXXXX

e. XXXXX

f. XXXXX

g. XXXXX

h. XXXXX

i. XXXXX

j. XXXXX

k. XXXXX

9. The services provided by XXXXX include the provision of support to the XXXXX XXXXX Agreement.

10. The special covenants to be satisfied by the XXXXX are set out in XXXXX XXXXX Agreement. According to XXXXX Agreement the XXXXX is required to promote the use of the XXXXX Agreement indicates that the XXXXX will provide access to the XXXXX system required to provide other XXXXX services.

11. The XXXXX owns the risks associated with the cards. According to XXXXX Agreement, XXXXX[.]

12. According to XXXXX Agreement, XXXXX[.]

13. The payments received by XXXXX for services rendered to the XXXXX are described in XXXXX Agreement, and the fee for each service is set out in XXXXX XXXXX Agreement XXXXX set out below, sets limits on the service fee paid by the XXXXX:

"XXXXX Transactions

The XXXXX entered into a XXXXX Agreement with XXXXX to provide various services required to issue the XXXXX and maintain the credit card accounts opened on behalf of the XXXXX[.]

Ruling Requested

The services provided by XXXXX to the XXXXX are exempt financial services as that term is defined pursuant to subsection 123(1) of the Excise Tax Act (the "ETA") since the nature of the services are:

1. "arranging for" the issuance of a credit card account, and

2. the maintenance and operation of those accounts.

Ruling Given

Based on the facts set out above, we rule that

The services provided by XXXXX under the XXXXX Agreement may be characterized as two exempt supplies of financial services pursuant to section 1 of Part VII of Schedule V to the ETA. The financial services provided by XXXXX may be described as follows:

1. XXXXX "arranges for" the issuance of credit cards as referred to in paragraph (l) of the definition of "financial service" in subsection 123(1) of the ETA.

2. XXXXX also provides the services required to maintain and operate the credit card accounts opened on behalf of the XXXXX in accordance with paragraph (b) of the definition of "financial service" in subsection 123(1) of the ETA.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the ETA, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8222.

Yours truly,

Manjula Vethanayagam
Rulings Officer
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

Dear XXXXX:

Thank you for your letter XXXXX, concerning the eligibility of XXXXX to be considered a band-empowered entity for purposes of the application of Technical Information Bulletin (TIB) B-039R, GST Administrative Policy - Application of GST to Indians.

XXXXX, an auditor at XXXXX, has been working with you with respect to this issue. With XXXXX assistance you have provided additional information.

Based on the documents that you have provided, our understanding of XXXXX (referred to below as "the entity") is as follows.

The entity is incorporated under the XXXXX of the province of XXXXX, as a "membership" corporation.

The following are full voting members of the entity, and signatories to the XXXXX Agreement described in the next paragraph: XXXXX First Nation; XXXXX First Nation; XXXXX; XXXXX; and XXXXX. Other than the two First Nations, the full voting members are XXXXX[.] Following a decade of planning and negotiations, the XXXXX (hereafter referred to as the "Agreement") was concluded in XXXXX. The Agreement confirmed the parties' mutual commitment to the creation of a regional health care services delivery organization that:

•   delivers comprehensive health care services in the XXXXX, including acute care, long-term care, home care, community-based health services, ambulance services, public health services, mental health services, alcohol and drug abuse services, and other related health care services;

•   is governed through a structure accountable to the residents of XXXXX;

•   does not derogate from or add to the existing rights and obligations of any of the parties respecting the provision of health care services;

•   is without prejudice to the existing Treaty and aboriginal rights, principles, and goals of the participating First Nations; and

•   has XXXXX and Canada contribute for XXXXX.

As a result of the Agreement, the entity carries on any and all activities necessary or incidental to its purposes of governing and managing the delivery of comprehensive health care services to all residents of XXXXX.

Membership interests in the entity may from time to time be issued by resolution of the Board of Directors in such number and on such terms and conditions as may be permitted under the XXXXX. The number of members is unlimited. Currently, the members consist of two First Nations and three XXXXX.

The Board of Directors consists of a minimum of 5 and a maximum of 12 persons, as determined from time to time by the members.

Each member is entitled to appoint at least one director. Each member will appoint a second director where the member XXXXX or First Nation has a population in excess of 20% of the total population of XXXXX. Each member will appoint a third director where the member XXXXX or First Nation has a population in excess of 30% of the total population of XXXXX.

In order to determine the appropriate number of directors, the membership formula is reviewed six months prior to any selection of directors. The members may require verification of the population statistics from an independent source. If, as a result of the addition of members, the number of directors increases above the number of 12, the members will review this formula and revise it in order to limit the number of directors to 12.

All directors must meet the qualifications set out in XXXXX. There is no requirement for a director to be a member of the member First Nations, although we can assume that each of the two First Nation members will appoint as a director a member of the respective First Nation. The qualifications are general in nature, such as:

•   have been resident of XXXXX for a minimum of a year;

•   have a minimum age of 18 years;

•   be fluent in English or XXXXX; and

•   not be the legal counsel of the entity.

Under the entity's bylaw XXXXX, the members must approve the annual operating budget unanimously.

Under XXXXX, the entity in the event of dissolution or winding up must dispose of assets as follows.

•   The facility and the lease for the facility's land shall be transferred to whatever health care delivery organization offers memberships to the XXXXX First Nation.

•   Where all members join the same health care delivery organization, personal property will be transferred to that organization.

•   Otherwise, each member's interest in the assets shall be determined, and disposition will require the approval of the funding agencies.

The entity's registered office is located on XXXXX Indian Reserve XXXXX (XXXXX First Nation), XXXXX kilometres southeast of XXXXX. The XXXXX facility is located on the same reserve.

In your letter XXXXX you provided the following.

XXXXX

Following completion of the XXXXX facility in XXXXX, almost all fixed assets (the XXXXX facility, two XXXXX, and two XXXXX) are situated on reserve.

XXXXX

The on-reserve facilities serve, and will continue to serve, 90% of the regional population after any dissolution of the entity. These on-reserve facilities, upon any dissolution of the entity, will remain under the control of the First Nations on their reserves.

More than 90% of the movable assets located at XXXXX (personal tangible property owned by the entity) are situated on reserve. Following any dissolution of the entity, these assets will continue to be situated on reserve.

All moveable assets in XXXXX, in the event of dissolution of the entity, will be owned or controlled by the two First Nations.

Moveable assets located in XXXXX, upon any dissolution of the entity, will continue to be located in the on-reserve XXXXX. In the event of the health entity's dissolution, XXXXX First Nation will continue to maintain a management role in a replacement health care organization.

