GST/HST Ruling

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ETA 225.2;

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

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 147237

Dear [Client]:

Subject:	GST/HST RULING 
		Request to allow late filing of subsection 225.2(4) election

Thank you for your letter concerning the eligibility of […] (the SLFI) to late file the subsection 225.2(4) election. We apologize for our delay in responding.

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

A review of your request indicates the following:

1. […] (the Supplier) and the SLFI are closely related companies that have had a section 150 election in place since [yyyy].

2. Both the Supplier and the SLFI were registered for GST/HST up until [mm/yyyy], when the Supplier’s GST/HST registration was cancelled in error. In [yyyy], the error was corrected and the Supplier’s registration was retroactively reinstated effective [mm/dd/yyyy].

3. In our prior letter of [mm/dd/yyyy], […], we ruled that the cancellation of the Supplier’s GST/HST registration did not cancel the election under section 150 since the Supplier would have been required to be registered (was a registrant) throughout the period in question.

4. The SLFI has a [mm/dd] year end for GST/HST purposes, and files its GST/HST returns annually. It has been a selected listed financial institution since before [yyyy].

5. The Supplier and the SLFI filed Form GST497, Election Under the Special Attribution Method for Selected Listed Financial Institutions and Notice of Revocation, in [mm/yyyy], to make an election under subsection 225.2(4) to be effective [mm/dd/yyyy], which has been processed by the Canada Revenue Agency (CRA) and the SLFI has filed its [yyyy] GST494 return accordingly.

6. On [mm/dd/yyyy], the Supplier and the SLFI filed Form GST497 for the fiscal year [mm/dd/yyyy] to [mm/dd/yyyy]. They also filed GST497 forms for each of the years [yyyy-yyyy] on [mm/dd/yyyy].

7. The SLFI filed Form GST494, Goods and Services Tax/Harmonized Sales Tax Final Return for Selected Listed Financial Institutions, for the year [yyyy] but the amounts it added into Element A of the special attribution method (SAM) formula with regard to property or services provided by the Supplier to the SLFI were not calculated using a cost-based method. The [yyyy] GST494 return was filed [mm/dd/yyyy], prior to our previous ruling being issued.

8. The GST494 returns for the SLFI for the previous years were filed as follows:

[yyyy] - The GST494 return was filed in [mm/yyyy]
[yyyy] - The GST494 return was filed in [mm/yyyy]
[yyyy] - The GST494 return was filed in [mm/yyyy]

9. On [mm/dd/yyyy], the Supplier and the SLFI requested that the Minister of National Revenue (Minister) exercise her power under subsection 225.2(5) to accept the subsection 225.2(4) election between the Supplier and the SLFI for the [yyyy, yyyy, yyyy] or [yyyy] fiscal years.

Having considered the information above, it has been determined that the Minister will not accept the election under subsection 225.2(4) between the Supplier and the SLFI for the [yyyy, yyyy, yyyy] or [yyyy] fiscal years.

As you are aware, pursuant to subsection 225.2(5), the election under subsection 225.2(4) must be filed by the SLFI with the Minister in prescribed manner on or before:

a) the day on or before which a GST/HST return for the reporting period of the SLFI in which the election is to become effective is required to be filed; or

b) any later day that the Minister may allow.

Based on the facts set out above, the due date for the SLFI to file a subsection 225.2(4) election to be applicable to its [yyyy] fiscal year was [mm/dd/yyyy], which was the day its GST494 return for the year [yyyy] was required to be filed. This election was filed on [mm/dd/yyyy]. Elections applicable to its [yyyy,yyyy], and [yyyy] were also filed on [mm/dd/yyyy].

GST/HST Policy Statement P-250, Late-Filed Subsection 225.2(4) Elections, provides guidelines with respect to when the CRA will accept late-filed subsection 225.2(4) elections. A request to late file a subsection 225.2(4) election will be considered on a case-by-case basis within the context of these guidelines. For example, the guidelines provide that a late-filed subsection 225.2(4) election will not be accepted where, as of the effective date of the election, the parties to the election have not been consistently operating as if the election were in effect, or where, as of the date of the request to accept a late-filed election, not all GST/HST returns that are due by the selected listed financial institution have been filed.

If you require clarification with respect to any of the issues discussed in this letter, please call me at 613-952-9248.

Yours truly,

Marcel Boivin, Director
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

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ETA Sch V; Part III; 9;

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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 147956r
Business Number: […]

Dear [Client]:

Subject:	GST/HST RULING
		[…][Supply of services of instruction/training in the Program using Method A]

Thank you for your letter of [mm/dd/yyyy], concerning the application of the Goods and Services Tax (“GST”)/Harmonized Sales Tax (“HST”) to supplies of […][services of instruction/training in the program using Method A].

The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador, 14% in Prince Edward Island and 15% in Nova Scotia. The GST applies in the rest of Canada at the rate of 5%.

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

STATEMENT OF FACTS

We understand that the following statement of facts applies to your situation.

1. […] (the “Corporation”) is located in […][City 1, Province 1]. The Corporation is not a registered charity within the meaning of the Income Tax Act and it is not a non-profit organization for GST/HST purposes. It is registered for GST/HST purposes.

2. One of the programs that the Corporation provides is […] (the “Program”) using […][Method A]. The Program is described on the Corporation’s website […].

3. The Program is promoted on the Corporation’s website as providing its students with the following long-term benefits: “[…].”

4. The Corporation’s promotional material maintains that its method “[…].”

5. The Program is open to all children in the […] age group and is not specifically designed to assist individuals with a disorder or disability.

6. Families who enroll their children in the Program must complete a […][registration form] and pay a […][registration fee], along with a […][fee for supplies]. […][Information about other fees].

7. […][Description of program stages and testing]

8. Participants must […][purchase specific training materials]

9. The Program is not approved for credit by a school authority in [Province 1] and completion of the Program is not a requirement for admittance into a course that is approved for credit by a school authority in [Province 1].

RULING REQUESTED

You would like us to reconsider the previous ruling provided to you, dated [mm/dd/yyyy], which stated that the Corporation’s supplies of services of training using [Method A] are taxable.

RULING GIVEN

Based on the facts set out above, we rule that the Corporation’s supply of services of instruction/training in the Program using [Method A] is subject to the GST/HST.

EXPLANATION

Paragraph 9(a) of Part III of Schedule V to the ETA exempts “a supply of a service of tutoring or instructing an individual in a course that is approved for credit by, or that follows a curriculum designated by, a school authority.” “School authority” is a term defined by the ETA, as meaning “an organization that operates an elementary or secondary school in which it provides instruction that meets the standards of educational instruction established by the government of the province in which the school is operated.”

As a result, it is not the provincial curriculum which is the basis for determining if a particular supply of tutoring is exempt. Rather, there must be a relationship evident between the tutoring and a course offered by a school authority. In other words, in the case of tutors, the exemption applies to tutors who help students learn the material of a course offered at an elementary or secondary school in the province in which the tutors work.

We have taken the position that paragraph 9(a) of Part III of Schedule V can also apply to tutoring or instruction in material from lower grades or in general concepts dealing with the specific, relevant subject matter of a credit course in order to assist a student to understand material contained in a high school credit course. In order for the exemption to apply to such a case, it must be evident that there is a connection or relationship between the supply of instruction or tutoring in question, and the credit course(s) offered by a school authority.

The clause “…or that follows a curriculum designated by, a school authority” refers, in part, to situations where, for lower grades, there may not be course “credits” but there will be a “curriculum”. Since, for example, reading skills are generally part of an elementary school’s curriculum, tutoring or instruction in effective reading skills, for the purpose of assisting children meet the requirements of their school curriculum, will generally meet the requirements of this paragraph where children enrolled in elementary grades are concerned.

The Canada Revenue Agency (“CRA”) takes the position that tutoring in matters such as “study habits”, “research skills”, “note taking”, and “test taking” is too broad to be considered to be relating to the specific, relevant subject matter of any particular school’s course. For the same reason, the CRA takes the position that a tutoring service provider that promotes its method as a brain development program is too broad to be considered to be relating to the specific, relevant subject matter of any particular school’s course.

Common characteristics of tutoring services that are not exempt pursuant to paragraph 9(a) of Part III of Schedule V include:

* the tutor has negligible interaction with the student because the tutoring method is based on self-learning exercises, or activities (e.g., games) that strengthen a variety of cognitive skills.

* the tutoring program provides a series of levels of attainment which every student must complete without consideration of the student’s specific needs in respect of a school authority’s course or curriculum.

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the CRA is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-1175. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Dwight Kostjuk
Aboriginal Affairs and Educational Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

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ETA 123(1), ETA 141.1(3), ETA 165(1), ETA 165(2), ETA 190(2), ETA Sch V, Part I, 9(2)(a)(i)

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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 151911r

Dear [Client]:

Subject:	GST/HST RULING
		[…][Application of the GST/HST to the Sale of Real Property]

Thank you for your letter of October 17, 2013, and accompanying documents […], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale of real property by […](your client).

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

STATEMENT OF FACTS

Based on […][documents provided], we understand the facts as follows:

* Your client is an individual residing in [participating province A] and is not registered for GST/HST purposes. On [mm/dd/yyyy], she purchased vacant land (the Property) to hold as investment property jointly with an unrelated individual; they each owned a one-half interest in the Property. The Property is legally described as […][the property], with total acreage of [#] acres.

* The Property was the only real property owned by your client, other than her primary residence. The Property remained vacant land and was not subdivided nor severed during the time it was owned by your client.

* From the time of the initial purchase in [yyyy] to [yyyy], the Property was not rented or farmed by your client or the co-owner.

* Starting in [yyyy], your client and the co-owner leased the Property to the neighbouring farmer. Your client received consideration from the neighbouring farmer for the lease of the Property, which you stated was to protect against a potential claim of adverse possession. The property taxes on the Property were approximately $[…] per year. Before the sale by your client, the Property was rented as follows:

o From [yyyy] to [yyyy], your client and the co-owner leased the Property to the neighbouring farmer for consideration of $[…] per year. There was no written lease agreement in place.

o From [yyyy] to [yyyy], the rental arrangement continued with the same farmer and for the same annual consideration of $[….]. The parties entered into a written lease agreement.

o From [yyyy] to [mm/yyyy], the rental arrangement continued with the same farmer but for an annual consideration of $[…]. There was no written lease agreement in place.

* On [mm/dd/yyyy], your client sold her interest in the Property to the other co-owner and the spouse of the co-owner.

* For income tax purposes, your client reported half of the annual consideration received from the farmer as rental income from property and the only expense she claimed was her portion of the property taxes. You state that other expenses incurred (such as legal fees for professional services in connection with the lease, travel expenses between her residence and the Property to check up on the Property, etc.) were not reported for income tax purposes because your client was of the view that she was not operating a business and, if these expenses had been reported, they would have had little impact on her personal tax return as she had no meaningful sources of income. Based on information you have provided, your client’s net profits (losses) during the years the Property was rented to the neighbouring farmer taking into account all the expenses would have been as follows:

o From [yyyy] to [yyyy], total net profit for the […] years was $[…].

o From [yyyy] to [yyyy], total net loss for the […] years was $[…].

o From [yyyy] to [yyyy], total net profit for the […] years was $[…].

* In [yyyy], your client incurred an outlay of $[…] for survey and appraisal services. A fee of $[…] for professional services rendered in connection with this HST matter was incurred by your client in [yyyy].

* The Property was capital property of your client and the co-owner.

RULING REQUESTED

[Was] the sale by your client of her interest in the Property exempt under subsection 9(2) of Part I of Schedule V to the ETA[?]

RULING GIVEN

The sale by your client of her interest in the Property was subject to the HST at 13%. The sale is excluded from exemption by subparagraph 9(2)(a)(i) of Part I of Schedule V, because immediately before the sale the Property was capital property used primarily in a business carried on by your client with a reasonable expectation of profit.

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

EXPLANATION

We have reviewed your additional documents […] and taken into account your submission that the Property was capital property used by your client without a reasonable expectation of profit.

[…], the fact that the gross income generated from the lease of the Property was greater than the expenses attributed thereto for most of the years the Property was rented suggests that the business had a reasonable expectation of profit. As such, the exception in subparagraph 9(2)(a)(i) applies and, since there are no other relevant exemptions in the circumstances, the sale of the Property was taxable.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-8226. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Béatrice Mulinda
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

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ETA Sch V, Part II, 7;

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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 154731

Dear [Client]:

Subject:	GST/HST RULING
		Tax status of psychological services

Thank you for your [correspondence] of [mm/dd/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the psychological services you render to individuals. We apologize for the delay in our response.

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

STATEMENT OF FACTS

We understand from your fax the following:

1. You are currently rendering psychological services to clients in your private practice […].

2. You have a […][level of education] in Clinical Psychology […]. [However] […], you are not registered with the […][Regulatory body for the profession of Psychology] in […][Province A] ([…][Provincial Regulatory Body]).

It is understood that you do not hold yourself out to be a psychologist and that you are required to demonstrate you have the relevant training and experience to offer psychological services.

You understand that your services are not likely covered by the medical insurance plan of [Province A]. You are not registered for GST/HST.

3. The profession of psychology in [Province A] is regulated under […][the appropriate provincial legislation and the Provincial Regulatory Body].

4. [The Provincial Regulatory Body] is the regulatory body for the profession of psychology in [Province A]. […]. [The Provincial Regulatory Body] sets the standards for the practice of psychology [in Province A].

5. [The Provincial Regulatory Body] is established under […][describes the legislative authority].

6. […][The Regulatory Body has] a class of registrants for a registered psychologist and a registered psychological associate.

7. […][Specifies authority for] a full registrant […][to be] entitled to practise psychology.

8. […][About the] use of the titles by registrants of [the Provincial Regulatory Body]. […].

RULING REQUESTED

You would like to know whether a supply of services rendered by a person who is not licenced by [the Provincial Regulatory Body] [in Province A] to practise the profession of psychology in [Province A] is exempt from GST/HST under section 7 of Part II of Schedule V.

RULING GIVEN

Based on the facts set out above, we rule that a supply of services rendered by a person who is not licenced by [the Provincial Regulatory Body] to practise the profession of psychology in [Province A] is not exempt from GST/HST under section 7 of Part II of Schedule V. Therefore, the supply of services is subject to GST/HST.

EXPLANATION

Generally, most supplies of property and services made in Canada are subject to GST/HST, unless they are specifically exempt under Schedule V. Part II of Schedule V sets out the health care services that are exempt from GST/HST.

Section 7 of Part II of Schedule V exempts a supply of a psychological service rendered to an individual by a practitioner of the service. Section 7 states:

A supply of any of the following services if the service is rendered to an individual by a practitioner of the service:

(a) optometric services;
(b) chiropractic services;
(c) physiotherapy services;
(d) chiropodic services;
(e) podiatric services;
(f) osteopathic services;
(g) audiological services;
(h) speech-language pathology services;
(i) occupational therapy services;
(j) psychological services;
(k) midwifery services;
(l) acupuncture services; and
(m) naturopathic services.

Section 1 of Part II of Schedule V defines a “practitioner” to mean:

in respect of a supply of optometric, chiropractic, physiotherapy, chiropodic, podiatric, osteopathic, audiological, speech-language pathology, occupational therapy, psychological, midwifery, dietetic, acupuncture or naturopathic services, means a person who

(a) practises the profession of optometry, chiropractic, physiotherapy, chiropody, podiatry, osteopathy, audiology, speech-language pathology, occupational therapy, psychology, midwifery, dietetics, acupuncture or naturopathy as a naturopathic doctor, as the case may be,

(b) where the person is required to be licensed or otherwise certified to practise the profession in the province in which the service is supplied, is so licensed or certified, and

(c) where the person is not required to be licensed or otherwise certified to practise the profession in that province, has the qualifications equivalent to those necessary to be so licensed or otherwise certified in another province.

In addition, if a supply falls within an exemption under Part II of Schedule V, it is necessary to determine if the supply is excluded from the exemption because the supply is a cosmetic service supply or because the supply is not a qualifying health care supply pursuant to sections 1.1 and 1.2 of Part II of Schedule V.

The GST/HST exemption in section 7 of Part II of Schedule V applies to a psychological service rendered to an individual by a practitioner of the service. The ETA does not define the term “psychological service”. It is our view that the term “psychological service” is a broad concept that encompasses any service relating to human mental functioning and behaviour. A psychological service may be rendered in a variety of practice settings by a wide range of qualified health care professionals including a psychologist, nurse, counsellor, therapist, and social worker. Psychological services include the assessment and diagnosis of a disorder, individual or group therapy, counselling, and referrals.

[…][Describes type of services provided by the individual]. It is our view that these services are psychological services for purposes of the ETA.

However, the exemption in paragraph 7(j) of Part II of Schedule V is not available to a person solely on the grounds that the person renders a psychological service. To be included in the exemption, the psychological service must be rendered to an individual by a “practitioner” of the service. Section 1 of Part II of Schedule V defines the term “practitioner” in respect of a psychological service to mean a person who (a) practises the profession of psychology and either is (b) licenced or certified if required in the province in which the service is supplied; or (c) if licensing or certification is not required in the province in which the service is supplied, the person has the qualifications equivalent to those necessary to be licensed or certified in another province.

The inclusion of the expression “practises the profession of psychology” in paragraph (a) of the definition of “practitioner” restricts the exemption to circumstances where psychological services are rendered by a person who has attained the qualifications to practise the “profession of psychology”.

In [Province A], the profession of psychology is regulated […]. [The Provincial Regulatory Body] is the […] regulatory body established by provincial legislation for the profession of psychology in [Province A]. Therefore, what constitutes the profession of psychology is defined by the scope of the mandate established by [the Provincial Regulatory Body] in accordance with the provincial legislation.