You estimate that members of the two First Nations represent more than 90% of the population of the XXXXX region. There is no evidence that there will be any significant change in the current proportion of First Nation and non-First Nation residents in the XXXXX region, or in the distribution of residents on and off reserve.

New members XXXXX can only be admitted by the unanimous agreement of the current members. The First Nations therefore would have to consent to the addition of new members XXXXX.

All decisions made by the membership at semi-annual meetings and at meetings of the Board of Directors require the consent of the two First Nations. XXXXX XXXXX XXXXX[.] To the same end, motions and resolutions require the support of the majority of the directors from the two First Nations XXXXX XXXXX[.]

Currently, the two First Nations appoint six of the nine directors. Under the current provisions of XXXXX, and the current and projected population characteristics, there is every assurance that the First Nations will continue to appoint a majority of the members.

Given that the XXXXX, serving more than 90% of the regional population, are situated on reserve, and that all current population projections forecast that the majority of regional residents will continue to be located on reserve, there is every assurance that the entity or any successor organizations would continue to operate substantially on reserve.

Ruling Requested

You would like to know if the entity is a BEE for purposes of Technical Interpretation Bulletin (TIB) B-039R, entitled GST Administrative Policy - Application of GST to Indians.

Ruling Given

Based on the information provided, we conclude that the entity is a band-empowered entity for the purposes of Technical Information Bulletin B-039R. This determination is based on the facts that you have provided that are present throughout this letter, and is binding for the period in which these facts endure.

Explanation

Based on TIB B-039R, an entity is considered to be owned by a band, a tribal council or a group of bands other than a tribal council if:

•   the band, tribal council or group of bands owns all or substantially all (90 per cent) of the shares or holds all or substantially all of the memberships of the entity; or

•   the band, tribal council or group of bands holds title to the assets of the entity or controls its disposition, such that in the event of wind up or liquidation, these assets are vested in the band.

An entity is considered to be controlled by the band, tribal council or group of bands if:

•   the band, tribal council, group of bands or individual members of the band, tribal council or group of bands, appoint or elect a majority of the members of the governing body of the entity (e.g., directors); and

•   the entity is required by legislation, by-laws, or an operating agreement, to submit to the band, tribal council or group of bands, its operating budget and where applicable, its capital budget for review and approval.

The policy for the application of the GST/HST to BEEs stems from relief provided under the Indian Act and the December 13, 1990, Press Release of the Minister of Finance concerning Indian purchases and the GST. Under section 87 of the Indian Act, tax relief is provided to the interest of an Indian or a band in reserve lands or surrendered lands; and the personal property of an Indian or a band situated on a reserve. As the XXXXX First Nation and the XXXXX First Nation are bands for purposes of the Indian Act, we will refer in our analysis to the member First Nations as "bands." To be considered a BEE, the entity must meet either of the requirements for ownership or control noted above.

Under the terms of XXXXX, it is not evident that the membership can be substantially composed of the bands. Only 2 of the 5 members are bands. The 3 others XXXXX. (Still, the number of members is unlimited under XXXXX, and membership interests may from time to time be issued by resolution of the Board of Directors. However, at this time, it is not an evident fact.)

TIB B-039R provides that an entity is owned by a band where a band holds title to the assets, or controls the disposition such that, in the event of dissolution or winding up, the assets are vested in the band. By virtue of the entity's conditions for disposition, the criterion for ownership is not met because there is no evidence that all of the assets will be vested in the bands.

Although the entity does not meet the first requirement of ownership, the requirement of control is met. The first criterion is demonstrated by the fact that the two First Nations appoint six of the nine directors. This fact establishes that the bands elect or appoint the majority of the governing body.

The second criterion for control under TIB B-039R requires that the operating budget and if applicable the capital budget be submitted for review and approval by the band, tribal council or group of bands. In this case, the members of the entity who are the Directors must approve the budget.

According to XXXXX, unanimous approval by the members is required for the annual operating budget. Consequently, without the approval of the two First Nations, the entity's annual operating budget cannot be approved. The nature of the XXXXX region is such that the two bands have a very particular relationship with the XXXXX. Because each of the two bands can give or withhold approval, the second criterion is met.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Should you have any further questions or require clarification, please call Dave Caron, Manager of the Aboriginal Affairs Unit, at (613) 954-7957, or myself at (613) 957-1175.

Yours truly,

Dwight Kostjuk,
Aboriginal Affairs Unit
PSBs & Govts Division
Excise and GST/HST Rulings Directorate

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 transaction described below.

We apologize for the delay in responding.

Statement of Facts

Our understanding of the facts, the transaction, and the purpose of the transaction is as follows:

1. The XXXXX is a corporation incorporated under the laws of Canada with its head office located at XXXXX

2. The XXXXX insures financial institutions against the risks associated with the non-payment of debts on mortgages issued by financial institutions. The XXXXX charges an application fee to review and evaluate the risks associated with mortgage applications received by various financial institutions.

3. The essential feature of this process includes the review of the application by the XXXXX automated collateral underwriting system. Following the review by this automated process the application is either approved or referred for manual underwriting. If the application is approved a XXXXX is issued to the lender.

4. The electronic XXXXX or XXXXX (XXXXX of the XXXXX XXXXX issued to the lender indicates the premium owing, the PST/QST owing for the particular application. The XXXXX is generally the only communication between the XXXXX and the lender and qualifies as an invoice to the lender.

5. If more than XXXXX of the value of the intended purchase price is borrowed the financial institution (lender) is required to obtain mortgage default insurance on that mortgage.

6. The XXXXX insures the lender and the lender is required to pay the premium charged by the XXXXX. In general, the costs associated with the premium are passed on to the borrower.

7. The XXXXX uses database and independent appraisers to ascertain the value of property acquired by the borrower, which is used to determine the loan-to-value ratio, which determines the premium to be paid.

8. The application fee paid by the lender covers the costs associated with using property associated databases, third party appraisers, general underwriting overheads, processing costs and credit reports.

XXXXX

9. This application fee is separate from the premium. However, according to XXXXX XXXXX which indicates that the premium payment is allocated to the application fee and collected at the same time as the premium. The XXXXX refers to the application fee as an "underwriting fee".

10. The XXXXX charges three types of application fees (i) XXXXX, (ii) XXXXX and (iii) XXXXX. The fee varies according to the valuation work that is required to assess the application, as an example, a standard application fee would apply if the lender provides an independent third party appraisal with the application.

11. The application fee does not depend on or vary with the premium the lender is required to pay. Although the application fee is a reflection of the market rate other factors like valuation costs and third party appraisals have an impact on the application fee charged by the XXXXX.

12. The XXXXX prices its insurance products to obtain a return on equity of approximately XXXXX.

Transaction

The XXXXX provides mortgage insurance on the risks associated with the potential non-payment by debtors of sums due to insured financial institutions, and receives an application fee as consideration for reviewing and evaluating the risks associated with mortgage applications and related properties.

Ruling Requested

Whether the GST is payable on application fees received by the XXXXX as consideration for reviewing and evaluating mortgage applications and related properties.

Ruling Given

Based on the facts set out above, we rule that:

The application fee received by the XXXXX represents consideration for an exempt supply of a "financial service" as referred to in section 1 of Part VII of Schedule V to the Excise Tax Act (ETA). The underwriting services provided by the XXXXX qualify as "financial services" as defined in paragraph (h) of the definition of "financial service" in subsection 123(1) of the ETA. Therefore, the XXXXX is not required to charge and collect GST on application fees it receives from insured financial institutions.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.[required only when the decision is unfavourable]

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8222.

Yours truly,

Manjula Vethanayagam
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

Encl.:

Dear XXXXX:

We are replying to the Notice of Objection XXXXX that you filed after receiving the ruling provided to you by your local Tax Services Office XXXXX. The ruling determined that the training provided by your organization is taxable.

A Notice of Objection is used to file an objection against an audit assessment. There has been no assessment made to which an objection could be filed. Therefore, the local Appeals Division was unable to do a review and has instead forwarded the matter to us at the Excise and GST/HST Rulings Directorate. We have reviewed the file and are providing a ruling that we hope will clarify the situation for you. We apologize for the delay in our response.

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX (the Partnership), provides XXXXX services XXXXX and also XXXXX training to individuals.

2. Currently, XXXXX % of the Partnership's revenues are derived from XXXXX services, XXXXX % from XXXXX training. In previous years, the percentages have been XXXXX % from XXXXX services, XXXXX % from XXXXX training.

3. XXXXX[.]

4. XXXXX[.]

5. XXXXX does not specify the requirements for XXXXX qualification. Each provincial government has its own requirements for XXXXX. In XXXXX are required to have, in addition to XXXXX insurance, a XXXXX and certification that they have successfully completed the requisite XXXXX courses.

6. XXXXX[.]

7. Insurance companies require XXXXX XXXXX training before they will consider insuring applicants.

8. The Partnership is not registered as a vocational school in XXXXX. It is recognized as an educational institution for the purposes of issuing income tax receipts to individuals taking the training.

Ruling Requested

Is the XXXXX training provided by the Partnership exempt from GST?

Ruling Given

Based on the facts set out above, we rule that the training provided by the Partnership is not exempt from GST; the training is taxable.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act (ETA), or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

Section 8 of Part III of Schedule V to the ETA exempts supplies of certain courses when made by a school authority, vocational school, public college or university. In other words, the supplier of the courses must be a school authority, vocational school, public college or university. The status of the supplier therefore needs to be determined, before considering whether the courses themselves qualify for exemption.

It is evident that the Partnership is not a school authority (i.e., elementary or secondary school), public college or university. The next step is to determine whether it is a vocational school. A vocational school is defined in section 1 of Part III of Schedule V to the ETA as "an organization that is established and operated primarily to provide students with correspondence courses, or instruction in courses, that develop or enhance students' occupational skills."

An organization is considered to be "operated primarily" to provide correspondence courses or instruction in courses that develop or enhance students' occupational skills, if more than 50% of its total annual revenues are derived from tuition for courses, or may be attributed to the provision of instruction in courses, that develop or enhance students' occupational skills.

As the Partnership's revenues are not derived primarily (i.e. more than 50%) from training, it does not qualify as a vocational school. Since it is not a vocational school, the training it provides is not exempt under section 8 of Part III of Schedule V to the ETA. Nor is there any other provision to exempt the training.

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,

Helena Ingr
Charities, NPOs and Educational Services Unit
PSBs and Governments Division
Excise and GST/HST Rulings Directorate

XXXXX

Dear XXXXX:

Thank you for your facsimile XXXXX to the XXXXX GST/HST Rulings Centre concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of secure access using a software application and other components bundled together under a single contract. Your enquiry was forwarded to us for response and we apologize for the delay in replying.

Statement of Facts

Our understanding of the facts is as follows:

XXXXX is located in XXXXX, XXXXX and is registered for purposes of the GST/HST.

XXXXX is an extranet or SSL (SSL is an acronym for "secure sockets layer", which is a protocol developed to transmit private documents via the Internet.) virtual private network (VPN) provider. XXXXX gives its customers the ability to have their employees, clients and business partners securely access their corporate resources from Internet-enabled devices through secure VPN access and unique SAS (SAS is an acronym for "secure access system") User authentication credentials (e.g., user name and password, digital certificate or security tokens). It also provides hardware, such as routers, servers and controllers, on which the encryption software is loaded. When XXXXX provides hardware XXXXX, it is situated at the customer's premises or located at any other location [e.g., trade show kiosks], and access to the XXXXX is controlled by the customer. However, the hardware remains the property of XXXXX and the customer is not entitled to modify or tamper with the XXXXX or move it from its location. Title to the software programs also remains with XXXXX.

In other words, under a "XXXXX" (the Agreement), XXXXX supplies software that copies its customer's data and applications from the customer's servers onto the XXXXX (hardware supplied by XXXXX). Through XXXXX software, the customer can authorize employees, partners, etc. to securely access the data and applications via the Internet and XXXXX encryption software that resides on the XXXXX.

XXXXX XXXXX Package includes the VPN features, XXXXX installation and repair services, technical support, and digital certificates.

XXXXX XXXXX Package includes all of the same components as the XXXXX Package along with a XXXXX directory and the services of enrolling and deleting end users, controlling the security protocols by limiting end users' access to certain applications, and remotely customizing XXXXX software program to meet the customer's specifications. Unless the software customization is onerous, it is provided for no additional cost to the customer.

When XXXXX provides either the XXXXX Package, the customer is granted a non-exclusive, non-transferrable licence, without right to sub-licence, for the customer and their end-users, and XXXXX does not restrict the customer from using the features of the XXXXX Package in other locations. The customer is also allowed to make one copy of the applicable software, solely for back-up or archival purposes.

In addition, there are no restrictions regarding the place of use by the customer's employees, clients and business partners who are given digital certificates, user names and passwords to remotely access the customer's data and applications via the encryption software. In fact, one of the purposes of XXXXX supply is to provide the customer's authorized user with secure access (meaning that only the right people access the right information) from anywhere in the world and from a variety of devices.