As the profession of psychology is regulated in [Province A], paragraph (b) of the definition of “practitioner” applies and a person must be licensed by (i.e., be a member of) a provincial organization responsible for the regulation of the profession as recognized by provincial legislation to be a practitioner under the ETA. In [Province A], this means that the person must be a member of [the Provincial Regulatory Body].

[The Provincial Regulatory Body] provides two classes of registrants; a registered psychologist and a registered psychological associate. Therefore, only a registered psychologist and a registered psychological associate (Footnote 1) are practitioners under the ETA. As such, only supplies of psychological services rendered by a registered psychologist and a registered psychological associate are exempt under section 7 of Part II of Schedule V.

As the services you supply are not exempt under Part II of Schedule V, it is not necessary to determine if the services you supply are a cosmetic service supply or are not a qualifying health care supply. Therefore, a discussion on these issues has not been included.

ADDITIONAL INFORMATION

Registration for GST/HST

Subsection 240(1) provides, in part, that every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada must register for the GST/HST, except where the person is a small supplier.

In general, under section 148, a small supplier is a person whose total revenue from taxable supplies (other than supplies of financial services, sales of capital property and goodwill attributable to the sale of a business) in the previous four consecutive calendar quarters, or in a particular calendar quarter, and those of associated persons, does not exceed $30,000.

However, once the small supplier's total taxable revenue exceeds $30,000 in the previous four consecutive calendar quarters, or in a particular calendar quarter, they are no longer considered to be a small supplier and are required to register for the GST/HST. As the wording in the legislation includes the expression “four consecutive calendar quarters”, exceeding the $30,000 threshold must be verified every calendar quarter.

Effective date of registration

The effective date of a person's GST/HST registration depends on when they exceed the small supplier threshold. Subsection 240(2.1) states that a person required under subsection 240(1) to be registered shall apply to the Minister of National Revenue for registration before the day that is thirty days after the day the person first makes a taxable supply, otherwise than as a small supplier.

If a person's revenues are over the threshold amount in one calendar quarter, the person is a registrant and must collect the GST/HST on the supply that made them exceed the threshold amount. The person's effective date of registration is the day the supply was made that exceeded the threshold amount. The person must register for GST/HST within 29 days from that day.

If a person is under the threshold amount in one calendar quarter, but the person is over the threshold during four (or fewer) consecutive calendar quarters, the person is considered to be a small supplier for those four calendar quarters and a month following those quarters. The person’s effective date of registration would be the day the first supply was made after the person ceased being a small supplier. The person has 29 days from this day to register for the GST/HST. Once a person is registered for GST/HST they must charge and collect GST/HST on every taxable supply made.

Additional information on registration requirements and small suppliers can be found in our publications GST/HST Memorandum 2.1, Required Registration and GST/HST Memorandum 2.2, Small Suppliers. Further information on your obligations and entitlements may be found in GST/HST Guide RC4022, General Information for GST/HST Registrants.

ITC entitlement

Generally, GST/HST registrants are entitled to claim ITCs for the GST/HST paid on purchases to the extent that the goods or services purchased are used in making taxable supplies (including zero-rated supplies). Section 169 governs the claiming of an ITC which, depending on the circumstances, may be a full or apportioned ITC. These purchases can relate to operating expenses, capital personal property and capital real property. There are special rules regarding entitlement to claim ITCs for capital personal property and capital real property.

For more information on different allocating methods, refer to GST/HST Memoranda Series 8.3, Calculating Input Tax Credits.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-7952. Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Alison Jones
Health Care Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

FOOTNOTES

1 This would include a person who goes by the title psychologist or psychological associate.

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ETA Sch V, Part 2, 14;

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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 14th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 156125

Dear [Client]:

Subject:	GST/HST RULING 
      		Mental health professional services

Thank you for your [correspondence], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the mental health services provided by one of your clients. We apologize for the delay in our response.

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

STATEMENT OF FACTS

We understand that:

1.Your client practices as a mental health professional and works closely with a Registered Social Worker and/or a Clinical Psychologist and receives clinical supervision from […]

2.Patients are referred to your client by persons acting in the capacity of practitioner, medical practitioner, social worker or registered nurse.

3.Your client is an independent contractor. He is not an employee of […] or of any other person. The persons who refer patients to your client are independent contractors. Your client and these persons are not part of the same practice or the same person.

4.The nature of the services provided by your client include:

* Social skills training to assist individuals diagnosed with Autism Spectrum Disorders (characterized by deficits/impairments in social interaction; communication; and restricted, repetitive, and stereotyped patterns of behavior, interests and activities) to manage the effects of their disorder. The training consists of identifying problematic areas of communication, teaching the impacts of these deficits, providing instruction regarding non-verbal behavior (e.g., eye contact, body orientation, intonation), and developing and practicing scripts and strategies for written and verbal communication. Meetings generally occur on a weekly basis for purposes of analyzing recent interactions and planning for upcoming interactions. In some cases, individuals may have been diagnosed with Pervasive Developmental Delay (PDD).

* Coaching to assist individuals diagnosed with Attention Deficit Hyperactivity Disorder (ADHD) (characterized by inattention, hyperactivity, and impulsivity and generally associated with working memory impairments) to manage the effects of their disorder. The training consists of identifying problematic areas related to time management, organization, task persistence/completion, implementing a system or systems of scheduling, task reminders, and monitoring task completion. Meetings generally occur on a weekly basis for purposes of monitoring task completion and developing and implementing additional strategies.

* Cognitive behavioral training to assist individuals with Major Depressive Disorder, Obsessive-Compulsive Disorder, Generalized Anxiety Disorder, and Social Anxiety Disorder to alleviate or eliminate the effects of the disorder. The training is based on a Cognitive Behavioral Therapy (CBT) model and includes operationalization of the problem(s); developing, assigning and reviewing ‘homework’ (including pencil-and-paper exercises and invivo exposures); and measuring changes in cognition and behavior and attainment of goals. Meetings generally occur on a weekly basis to monitor ‘homework’, develop and implement cognitive and behavioral strategies, and assign exposures/‘homework’ for the following week.

5.The person referring the individual patient to your client confirms in writing that in his/her opinion, the training provided by your client is an appropriate means to assist the patient in coping with the effects of a disorder or disability which afflicts the patient, or to alleviate or eliminate those effects.

6.While referrals are currently being made in writing to your client, the persons making the referrals have agreed to standardize the referral note. The intention is to ensure the language of the referral is in accordance with the requirements of the ETA.

7.You attached a copy of an example of a letter to be provided by the person referring a patient to your client. That standard letter states that […]

8.[…]

9.[…]

RULING REQUESTED

You would like to know if your client’s services of social skills training, coaching, and Cognitive Behavioural training (also known as “Cognitive Behavioural Therapy”) fall within the exemption under section 14 of Part II of Schedule V.

RULING GIVEN

Based on the facts set out above, we rule that supplies of your client’s services of social skills training, coaching, and Cognitive Behavioural therapy qualify as “training that is specially designed to assist individuals with a disorder or disability in coping with the effects of the disorder or disability or to alleviate or eliminate those effects” for purposes of considering the applicability of the exemption provided in section 14 of Part II of Schedule V.

EXPLANATION

Part II of Schedule V exempts particular health care services. Section 14 of Part II of Schedule V exempts from GST/HST:

a supply (other than a zero-rated supply or a prescribed supply) of a training service, or of a service of designing a training plan, if

(a) the training is specially designed to assist individuals with a disorder or disability in coping with the effects of the disorder or disability or to alleviate or eliminate those effects and is given or, in the case of a service of designing a training plan, is to be given to a particular individual with the disorder or disability or to another individual who provides personal care or supervision to the particular individual otherwise than in a professional capacity; and

(b) one of the following circumstances exists:

(i) a person acting in the capacity of a practitioner, medical practitioner, social worker or registered nurse, and in the course of a professional-client relationship between the person and the particular individual, has certified in writing that the training is or, in the case of a service of designing a training plan, will be an appropriate means to assist the particular individual in coping with the effects of the disorder or disability or to alleviate or eliminate those effects,

(ii) a prescribed person, or a member of a prescribed class of persons, has, subject to prescribed circumstances or conditions, certified in writing that the training is or, in the case of a service of designing a training plan, will be an appropriate means to assist the particular individual in coping with the effects of the disorder or disability or to alleviate or eliminate those effects, or

(iii) the supplier
(A) is a government,
(B) is paid an amount to make the supply by a government or organization administering a government program targeted at assisting individuals with a disorder or disability, or
(C) receives evidence satisfactory to the Minister that, for the purpose of the acquisition of the service, an amount has been paid or is payable to a person by a government or organization administering a government program targeted at assisting individuals with a disorder or disability.

The exemption described in section 14 of Part II of Schedule V is subject to section 15 of Part II of Schedule V, which provides that:

A training service or a service of designing a training plan is not included in section 14 if the training is similar to training ordinarily given to individuals who
(a) do not have a disorder or disability; and
(b) do not provide personal care or supervision to an individual with a disorder or disability.

Supplies of your client’s services of social skills training, coaching, and Cognitive Behavioural therapy, as described in the Statement of Facts, are considered to be training that is specially designed to assist individuals with a disorder or disability in coping with the effects of the disorder or disability or to alleviate or eliminate those effects. However, to be exempt from GST/HST pursuant to section 14 of Part II of Schedule V, the training must be given to a particular individual with the disorder or disability or to another individual who provides personal care or supervision to the particular individual otherwise than in a professional capacity and meet the other conditions described in section 14 of Part II of Schedule V.

Section 15 of Part II of Schedule V does not impede the application of the exemption under section 14 of Part II of Schedule V to the supplies of services of social skills training, coaching, and Cognitive Behavioural therapy as described in the Statement of Facts, as these services are not similar to training ordinarily given to individuals who do not have a disorder or disability and who do not provide personal care or supervision to an individual with a disorder or disability.

The exemption described in section 14 of Part II of Schedule V is also subject to section 1.1 of Part II of Schedule V, which provides that:

For the purposes of this Part, other than section 9, a cosmetic service supply and a supply, in respect of a cosmetic service supply, that is not made for medical or reconstructive purposes are deemed not to be included in this Part.

Section 1.1 of Part II of Schedule V does not apply to impede the exemption provided in section 14 of Part II of Schedule V to the supplies of services of social skills training, coaching, and Cognitive Behavioural therapy as described in the Statement of Facts, as these services are not cosmetic service supplies or supplies in respect of cosmetic service supplies.

ADDITIONAL INFORMATION

You indicate in your request that the patients are referred to your client by persons acting in the capacity of practitioner, medical practitioner, social worker or registered nurse. It should be noted that the terms “practitioner” and “medical practitioner” are defined in section 1 of Part II of Schedule V.

Subparagraph 14(b)(i) of Part II of Schedule V requires that a person acting in the capacity of a practitioner, medical practitioner, social worker or registered nurse, and in the course of a professional-client relationship between the person and the particular individual, that is the individual with the disorder or the disability, has certified in writing that the training is an appropriate means to assist the particular individual in coping with the effects of the disorder or disability or to alleviate or eliminate those effects.

You have submitted copies of referral notes and asked our views on them. There are no prescribed requirements to be met in respect of the written certification. The only requirement set out in subparagraph 14(b)(i) of Part II of Schedule V is that the person providing the certification in writing expresses his or her views that the training is an appropriate means to assist the particular individual in coping with the effects of the disorder or disability or to alleviate or eliminate those effects. It would be reasonable to expect that the written certification include the name of the particular individual and a clear indication of a link between the training to be provided and a particular disorder or disability, which the training is meant to be an appropriate means to assist the individual in coping with the effects of, or to alleviate or eliminate those effects.

For more information on the exemption provided under section 14 of Part II of Schedule V, see GST/HST Info Sheet GI-112, “Specially Designed Training to Assist Individuals with a Disorder or Disability” and GST/HST Info Sheet GI-113, “Specially Designed Training to Assist Individuals with Autism”. These Info Sheets are available on the Canada Revenue Agency’s (CRA) website at http://www.cra-arc.gc.ca/E/pub/gi/gi-112/README.html and

http://www.cra-arc.gc.ca/E/pub/gi/gi-113/README.html.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-4390. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

John Ware
Health Care Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

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ETA Sch VI, Part V, 10.1 and 23, section 123(1), section 142

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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 124451a
Business Number: […]

Dear [Client]:

Subject:	GST/HST RULING
		[…][Supply of a Program made by ACo]

Thank you for your letter of [mm/dd/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies made by […][ACo]. […]

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

STATEMENT OF FACTS

Based on the information provided, we understand the following:

1) [ACo] is a company resident in Canada and registered for GST/HST purposes.

2) [ACo] created and developed […][the Program] […]. Specifically, the Program’s objective is to provide […] (Participants) with training, tools, knowledge and […].

3) To qualify for the Program, a Participant […] ([…][examples of who uses the program and information about the application and fee structure]).

4) The […][main part] of the Program is delivered through […] workshops […]. […][Indicates participants are from Canada and outside Canada]

5) The suggested minimum commitment in the Program for Participants is […][a period of time], which encompasses attendance at [#] workshops. […][Information about the required periodic commitment in time and money].

6) […][Information about the application for the workshops]

7) […][Information about workshop activities]

8) […][Outline of the progression of the program]

9) […][Outline of persons conducting a typical workshop]

10) […][Describes the role and responsibility of program staff]

11) […][Describes some administrative aspects of the Program]

12) […][Outlines additional support available only to Participants]

13) […][Describes an aspect of customer support only available to Participants]

14) […][Describes related workshops only available to Participants]. […]

15) […]

16) A number of additional Program Terms and Conditions […][for Program Participants, including cancellation fees]

17) […][Describes conduct expected of Participants]

RULING REQUESTED

1) You would like to confirm that the supply of the Program to a Participant by [ACo] is a supply of a service.

2) You would like to confirm that the supply of the Program to a non-resident is zero-rated under section 23 of Part V of Schedule VI as an advisory, professional or consulting service.

RULING GIVEN

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

1) The supply of the Program by [ACo] is a supply of intangible personal property.

2) The supply of the Program to a non-resident is not zero-rated as a supply of a service under section 23 of Part V of Schedule VI.

EXPLANATION

Ruling #1 – Characterization of the supply

The characterization of a supply depends on the consideration of all relevant facts.

As stated in GST/HST Policy Statement P-077R2, Single and Multiple Supplies, the determination of whether a transaction consisting of several elements is a single supply or multiple supplies is a determination of fact. In general, multiple supplies occur when one or more of the elements of a transaction can sensibly or realistically be broken out from the other elements. Conversely, two or more elements of a transaction are generally part of a single supply when the elements are integral components, the elements are inextricably bound up with each other, the elements are so intertwined and interdependent that they must be supplied together, or one element of the transaction is so dominated by another elements that the first element has lost any identity for fiscal purposes.

[ACo] is, based on the facts, making a single supply to each Participant. In accordance with the Terms and Conditions on the application form, Participants apply to attend […][# of workshops]; Participants do not have the option of applying to attend fewer workshops, […][or of choosing] which workshops, […], to attend. The other elements to the supply by [ACo], such as […], cannot be acquired separately by Participants, and they do not, on their own, satisfy Participants’ needs in learning […]. Finally, the consideration for participating in the Program is paid as a lump sum, in full, before the date of the first workshop, and encompasses all elements of the Program without the elements being separately identified.

In addition, as stated in GST/HST Technical Information Bulletin B-103, Harmonized Sales Tax – Place of supply rules for determining whether a supply is made in a province, when determining whether a particular supply is a supply of a service or intangible personal property a number of factors must be considered. The nature of the agreement between the supplier and the customer, and whether the agreement is in substance for work (or work and materials), or for property (including a right or interest of any kind), must be determined. A key factor in making this distinction is whether the supply includes the provision of any rights and if so, whether those rights are the predominant element of the supply. If the supply includes the provision of rights and the rights are the predominant part of the supply, the supply is likely a supply of intangible personal property; if the rights are merely incidental, the supply is likely a supply of a service.

Based on the information provided, [ACo]’s supply of the Program is a supply of intangible personal property to each Participant. While some elements of the Program are services, the Program’s paramount element is the right to attend [#] workshops. This right is consistent with the definition of “admission” under subsection 123(1), which means, in respect of a seminar, activity or an event, a right of entry or access to, or attendance at, the seminar, activity or event. A supply of an admission, such as the right to attend a workshop or seminar, is considered to be a supply of intangible personal property for GST/HST purposes.

[…]. […], characterization of a supply [as a service or an intangible] is dependent upon the nature of the agreement between the supplier and recipient. […].

As a result, based on the information provided, the supply of the Program by [ACo] is a supply of intangible personal property.

Ruling #2 – Zero-rating of the supply

The supply of the Program by [ACo] cannot be zero-rated under section 23 of Part V of Schedule VI because [ACo] is not making a supply of a service.

ADDITIONAL INFORMATION

A taxable (other than zero-rated) supply of property or a service that is made in Canada is subject to the GST at a rate of 5% if made in a non-participating province and is subject to the HST at the applicable rate if it is made in a participating province.

In the case of a supply of intangible personal property, such as the supply made by [ACo] to each Participant, the supply is deemed to be made in Canada if, pursuant to paragraph 142(1)(c), the intangible personal property may be used in whole or in part in Canada. In contrast, paragraph 142(2)(c) deems a supply of intangible personal property to be made outside Canada if the property may not be used in Canada.

Based on the information provided, the Program may be used in Canada by Participants, and as a result, the supply of the Program by [ACo] is deemed to be made in Canada, pursuant to paragraph 142(1)(c). Further, as a single supply of intangible personal property, the supply of the Program to a Participant is deemed to have been made at the time that [ACo] and the Participant enter into an agreement for that supply. Section 133 provides that, for purposes of the GST/HST, where an agreement is entered into to provide property or a service,

(a) the entering into of the agreement shall be deemed to be a supply of the property or service made at the time the agreement is entered into; and

(b) the provision, if any, of property or a service under the agreement shall be deemed to be part of the supply referred to in paragraph (a) and not a separate supply.

Section 10.1 of Part V of Schedule VI zero-rates a supply of intangible personal property made to a non-resident who is not registered for GST/HST purposes at the time the supply is made, but not including:

(a) a supply made to an individual unless the individual is outside Canada at that time;
(b) a supply of intangible personal property that relates to
(i) real property situated in Canada,
(ii) tangible personal property ordinarily situated in Canada, or
(iii) a service the supply of which is made in Canada and is not a zero-rated supply described by any section of this Part or Part VII or IX;
(c) a supply that is the making available of a telecommunications facility that is intangible personal property for use in providing a service described in paragraph (a) of the definition “telecommunication service” in subsection 123(1);
(d) a supply of intangible personal property that may only be used in Canada; or
(e) a prescribed supply.

Based on the information provided, the exclusions in section 10.1 of Part V of Schedule VI would not apply in respect of a supply of intangible personal property by [ACo] in circumstances where the supply is made to a non-resident Participant who is neither registered for GST/HST purposes nor in Canada at the time of the supply, such that the supply to the Participant may be zero-rated. [ACo] would be required to verify and maintain satisfactory evidence of a recipient’s registration status and residency, as well as the physical location of the Participant, at the time a supply is made, in order to support zero-rating of the supply under that provision. For more information, please see GST/HST Info Sheet GI-034, Exports of Intangible Personal Property.

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA's interpretative policy could affect the interpretation(s) or the additional information provided herein.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-4291. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Geoff Macmillan
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

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ETA SchV, Part II;

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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 125176

Dear [Client]:

Subject:	GST/HST RULING
		Application of GST/HST to alcohol and drug rehabilitation programs

Thank you for […][your correspondence], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the drug and alcohol rehabilitation programs offered by […] (the Corporation). We apologize for the delay in our response. […].

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

STATEMENT OF FACTS

Based on the information provided in [your correspondence] and […], we understand the facts as follows:

1. The Corporation is a for-profit organization that operates a [#]-bed residential facility (the Facility) to provide […][treatment programs and services to individuals with] substance dependence and other addictions, […][and certain other mental illnesses and disorders]. The Facility is located at […], […][Province A].

[…][Outline of clients and program elements].

[…][Describes facility and amenities].

[…]

2. The Facility is licensed by […][a provincial body] […]. The Facility is governed by […][relevant provincial legislation]. While the Corporation is licensed by [Province A] it does not receive any government funding.

[…][Information from the relevant provincial legislation]

3. The Corporation offers several programs [for individuals with substance dependence and other addictions]: […][These programs range from several days to several months]

[…]. The fees vary for each program and program length. […].

4. […][Outline of the Corporation’s treatment approach]

Thus, the fees include the following:

[…][Describes the Corporation’s admission procedures, detoxification services, addiction counselling, mental health services, recreation activities, amenities and associated programs]

5. Invoices issued to clients list one single fee reflecting the program enrolled in. An additional fee is charged for all client prescriptions, each additional night in detoxification and surcharges relating to private room requests. […][More than half the] fees charged to clients are paid for by the client or the client’s family members.

The remaining fees are […][covered by insurance] […].

Medical services rendered by the Medical Director are billed to the client’s provincial medical insurance plan. Clients who do not have valid provincial health plan coverage will be charged for physician visits, psychiatrist’s visits, lab work, and if necessary, hospitalization.

6. The staff at the Facility includes […]. In addition, there are […][several] counsellors (Psychotherapists) […]. The […][Psychotherapists] are full time and have specialized training in alcohol and drug addiction […].

[…][Also a] Physician (Medical Director) and […] Psychiatrist are on contract at the Facility. […]. Both doctors are on call 24 hours per day. Clients meet one-on-one with the Medical Director and the Psychiatrist 1-2 times per week (or more if required).

[…][Outline of how the doctors are paid]

The Facility also has […] [a] full-time RPN […] [with specialization in psychiatric nursing], [and several RNs and LPNs/RPNs] on staff. Nursing staff are on-site […][during the day and in the evenings and for longer hours when a new client starts detoxification]. The nursing staff is trained in alcohol and drug addiction and […]. The nursing staff is under the direction of the Medical Director.

The nursing staff provides daily nursing services to all clients for the duration of their stay. Services include personal care during detoxification, wound care, mental health assessments, glucose monitoring, blood pressure monitoring, the administration of vaccines, the tracking of infections, emergency first aid and assistance with medical care plans.

[…].

7. To be admitted into a program at the Facility, […]

8. […][Detailed outline of all the steps and staff involved in admission of clients]

9. Addiction assessment begins shortly after admission. The […][RPN] gathers information regarding a client’s treatment history, drugs consumed and additional medical information. This information is passed on to the [Psychotherapist] assigned to a client. Many residents have both addiction and mental illness.

To assess a resident’s mental health, [Psychotherapists] administer several psychological assessment tests to identify substance abuse and dependence disorders. […].

The tests are administered by the [RPN] or nursing staff and the results are reviewed by the clinical team (Medical Director, Psychiatrist, [RPN] and [Psychotherapists]). Each client also undergoes a psychiatric assessment by the Psychiatrist to diagnose any mental health issues.

[…][The relevant provincial legislation,] requires the Corporation to develop a care plan for each client. The care plan is developed based on the client’s diagnosis. Clients are required to follow the direction of the Medical Director and Psychiatrist for the length of their stay.

10. The client’s […] rehabilitation program […][consists of daily] activities which focus on mental health services and addiction counseling. The activities are based on psychological therapy and […][other] therapies when appropriate. […]. […][Exercise] and art […][programs are] also provided. […][Clients also undergo] Individual counselling, [and have] psychiatric and medical appointments […].

All therapy programs are offered on site […]

11. A client’s progress is assessed regularly by the [Psychotherapists] to determine whether a client is responding to treatment. The Psychiatrist also assesses each client near the completion of the program to evaluate the client’s mental health.

[…]

12. […][Describes a follow-up program]

13. […][Describes a shorter follow-up program].

14. […][Describes a follow-up support program]

15. In Canada the classification of mental health disorders follows either the Diagnostic Statistical Manual of Mental Disorders (DSM) published by the American Psychological Association or the International Classification of Diseases (ICD) published by the World Health Organization (WHO). Both the DSM and ICD include alcohol and drug abuse as a mental health disorder. http://www.parl.gc.ca/Content/SEN/Committee/381/soci/rep/report1/repintnov04vol1part2-e.htm

RULING REQUESTED

You would like to know whether the drug and alcohol rehabilitation programs rendered to residents at the Facility are exempt from GST/HST.

RULING GIVEN

Based on the facts set out above, we rule that the alcohol and drug rehabilitation treatment programs rendered to clients at the Facility are a single exempt supply of an institutional health care service under section 2 of Part II of Schedule V.

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. […]

EXPLANATION

Generally, every recipient of a taxable supply (other than a zero-rated supply) made in Canada is required to pay GST/HST at the rate of 5%, 13%, 14% or 15% (depending on the place of supply) on the value of the consideration for the supply. Exempt supplies are listed in Schedule V and are not subject to GST/HST. Part II of Schedule V lists certain health care services that are exempt from GST/HST. For a supply of property or a service to be exempt from GST/HST under Part II of Schedule V a specific exempting provision included in Part II must apply to that supply.

Section 2 of Part II of Schedule V exempts a supply made by the operator of a health care facility of an institutional health care service rendered to patients or residents of the health care facility. However, sections 1.1 and 1.2 of Part II of Schedule V specifically exclude from exemption a supply that is a cosmetic service supply or a supply in respect of a cosmetic service supply, and a supply that is not a qualifying health care supply.

Section 1 of Part II of Schedule V defines the term “institutional health care service” as follows:

“institutional health care service” means any of the following when provided in a health care facility:

(a) laboratory, radiological or other diagnostic services,
(b) drugs, biologicals or related preparations when administered, or a medical or surgical prosthesis when installed, in the facility in conjunction with the supply of a service included in any of paragraphs (a) and (c) to (g),
(c) the use of operating rooms, case rooms or anaesthetic facilities, including necessary equipment or supplies,
(d) medical or surgical equipment or supplies
(i) used by the operator of the facility in providing a service included in any of paragraphs (a) to (c) and (e) to (g), or
(ii) supplied to a patient or resident of the facility otherwise than by way of sale,
(e) the use of radiotherapy, physiotherapy or occupational therapy facilities,
(f) accommodation,
(g) meals (other than meals served in a restaurant, cafeteria or similar eating establishment), and
(h) services rendered by persons who receive remuneration therefor from the operator of the facility;

Section 1 of Part II of Schedule V defines the term “health care facility” as follows:

“health care facility” means:

(a) a facility, or a part thereof, operated for the purpose of providing medical or hospital care, including acute, rehabilitative or chronic care,
(b) a hospital or institution primarily for individuals with a mental health disability, or
(c) a facility, or a part thereof, operated for the purpose of providing residents of the facility who have limited physical or mental capacity for self-supervision and self-care with
(i) nursing and personal care under the direction or supervision of qualified medical and nursing care staff or other personal and supervisory care (other than domestic services of an ordinary household nature) according to the individual requirements of the residents,
(ii) assistance with the activities of daily living and social, recreational and other related services to meet the psycho-social needs of the residents, and
(iii) meals and accommodation;

In addition, sections 1.1 and 1.2 of Part II of Schedule V must also be considered for the exemption in section 2 of Part II of Schedule V to apply. Section 1.1 specifically excludes from exemption, other than section 9, a supply that is a cosmetic service supply or a supply in respect of a cosmetic service supply. The term "cosmetic service supply" is defined in section 1 of Part II of Schedule V as a supply of a property or service that is made for cosmetic purposes and not for medical or reconstructive purposes.

Cosmetic procedures are surgical and non-surgical procedures that are generally aimed at enhancing one’s appearance that are not provided for the purpose of treating a medical condition or for reconstructive purposes, such as liposuction, hair replacement procedures, botulinum toxin injections, teeth whitening, as well as face lifts and breast augmentation surgery. These supplies are generally subject to GST/HST.

In addition, any separate supply of property, or any separate supply of a service is also subject to the GST/HST when the property or service relates to a cosmetic service supply. For example, a diagnostic service or nursing service supplied during breast augmentation surgery is considered a supply in respect of a cosmetic service supply.

Section 1.2 provides that for the purposes of Part II of Schedule V to the ETA, other than sections 9 and 11 to 14 (Footnote 2), a supply that is not a “qualifying health care supply” is deemed not to be included in Part II of that Schedule. Generally, supplies deemed not to be included in Part II of Schedule V would be taxable at the applicable rate of GST/HST.

The expression “qualifying health care supply” has been added to section 1 of Part II of Schedule V to the ETA and is defined to mean

“a supply of property or a service that is made for the purpose of

(a) maintaining health,
(b) preventing disease,
(c) treating, relieving or remediating an injury, illness, disorder or disability,
(d) assisting (other than financially) an individual in coping with an injury, illness, disorder or disability, or
(e) providing palliative health care.”

Please note that paragraph (d) of the definition of qualifying health care supply includes supplies made for the purpose of assisting an individual (other than financially) in coping with an injury, illness, disorder or disability. This would include services provided directly to the individual to cope with the limitations or effects of an injury. It would not include evaluations and reports done for the purpose of helping an insurer determine the type or amount of benefits that the individual is entitled to receive. It would also not include services supplied for financial purposes such as a medical evaluation or assessment performed for the purpose of determining the value of injuries for a settlement of a claim for damages.

Based on the requirements in section 2 of Part II of Schedule V and the definitions of the terms “health care facility”, “institutional health care service” and “qualifying health care supply”, six conditions must be met for a supply of property or a service to fall within the exemption:

1. The property or service must be included within the definition of “institutional health care service”;
2. The property or service must be provided in a health care facility;
3. The property or service must be supplied by the operator of the health care facility;
4. The institutional health care service must be rendered to a patient or resident of that facility;
5. The supply of the institutional health care service is not a cosmetic service supply; and
6. The supply of the institutional health care service is a qualifying health care supply.

Institutional health care service

The definition of an “institutional health care service” in section 1 of Part II of Schedule V lists certain property and services provided in a health care facility. The property and services provided to clients admitted into a treatment program at the Facility [that are] listed in the definition of an “institutional health care service” include the administration of drugs, laboratory, radiological or other diagnostic services (i.e., medication, blood/urine sample to diagnose health related issues upon admission and intake assessment, psychiatric assessment), accommodation, meals, and services performed by employees and/or independent contractors who are remunerated by the Corporation for their services (e.g., Physicians, Psychiatrist, Registered Nurses, [Psychotherapists], [Registered] Massage Therapists, […]) and are exempt under section 2 of Part II of Schedule V.

Property or services provided to clients at the Facility that are not listed in the definition of an “institutional health care service” will not be considered a supply of an institutional health care service unless the property or services are an input into the elements of an institutional health care service. The property or services not listed in the definition of an “institutional health care service” would be considered a separate supply with a separate application of GST/HST. For purposes of the exemption outlined in section 2 of Part II of Schedule V, section 138 may apply to deem particular supply of property or services to form part of the single supply of an institutional health care service where it is reasonable to regard the particular supply as incidental to the other supply, and where both supplies are made for a single consideration.

Health care facility

To determine whether certain property or service falls within the meaning of an “institutional health care service” as defined in section 1 of Part II of Schedule V, it must first be determined whether the property or service is provided in a “health care facility”. It is our view that the Facility is a health care facility pursuant to paragraph (b) of the definition of the term “health care facility” because it is an institution that is primarily for individuals with a mental health disability. The CRA considers an institution that is primarily for individuals with a mental health disability as a facility in which activities undertaken at the facility are designed to address the medical and psychological needs of individuals, and the facility has specialized equipment, facilities, and personnel with appropriate professional qualifications to care for individuals with a mental health disability.

The Corporation operates a residential treatment program that includes drug rehabilitation/alcohol treatment and other addiction counselling, education, and therapies […]. The Corporation has an onsite detoxification unit equipped with the necessary equipment and is staffed by qualified medical professionals. The Corporation is licensed by [Province A] under [the relevant provincial legislation] […]. The Corporation provides residential addiction and treatment services solely to individuals who have a dependency or an addiction to alcohol or drugs or other mental health disability including […]. All of these disorders are recognized by the World Health Organization as being mental health disabilities.

The Corporation is staffed by health care professionals including a Medical Director, Psychiatrist, Registered Nurse and […] [Psychotherapists] who are all trained in alcohol and drug addiction and who are remunerated by the Corporation for their services. Upon admission to the Facility, the clients are immediately under the care of the Medical Director and it is mandatory that each client undergo a medical and psychiatric assessment to determine additional medical and mental health issues that require treatment. Under the legislation, the Corporation is required to develop an individual care plan for each client. The care plan is developed jointly by the clinical team based on the client’s medical, social, chemical and mental health history.

The treatment program […][emphasizes group psychotherapy and other therapy] with […] [Psychotherapists]. Psychotherapy is a fundamental method of treatment for addiction and trauma. Clients are required to attend individual appointments with the Psychiatrist at least once a week, or on an increased frequency if deemed necessary by the Psychiatrist. Clients are required to follow the direction and supervision of both the Medical Director and the Psychiatrist for the duration of their stay in the Facility. In addition, the Corporation provides […][other] Programs which play an important role in the ongoing treatment of a client’s addiction and other mental health disability.

Clients undergo ongoing assessment of their progress throughout the duration of their program to evaluate the effectiveness of the treatment program. The ongoing assessments are conducted by the Medical Director, Psychiatrist, [Psychotherapists] and nurses.

In summary, it is our view that the activities, equipment and degree of qualified staff at the Facility are what one would expect at an institution designed for the rehabilitation and treatment of individuals with an alcohol and drug addiction and other mental health issues. Therefore, the Facility is a health care facility as that term is defined in section 1 of Part II of Schedule V.

The Corporation as operator of a health care facility

It is understood that the Corporation holds the license to operate the Facility under [the relevant provincial legislation] and is legally responsible for the activities, assets, risks, and liabilities associated with the operation of the Facility. Therefore, it is our view that the Corporation is the operator of the Facility.

Clients as patients or residents of a health care facility

For purposes of the exemption in section 2 of Part II of Schedule V, an individual must be a patient or resident of the Facility.

Although a client is self-referred (or referred by a family member) to the Facility if he believes he has an alcohol or drug addiction or other mental health disability, each client must be admitted to the Facility to participate in the residential treatment programs. The Conditions of Admission forms indicate that the client consents to treatment provided at the Facility by the Corporation and that all medical records become the property of the Corporation. In addition, each client becomes a patient of the Medical Director and the Psychiatrist for the duration of their stay at the Facility. Based on these facts, a client is considered to be a patient or resident of the Facility.

Cosmetic service supply

To be exempt from GST/HST the institutional health care service (i.e., the rehabilitation programs) supplied by the Corporation must not be a cosmetic service supply. The rehabilitation programs are supplied for medical purposes and not cosmetic purposes. Therefore, it is our view that the institutional health care service is not a cosmetic service supply or supply in respect of a cosmetic service supply.