Except for the installation, repair and maintenance of XXXXX, all of XXXXX activities relating to the XXXXX Package are carried out remotely, via the Internet, from XXXXX XXXXX location.

For a separate fee and under a separate agreement, XXXXX determines the computer security needs of its customers by sending one of its employees to their location to assess the level of protection required (the Consulting Services).

XXXXX also supplies remote Internet access to its customers by purchasing such services from an Internet Service Provider and reselling it to its customers.

The "place of negotiation" (The "place of negotiation" of a supply means the location of the supplier's permanent establishment at which the individual principally involved in negotiating for the supplier the agreement for the supply ordinarily works, or reports to in performing his or her duties in relation to the supplier's activities in the course of which the supply is made. "Negotiating" includes the making or accepting of an offer.) of the supply of the XXXXX XXXXX Package is in XXXXX.

The above information was obtained from your telephone conversation with XXXXX, our telephone conversation XXXXX, your facsimiles XXXXX and XXXXX Web site XXXXX.

Ruling Requested

You have requested rulings on the GST/HST status of XXXXX supplies of:

1. the XXXXX Package [including installation, repair and maintenance];

2. the Consulting Services; and,

3. the remote Internet access when supplied to Canadian residents.

Pursuant to section 1.4 of the GST/HST Memoranda Series [copy enclosed], a ruling can only be issued where clearly defined facts are established. As the facts cannot be fully ascertained with regards to the supply of the remote Internet access, we are pleased to provide you with an interpretation on this issue following our rulings on the XXXXX Packages and the Consulting Services. In this same interpretation, we shall also provide comments on XXXXX supply of additional customization when it is provided separate from its supply of the XXXXX Package.

Ruling Given

Based on the facts set out above:

1[.] We rule that XXXXX supply of the XXXXX Package to a person located in Canada who is resident in Canada is a supply of intangible personal property (IPP); is deemed to be made in Canada, pursuant to subsection 142(1) of the Excise Tax Act (ETA); and, is subject to the GST at a rate of 7%, under subsection 165(1) of the ETA, even where the recipient is located in a participating province (Nova Scotia, New Brunswick, and Newfoundland and Labrador).

2[.] We further rule that XXXXX supply of the Consulting Service to a person located in Canada who is resident in Canada is a supply of a service; is deemed to be made in Canada, pursuant to subsection 142(1) of the ETA; and, is subject to the GST at a rate of 7%, under subsection 165(1) of the ETA, or HST at a rate of 15% where made in a participating province, pursuant to subsection 165(2) of the ETA.

These rulings are subject to the general limitations and qualifications outlined in section 1.4 of the GST/HST Memoranda Series. We are bound by these rulings provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the ETA, or to our interpretative policy; and that you have fully described all necessary facts and transaction for which you requested a ruling.

Explanation

A taxable [other than zero-rated] supply made in Canada is subject to the GST at the rate of 7% or HST at the rate of 15% [where the supply is made in a participating province]. A supply that is zero-rated is taxed at 0%.

A supply of IPP

It is our view that the various property and services, that are bundled together and provided by XXXXX under the Agreement for either the XXXXX Package, are constituent elements of a single supply. In addition, it is our view that the principal object of the single supply provided by XXXXX under the Agreement is the provision of rights to use software applications that enable the customer to provide its employees, clients and business partners with secure access to its computerized resources. It is the CCRA's position that this is a supply of IPP for GST/HST purposes.

As stipulated in paragraph 142(1)(c) of the ETA, IPP that is not related to real property, tangible personal property or a service is deemed to be made in Canada if the IPP may be used [meaning "allowed to be used"] in whole or in part in Canada. As XXXXX does not restrict use of the IPP exclusively to "in Canada" or "outside Canada", under this paragraph, the supply is deemed to be made in Canada since the IPP may be used in Canada.

To determine the applicable tax rate for a supply made in Canada, section 144.1 of the ETA must be examined. This section deems a supply to be made in a province if it is made in Canada and is, under the rules set out in Schedule IX to the ETA, made in the province; but the supply is deemed to be made outside the province in any other case. Also, a supply made in Canada that is not made in a participating province is deemed to be made in a non-participating province. (the rest of Canada)

As the IPP is not related to real property, tangible personal property or services, there are no restrictions regarding the province or group of provinces in which the IPP may be used, and the place of negotiation of the supply is in XXXXX, the supply of the IPP by XXXXX is deemed to be made in a non-participating province pursuant to section 144.1 of the ETA. As such, XXXXX is required to collect the GST at a rate of 7% on the supply of the IPP, even in cases where the recipient or an end-user [employee, client or business partner] is located in a participating province.

A supply of a service

XXXXX supply of the Consulting Service is a supply of a service for GST/HST purposes.

A supply of a service that is not related to real property is deemed to be made in Canada, under paragraph 142(1)(g) of the ETA, if the service is, or is to be, performed in whole or in part in Canada. As indicated, XXXXX supply of the Consultation Service includes a visit to the customer's location to assess the required level of security. Where XXXXX employee visits the customer's location in Canada, the Consulting Service is performed in whole, or in part, in Canada as XXXXX carries out activities in Canada in performing the Consulting Service. As such, the supply of the Consulting Service is deemed to be made in Canada.

As indicated earlier, section 144.1 of the ETA works in conjunction with the rules set out in Schedule IX to the ETA to determine the province in which the supply is made.

Under Part V of Schedule IX to the ETA, generally, a service is considered to be supplied in a particular province if all or substantially all [90% or more] of the Canadian element (In Part V of Schedule IX to the ETA, the "Canadian element" of a service means the portion of the service that is performed in Canada.) of the service is performed in that province. For example, if the Canadian element of XXXXX Consulting Service is performed entirely in XXXXX, the supply of the service is considered to be made in XXXXX a non-participating province, and therefore subject to GST at 7%.

Where the above does not apply, in this case, the supply may be considered to be made in a participating province pursuant to section 3 of Part V of Schedule IX to the ETA. This section provides, in part, that a supply is made in a participating province where the place of negotiation of the supply is outside Canada and all or substantially all of the service is performed in Canada, and the Canadian element of the service is performed primarily [more than 50%] in the participating provinces. For example, if 90% or more of XXXXX Consulting Service is performed in Canada and the portion of the service that is performed in Canada is performed primarily in Nova Scotia and New Brunswick, the supply of the service is deemed to be made in the participating provinces and subject to HST at 15%.

If neither of the above provisions apply, XXXXX supply of the Consulting Service that is made in Canada is considered to be made in a non-participating province pursuant to section 144.1 of the ETA and subject to GST at 7%.