Qualifying health care supply

To be exempt from GST/HST the institutional health care service (i.e., the rehabilitation programs) supplied by the Corporation must also be a qualifying health care supply. This means that the institutional health care service is supplied for the purpose of supply maintaining health, preventing disease, treating, relieving or remediating an injury, illness, disorder or disability, assisting (other than financially) an individual in coping with an injury, illness, disorder or disability, or providing palliative health care. It is our view that the institutional health care service supplied by the Corporation meet the definition of a qualifying health care supply.

Where the Corporation, as operator of a health care facility, provides, at the Facility, an institutional health care service that is not a cosmetic service supply and is a qualifying health care supply, the service will be exempt pursuant to section 2 of Part II of Schedule V.

[…][Additional information about the Corporation’s GST/HST obligations and entitlements]

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-7952. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Alison Jones
Health Care Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

FOOTNOTES

1 […].

2 Section 9 of Part II of Schedule V exempts supplies of properties and services covered by provincial health insurance plans, section 11 exempts supplies of food and beverages to a health care facility, section 13 exempts supplies of subsidized home care services and section 14 exempts supplies of various training services. Please see those sections for the conditions placed on the supply in order for it to be exempt.

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ETA Sch VI, Part II, 32, ETA Sch VI, Part II, 37;

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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 14th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 142568

Dear [Client]:

Subject:	GST/HST RULING
		Mattress covers and Pillow covers

Thank you for your fax of March 20, 2012, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of […] mattress covers and pillow covers. We apologize for the delay in our response.

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

STATEMENT OF FACTS

We understand that:

1. […]

2. The mattress covers and pillow covers are 100% natural textile […], sustainable, breathable and comfortable, and act as a barrier to dust mites. The fabric improves sleep […]. The mattress covers and pillow covers are waterproof, soft, and silent.

3. Use of the mattress covers and pillow covers can improve and help prevent dermatologic and respiratory allergies.

4. The mattress covers and pillow covers are eco-friendly products, through cleaning savings of electrical consumption and water.

5. […][Description of the benefits of this product]

RULING REQUESTED

You would like to know if supplies (i.e., sales) of […] mattress covers and pillow covers are zero-rated (taxable at 0%).

RULING GIVEN

Based on the facts set out above, we rule that that supplies of […] mattress covers and pillow covers are not zero-rated. Rather, supplies of […] mattress covers and pillow covers are subject to GST/HST at the applicable rate (5%, 13%, 14% or 15%) depending on the place of supply.

EXPLANATION

Schedule II of Part VI describes various Medical and Assistive Devices which are zero-rated when supplied (i.e., sold).

For instance, Section 4 of Part II of Schedule VI zero-rates a supply of a hospital bed, if the bed is supplied to the operator of a health care facility (as defined in section 1 of Part II of Schedule V) or on the written order of a specified professional for use by an incapacitated individual named in the order.

Section 32 of Part II of Schedule VI zero-rates a supply of a part, accessory or attachment that is specially designed for a property described in Part II. In this case, however, there is no indication that the products are specially designed for hospital beds.

Section 37 of Part II of Schedule VI zero-rates a supply of an incontinence product that is specially designed for use by an individual with a disability. Examples of incontinence products that may be zero-rated supplies under this section include underpads, underwear, and chair and other seat covers (i.e., lift chair, recliner, wheelchair cushion, car seat, and scooter covers).

To determine whether an incontinence product is specially designed for use by an individual with a disability, the Canada Revenue Agency (CRA) will consider the design features of the incontinence product and whether these features will assist an individual in coping with incontinence. The manner in which an incontinence product is marketed is not a predominant factor the CRA considers when making a determination.

To be an incontinence product specially designed for use by an individual with a disability, the product must be designed to absorb leakages, reduce odours, control bacteria, maintain dryness, and protect the individual against skin irritation. As such, the product must be designed using high-absorbency materials and generally have a sealed edge to ensure leakage protection. The fact that a product is reusable or disposable, or can be used by an individual who does not have a disability is insufficient in its own right to determine that a product is not an incontinence product specially designed for use by an individual with a disability.

Generally, incontinence products that do not have all of the design features outlined above are not considered to be specially designed for use by an individual with a disability and are therefore not zero-rated supplies under section 37 of Part II of Schedule VI.

In this case, though the mattress covers and pillow covers have the benefit of being waterproof, there is no indication that they are specially designed for use by an individual with a disability. As well, these products would not be considered incontinence products since the waterproof feature is for the protection of the mattress rather than of the person; as well, the waterproof feature is just one of several benefits of these products to help in the overall apparent goal of providing a healthy sleep experience.

As there is no indication that the supplies of […] mattress covers and pillow covers meet the qualifying criteria of the zero-rating provisions above, and since there are no other zero-rating provisions that may apply, the supply of these products is subject to GST/HST at the applicable rate.

Yours truly,

John Ware
Health Care Sectors Unit
Public Sector Bodies and Governments Division
Excise and GST/HST Rulings Directorate

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ETA 123(1), ETA 130(1), ETA 132(1), ETA 132.1(1), ETA 132.1(2), ETA 132.1(3), ETA 259(1), ETA 259(3);

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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5

June 23, 2015

[Addressee]

Case Number: 144489
Business Number: […]

Dear [Client]:

Subject: 	GST/HST RULING AND INTERPRETATION
		Resident in a province for GST/HST [PSB Rebate] purposes

Thank you for your [correspondence] of [mm/dd/yyyy], concerning a request to be deemed a resident in a province for purposes of the public service body (PSB) rebate. We apologize for the delay in providing a response.

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

STATEMENT OF FACTS

Based on your [correspondence] and the terms of the agreement between […] (“the Association”) and […][its Members], we understand that:

1. The Association is a registered charity for income tax purposes, effective [mm/dd/yyyy]. The Association is a charity for ETA purposes.

2. As per Industry Canada website, the Association has been incorporated pursuant to the laws of Canada under Canada Corporations Act - Part II since [mm/dd/yyyy]. The Association was continued under the Canada Non-for-profit Corporations Act on [mm/dd/yyyy].

3. The Association is not incorporated or continued pursuant to the laws of any province.

4. The Association has one office in […][City 1, Province 1] and one employee working from […][their] home in […][City 2, Province 2].

5. In its national capacity, the Association works in conjunction with […] (“Members”) across the country. The Members are: […][Description of Members]

6. A “Member Agreement”, […] in the Association’s correspondence, was signed by the Association and the Members on [mm/dd/yyyy].

7. The Member Agreement is intended to outline the duties, obligations and role of the Parties relative to one another within the context of the Parties’ commitment to work together and to maintain a “spirit of cooperation”.

8. According to the Member Agreement:

a. […][Description of Members’ territories]

b. […][More details about Members’ territories]

c. The Association shall: […][Description of the Association’s Duties and Responsibilities]

d. The Members shall each: […][Description of Members’ Duties and Responsibilities]

e. […][Description of the terms and conditions upon which the Agreement will terminate]

9. An Amended Member Agreement was signed on [mm/dd/yyyy] indicating […][a new Member in the Association and the dissolution of an another Member of the Association].

10. […], you indicated that in completing its GST/HST Public Service Bodies rebate claims the Association typically shows the rebate amount due from the provincial part of HST paid in [Province 2] in the [Province 2] section of the form GST284, Application for GST/HST Public Service Bodies' Rebate and Self-Government Refund; the same approach is followed in claiming the provincial part of the HST paid […][in other participating provinces].

11. In [mm/yyyy] the Association was informed that it cannot claim the provincial part of the HST incurred in […][some of the participating provinces], since it is not a resident in those provinces. The Association was advised that if they had an office […][in a participating province], they would be able to claim the rebate for the provincial part of the HST […][in that participating province].

12. Most of the Association’s operating costs are incurred in [Province 1]; however, […] costs are also incurred in other provinces throughout the year.

13. […] you indicated that the [responsibilities of the] Association’s employee who is working from [City 2] […] include:

* preparing meeting minutes;
* making arrangements to set up meetings;
* looking after Association’s […] and corporate filings;
* providing support to the Association’s VP in [City 1], as well as providing support to the CEO;
* verifying accuracy of the expense claims;

* negotiating with hotels when arranging for meetings, etc.

14. […] you also confirmed that the Association does not have a dedicated office space for the employee working in [City 2] and that employee is working from home. The employee does not have an authority to contract on behalf of the Association.

15. With respect to the expenses incurred by the Association outside of [Province 1], you provided the following examples of the types of expenses that the Association incurs in other provinces:

* expenses incurred in connection with conferences intended to provide education to […][attendees]; the location for these conferences changes from year to year;
* attending meetings in other cities outside of [Province 1];
* travel expenses incurred by Board Members (the Board of Directors has members from […][across] Canada);

* [other] travel expenses […].

RULING REQUESTED

Can the Association be deemed resident for GST/HST rebate purposes in each […][province] where Members are located?

RULING GIVEN

Based on the facts set out above, we rule that for purposes of the Public Service Body rebate the Association is only resident in [Province 1] since it is the only province where the Association has a permanent establishment. As a charity that is only resident in [Province 1], the Association is entitled to claim an […]% PSB rebate of the provincial part of the HST paid on eligible purchases and expenses regardless of in which province the HST was paid or payable, in addition to being able to claim a 50% PSB rebate of the GST/federal part of the HST paid or payable on eligible purchases and expenses.

EXPLANATION

A charity is able to claim a 50% PSB rebate of the GST or the federal part of the HST paid or payable on eligible purchases and expenses.

A charity resident in a participating province may also be entitled to a PSB rebate of the provincial part of the HST. Therefore, it must be determined in which province(s) the Association is resident.

In determining if a person is resident in a province, we look to subsection 132.1(1), which states:

…other than determining the place of residence of an individual in the individual’s capacity as a consumer, a person is deemed to be resident in a province if the person is resident in Canada and
a) in the case of a corporation, the corporation is incorporated or continued under the laws of that province and not continued elsewhere;
b) in the case of a partnership, an unincorporated society, a club, an association or an organization, or a branch thereof, the member, or a majority of the members, having management and control thereof is or are resident in that province;
c) in the case of a labour union, it is carrying on activities as such in that province and has a local union or branch in that province,

d) in any case, the person has a permanent establishment in that province.

Subsection 132(1), “Person resident in Canada”, states, in part, that:

…a person shall be deemed to be resident in Canada at any time
a) in a case of a corporation, if the corporation is incorporated or continued in Canada and not continued elsewhere;
b) in the case of a partnership, an unincorporated society, a club, an association or an organization, or a branch thereof, if the member, or a majority of the members, having management and control thereof is or are resident in Canada at that time…

As per the information contained on the Industry Canada website, the Association has been incorporated under the Canada Corporations Act - Part II since [mm/dd/yyyy], and was continued under the Canada Non-for-profit Corporations Act on [mm/dd/yyyy], indicating that it is a corporation incorporated in Canada. Therefore, the Association is a resident in Canada pursuant to paragraph 132(1)(a). However, the Association does not meet the condition of paragraph 132.1(1)(a) that “the corporation is incorporated or continued under the laws of that province and not continued elsewhere”, as the Association is not continued under the laws of a province.

You have stated that the Association is a partnership due to the Member Agreement. For GST/HST purposes a partnership is a person. If the Member Agreement creates a partnership, then a separate person would exist for GST/HST purpose and that separate person would have to qualify on its own account for any public service body rebates.

In our view the Member Agreement does not create a partnership as a partnership is created where two or more persons enter into a relationship to carry on business for profit. The Member Agreement does not create a relationship to carry on a business for profit. Instead, the Member Agreement’s purpose is to […][set out the duties and obligations of the Parties in] the context of the Parties’ commitment to work together […].

As the Association is a corporation and not a partnership or any of the other types of persons listed in paragraph 132.1(1)(b), this paragraph does not apply.

Since the Association is not provincially incorporated, and it is not a partnership or a labour union, paragraphs 132.1(a), (b) and (c) do not apply; however, pursuant to paragraph 132.1(1)(d) the Association will be deemed resident in a province if it has a permanent establishment in a province.

According to subsection 132.1(3) and the New Harmonized Value-added Tax System Regulations, No. 2, a charity is deemed to have a permanent establishment in a province if a place in that province would be a permanent establishment for income tax purposes under the following circumstances:

* the charity were a corporation; and

* the charity’s activities were a business for income tax purposes.

For income tax purposes, “permanent establishment” is defined in subsection 400(2) of Part IV of the Income Tax Regulations. Generally, a permanent establishment of a charity is a fixed place of activities. A fixed place of activities includes a determined or ascertained space in which there is some presence or routine over which the charity has some degree of control and in which some undertaking or operations of the charity occur. In most cases, this includes an office, branch, factory, workshop, warehouse, plant, mine, oil well, farm, timberland or natural resource used in the day-to-day activities of the charity. It does not mean that the place of activities must exist for a long time or be located in a durable building; for instance, a temporary field office on a construction site could be a fixed place of activities.

The Association’s main office is located in [City 1] and would be considered a fixed place of activities as it is a determined location that can be identified with the Association, and the Association exercises control over that office and carries out its on-going charitable activities through that office on a regular and reoccurring basis. At the same time, the premises of the Members cannot be considered as fixed place of activities of the Association since, based on the available information, Members are independent in their daily operations, separate legal entities, and as stated in the Member Agreement, “the Members shall each have exclusive authority, control and responsibility for the Member’s activities within its territory…”

However, there are other circumstances set out in subsection 400(2) of the Income Tax Regulations where a charity may be deemed to have a “permanent establishment” in a province. A charity is deemed to have a permanent establishment in a particular place if it carries on activities through an employee or agent established in that place with a general authority to contract on behalf of the charity. As indicated in the statement of facts above, the employee working from [their] home in [City 2] […] does not have an authority to contract on behalf of the Association. Therefore, the home office set up by that employee is not deemed to be a permanent establishment of the Association. Based on the information provided, the Association does not have any other employees or agents established in [Province 2]. None of the other circumstances in subsection 400(2) apply.

As the Association only has a permanent establishment in [Province 1], it is deemed to be resident in [Province 1] pursuant to paragraph 132.1(1)(d) and not in any other province.

As a charity that is only resident in [Province 1], in addition to a 50% PSB rebate of the GST and federal part of HST, the Association is entitled to claim a […]% PSB rebate of the provincial part of the HST paid on eligible purchases and expenses regardless of in which province the HST was paid or payable. The Association claims this rebate on line 305-[…] of Form GST284 SCH, Provincial Schedule - GST/HST Public Service Bodies' Rebate to claim a PSB rebate of the provincial part of the HST. The total provincial amount claimed on the provincial schedule is entered on line B of Part D of the PSB rebate application (Form GST284 Application for GST/HST Public Services Bodies' Rebate and GST Self-Government Refund). Both forms must be submitted to the CRA to request a PSB rebate of the provincial part of the HST.

The Association may have already claimed a PSB rebate for a claim period where a rebate of the provincial part of the HST was either not claimed or disallowed because the rebate was claimed on the incorrect line of the form GST284 SCH. If this is the case, the Association must adjust that previously filed PSB rebate application to correctly claim a PSB rebate for the provincial part of the HST. A reassessment or additional assessment of a rebate claim shall not normally be made more than four years after the day the application for the rebate was filed. If the Association has not yet filed a PSB rebate claim for a claim period where it was a GST/HST registrant, it has up to four years from the due date of its GST/HST return for the claim period to file a PSB rebate application. For a claim period where the Association is a non-registrant, it has up to four years from the last day of the claim period to file a PSB rebate application.

If the Association needs to change a rebate that it already filed, it can either use the CRA’s online services at My Business Account or Represent a Client, send the CRA a letter indicating the change, or call 1-800-959-5525.

If you require clarification with respect to any of the issues discussed in this letter, please contact my Manager, Carol Gaudet, at (613) 954-7936. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Tetyana Zabroda
Rulings Officer
Charities and Non-Profit Organizations Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

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ETA 123(1), ETA Sch V, Part V.1; 1(e);

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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case number: 144839
Business number: […]

Dear [Client]:

Subject:	GST/HST RULING AND INTERPRETATION
		[…][Admissions to a charity’s Event]

Thank you for your letter of [mm/dd/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the […] ([…] Charity) […][Event]. We apologize for the delay in providing a response.

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

STATEMENT OF FACTS

We understand from your letter and the Charity’s website […] that:

1. The Charity is a registered charity for income tax purposes, effective [mm/dd/yyyy]; it is a charity for ETA purposes.

2. The Charity is not registered for the GST/HST.

3. In your letter dated [mm/dd/yyyy], you stated that the Charity met both criteria to be considered a small supplier. The total revenues from all activities and donations were less than the $250,000 threshold revenue amount, and the $50,000 taxable supply test was also met. The recent T3010, Registered Charity Information Returns, show that the revenues of the Charity for the past three fiscal years are over $250,000.

4. The main activity of the Charity is […].

5. […][Description of the Charity’s Event].

6. […][Description of the fee to the Charity’s Event].

7. […][Description of the Event’s requirements].

8. The minimum and maximum number of participants required in order to run an event varies depending on the location. The minimum number of participants ranges between [#], and the maximum between [#] participants.

9. The Charity’s website describes […] [the] [Event] as […][quote from the website].

10. […][Description of the Event’s purpose].

11. […][Further specifics of the Event and locations in Canada and USA]. […]

12. […][Additional description of the Event’s purpose].

13. The Charity is planning to open more [Event] locations in the coming years […].

14. […][Additional information about the fees]

15. […][Quote from the website]

RULING REQUESTED

You would like to know whether:

* the $[…] fee for the [Event] [should] be included in the taxable supply test or is it tax exempt;

* the tax exemption applicable to the “meals-on-wheels” programs under the ETA applies to the $[…] fee charged by the Charity for attending [the] [Event];

* the Charity’s future fund-raising events and donations will need to be included in the taxable supply test.

RULING GIVEN

Based on the facts set out above, we rule that the Charity is making a supply of an admission to [the] [Event], which is exempt under section 1 of Part V.1 of Schedule V. Therefore, the consideration paid by the participants in the [Event] is not included in the small supplier’s $50,000 taxable supply test. We also rule that the exemption for “meals on wheels programs” under section 4 of Part V.1 of Schedule V is not applicable to the supply of Charity’s admissions to [the] [Event].

EXPLANATION

Generally, supplies made by a charity are exempt from the GST/HST under section 1 of Part V.1 of Schedule V. However, there are a few exceptions that are generally taxable, notably supplies of admission to a place of amusement where an admission charged is more than $1.

We have determined that the Charity is making a supply of an admission to [the] [Event]. For GST/HST purposes, an admission in respect of a place of amusement or a seminar, an activity or an event is defined as a “right of entry, or access to, or attendance at, a place of amusement…activity or event.” Although the Charity is making a supply of an admission, only an admission to a place of amusement can fall under the exception noted above. For GST/HST purposes, a “place of amusement” is defined in subsection 123(1) of the ETA in part as:

“any premises or place, whether or not enclosed, at or in any part of which is staged or held any:

(a) film, slide show, sound and light or similar presentation,
(b) artistic, literary, theatrical, musical or other performance, entertainment or exhibition,
(c) fair, circus, menagerie, rodeo or similar event, or
(d) race, game of chance, athletic contest or other contest or game,

and includes …any place, structure…the purpose of which is to provide any type of amusement or recreation.”

Based on the facts set out above, none of the activities described in paragraphs (a) to (d) of the definition of “place of amusement” are being held at the places where the Charity holds [the] [Event]. The purpose of the places where [the] [Event] […][is] held, […][description of establishment], is not to provide any type of amusement or recreation. The ordinary purpose of these places is either educational, […][type of establishment], or to simply […][purpose of other establishment]. As the places used to host the [Event] [is] not considered to be places of amusement for GST/HST purposes, the Charity is not making a supply of an admission to a place of amusement. Since none of the other exceptions in section 1 of Part V.1 of Schedule V are applicable to the supply of an admission to the Charity’s [Event], the supply is exempt and the GST/HST is not applicable to the $[…] fee.

Generally, supplies under “meals on wheels programs” are exempt under section 4 of Part V.1 of Schedule V. This provision exempts a supply “of food or beverages to seniors, underprivileged individuals or individuals with a disability under a program established and operated for the purpose of providing prepared food to such individuals in their places of residence”. The supply by the Charity to the participants of the [Event] is an admission to that event, not a supply of food or beverages. Therefore, the exemption in section 4 of Part V.1 of Schedule V does not apply. Despite this, as previously stated, the supply of the admission to the [Event] is exempt.

INTERPRETATION

You have requested a clarification on whether or not future fund-raising events and donations will need to be included in the taxable supply test. Since this question does not relate to a specific transaction, only an interpretation can be provided.

Fund-raising events

A supply made by a Charity of an admission to a fund-raising dinner, ball, concert, show, or like fund-raising event is exempt where the Charity is permitted to issue a donation receipt for income tax purposes in respect of part of the admission price, or could issue a donation receipt if the recipient of the supply were an individual. This exemption does not require a charity to issue a donation receipt, only that a receipt may be issued. Therefore, the admission to these types of fund-raising events that the Charity might supply in the future could be exempt from GST/HST.

Also, although the sale of new goods by a charity is generally taxable, the sale of a new good by a charity in the course of a fund-raising activity may be exempt except where:

* the charity makes supplies of the goods in the course of that fund-raising activity on a regular or continuous basis throughout the year (any period of twelve consecutive months) or a significant portion (30% or more) of the year; or

* the agreement for the sale entitles the recipient to receive from the charity the goods on a regular or continuous basis throughout the year or a significant portion of the year.

That being said, in order for a supply by a charity to fall under the above exemption it has to be made in the course of a fund-raising activity. The underlying purpose of a fund-raising activity must be to raise funds to support the charitable objects of the charity. A fund-raising activity is not in and of itself charitable as its purpose is to generate solicitations of support for the charity’s objects rather than to accomplish them. A solicitation of support can involve supplies of goods or services sold at a profit by a charity to raise funds to support its charitable work. In certain cases, a charity may hold an event that may serve multiple purposes; first, as a way for the charity to fulfill or accomplish its charitable objects and, second, to raise funds to support its charitable objects. An activity undertaken by a charity to raise funds during a charitable event may be considered a fund-raising activity where it can reasonably be treated as discrete and distinct from the holding of the charitable event.

Donations

Generally, GST/HST does not apply to donations and gifts made between two persons dealing at arm’s length. A donation or a gift is a voluntary transfer of money or property for which the donor does not receive any benefit in return. If the donor receives property having nominal value, such as a key ring, a pin, or an envelope seal, in exchange for the donation, the donation will still not be subject to the GST/HST. However, if the donor receives property or service having more than nominal value in exchange for the donation, the payment will be subject to GST/HST, unless the property or service is an exempt or zero-rated supply. For more information regarding the tax status of supplies by a charity please refer to Guide RC4082, GST/HST Information for Charities.

“Small Supplier Test”

A charity that makes a taxable supply of property or services in Canada in the course of a commercial activity engaged in by the charity in Canada is generally required to register for GST/HST purposes, unless the charity is a small supplier. A charity is a small supplier if it meets either of the two following scenarios:

* if its total revenues from taxable (that is, not exempt) supplies of property and services (other than sales of capital property, supplies of financial services and certain payments for goodwill), and those of associated persons, has not exceeded $50,000 in the current calendar quarter and the previous four consecutive calendar quarters; or

* if it is the charity's first fiscal year, it is a small supplier; or if the charity is in its second fiscal year, its gross revenue from its first fiscal year was $250,000 or less; and if it the charity's third or subsequent fiscal year, its gross revenue for either of its two preceding fiscal years was $250,000 or less. Gross revenue includes business income, revenues from taxable and exempt supplies, donations, grants, gifts, property income, investment income and any amount considered a capital gain less any amount considered a capital loss from the disposal of property for income tax purposes.

If a charity makes taxable supplies and is a small supplier, the charity is not required to be registered for GST/HST, but may choose to register voluntarily. If a charity is not a small supplier and it makes taxable supplies, including zero-rated supplies (that is, supplies taxable at 0%), then the charity is required to register for GST/HST. If a charity makes only exempt (that is, not taxable) supplies of property or services, or is not making any supplies of property or services, the charity is not eligible to be registered for GST/HST.

Please note that the revenues from donations and exempt supplies, for example admissions to the [Event], should not be included in the $50,000 taxable supplies test; however, those revenues will need to be taken into consideration in the $250,000 gross revenue threshold.

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the rulings given in this letter provided that: none of the issues discussed in the rulings are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretations given in this letter, including any additional information, are not rulings and do not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA's interpretative policy could affect the interpretations or the additional information provided herein.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-4206. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Desneiges Arbour
Charities and Non-profit Organizations Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

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ETA Sch VI, Part III, 1(h), section 165

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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 187346
Business Number: […]

Dear [Client]:

Subject: GST/HST RULING
[…][Application of the GST/HST to the supply of a food product]

Thank you for your letter of September 22, 2017, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to […] (the Product). We apologize for the delay in responding.

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

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

STATEMENT OF FACTS

Our understanding of the facts is as follows:

1. […] (the Company) is a GST/HST registrant with the business number noted above.

2. The Company acquires the Product for the purpose of resupply at its retail stores.

3. The Product is described as whole grains with very high fibre content, gluten free, […].

4. The Product is available in [various] blends, namely, […].

5. You provided a sample of […][blend 1], which has the following ingredients: […].

6. The Product is packaged in a […]g sealable bag which depicts the manufacturer’s logo, includes a description of the package contents […], an indication that the Product is very high in fibre, gluten free, […] and is 100% whole grains.

7. The back of the package contains a Nutrition Facts table that details the facts based on how the Product will be consumed, or more specifically, as a snack or out of a bowl. The Nutrition Facts are based on […]cup of the Product as a snack and […]cup of the Product in a bowl.

8. The back of the package also contains depictions of suggested ways to consume the Product, […].

9. The manufacturer’s website describes […][blend 1] as follows: […].

10. […].

11. In physically examining the contents of […][blend 1], it can be described as […], small […] grains, with flax seeds […].

12. The Company has indicated that the Product will be displayed in the aisle next to the cereals in the store.

RULING REQUESTED

You would like to know whether the supply of the Product is zero-rated under section 1 of Part III of Schedule VI.

RULING GIVEN

Based on the facts as represented, we rule that the supply of the Product is zero-rated under section 1 of Part III of Schedule VI.

EXPLANATION

Generally, in accordance with section 165, every recipient of a taxable supply made in Canada shall pay tax calculated at the rate of 5% on the value of the consideration for the supply (or at the rate of 13% in Ontario; 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island) unless the supply is zero-rated. The tax rate in respect of a zero-rated supply is 0%. A zero-rated supply is a supply that is included in Schedule VI.

Section 1 of Part III of Schedule VI 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, other than supplies included in paragraphs (a) to (r) of that section.

Under paragraph 1(h) of Part III of Schedule VI, supplies of the following products are excluded from zero-rating:

“granola products, but not including any product that is sold primarily as a breakfast cereal.”

As the Product as described is sold primarily as a breakfast cereal, the Product is zero-rated under section 1 of Part III of Schedule VI.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 905-721-5218. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Zubair Patel
Basic Groceries and Recaptured Input Tax Credits Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

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ETA Sch VI, Part III Sec. 1

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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 188571
Business Number: […]

Dear [Client]:

Subject: GST/HST RULING Tax Status of […][food ingredient]

Thank you for your letter concerning the application of GST/HST to the supply of […][food ingredient](the Product). We apologize for the delay in responding.

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

STATEMENT OF FACTS

1. […] (the Company) is a GST/HST registrant.

2. The Company supplies the Product online through the Company website […] and their telephone ordering service.

3. The Product comes in a powdered format and is derived from […].

4. The Product is used by culinary chefs for flavour infusion into food items such as dips, vinaigrettes, enhancers, sauces, chowders etc. It is described as […][product marketing information].

5. The description of the Product on the Company’s website indicates that the Product is a spice that is added to water or oil and is mixed in with food.

6. The Company has represented the supply of the Product as a supply of a natural food product or a whole food for human consumption.

7. The Product is supplied in […] gram bottles and bags that contain […] grams, […] grams, and […] grams.

8. The Product marketing indicates that the Product is a natural product that is rich in essential minerals such as […]. It also indicates that the Product contains omega 3 and 6 fatty acids, and high levels of vitamin B12, C and E. The Product is marketed as a plentiful source of antioxidants.

9. The Company is marketing the Product to high end culinary chefs and restaurants. In the future, the Product may be available for purchase from health food and natural food retailers.

RULING REQUESTED

Is the supply of the Product zero-rated under section 1 of Part III of Schedule VI?

RULING GIVEN

Based on the facts set out above, we rule that the supply of the Product is zero-rated under section 1 of Part III of Schedule VI. The Product is an ingredient, the supply of which is not excluded from zero-rating by any of the paragraphs (a) to (r) in that section.

EXPLANATION

Section 1 of Part III of Schedule VI to the ETA 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, other than supplies included in paragraphs (a) to (r) of that section.

The terms “food” and “beverage” are not defined in the ETA. As stated in paragraph 2 of the GST/HST Memoranda Series 4.3, Basic Groceries, we consider a product to be a food or beverage if an average consumer would recognize and purchase the product as such in the ordinary course of buying basic groceries.

The term “ingredient” is also not defined in the ETA. Generally, our view is that an average consumer would consider a product to be an ingredient if the product is added to enhance the 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 a food or beverage.

With respect to the Product, it is advertised and marketed as a flavour enhancer or spice. The primary use of the Product is to impart taste to food in which it is added. The Product is used and supplied as an ingredient. The supply of the Product is zero-rated under section 1 of Part III of Schedule VI as none of the exclusionary paragraphs (a) to (r) under section 1 of Part III of Schedule VI apply.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 905-721-5184. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Siraj Patel, CGA, CPA
Basic Groceries and Recaptured Input Tax Credits Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

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ETA Sch VI, Part III Sec. 1

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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 188253
Business Number: […]

Dear [Client]:

Subject: GST/HST RULING
Application of GST/HST to […][a Powered Mix]

Thank you for your letter of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the supply of […][a Powered Mix]([…][Product X]). We apologize for the delay in replying.

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

STATEMENT OF FACTS

We understand the facts to be as follows:

1. [Product X] is imported and sold by […](the Company). The Company is registered for GST/HST purposes.

2. [Product X] is described on the website […].

3. The package describes [Product X] to be […][high in protein and states its benefits].

[…].

4. Instructions for use were given: Pour [...] cups water, add [...] cup [Product X], milk, sweetener and ice as desired. Blend and serve immediately. [Product X] may thicken, if left standing, add extra water and blend before serving. As desired for variety and added flavour, include ripe bananas or malted drink.

5. […]. [Describes the beneficial effects of Product X].

6. Ingredients of [Product X] are listed as: […].

7. The health benefits of each ingredient are listed on the back of the package: […]

RULING REQUESTED

You would like to know if supplies of [Product X] are zero-rated as basic groceries under section 1 of Part III of Schedule VI.

RULING GIVEN

Based on the facts set out above, we rule that [Product X] is not zero-rated under section 1 of Part III of Schedule VI.

EXPLANATION

The terms “food” and “beverage” are not defined in the ETA. Our approach is that these terms are to be read according to their ordinary meaning. As stated in GST/HST Memorandum 4.3, Basic Groceries (MS 4.3), we consider a product to be a food or beverage if an average consumer would recognize and purchase the product as such in the ordinary course of buying basic groceries. (i.e., food, beverages and ingredients marketed for human consumption). This approach is based on the view that food and beverages are usually consumed by an average person to sustain or maintain life, to allay hunger or thirst, or for enjoyment rather than for therapeutic or preventative effects (e.g., to correct actual or perceived health problems) or to achieve specific beneficial benefits related to performance or physique. Individual preferences for, or dislikes of, certain products would not alter the general perception that a product is, or is not, a food or beverage. Similarly, products that meet the 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 basic groceries.

The term “ingredient” is also not defined in the ETA. According to paragraph 4 of MS 4.3, our view is that an average consumer would consider a product to be an ingredient if it added to the flavour, texture or appearance of the final product; that is, if it was integral to the final product. Moreover, to be considered an ingredient, the final product must, in and of itself, be a food or beverage. Thus, a product that is marketed for its beneficial effects and that is added to a food or beverage simply as a way to consume it would not be considered as an ingredient.

Dietary supplements

GST/HST Info Sheet GI-001 Products Commonly Described as Dietary Supplements addresses the question of whether products commonly described as “dietary supplements” are zero-rated as foods, beverages or ingredients. The policy states that the term "basic groceries" refers to food, beverages and ingredients that are usually consumed by an average person because they are hungry or thirsty, or simply for enjoyment.

The points contained in the GI-001 with respect to food and beverages are:

The label or marketing material refers to the product as a "dietary supplement" or "supplement".
The label or marketing material claims that the product has a therapeutic or preventive effect, enhances mental or physical performance, or enhances physique.
The label or marketing material emphasizes a particular nutrient that is not commonly regarded as an ingredient to basic groceries; for example, whey protein isolate or chlorophyll. The product may also emphasize the purity or source of the nutrient.
The label or marketing material indicates the dosage size and how often the product should be taken. There may also be warnings advising certain people such as children or pregnant women not to take the product, or that the product is to be taken only as directed by a physician.
The product has a Drug Identification Number (DIN), a Drug Identification Number - Homeopathic Medicine (DIN-HM), or a Natural Products Number (NPN).
The product lists the active or medicinal ingredients.
The product is compared to other products that are not considered to be a food, beverage or ingredient. For example, a product in powder form may be compared to a product in pill form.
The label or marketing material focuses on the benefits to be derived from taking the product.
The product is in a form not commonly associated with food, beverages or ingredients, for example, pills, capsules, tablets, gels, liquids in eye-dropper bottles, fibres, wafers, powders and concentrates.
In sales catalogues or stores, the product is not placed with products that are commonly recognized as foods, beverages or ingredients. The product may be placed with non-prescription drugs.

Products referred to as dietary supplements are not considered to be basic groceries as they are not products that an average consumer would ordinarily purchase in the course of buying food or beverages.

The term “dietary supplement” is not defined in the ETA. As noted in paragraph 148 of MS 4.3, we consider products that are consumed for their therapeutic or preventative effects (e.g., to correct actual or perceived health problems), or to achieve specific beneficial effects related to performance or physique, to be dietary supplements. We also consider products that are labelled or marketed as products to be consumed primarily to facilitate the intake of ingredients that place an emphasis on the benefits of the product to be dietary supplements.

[Product X] is high in protein and zinc and is consumed for its therapeutic or beneficial effects. […]. An average consumer would not recognize and purchase [Product X] as a basic grocery (i.e., food, beverages and ingredients marketed for human consumption). [Product X] is not a food, beverage or an ingredient and is therefore not zero-rated under section 1 of Part III of Schedule VI.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 905-721-5222. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Elizabeth Onsiong
Basic Groceries and Recaptured Input Tax Credits Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

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ETA Part IX, 148, 148.1, 165, 240(1), ETA Sch V, Part V.1 Sec. 1(d),Part V.1 Sec. 5.1:

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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 189695r
Business Number: […]

Dear [Client]:

Subject: GST/HST RULING
Supply of prepared meals by a charity

Thank you for your fax of [mm/dd/yyyy] concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to your supplies of prepared meals to seniors. We apologize for the delay in our response.