Interpretation Given

Internet access

Pursuant to subsection 123(1) of the ETA, a "telecommunication[s] facility" is defined to mean " ... any facility, apparatus or other thing [including any wire, cable, radio, optical or other electromagnetic system, or any similar technical system, or any part thereof] that is used or is capable of being used for telecommunications".

A "telecommunication service" is defined in subsection 123(1) of the ETA as follows:

(a) the service of emitting, transmitting or receiving signs, signals, writing, images or sounds or intelligence of any nature by wire, cable, radio, optical or other electromagnetic system, or by any similar technical system, or

(b) making available for such emission, transmission or reception telecommunications facilities of a person who carries on the business of supplying services referred to in paragraph (a).

Access to the Internet is a telecommunication service that involves making available telecommunications facilities.

Section 142.1 of the ETA sets out the place of supply rules for determining when a supply of a telecommunication service is made in Canada. Pursuant to subparagraph 142.1(2)(a) of the ETA, a telecommunication service that consists of making available telecommunications facilities is deemed to be made in Canada where the facilities or any part thereof are located in Canada.

For supplies of Internet access, section 3 of Part IX of Schedule IX to the ETA provides that, notwithstanding any other Part of this Schedule, a supply of a property or service is made in a province if the supply is prescribed to be made in the province. Subsection 10(1) of the Place of Supply (GST/HST) Regulations provides, in part, that when a particular supplier makes a supply of Internet access and there is to be one final recipient who acquires it under an agreement either with the particular supplier or another supplier, the supply is made in a particular province if there is a single ordinary location in that province at which the final recipient avails itself of the access, and either:

•   the particular supplier maintains information sufficient to determine that location, or

•   it is the normal business practice of the particular supplier to obtain information sufficient to determine that location.

In any other case, the supply is made in a particular province if the mailing address for the recipient of the supply is in that province.

For purposes of the Place of Supply (GST/HST) Regulations, a "final recipient" in respect of Internet access means a person who is the recipient of a supply of access and who acquires it otherwise than for the purpose of supplying it to another person. Where consideration for a supply is payable under an agreement for the supply, the person who is liable under the agreement to pay that consideration is the recipient of the supply as defined in subsection 123(1) of the ETA.

Therefore, where a single final recipient of Internet access provided by XXXXX does not avail itself of the access at a single ordinary location or where the conditions above with respect to the information are not met, the determination of the place of supply is based on the mailing address of the recipient. For example, if the mailing address of the recipient of XXXXX supply of Internet access is in one of the participating provinces, such as New Brunswick, the supply is made in New Brunswick and subject to the HST at a rate of 15%. If the mailing address is in a non-participating province, such as XXXXX, the supply is subject to the GST at a rate of 7%.

There are special rules for situations that involve multiple final recipients. More information regarding these rules may be found in the enclosed Technical Information Bulletin B-[0]90 GST/HST and Electronic Commerce.

Customization for the XXXXX Package

Finally, where XXXXX supply of customization is a separate supply from the supply of the XXXXX Package, it is necessary to determine the characterization of the supply. Without further information, we are unable to make this determination. For example, if the customization relates strictly to the human involvement [i.e., the time/labour necessary to design and implement the software modifications that are specific to the customer's needs] and does not entail the supply of the software itself or the use of the software created by XXXXX, the supply may be considered a service for GST/HST purposes. In this case, please refer to the information above with respect to the Consulting Service to determine the application of the GST/HST.

Where the customization is considered to be a supply of IPP, the GST/HST will apply in the same manner as described above with respect to supplies of the XXXXX or XXXXX Packages. Please refer to the enclosed TIB B-090 for further information regarding the characterization of supplies.

The foregoing comments represent our general view with respect to the subject matter of your letter. Proposed amendments to the ETA, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-8806.

Yours truly,

Marjorie Stevens
Electronic Commerce Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

Dear XXXXX:

We are writing in reply to XXXXX letters XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to various items XXXXX sold by XXXXX. (XXXXX has also forwarded to us copies of XXXXX letters on the same topic to the following: XXXXX[.)] We understand that XXXXX is no longer with your office and that our reply should now be addressed to you. We have received additional information on XXXXX queries by means of telephone conversations with XXXXX and your colleagues XXXXX. During these conversations we have advised your office of our anticipated approach to its queries and some of the concepts which we would be discussing.

Please accept our apology for the delay in our written reply to XXXXX queries.

All legislative references are to Part II (Medical and Assistive Devices) of Schedule VI to the Excise Tax Act (ETA) unless otherwise noted.

We are pleased to offer the following comments regarding the interpretation and application of the provisions of Part II. As we advised in our telephone calls XXXXX XXXXX to your office, we will not be offering an individual opinion as to the tax status of each of the hundreds of items identified in your submission. However, we trust that our comments will be useful to you in applying the provisions of Part II to products that you currently XXXXX supply as well as to new or revised products that you may deal with in the future. As well, we have provided rulings on the tax status of three medical devices.

Statement of Facts

Our understanding of the facts, the transactions, and the purpose of the transactions is as follows:

XXXXX a variety of medical devices manufactured by its XXXXX sells the products to Canadian hospitals, primarily for use by the hospitals in surgical and post-surgical procedures. Other clients include long-term care facilities and pharmacies. In some cases, upon hospital referral and under prescription, XXXXX sells items directly to individual consumers.

In your letter XXXXX, you list multiple categories of products. You have provided a binder listing several hundred items, with attachments holding data sheets describing products from the various categories. The types of products that you identify include the following:

•   stents, including ureteral, coronary, endoscopic and percutaneous biliary and pancreatic drainage, biliary, vascular, tracheobronchial, esophageal;

•   catheters, including nephrostomy, suprapubic, urodynamic, endoscopic and percutaneous biliary and pancreatic drainage, enteral/gastrostomy feeding catheters and accessories, emergency airway, abscess drainage, dialysis, cecostomy, percardiocentesis;

•   incontinence products such as a continence ring and a condom catheter;

•   drainage products such as chest tubes; and

•   a variety of products such as XXXXX, embolization coils, implantable ports, vena cava filters, XXXXX, vascular occlusion device, XXXXX, XXXXX; ligators, stone strainers and hernia repair sets.

You have asked us specifically to provide a ruling on each of the three items that follow.