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

STATEMENT OF FACTS

We understand

1. […](the Charity) is a registered charity for income tax purposes, effective [mm/dd/yyyy], and is also a charity for GST/HST purposes.

2. The Charity is not registered for GST/HST purposes.

3. According to the Charity’s website, […][describes the Charity’s purpose].

4. In [yyyy], the Charity opened […][a café] located […][in a Facility]. According to the Charity’s website, […][describes the Charity’s purposes in operating the café].

5. The Facility is a building owned by […][the Corporation]. The Charity does not operate the Facility. The Facility’s website states, […][that the Facility is a residence for seniors].

6. Under the heading […], the Facility’s website states, […][that the café prepares and serves food to residents of the Facility for consideration].

7. On [mm/dd/yyyy], you sent a fax to the attention of […][an officer] of the Canada Revenue Agency regarding the first GST/HST Ruling you received on this fact situation. The fax contained the commercial lease between the Charity and [the Corporation]. The following statement was made on the covering sheet of that fax,

“Please note that the intention of the café is to provide food security to marginalized individuals (seniors who live in the building)”.

8. On [mm/dd/yyyy], you sent a fax to the attention of […][the CRA officer] that contained a copy of a letter dated [mm/dd/yyyy], from […][a municipal zoning official] to […][a representative of the Corporation]. The letter referred to the completion of […][a review] respecting zoning bylaw compliance of the Facility. The letter stated (in part): […][that the café caters almost exclusively to the residents of the Facility. It is a cafeteria permitted as an accessory use to the Facility. It is not a restaurant].

[…]

RULING REQUESTED

Is a supply of food or beverages by the Charity to the residents of the Facility exempt pursuant to section 4 of Part V.1 of Schedule V to the ETA?

RULING GIVEN

Based on the facts set out above, we rule that a supply of food or beverages by the Charity to residents of the Facility is an exempt supply pursuant to section 4 of Part V.1 of Schedule V to the ETA.

A supply of food and beverages made to the Charity by any supplier for the purpose of this program is also exempt.

EXPLANATION

The facts support that:

the Charity is making supplies of food and beverages.
the supplies are made to seniors in their place of residence.
the supplies are made under a program established and operated for the purpose of providing prepared food to such individuals in their places of residence.

Therefore, a supply of food or beverages by the Charity to the residents of the Facility is exempt pursuant to section 4 of Part V.1 of Schedule V to the ETA.

A supply of food and beverages made by the Charity to a guest of a senior resident would not be exempt under section 4 of Part VI of Schedule V to the ETA, unless the supply is made to a senior, an underprivileged individual or an individual with a disability. Therefore, a supply of food and beverages made by the Charity to a guest of a resident who is not an individual described above would be a taxable supply for purposes of the GST/HST.

The Charity is not registered for the GST/HST and provided that the Charity is a small supplier and not required to be registered for the GST/HST, no tax is payable in respect of its taxable supplies. For more information on whether a charity has to register for the GST/HST, see GST/HST Guide RC4082, GST/HST Information for Charities.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-670-7941. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Trent MacDonald
Charities and Non-profit Organization Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

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ETA Sch V , Part VI Sec. 18, Part VI Sec. 20(c)

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ADDITIONAL INFORMATION

Input tax credits

GST/HST collected in error

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 196605
Business number: […]

Dear [Client]:

Subject: GST/HST RULING
Application of GST/HST to […][Z licences] and […][Z permits]

Thank you for your letter of January 15, 2019, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to […][Z licences] and […][Z permits] supplied by […] ([…][Organization Z]). We apologize for the delay in our response.

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

STATEMENT OF FACTS

We understand the facts as follows based on your letter, telephone conversations, and [Organization Z]’s website:

1. [Organization Z] is continued as a corporation without share capital under [section] […] of […][Act Z (the industry specific legislation)] (Footnote 1) .

2. […][Per section […] of Act Z, Organization Z is mandated to regulate the practice of profession Z].

3. Relevant provisions from [Act Z] include:

[…][Sections cited from Act Z include: definitions; the section that states a licensed person is a member; the section related to the making of regulations; the section related to the passing of by-laws; the section prohibiting the practice of profession Z without a Z licence or a Z permit; sections pertaining to obtaining a Z licence or a Z permit; and the fines that are imposable if a person practices profession Z without a Z licence or a Z permit]

4. Relevant provisions of the […][Regulation] (Footnote 2), made under section […] of [Act Z], include:

[…][Sections of the Regulation that relate to the sections of Act Z discussed in Fact #3].

5. […] lists the fees for the [Z licences] and [Z permits].

6. The […][fee for a Z licence] is $[…]. […][Additional information about the fee].

7. The […] fee for a [Z permit] […] is $[…]. […][Additional information about the fee]

8. […][More information about applicable fees].

9. A […][Z licence authorizes a person to] use the title […] and to be employed as […].

10. A [Z permit authorizes] […][an entity] to provide services […].

11. [Organization Z] is not a charity as that term is defined subsection 123(1).

12. [Organization Z] has been registered for the GST/HST since [mm/dd/yy]. It uses business number […] to file its GST/HST returns and claim input tax credits.

RULING REQUESTED

You would like to know:

1. Is [Organization Z] required to charge GST/HST on the supply of a [Z licence] to an individual “with Native status” located on a reserve?

2. Is [Organization Z] required to charge GST/HST on the supply of a [Z permit] to a sole proprietorship “with Native status” located on a reserve?

3. Is [Organization Z] required to charge GST/HST on the supply of a [Z permit] to a corporation “with Native status” located on a reserve?

RULING GIVEN

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

1. No. The supply of a [Z licence] is exempt from the GST/HST under paragraph 20(c) of Part VI of Schedule V for all persons including Indians.

2. No. The supply of a [Z permit] for a sole proprietorship is exempt from the GST/HST under paragraph 20(c) of Part VI of Schedule V for all persons including Indians.

3. No. The supply of a [Z permit] for a corporation is exempt from the GST/HST under paragraph 20(c) of Part VI of Schedule V.

EXPLANATION

Paragraph 20(c) of Part VI of Schedule V to the ETA exempts a supply of a licence, permit, quota or similar right (other than a right or service supplied in respect of the importation of alcoholic beverages) where the supply is made by a government or municipality or by a board, commission or other body established by a government or municipality. GST/HST Policy Statement P-247, What Constitutes an “Other Body Established by a Government” for Purposes of the Excise Tax Act (the Act)?” sets out the Canada Revenue Agency’s position with respect to what type of body would be an “other body established by a government”. This policy provides that the body must fall into one of three categories. The categories are:

Category 1 – A body created by a government in legislation;

Category 2 – A body incorporated by a government; and

Category 3 – A body that meets the following criteria – (a) a government has taken action relating to the body; (b) the body is set up to undertake a public service function that government usually undertakes; and (c) the government retains the overall authority for the regulatory program, and the body remains accountable to the government.

[Organization Z] was continued under [Act Z] and is therefore considered to be an “other body established by government” under Category 1 for the purposes of section 20 of Part VI of Schedule V.

The supply of a [Z licence] or a [Z permit] by [Organization Z] is therefore an exempt supply under paragraph 20(c) of Part VI of Schedule V and is not subject to the GST/HST. [Organization Z] should also not charge GST/HST on the fees associated with the supply of the [Z licences] and [Z permits], such as […]. There are no provisions within the ETA which would enable [Organization Z] to elect to have an exempt supply of a [Z licence] or [a Z permit] treated as taxable.

[…]. The CRA is responsible for the administration of the ETA and its Regulations as enacted by Parliament. A legislative amendment to the ETA would be required to treat such supplies by a body established by government as taxable supplies. Legislative amendments are a matter of tax policy, which falls within the responsibility of the Department of Finance Canada. We have notified officials of that Department of your concerns.

ADDITIONAL INFORMATION

Input tax credits

Generally, a GST/HST registrant is eligible to claim input tax credits to recover the GST/HST it pays to the extent that its purchases and expenses are inputs into making taxable supplies for consideration. No input tax credit is available where a purchase or an expense was incurred for the purpose of making exempt supplies (such as the [Z licences] and [Z permits]), or for a purpose other than the making of supplies. For more information, see Guide RC4022, General Information for GST/HST Registrants.

GST/HST collected in error

Where a supplier has collected GST/HST in respect of an exempt supply, the GST/HST has been collected in error.

Under subsection 232(1), where a person such as [Organization Z] has charged or collected an amount as or on account of GST/HST in error on an exempt supply, the person has the option to adjust, refund or credit the excess tax within two years after the day the amount was so charged or collected. If the person chooses to adjust, refund, or credit the excess amount of GST/HST, a credit note containing prescribed information must be issued by the person to the recipient (the client) within a reasonable time. The person may also make an adjustment to its net tax calculation to account for any adjustment, refund or credit of an amount of tax charged or collected in error to the extent that the amount was included in determining the net tax for the reporting period or a prior reporting period.

Alternatively, persons (that is, […] clients of [Organization Z]) that paid an amount as or on account of GST/HST in error on supplies that are exempt may file an application for a rebate of amounts paid in error. However, if they have claimed an input tax credit with respect to an amount of GST/HST paid in error, they cannot also claim the same amount as a rebate. Form GST 189, General Application for Rebate of Goods and Services (GST)/Harmonized Sales Tax (HST), is used to apply for the rebate. The time limit to apply for this rebate is within two years after the day the amount was paid.

Additional information concerning tax collected in error may be found in GST/HST Memoranda 12.2, Refund, Adjustment, or Credit of the GST/HST under Section 232 of the Excise Tax Act. Further information regarding rebate claims is set out in Guide RC4033, General Application for GST/HST Rebates.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-670-7943. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Desneiges Arbour
Charities and Non-profit Organizations Unit
Public Services Bodies and Governments Division
Excise and GST/HST Rulings Directorate

FOOTNOTES

1 […]
2 […]

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ETA Sch VI, III, 1

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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 197771
Business Number: […]

Dear [Client]:

Subject: GST/HST RULING
Tax Status of […][Baked Products]

Thank you for your letter concerning the application of GST/HST to the supply of […][baked products] (the Product).

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

STATEMENT OF FACTS

1. […] (the Company) is a GST/HST registrant.

2. The Company purchases the Product from a supplier for the purposes of resale.

3. The Product consists of […][six or more baked products each of which is a single serving] pre-packaged in a […]g box […]. […].

4. The Product is sold at the retail level in various franchise stores.

5. The Product packaging has been provided for our review.

6. The ingredients listed on the package are as follows: […].

RULING REQUESTED

Whether the supply of the Product is zero-rated under section 1 of Part III of Schedule VI.

RULING GIVEN

Based on the facts set out above, we rule that the supply of the Product is zero-rated under section 1 of Part III of Schedule VI.

EXPLANATION

Generally, in accordance with section 165, every recipient of a taxable supply made in Canada is required to pay GST/HST on the value of the consideration for the supply. Zero-rated supplies (listed in Schedule VI to the ETA) are subject to the GST/HST at the rate of 0%. Section 1 of Part III of Schedule VI 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, other than supplies included in paragraphs (a) to (r) of that section.

Paragraph 1(m) excludes supplies of cakes, muffins, pies, pastries, tarts, cookies, doughnuts, brownies, croissants with sweetened filling or coating, or similar products where:

(i) they are packaged for sale to consumers in quantities of less than six items each of which is a single serving, or

(ii) they are not prepackaged for sale to consumers and are sold as single servings in quantities of less than six,

but not including bread products, such as bagels, English muffins, croissants or bread rolls, without sweetened filling or coating.

The exclusion applies to a wide variety of sweetened baked goods and "similar products" […][but when such products are] supplied in multiples of less than six single servings they are subject to the GST/HST at the full rate. Administratively, the CRA considers […][a product excluded under paragraph 1(m)] to be a single serving where it is less than 230 grams.

The Product is not captured under paragraph 1(m) of Part III of Schedule VI. As supplied, the Product is […] pre-packaged for sale to consumers. […], the determinative factor is that the entirety of the pre-packaged product available for sale to consumers contains six or more […][baked products] of a single serving size.

Yours truly,

Siraj Patel, CGA, CPA
Basic Groceries and Recaptured Input Tax Credits Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

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ETA Part IX, 123(1), 138, 139, 165, ETA Sch V, Part VII, SOR/91-26 Financial Services (GST) Regulations

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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5

Case Number: 150998

[Addressee]

Dear [Client]:

Subject: GST/HST RULING
Fees charged in relation to project loans

Thank you for your letter concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to various supplies made by your client, […]([…][the Company]), which are in respect of […] projects. We apologize for the delay in our response to your enquiry.

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

In addition to your letters in which you provided your understanding of the impact of the GST/HST upon the specific supplies you are enquiring about, you also provided:

documents related to […] ([…][Project A]) consisting of:
a fee letter ([…][Fee Letter A]) between [the Company] and […]([…][Borrower A]), dated [mm/dd/yyyy], with no effective date and unsigned by [Borrower A],
a credit agreement ([…][Credit Agreement A]), unsigned and dated [mm/dd/yyyy], for reference with an execution date of [mm/dd/yyyy], that provides the terms and conditions for the provision of a loan ([…][Loan A]) from […][Corporation #1]([…][Lender A]) to [Borrower A],
a lender fee agreement ([…][Lender Fee Agreement A]) between [the Company] and [Lender A], dated [mm/dd/yyyy], and,
a Direction to Pay ([…][Direction to Pay A]), dated [mm/dd/yyyy].

Collectively, these four documents are referred to as […][Finance Documents A];

a fee letter ([…][Fee Letter B]) for […] project ([…][Project B]) between [the Company] and […]([…][Borrower B]), dated [mm/dd/yyyy], with no effective date and unsigned by [Borrower B]. The lenders are [Corporation #1] and other financial institutions (collectively referred to as[…][Lender B]); and
an unsigned lender fee agreement ([…][Lender Fee Agreement C]) for the […] project ([…][Project C]) between [the Company] and three lenders - [ Corporation #1], […], and […] (collectively referred to as […][Lender C]), dated [mm/dd/yyyy]. […] is the borrower ([…][Borrower C]).

STATEMENT OF FACTS

Based on the documents provided and information from [the Company’s] website at […] we understand the following:

1. [The Company’s] principal business activity is focused on delivering corporate and structured financial solutions, providing financial advisory services, and supplying administrative services as a loan agent and security agent.

2. [The Company] enters into contracts with borrowers that are trying to find financing for […] projects.

A. [Project A]

3. [Lender A ] agrees to provide [Loan A] to [Borrower A] under the terms and conditions set forth in [Credit Agreement A].

4. [The Company] is designated and appointed by [Lender A] to act as both its Loan Agent and Security Agent, collectively defined as “Agent” in [Credit Agreement A].

5. Under [Fee Letter A], upon execution of [Credit Agreement A], [Borrower A] pays to [the Company], as the Loan Agent, a non-refundable amount called […][Closing Fee A] irrespective of whether the Closing under [Credit Agreement A] is completed. [Fee Letter A] notes that [Closing Fee A] is payable to and fully earned by [the Company] and [Lender A], and constitutes compensation for services rendered by [the Company] and [Lender A].

6. [Direction to Pay A] indicates that [Closing Fee A] is subsequently divided into two fees – a fee paid to [the Company] ([…][Agent Closing Fee A]) and a fee paid to [Lender A] ([…][Lender Closing Fee A]).

7. As Loan Agent and Security Agent for [Lender A], [the Company] is authorized to take such action on its behalf under the provisions of [Finance Documents A] and to exercise such powers and perform such duties as are expressly delegated to it by the terms of [Finance Documents A], together with such powers as are reasonably incidental thereto. However, [Credit Agreement A] states that the use of the term “agent” in [Credit Agreement A] is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine and the term is used merely as a matter of market custom and intended to reflect only an administrative relationship between independent contracting parties. All payments made by or on behalf of [Borrower A] under [Credit Agreement A] are made to and received by [the Company] on behalf of [Lender A] and are to be distributed to [Lender A] in accordance with the terms of [Credit Agreement A].

8. Under [Credit Agreement A], [the Company] is to be paid an agent fee and [Fee Letter A] clarifies that [Borrower A] is to pay [the Company] all agency fees during the term of [Loan A] and [Lender A] agrees that this monthly agent fee ([…][Loan Administration Fee A]) is deemed to be a fee payable to [the Company] as Loan Agent.

9. [Lender Fee Agreement A] provides for a fee ([…][Interest Rate Differential Fee A]) to be paid by [Lender A] to the Loan Agent which the Loan Agent is “to pay” to [the Company]. [Interest Rate Differential Fee A] is calculated on a monthly basis on the then outstanding principal amount of [Loan A], as detailed in [Lender Fee Agreement A].

10. [Borrower A] has the right to prepay the principal of [Loan A] before the end of [Loan A’s] term. If [Borrower A] elects to exercise this option, [Borrower A] also agrees to pay to [the Company], as Loan Agent, contemporaneously with such prepayment, a loan prepayment amount ([…][Loan Prepayment Amount A]).

11. When [Borrower A] exercises the prepayment option and pays [Loan Prepayment Amount A] to the Loan Agent, [Lender A] “pays” [the Company], via the Loan Agent, an agent prepayment fee ([…][Agent Prepayment Fee A]), which is based on calculations laid out in [Lender Fee Agreement A].

B. [Project B]

12. Under [Fee Letter B], [Borrower B] agrees to pay a deposit ([…][Deposit B]), plus applicable taxes, to [the Company], as Loan Agent. In the event that [the Company] is unable to find a lender willing to commit to […][Loan B], […] of [Deposit B] is returned to [Borrower B].

13. If [the Company] locates a lender willing to commit to [Loan B], upon the execution of […][Credit Agreement B], [Deposit B] is credited to the closing fee ([…][Closing Fee B]) that is paid to and fully earned by [the Company] as Loan Agent and [Lender B]. […] [Deposit B] constitutes compensation for services rendered by [the Company] as Loan Agent and [Lender B]. […] [Deposit B] does not constitute interest or a charge for the use of money.

14. [Borrower B] agrees to pay [the Company] an annual administration fee ([…][Loan Administration Fee B]), plus applicable taxes, payable in monthly instalments, as long as [Credit Agreement B] remains in full force and effect.

C. [Project C]

15. [Borrower C] is required to pay an administration fee to [the Company] and [Lender C] agrees that this administration fee ([…][Loan Administration Fee C]) is payable to [the Company] in its capacity as Loan Agent.

16. […..][Lender Fee Agreement C] also provides for the payment of an interest rate differential fee ([…][Interest Rate Differential Fee C]), which is the amount by which the loan interest under the Loan Amortization Schedule exceeds the loan interest according to the Lenders’ Amortization Schedule. [Lender C] agrees to “pay” [the Company], via the Loan Agent, [Interest Rate Differential Fee C] each month and the Loan Agent deducts this amount from the monthly loan instalment remitted by [Borrower C].

17. Under [Lender Fee Agreement C], [Lender C] agrees that the Loan Agent is to pay an agent prepayment fee ([…][Agent Prepayment Fee C]) to [the Company] if [Borrower C] exercises the loan prepayment option.

RULING REQUESTED

You consider that [the Company] supplies the following services under the projects and request confirmation of the GST/HST treatment in each case.

1. [The Company] makes a supply of arranging for the provision of a loan. For this supply, [the Company] earns the following fees:

a loan arrangement fee;
a loan commitment fee;
a loan closing fee;
an interest rate differential fee; and
a loan prepayment fee.

In your view, these services are GST/HST exempt in accordance with paragraph (l) in the definition of “financial service” in subsection 123(1).

2. [The Company] also makes a supply of an administrative service related to a loan. For this supply, [the Company] earns the following fees:

a loan administration fee; and/or
an agency fee.

In your view, these services are taxable supplies for GST/HST purposes.

As indicated in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service (GST/HST Memorandum 1.4), requests for rulings should include copies of any relevant supporting agreements or documents, together with references to, and summaries of the specific provisions of these agreements or documents which pertain to the request. We are unable to issue a ruling with respect to [the Company’s] services with regards to [Project B] and [Project C] as all of the relevant supporting agreements for the supplies in these cases have not been provided. However, we are pleased to provide an interpretation, which is a general explanation of the applicable provisions and how the legislation may apply, following the section titled Ruling Explanation.

RULING GIVEN

With respect to [Project A], based on the facts set out above, we rule as follows:

1. [The Company’s] supply of a service to [Borrower A] for which it is paid [Agent Closing Fee A] is not a supply of a “financial service” as that term is defined in subsection 123(1); it is a taxable supply of a service and [Agent Closing Fee A] is subject to GST/HST at the applicable rate under section 165.

2. [The Company’s] supply of a service to [Borrower A] for which it is paid [Loan Administration Fee A] is not a supply of a “financial service” as that term is defined in subsection 123(1); it is a taxable supply of an administrative service and [Loan Administration Fee A] is subject to the GST/HST at the applicable tax rate under section 165.

3. [The Company’s] supply of a service to [Lender A] for which it is paid [Interest Rate Differential Fee A] and [Agent Prepayment Fee A] is not a supply of a “financial service” as that term is defined in subsection 123(1); it is a taxable supply of a service and [Interest Rate Differential Fee A] and [Agent Prepayment Fee A] are both subject to the GST/HST at the applicable tax rate under section 165.

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, the Canada Revenue Agency (CRA) is bound by the rulings given in this letter provided that: none of the issues discussed in the rulings are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.

RULING EXPLANATION

Financial services are defined in subsection 123(1) and are generally exempt. A “financial service” is defined to mean anything that is described in any of paragraphs (a) to (m) of the definition of “financial service” and not excluded by any of paragraphs (n) to (t) of that same definition.

Where it is determined that there is a single supply, the predominant nature of that supply must be established to determine the GST/HST treatment of the supply. Based on the criteria set out in our GST/HST Policy Statement P-077R2, Single and Multiple Supplies, we determined that [the Company] is providing three distinct and separate supplies under [Finance Documents A], none of which are part of or incidental to any other supply, with respect to the four fees identified in the ruling. The predominant nature of each of these three supplies must be ascertained in order for them to be characterized for GST/HST purposes.

A financial service includes, under paragraph (c) of the definition of “financial service” in subsection 123(1), the lending or borrowing of a financial instrument and, under paragraph (d), the repayment of a financial instrument. A “financial instrument” is also defined in this subsection and includes a “debt security” which, in turn, is defined under that provision to include a right to be paid money (for example, [Loan A]). Therefore, both the borrowing of [Loan A] and the repayment of [Loan A] are financial services under the definition of “financial service”.

Paragraph (l) of the definition of “financial service” in subsection 123(1) refers to the agreeing to provide, or the arranging for, a service that is referred to in any of paragraphs (a) to (i) and not referred to in any of paragraphs (n) to (t). In determining if a service is included in this paragraph, all of the facts surrounding the transaction must be considered, including the activities performed by the person, as well as the context and purpose of paragraph (l). In addition, the term “arranging for” in paragraph (l) is generally intended to include financial intermediation activities that are normally performed by a financial intermediary described in subparagraph 149(1)(a)(iii), that is, a person whose principal business is as a trader or dealer in, or as a broker or salesperson of, financial instruments or money.

As noted above, we have determined that [the Company] is making three distinct and separate supplies for which specific fees are charged with respect to [Project A]. These supplies are: 1) a preparatory service supplied to [Borrower A] to ensure [Loan A] is closed, for which [Borrower A] pays [the Company] [Agent Closing Fee A]; 2) an administrative service supplied to [Borrower A] for which [Borrower A] pays [the Company] [Loan Administration Fee A]; and, 3) a service of managing and/or monitoring the repayment of [Loan A] supplied to [Lender A] for which [Lender A] pays [the Company] [Interest Rate Differential Fee A] and, when [Borrower A] triggers the loan prepayment option under [Credit Agreement A], [Agent Prepayment Fee A].

In performing its duties for which [Borrower A] pays [the Company] [Agent Closing Fee A], [the Company] reviews the project documentation as part of the preliminary due diligence to determine if [Project A] is bankable. As part of the due diligence for underwriting the transaction, [the Company] engages an independent engineer and an insurance consultant to prepare their third-party reports, completes a financial model, prepares a confidential information memorandum for a potential lender, prepares credit documentation with its legal counsel, and arranges for the closing and the funding of the project. The predominant nature of the service provided by [the Company] to [Borrower A], for which [Borrower A] pays [the Company] [Agent Closing Fee A], is preparatory in nature to the provision of the potential provision of a financial service, that is, the lending of [Loan A]. This service is not a financial service under paragraphs (a) to (m) of the definition of “financial service” in subsection 123(1). For greater certainty, this service is excluded from the definition of “financial service” in subsection 123(1) by paragraph (r.4).

Specifically, paragraph (r.4) of the definition of “financial service” ensures that certain services are not financial services where they are preparatory to or provided in conjunction with certain financial services. This paragraph excludes a service (other than a prescribed service) that is preparatory to the provision or the potential provision of a service referred to in any of paragraphs (a) to (i) and (l) of the definition of “financial service”, or that is provided in conjunction with a service referred to in any of those paragraphs, and that is:

1) a service of collecting, collating or providing information, or

2) a market research, product design, document preparation, document processing, customer assistance, promotional or advertising service or similar service.

Currently, no services are prescribed or proposed to be prescribed for the purposes of paragraph (r.4) of the definition of “financial service” in subsection 123(1).

As no other exempting provisions apply, [the Company’s] supply of a preparatory service to [Borrower A] is a taxable supply and [Agent Closing Fee A] is subject to the GST/HST at the applicable tax rate under section 165.

The administrative service that [the Company] provides to [Borrower A], for which it charges [Loan Administration Fee A], is not a financial service under paragraphs (a) to (m) of the definition of “financial service” in subsection 123(1). For greater certainty, the exclusions under paragraph (r.3) and (t) of the definition apply.

Paragraph (r.3) of the definition of “financial service” provides, in part, that a service (other than a prescribed service) of managing loan accounts, including a service provided to a person of monitoring another person’s payment record or dealing with payments made, or to be made by the other person is excluded from the definition.

Paragraph (t) of the definition of “financial service” excludes a prescribed service. Section 4 of the Financial Services and Financial Institutions (GST/HST) Regulations (the Regulations) lists services that are prescribed under this paragraph. Specifically, subsection 4(2) of the Regulations states, in part, that the services of transferring, collecting or processing of information, and any administrative service, including an administrative service in relation to the payment or receipt of interest, principal, claims, benefits or other amounts, other than solely the making of the payment or the taking of the receipt, is prescribed for purposes of paragraph (t) of the definition of “financial service”, unless subsection 4(3) of the Regulations applies to the services.

Subsection 4(3) of the Regulations provides, in part, that a service referred to in subsection 4(2) of the Regulations is not a prescribed service for purposes of paragraph (t) where the service is supplied with respect to an instrument by a person at risk. Subsection 4(1) of the Regulations defines an “instrument” to mean money, an account, a credit card voucher, a charge card voucher or a financial instrument and a “person at risk” is defined to exclude a person who becomes at risk in the course of, and only by virtue of, authorizing a transaction, or supplying a clearing or settlement service, in respect of the instrument. When [the Company] makes a taxable supply of an administrative service to [Borrower A], [the Company] is not a person at risk, a person that is closely related to a person at risk, or an agent, salesperson or broker who transfers ownership of the instrument for a person at risk or a person closely related to the person at risk. Therefore, subsection 4(3) of the Regulations does not apply and the administrative service supplied by [the Company] to [Borrower A] is a prescribed service under subsection 4(2) of the Regulations. As no other exempting provisions apply to this supply, [the Company’s] supply of the administrative service to [Borrower A] is a taxable supply and [Loan Administration Fee A] is subject to the GST/HST at the applicable tax rate under section 165.

In performing its duties for which [Lender A] pays [the Company] [Interest Rate Differential Fee A] and/or [Agent Prepayment Fee A], [Lender A] authorizes [the Company] to take such action on its behalf under the provisions of each of [Finance Documents A] and to exercise such powers and perform such duties as are expressly delegated to it by the terms of any of [Finance Documents A], together with such powers as are reasonably incidental thereto. All payments made by or on behalf of [Borrower A] under [Credit Agreement A] are made to and received by [the Company], as Agent, on behalf of [Lender A]. The predominant nature of the service provided by [the Company] to [Lender A], for which [Lender A] pays [the Company] [Interest Rate Differential Fee A] and/or [Agent Prepayment Fee A], is managing the [Loan A] account on behalf of [Lender A] and ensuring it is properly repaid under the terms of [Finance Documents A]. This service is not a financial service under paragraphs (a) to (m) of the definition of “financial service” in subsection 123(1). For greater certainty, the exclusions under paragraph (r.3) and (t) of the definition apply.

Specifically, paragraph (r.3) of the definition of “financial service” ensures that certain services are not financial services where they are managing loan accounts, including monitoring [Borrower A’s] payment record and dealing with [Borrower A’s] payments made to repay [Loan A]. In addition, paragraph (t) of the definition prescribes an administration service in relation to the payment or receipt of interest, principal, claims, benefits or other amounts, other than solely the making of the payment or the taking of the receipt. [the Company’s] supply of a loan management and administrative service to [Lender A] is not a financial service. When [the Company] makes a taxable supply of loan management and administrative service to [Lender A], [the Company] is not a person at risk, a person that is closely related to a person at risk, or an agent, salesperson or broker who transfers ownership of the instrument for a person at risk or a person closely related to the person at risk. Therefore, subsection 4(3) of the Regulations does not apply and the loan management and administrative service [the Company] supplies to [Lender A] is a prescribed service under subsection 4(2) of the Regulations. As no other exempting provisions apply to the service, [the Company’s] supply of a service to [Lender A] for which it is paid [Interest Rate Differential Fee A] and/or [Agent Prepayment Fee A] is a taxable supply that is subject to the GST/HST at the applicable tax rate under section 165.

INTERPRETATION GIVEN

As noted above, we are unable to issue a written ruling concerning [Project B] and [Project C] as we were not provided with sufficient facts needed to rule on the application of tax to [the Company’s] services related to these projects. Therefore, we are issuing the following interpretation.

As previously discussed, paragraph (l) of the definition of “financial service” in subsection 123(1) refers to the agreeing to provide, or the arranging for, a service that is referred to in any of paragraphs (a) to (i) and not referred to in any of paragraphs (n) to (t). In addition, the term “arranging for” in paragraph (l) is generally intended to include financial intermediation activities that are normally performed by a financial intermediary described in subparagraph 149(1)(a)(iii), that is, a person whose principal business is as a trader or dealer in, or as a broker or salesperson of, financial instruments or money.

When a person is assisting another person to find a lender, or attempting to find a lender, consideration must be given to the predominant nature of the supply of the service being provided – that is, whether the predominant nature of the service is one of a service of “arranging for” a financial service under paragraph (l) of the definition of “financial service” in subsection 123(1), or a preparatory service to assist the other person to obtain the loan, which is excluded from the definition by paragraph (r.4). Therefore, the application of tax to [the Company’s] supply of its service to [Borrower B], for which it charges […][Agent Closing Fee B] or […][Transaction Fee B], will depend on the relevant facts and supporting documents, as well as, the activities performed by [the Company].

For purposes of [Loan Administration Fee B] or [Loan Administration Fee C], the predominant nature of the service provided to [Borrower B] or [Borrower C] needs to be determined. If the predominant nature is an administrative service, the service would not be a financial service under paragraphs (a) to (m) of the definition of “financial service” in subsection 123(1). Furthermore, the administrative service would be excluded by paragraph (r.3) and/or paragraph (t) of the definition. Such a determination would depend on the relevant facts and supporting documents.

The application of tax to [the Company’s] services supplied to [Lender C] for which it is paid [Interest Rate Differential Fee C] and/or [Agent Prepayment Fee C] is determined based on the relevant facts and supporting documents and the predominant nature of [the Company’s] services. If the predominant nature is a service of managing the [Loan C] account or monitoring [Borrower C’s] repayment, or an administrative service in relation to the payment or receipt of interest, principal, claims, benefits or other amounts, other than solely the making of the payment or the taking of the receipt, the service is not a financial service. Furthermore, the service would be excluded by paragraph (r.3) and/or paragraph (t) of the definition of “financial service”. Therefore the application of tax to [the Company’s] supply to [Lender C], for which it charges [Interest Rate Differential Fee C] and/or [Agent Prepayment Fee C] would depend on the relevant facts and supporting documents.

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, the interpretation given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation or the additional information provided herein.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 778-374-8364. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Marjorie Stevens
Financial Services Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

Summaries

Summary Under

Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.4)

non-refundable fee paid by borrower to lender’s agent to perform due diligence and take the financing project through to closing were taxable preparatory services

Lender A agreed to provide Loan A to Borrower A pursuant to Credit Agreement A, and appointed the Company to act as both its Loan Agent and...

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Summary Under

Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.3)

predominant nature of fees paid to loan agent was for loan management

Lender A appointed the Company to act as both its Loan Agent and Security Agent. In finding that two fees payable by Lender A to the Company (the...

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Summary Under

Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (l)

fee paid for taking a financing from signing through to closing is taxable

A lender retained another company in acting as its agent in doing due diligence on the borrower, with whom it had signed a credit agreement but...

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Unedited CRA Tags

ETA Part IX, 123(1)(consideration), 123(1)(debt security), 123(1)(financial instrument), 123(1)(financial service), 123(1)(supply), 123(1)(taxable supply), ETA Sch V, Part VII Sec. 1

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Text of Severed Letter

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5

Case Number: 167225

[Addressee]

Dear [Client]:

Subject: GST/HST RULING
Royalty payments

Thank you for your fax concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to royalty payments provided by companies to […]([…][the Business]). We apologize for the delay in responding to your enquiry.

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

STATEMENT OF FACTS

You have provided us with the following redacted documents:

a) an agreement entitled Loan Agreement (Agreement #1) entered into on [mm/dd/yyyy]. Paragraph […] of Agreement #1 notes that there is a related royalty agreement that was also entered into on that same date;

b) a royalty agreement entered into on [mm/dd/yyyy] (Royalty Agreement #1) that relates to another agreement. For purposes of our response, it is assumed that Royalty Agreement #1 is the royalty agreement referred to in paragraph […] of Agreement #1; and,

c) a royalty agreement entered into on [mm/dd/yyyy] (Royalty Agreement #2).

Based on the information from the above agreements, and various telephone conversations, we understand the following:

1. [The Business] was established under the laws of […][the province] […].

2. [The Business] invests in a number of companies by either entering into two agreements, one of which is a royalty agreement or by only entering into a royalty agreement with the companies.

3. [The Business] does not sell any products.

Please note that in this response, capitalized words generally relate to various provisions of Agreement #1, Royalty Agreement #1 and Royalty Agreement #2 and are defined in the applicable agreement.