1. The XXXXX drainage pouch set XXXXX is used for nephrostomy or biliary (Dorland's Illustrated Medical Dictionary 27th ed defines "nephrostomy" as the creation of a fistula leading directly into the pelvis of the kidney, while "biliary" is defined as pertaining to the bile, to the bile ducts, or to the gallbladder) drainage. The pouch is worn around the waist, and is held in place by a soft elastic belt. A reed valve mechanism prevents reflux. The pouch collects either urine or bile that drains from the body. The patient attaches the pouch set to a catheter that is implanted in his or her body. XXXXX sells the pouch sets to individuals on prescription and to pharmacies, as well as to hospitals. The hospital supplies the original device to the patient following a surgical procedure. The device is designed for the individual patient who uses the device, maintains it and replaces it as necessary. The patient can purchase the drainage pouch set directly from XXXXX or from a pharmacy. We understand that for purposes of your ruling request this is a single supply.

2. The XXXXX continence ring XXXXX is used intravaginally by females to support the urethra and bladder neck for temporary control of female urinary incontinence. The XXXXX continence ring set comes with XXXXX different sizes, to assist in proper fitting.

3. The XXXXX condom catheter XXXXX is used for male external catheterization due to urinary incontinence. The inflatable retention ring secures the catheter and can be easily deflated for removal. XXXXX comes with the catheter to assist in proper fitting.

Both the XXXXX continence ring and the XXXXX condom catheter are specially designed and intended to be used on a long-term basis by individuals who have a chronic incontinence disability. Both devices work on the same premise, in that they are designed to apply pressure to the urethra to prevent urine leakage. Both items are washable, reusable and designed for easy insertion and removal by the individual several times a day. When necessary the individual replaces the devices.

Directions for both the XXXXX continence ring and the XXXXX condom catheter state that an individual should only use the items after receiving complete instructions from a physician. Individuals are advised to have a full understanding of the instructions for the products before using them.

Rulings Requested

You have asked us to confirm the tax status of the devices described above. You suggest that the XXXXX drainage pouch sets, the XXXXX continence rings and the XXXXX condom catheters may be zero-rated, while the remainder of the items are taxable at 7% GST (15% HST in the participating provinces of Nova Scotia, New Brunswick and Newfoundland and Labrador). This is consistent with the interpretation letter provided to you XXXXX by the XXXXX Office of Revenue Canada (now the Canada Customs and Revenue Agency).

Rulings Given

Based on the facts set out above, we provide the following rulings:

1. The supply of XXXXX drainage pouch sets is zero-rated under section 25 of Part II of Schedule VI to the ETA.

2. The supply of XXXXX continence rings is zero-rated under section 37 of Part II of Schedule VI to the ETA.

3. The supply of XXXXX condom catheters is zero-rated under section 37 of Part II of Schedule VI to the ETA.

These rulings are subject to the general limitations and qualifications outlined in section 1.4 (enclosed) of Chapter 1 of the GST/HST Memoranda Series. We are bound by these rulings provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested rulings.

Explanation

Ruling 1

Based on the information provided by you, the XXXXX drainage pouch set meets the conditions of section 25 of Part II, as a urinary appliance or similar article that is designed to be worn by an individual.

Rulings 2 and 3

Based on the information provided by you, the XXXXX continence ring and the XXXXX condom catheter meet the conditions of section 37 of Part II, as incontinence products that are specially designed for use by an individual with a disability.

General Information - Part II Schedule VI

Part II of Schedule VI to the ETA lists medical devices for human use that are zero-rated (taxable at 0%) under the ETA. Some devices are zero-rated in their own right (e.g. supplies of artificial eyes, artificial teeth, hearing aids) while other devices are zero-rated only when supplied under certain conditions (e.g. on the written order of a medical practitioner for use by a consumer named in the order, or specially designed for use by an individual with a disability).

The policy intent of Part II is to provide tax relief on devices and appliances for use by individual consumers. This intent is apparent by the specific devices and appliances named in Part II and some of the requirements for zero-rating, e.g. "... specially designed for use by an individual with a disability", "... that can be used in the residence of an individual", "... supplied on the written order of a medical practitioner for use by a consumer named in the order".

Accordingly, in general Part II does not apply to devices and other items designed for use by a hospital for surgical procedures, or that are designed for use on a temporary basis as a result of a surgical procedure.

It will be a question of fact whether a specific item meets the criteria listed at a specific zero-rating provision. Such a determination requires research and analysis of the facts particular to that item.

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. If you have any specific questions regarding the application of the GST/HST to the importation of items into Canada, please contact your local Tax Services Office.

The following is a discussion of some specific terms used within Part II.

Specially Designed

A condition of several provisions of Part II is that the device must be "specially designed" for use by an individual with a disability. What does this phrase mean for our purposes?

The term "specially designed" relates to the intention of the initial manufacturer as to the ultimate use of the goods as reflected in the qualities and features of the goods themselves. Goods are "specially designed" if they are designed for the particular use set out in the legislation. That is, they compensate for or alleviate limitations or conditions flowing from the disability. The specially designed features must be significant in that the features make the article recognizably different from similar goods without the features. The specially designed article is not reasonably expected to have an alternative use.

Some devices might have been originally designed for some other purpose and later turned to other uses, such as assisting disabled individuals. However, the fact that disabled individuals can benefit from them does not mean that those items were "specially designed" for use by an individual with a disability. The qualifier "specially" imposes a restriction on the word "designed" which excludes general-purpose goods from the zero-rating provision.

The following factors may be relevant in ascertaining the manufacturer's intention as to the ultimate use of the good:

-    the extent to which the 'special design' is expressed in the goods, that is, the goods have features, qualities or capabilities not found in general purpose goods but which support the needs of the disabled individuals for which the goods are designed;

-    the extent to which the goods are designed for use by disabled individuals relative to the extent of their use by those individuals without a disability;

-    the extent to which the advertising and marketing of the goods is directed towards disabled individuals.

We will administer these provisions so that where we determine a certain manufactured good to be 'specially designed' for a particular provision of the ETA, we will assess similar goods by taking into consideration the information provided by the 'first' manufacturer. The result will be that 'similar goods' with 'similar characteristics' will be treated consistently. However, where there are 'differences' in the goods and/or the characteristics, we may require that the 'new good' be evaluated independently of any previous decision.

Disability

A disability is generally defined as a long-term impairment. Dorland's Illustrated Medical Dictionary 27th Edition defines "disability" in part as "a lack of the ability to function normally, physically or mentally".

Consequently, to be zero-rated under a provision of the ETA that refers to a disability, the product must be specially designed for individuals with a long-term impairment and not for those experiencing a temporary restriction. There must be evidence that the product was designed to be used by the individual with the disability.

Substantiation

In many cases the descriptions in the manufacturer's or retailer's catalogue will be insufficient to demonstrate how an item meets the criteria for being considered "specially designed". In some cases it may be necessary for either the manufacturer or the retailer to substantiate zero-rating by providing more detail on how the qualities and features of a specific good are specially designed for one of the purposes named in Part II, rather than being general purpose items.

Review of Certain Legislative Provisions of Part II

We have identified the following provisions as being particularly relevant within the context of your query.

Section 5.2 zero-rates "a supply of a respiratory monitor, nebulizer, tracheostomy supply, gastro-intestinal tube, dialysis machine, infusion pump or intravenous apparatus, that can be used in the residence of an individual".

The gastro-intestinal tubes sold by XXXXX can be zero-rated under section 5.2 only if they can be used in the residence of an individual. The intent of the provision is to zero-rate the types of items listed that would be used in the residence of an individual. We understand that XXXXX gastro-intestinal tubes do not meet this criterion, as they are used exclusively by hospital staff in the hospital.

Section 25 zero-rates "a supply of a medical or surgical prosthesis, or an ileostomy, colostomy or urinary appliance or similar article that is designed to be worn by an individual".

"Prosthesis" may be defined as "an artificial substitute for a missing body part, such as an arm or leg, eye or tooth, used for functional or cosmetic reasons, or both". (source: Dorland's Illustrated Medical Dictionary 27th Edition)

Not all prostheses are zero-rated under this provision. Rather, only a selective type of prosthesis is zero-rated, i.e. medical or surgical prostheses that are designed to be worn by an individual.

The ordinary meaning of "worn by an individual" implies that the medical device must be an external prosthesis or appliance that the individual uses, rather than a device that is used by a health care facility and implanted in the individual's body. The sense of "wear" implies some regular action on the part of the individual associated with the wearing of the device and some degree of control over the care and maintenance of the device.

For example, we have determined that a breast implant that is entirely implanted in the body would not qualify for zero-rating under section 25. Similarly, certain vascular prostheses designed to be implanted in a patient's circulatory system have been found not to be prostheses for the purposes section 25 of Part II of Schedule VI to the ETA.

Some of the devices that XXXXX distributes to hospitals are medical or surgical prostheses, ileostomy, colostomy or urinary appliances or similar articles (e.g. the cecostomy set XXXXX and the urethral sling XXXXX XXXXX). However, where these devices are not designed to be worn by an individual, they will fall outside the provisions of section 25 and will not be zero-rated under that provision.

Regarding urinary appliances, the scope of section 25 takes into account urinary catheters including urethral or ureteral as well as collection bags including tubing. Dorland's Illustrated Medical Dictionary 27th Edition defines "appliance" in part as a device, apparatus or instrument for performing or facilitating the performance of a particular function.

The term "similar article" will be limited to a class to which the preceding items belong. Thus, only an item that is or is like a medical or surgical prosthesis, an ileostomy appliance, a colostomy appliance or a urinary appliance will qualify for zero-rating under section 25, assuming it also meets the other condition of that section, i.e. the article is designed to be worn by an individual.

Section 26 provides for zero-rating "a supply of an article or material, not including a cosmetic, for use by a user of, and necessary for the proper application and maintenance of, a prosthesis, appliance or similar article described in section 25".

In other words, to be zero-rated under section 26, the article or material must by for use by an individual who wears a device that is zero-rated under section 25, for the purpose of properly applying or maintaining that medical device.

Section 32 provides for zero-rating "a supply of a part, accessory or attachment that is specially designed for a property described in this Part". Section 32 zero-rates items that are specially designed for medical devices that are zero-rated elsewhere in Part II. Accordingly, one must first determine if the property qualifies as a medical device in this Part that is zero-rated. If the item in question is then determined to be a part, accessory or attachment that is "specially designed" for that zero-rated medical device, then it will be zero-rated. Items such as the adjuster and the belt for the XXXXX drainage pouch sets may qualify if sold separately as replacement parts for the pouch set.

In order to be zero-rated under section 32 a part, attachment or accessory must be specially designed for a zero-rated item described in Part II, rather than being a multi-use or alternative use item.

Section 37 zero-rates "a supply of an incontinence product that is specially designed for use by an individual with a disability".

In order to be zero-rated under this section, the product must be an incontinence product. That is, a device will not be zero-rated under section 37 if it has been designed for other applications and may be used for conditions other than incontinence. In addition, to be zero-rated by this section, the product must have been specially designed to be used by the individual suffering from a disability and not by someone else, such as a health care practitioner.

Types of products that fall under this section include disposable and reusable briefs, pads, adult diapers and liners that are specially designed to assist an individual in coping with incontinence. We also consider that this section applies to products specially designed for use by an individual with a disability in treating incontinence.

Products that we have treated as zero-rated under this provision include certain devices specially designed to treat incontinence and for use by an individual.

Types of products that would not fall under section 37 include catheters used by persons to cope with temporary incontinence as a result of a surgical procedure, since such temporary incontinence does not meet the "disability" requirement of section 37.

Enclosed for your reference is section 4.2 of the GST/HST Memoranda Series, Medical and Assistive Devices. This publication provides information on zero-rated medical and assistive devices and the corresponding services for purposes of the GST/HST provisions of the ETA. [required only when the decision is unfavourable]

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-4280.

Yours truly,

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

Dear XXXXX:

This is in response to a letter XXXXX. XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale of prepaid funeral contracts by funeral homes. We apologize for the delay in responding.

Please note that we will be responding separately to your questions concerning the application of the GST/HST to payments made from an assurance fund. XXXXX[.]

Statement of Facts

Our understanding of the facts is as follows:

•   In your legislation XXXXX all funds from the sale of a prepaid funeral contract are required to be placed into a trust account.

•   If a consumer wishes to cancel his or her contract, he or she is able to do so and is entitled to a return of his or her funds plus income earned.

•   Under the heading XXXXX under the terms and conditions of the draft prepaid funeral contract provided XXXXX XXXXX

Ruling Requested

The issue on which you need clarification pertains to the timing of payment of the HST, and former GST, when a funeral home sells a prepaid funeral to a client in the province of XXXXX.

1. Specifically, when a funeral home sells a prepaid contract for $XXXXX, when does it pay its HST, and former GST, to the CCRA? Does it remit tax at the time of sale or when the funeral is performed, possibly many years later?

2. If the ruling determines that funeral homes need not pay tax until the funeral is performed, should funeral homes be keeping the portion of the funeral contract, which is designated as tax, separate from the remaining prepaid funeral funds? The issue in question is that the money in the trust account is invested. Can potential tax money be invested?

Ruling Given

Based on the facts set out above, we rule that:

1. Any contribution amount held in trust is not subject to GST/HST until the amount is withdrawn from the trust. The funeral home is not required to account for the GST/HST on the contributions held in trust at the time they are made under the prepaid funeral arrangement. The funeral home is required to account for the GST/HST in the reporting period in which the amount for the funeral services provided under the arrangement is paid or becomes due, whichever is earlier, at the rate of tax in effect at that time.

Any amount not held in trust (e.g., a one time administration fee of 10% of the cost of the contract), whether it is pursuant to the applicable provincial legislation or the terms of the contract itself, is part of the consideration payable for the services provided by the funeral home. As such, the funeral home is required to include GST/HST in respect of the amount in determining its net tax for the reporting period in which the amount is paid or becomes due, whichever is earlier.

2. The funeral home is not required to remit up front that portion of the funeral contract, which is equal to the estimate of the GST/HST that will eventually be payable, as long as the amount is kept in a trust account, whether or not it is kept in a separate trust account. For purposes of prepaid funeral arrangements, potential tax money held in trust is not considered tax paid or payable until the time it is withdrawn from the trust account or when consideration for the funeral services provided under the arrangement becomes due. Therefore, there is nothing to preclude the investment of that money.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Comment

Under the heading XXXXX of the terms and conditions section of the draft contract of XXXXX, it is stated that:

XXXXX

Note that this condition is not in accordance with the rules set out in the GST/HST Technical Information Bulletin B-091, Timing of the Application of the GST/HST to Prepaid Funeral Arrangements. The GST/HST is payable to the funeral home when the consideration for the funeral services provided under the arrangement becomes due. Based on the information provided, the only amount of GST/HST that is payable to the Seller, who must account for this tax in its net tax and remit any net tax owing, at the time the contract is entered into, is the GST/HST in respect to the XXXXX % administrative fee, as indicated in ruling #1 above.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8223.

Yours truly,

Carolle Mercier
Services and Intangibles Unit
General Operations & Border Issues Division
Excise and GST/HST Rulings Directorate

Dear XXXXX:

Thank you for your letter XXXXX, (with attachments and samples), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transaction(s) described below.

Statement of Facts

Our understanding of the facts, the transaction(s), and the purpose of the transaction(s) is as follows:

1. The purpose of your letter is to request a ruling on behalf of your client, XXXXX, regarding the GST/HST status of the following tea beverages (the "Teas"):

XXXXX

2. Each of the Teas is comprised of concentrated tea leaves and extracts, which are sold on a XXXXX basis in quantities exceeding a single serving.

3. With the exception of XXXXX, the Teas are also manufactured in a "tea-bag" format, consistent with their intended consumption as teas. The XXXXX Tea product is more like an instant tea, with it being produced in a powder format so that it may also be consumed as an iced tea.

4. XXXXX is a herbal tea beverage, identical to herbal teas found in most grocery stores. Each tea bag XXXXX is comprised of XXXXX. It is manufactured in a "tea-bag" format, and the directions on the packaging confirm its use as a tea beverage, indicating that the tea bags are to be steeped in hot water.

5. The Canada Customs and Revenue Agency (CCRA) previously ruled XXXXX to be zero-rated as set out in a XXXXX, ruling.

6. Each of the three other XXXXX Herbal Teas is identical to the XXXXX product, except in terms of ingredients.

7. XXXXX is composed of XXXXX.

8. Each bag of XXXXX is comprised of XXXXX.

9. Each tea bag of XXXXX is comprised of XXXXX.

10. Each of these other Teas is again manufactured in a "tea-bag" format, and the directions for each confirm that the tea bags are to be steeped in hot water.

11. The CCRA previously ruled each of XXXXX and XXXXX to be zero-rated as set out in a XXXXX ruling.

12. XXXXX is marketed as an all natural herbal tea beverage. It is made from XXXXX. The directions on the packaging are consistent with the product being a tea type beverage, indicating that each sachet is to be mixed with 240 ml of water. There are no other directions or recommendations associated with the product.

13. The CCRA previously ruled XXXXX to be zero-rated as set out in a XXXXX, ruling.

Transaction(s)

The Teas are sold on a XXXXX basis in quantities exceeding a single serving.

Ruling Requested

Each of the Teas is zero-rated pursuant to Section 1 of Part III of Schedule VI to the Excise Tax Act.

Ruling Given

Based on the facts set out above, we rule that each of the Teas is zero-rated pursuant to Section 1 of Part III of Schedule VI to the Excise Tax Act.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-7909.

Yours truly,

Gunar Ozols
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

Dear XXXXX:

Thank you for your facsimile XXXXX (with attachments), to XXXXX the XXXXX GST/HST Rulings Centre concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to an itinerary that involves two flights supplied by XXXXX XXXXX XXXXX (XXXXX). Your request was transferred to us for response.

Statement of Facts

Our understanding of the facts is as follows:

XXXXX is a regional carrier in XXXXX that is registered for purposes of the GST/HST.

XXXXX XXXXX, doing business as XXXXX XXXXX (XXXXX), is a GST/HST-registered travel agent.

XXXXX has booked the following flights for XXXXX and XXXXX XXXXX (the XXXXX) of XXXXX on XXXXX:

XXXXX to XXXXX XXXXX, XXXXX XXXXX XXXXX to XXXXX has advised you that the XXXXX flights are connecting with other flights that qualify as a zero-rated continuous journey for purposes of the GST/HST.

To reserve flights on XXXXX, XXXXX is required to contact XXXXX directly to request the reservations. XXXXX then books the flights, charges the XXXXX credit card, prints an electronic ticket confirmation and an itinerary and forwards both of these documents to XXXXX.

XXXXX then sends the XXXXX tickets to the XXXXX address in XXXXX.

The above information was obtained from your facsimile XXXXX and an e-mail XXXXX and facsimiles XXXXX from XXXXX XXXXX.

Ruling Requested

What is the tax status of the passenger transportation services in respect of which tickets for XXXXX and XXXXX were issued to the XXXXX?

Ruling Given

Based on the facts set out above, we rule that the passenger transportation services in respect of which tickets for XXXXX and XXXXX were issued to the XXXXX meet the definition of "continuous journey" in subsection 1(1) of Part VII of Schedule VI to the Excise Tax Act (ETA). As such, the passenger transportation services provided by XXXXX to the XXXXX in relation to XXXXX and XXXXX are zero-rated under paragraph 3(c) of Part VII of Schedule VI to the ETA and are subject to the GST at a rate of 0% under subsection 165(3) of the ETA.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the ETA, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-8806.

Yours truly,

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