4. Agreement #1 was entered into between a company (Company #1), […] [the] Guarantors and […] [the] Lenders (referred hereafter as the Investors), one of which is [the Business].

5. Royalty Agreement #1 was entered into between a company, […] the Grantors and the Grantees who, based on the information in Agreement #1, appear to be the Investors. For purposes of our response, we assume the Grantees are the Investors, the Grantors are the Guarantors, and that the company is Company #1.

6. Section […] of Agreement #1 provides that the Investors make a payment to Company #1. The payment is referred to as a loan in the Principal Amount of $[…]. One of the conditions precedent for making the $[…] payment under Agreement #1 is that Company #1 must also enter into a corresponding royalty agreement (that is, Royalty Agreement #1).

7. As set out in section […] of Agreement #1, the Principal Amount under Agreement #1 will not bear interest while Company #1 is in full compliance with its obligations under the Agreement; however, if Company #1 is in breach of any of its obligations, the outstanding Principal Amount will bear interest at a rate specified in paragraph […] of the Agreement, that is, prime plus […]%.

8. Company #1 is required to make quarterly instalments to the Investors; each instalment shall be equal to […]% of the Gross Revenue of Company #1 and/or its Affiliates for each period. The total amount of these instalments shall not exceed the Principal Amount. In addition, if the total instalments paid by [mm/dd/yyyy] is less than the Principal Amount, the difference became due and payable on that date. “Gross Revenue” is defined in section […] of Agreement #1 to mean the aggregate revenue of Company #1, and all Affiliates, derived from all sales of the Products.

9. The Grantees (that is, the Investors) have agreed to pay $[…] described as an interest free loan in exchange for the payment of a royalty fee (Royalty Fee #1). In addition to the instalments described in fact #8, the Grantors and Company #1 agree to also pay Royalty Fee #1 at a rate of […]% of the Gross Revenue from retail sales of the Products and […]% of the Gross Revenue from Wholesale Orders of the Products to the Investors beginning on the date that Company #1 has paid a total of $[…] to the Investors.

10. Royalty Agreement #2 was entered into between a company (Company #2), […] (the Grantor), and [the Business] as Grantee.

11. Pursuant to the Preamble, [the Business] has agreed to pay the sum of $[…] to Company #2 in exchange for the payment of a royalty fee (Royalty Fee #2).

12. The Grantor and Company #2 agree to pay Royalty Fee #2 to [the Business] at a rate equal to […]% of the gross revenue, including but not limited to revenue attributed to sales of the Products of Company #2 and/or its Affiliates (but excluding all shipping fees and charges), up to a maximum of $[…]. Once this amount has been paid, Royalty Fee #2 is reduced to an amount equal to the aggregate of […]% of gross revenue from Canadian sales and […]% of gross revenue from sales outside Canada.

RULING REQUESTED

You would like to know the following:

1. Is Royalty Fee #1 provided by Company #1 under Agreement #1 and Royalty Agreement #1 to the Investors subject to the GST/HST?

2. Is Royalty Fee #2 provided by Company #2 under Royalty Agreement #2 to [the Business] subject to the GST/HST?

RULING GIVEN

Based on the facts set out above, we rule that Royalty Fee #1, as well as the instalments described in fact #8, provided by Company #1 to the Investors and Royalty Fee #2 provided by Company #2 to [the Business] are not subject to the GST/HST.

EXPLANATION

Where a transaction consists of several elements, there may be a single supply or multiple supplies. This distinction is important, for example, in cases where a combination of elements is supplied, some of which would be subject to the GST/HST, and some of which could be exempt of GST/HST, if supplied separately. It is a question of fact whether a person is making a single supply or multiple supplies. The principles outlined in Policy Statement P-077R, Single and Multiple Supplies can be used to determine whether a particular transaction consists of a single supply or multiple supplies. In applying the principles outlined in this policy statement and the terms of Agreement #1 and Royalty Agreement #1, we determined that Company #1 is making a single supply.

As set out in paragraph 8 of GST/HST Memorandum 17.1, Definition of “Financial Instrument”, a “debt security” does not include a contingent right. A right to be paid money is a possibility but not a certainty where a contingent right is involved; the payment is conditional upon the occurrence or non-occurrence of some future event that may never happen.

Under Agreement #1 and Royalty Agreement #1, Company #1 has made a single supply to the Investors, including [the Business], of the right to receive money, that is, the instalments described in fact #8 and Royalty Fee #1. This right is a supply of intangible personal property that is taxable. As the total amount of the royalty payments, that is, the instalments described in fact #8 and Royalty Fee #1, is paid to the Investors by Company #1 at a rate calculated on the Gross Revenue of Company #1 and/or its Affiliates, the total payment is conditional upon the occurrence of Company #1 earning revenue. Therefore, the Investors have acquired a contingent right to be paid money under Agreement #1 and Royalty Agreement #1. The consideration for this taxable supply is the Principal Amount of $[…] paid by the Investors to Company #1. As such, where Company #1 is a GST/HST registrant, the Investors are required to pay GST/HST to Company #1.

When Company #1 pays the instalments and Royalty Fee #1 to the Investors pursuant to the right that the Investors have acquired, we do not consider the Investors to be making a taxable supply in exchange for these payments of money. Accordingly, the instalments and Royalty Fee #1 are not subject to GST/HST.

Similarly, under Royalty Agreement #2, Company #2 is making a single supply to [the Business] of a right to be paid money contingent upon Company #2 earning revenue as Royalty Fee #2 is paid to [the Business] at a rate calculated on the gross revenue of Company #2 and/or its Affiliates. This right to be paid money is a taxable supply of intangible personal property made by Company #2 to [the Business]. The consideration for Company #2’s supply of the right is the Principal Amount of $[…] paid by [the Business] to Company #2. As such, where Company #2 is a GST/HST registrant, [the Business] is required to pay GST/HST to Company #2.

When Company #2 pays Royalty Fee #2 to [the Business] pursuant to the right that [the Business] has acquired, we do not consider [the Business] to be making a taxable supply in exchange for these payments of money. Accordingly, Royalty Fee #2 is not subject to GST/HST.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (778) 374-8360. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Marjorie Stevens
Financial Services Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

Summaries

Summary Under

Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Debt Security

a loan assimilated to a royalty agreement, so that "principal" advanced was taxable

The Investors entered into a loan agreement (“Agreement #1”) and a royalty agreement (“Royalty Agreement #1”) with Company #1. Agreement...

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Summary Under

Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply

loan and royalty advance were consideration for single taxable supply of IPP

CRA considered a situation in which a financing of a company with product sales was bifurcated into a non-interest-bearing loan and a royalty...

The text of this content is paywalled except for the first five days of each month. Subscribe or log in for unrestricted access.

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ETA Part IX, 165, ETA Sch VI, Part III Sec. 1 (d)(i), 1(n)

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STATEMENT OF FACTS

RULING REQUESTED

RULING GIVEN

EXPLANATION/INTERPRETATION GIVEN

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 174476
Business Number: […]

Dear [Client]:

Subject: GST/HST RULING
Tax status of […][non-carbonated fruit flavoured beverages]

Thank you for your letter of December 12, 2015, concerning the application of the goods and services tax /harmonized sales tax (GST/HST) to supplies of […][the Products]. We apologize for the delay in responding.

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

STATEMENT OF FACTS

From the information provided in the request for the ruling and in review of the supplemental information provided on January 8, 2016, it is our understanding that:

1) […] [The] ([…]Company) imports […](Product A) and […](Product B), under the brand name […], for distribution in Canada.

2) The Company is a GST/HST registrant under Business Number […].

3) Product A and Product B are bottled in […]oz. ([…]mL) containers.

4) The containers are sold with a twist top cap that allows for the product to be accessed easily.

5) The nutrition facts stated on the labelling of both products identifies a serving size to be […]oz. ([…]mL).

6) Product A contains organic […][describes ingredients including juice content]. Product A also contains less than […]% […][other ingredients].

7) Product B contains organic […][describes ingredients including juice content]. Product B also contains less than […]% […][other ingredients].

8) The composition ratio for Product A is […]% water, […]% organic […][fruit 1] puree, […][other ingredient ratios].

9) The composition ratio for Product B is […]% water, […]% organic [fruit 1] puree, […][other ingredient ratios].

10) Products A and B are supplied individually in their […]oz. ([…]mL) containers and are delivered to retailers in cases containing 12 beverages.

RULING REQUESTED

You would like to know whether the supply of Product A and the supply of Product B is zero-rated under section 1 of Part III of Schedule VI.

RULING GIVEN

Based on the facts set out above, we rule that the supply of Product A is excluded from zero-rating pursuant to paragraph (d) of section 1 of Part III of Schedule VI. Furthermore, the supply of a single container of Product B that is not prepackaged in multiples by the manufacturer or producer, is excluded from zero-rating pursuant to paragraph (n) of Part III of Schedule VI.

Based on the limited information provided, we are unable to determine whether Product B is zero-rated under section 1 of Part III of Schedule VI when supplied in manufacturer cases holding 12 containers. We have provided general interpretive information in our explanation to aid you in your determination.

EXPLANATION/INTERPRETATION GIVEN

Section 1 of Part III of Schedule VI 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) other than supplies included in paragraphs (a) to (r) of that section.

Pursuant to paragraph 1(d) of Part III of Schedule VI, supplies of non-carbonated fruit flavoured beverages that do not contain 25 % or more by volume of natural fruit juice or combination of natural fruit juices, or a natural fruit juice or combination of natural fruit juices that have been reconstituted into their original state are excluded from zero-rating. Based on the product composition document provided for Product A, the [fruit 1] puree represents […]% of the product by volume. As the natural […] fruit juice is only a component of the [fruit 1] puree and the [fruit 1] puree is the only source of fruit juice in Product A, the percentage of natural [fruit 1] juice within Product A as a whole would be less than 20%. As the natural fruit juice in Product A is less than 25% by volume, all supplies of Product A are excluded from zero-rating.

Paragraph 1(n) of Part III of Schedule VI excludes from zero-rating all beverages (excluding unflavoured milk) unless they are prepared and prepackaged specially for consumption by babies, are sold in multiples, prepackaged by the manufacturer or producer, of single servings, or when the cans, bottles or other primary containers in which the beverages or products are sold contain a quantity exceeding a single serving. As identified in GST/HST Memorandum 4.3, Basic Groceries, the CRA considers single serving beverages to be beverages sold in containers holding less than 600 ml. As represented, the supply of individual […]oz. ([…]mL) containers of either Product A or Product B, unless sold in multiples prepackaged by the manufacturer or producer, would be excluded from zero-rating by this paragraph.

Based on the product composition document for Product B, we are unable to determine whether Product B has the required 25% natural fruit juice content in order for it not to be broadly excluded from zero-rating by paragraph 1(d). Product B contains […]% of organic [fruit 1] puree and […]% organic […][fruit 2] puree. As with Product A, the natural fruit juice derived from these puree ingredients would be less than the […]% by volume of the purees combined. Further, the extent to which the […]% by volume of […][juice] concentrate combines with the ingredient of water to create a natural fruit juice is unknown. If the sum total, by volume, of natural fruit juices contained in the purees and the natural fruit juice resulting from the combining of the ingredients of water and [juice] concentrate is less than 25%, all supplies of Product B would be excluded from zero-rating by paragraph (d). Further, if the sum total of the natural juices in Product B is 25% by volume, or more, supplies of Product B would be zero-rated under section 1 of Part III of Schedule VI when sold in multiples prepackaged by the manufacturer or producer.

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling given in this letter provided that: none of the issues discussed in the ruling are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretations given in this letter, including any additional information, are not rulings and do not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA's interpretative policy could affect the interpretation or the additional information provided herein.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (905)721-5123. Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

David Nichol
Basic Groceries and Recaptured Input Tax Credits Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

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ETA Part IX, 165, ETA Sch VI, Part III Sec. 1

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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 179050
Business Number: […]

Dear [Client]:

Subject: GST/HST RULING
GST/HST status of […][Brand] Granola products

Thank you for your letter concerning the application of the goods and services tax (GST)/harmonized sales tax (HST) to […][Brand] Granola products (the Products). We apologize for the delay in responding.

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

STATEMENT OF FACTS

In review of your submission, the Product sample you provided, and of the […](the Producer) website, it is our understanding that:

1. […](the Company) is a GST/HST registrant under Business Number […].

2. The Company acquires the Products for the purpose of resupply at its retail stores.

3. […].

4. The ingredients of the three […][mixes] are as follows:

i) […][Mix 1] – Rolled oats, […][ingredients]

ii) […][Mix 2] – Rolled oats, […][ingredients]

iii) […][Mix 3] – Rolled oats, […][ingredients].

5. The Producer’s website[…][indicates] [Mix 1] […][goes] with yogurt and fruits, [Mix 2] […][goes] with milk or yogurt and […], and [Mix 3] […][can be used] for breakfast […].

6. The Products are contained loose in a pouch/bag containing […] grams, […] grams or […] kilograms.

7. The Products are shelved in the breakfast section of the store with other similar granola products.

8. The Producer’s website contains a page for recipes. […].

RULING REQUESTED

You would like to know whether supplies of the Products qualify for zero-rating as basic groceries under section 1 of Part III of Schedule VI.

RULING GIVEN

Based on the facts set out above, we rule that the supplies of the Products are zero-rated under section 1 of Part III of Schedule VI.

EXPLANATION

Generally, in accordance with section 165 of the ETA, every recipient of a taxable supply made in Canada is required to pay GST/HST on the value of the consideration for the supply, unless the supply is zero-rated (listed in Schedule VI to the ETA and subject to the GST/HST at the rate of 0%).

Section 1 of Part III of Schedule VI 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 an exclusion set out in paragraphs 1(a) through 1(r) applies.

Paragraph 1(h) of Part III of Schedule VI to the ETA, excludes granola products from zero-rating unless they are sold primarily as a breakfast cereal. The Products as described are sold primarily as breakfast cereals and are therefore zero-rated under section 1 of Part III of Schedule VI.

If you require clarification with respect to any of the issues discussed in this letter, please call me at 905-721-5123. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

David Nichol CPA-CGA
Basic Groceries and Recaptured Input Tax Credits Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

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ETA Part IX, 123(1),259(1), ETA Sch V, Part VI Sec. 18, Part VI Sec. 20(c)

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Annual licensing fees

INTERPRETATIONS GIVEN

Other fees

Expired licence fee

Registration appeal fee

Verification of licensure fee

Insufficient funds fee

Provincial exam fee

Jurisprudence test fee

PSB rebate eligibility

Qualifying non-profit organization

ADDITIONAL INFORMATION

Small supplier

FOOTNOTES

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 186334
Business Number: […]

Dear [Client]:

Subject: GST/HST RULINGS AND INTERPRETATIONS
Annual licensing fees and public service bodies’ rebate eligibility

Thank you for your letter of August 2, 2017, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the […] ([…][Organization])’s fees, as well as its eligibility for the public service bodies’ (PSB) rebate. We apologize for the delay in providing our response.

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

STATEMENT OF FACTS

We understand the following based on the information you provided and the [Organization]’s website:

1. The [Organization] was established as a corporation on [mm/dd/yyyy] under […] of […][Act X] (Footnote 1) .

2. You have stated that the [Organization] is a non-profit organization as defined in subsection 123(1).

3. Per […] of [Act X], the [Organization] regulates the profession of […] in […][Province X].

4. [Act X] includes the following provisions:

[…][sections of Act X, including: definitions including “licence”; the determination of when a person becomes a member and when a person is issued a licence; the payment of fees, renewals of licences, and the consequences of not doing so; and prohibiting a person from practising without a licence].

5. The […][Regulations] (Footnote 2), made under […] of [Act X], include the following provisions:

[…][sections of the Regulations including; the definitions of terms for fees and year; the classes and categories of licences; the information required in the register; the requirements to obtain a licence; the appeal process and requirements to pay fees].

6. […][information about licences and licence renewal requirements].

7. There are sections in [Act X] and the [Regulations] that impose fines and penalties in certain circumstances. […] of [Act X] states that […][any payment of fines belong to the Organization].

8. The [Organization] charges an annual licensing fee to […][the licensee’s] in [Province X]. Prior to [mm/yyyy], it charged and collected tax on this fee.

9. […], it was noted that the [Organization] is considering imposing the following other fees:

initial registration fee,
expired licence fee (additional fee where a person does not renew their licence before the expiry date),
temporary/restricted licencing fee,
change of licence class fee,
jurisprudence test fee,
registration appeal fee,
licence reinstatement fee,
verification of licensure fee,
provincial exam fee,
insufficient funds fee, and
fines and penalties.

10. The [Organization]’s website notes that potential licensees must pass the […][exam]. The website notes the cost of the exam […].

11. Based on information from the [Organization]’s and […] websites, the [Organization] is not the person supplying the service of administering the [exam].

12. The [Organization] is not registered for GST/HST purposes.

13. […].

RULINGS REQUESTED

You would like to know:

1. Should HST be charged on the [Organization]’s annual licensing fee charged to […]?

2. Should HST be charged on the following fees?

initial registration fee,
expired licence fee,
temporary/restricted licencing fee,
change of licence class fee,
jurisprudence test fee,
registration appeal fee,
licence reinstatement fee,
verification of licensure fee,
provincial exam fee,
insufficient funds fee, and
fines and penalties.

3. Is the [Organization] eligible for the PSB rebate?

RULINGS GIVEN

Based on the facts set out above, we rule that the supply of a licence by the [Organization] in exchange for the annual licensing fee is an exempt supply under paragraph 20(c) of Part VI of Schedule V and is not subject to the GST/HST.

We acknowledge your request for rulings on the above matters. However, as noted in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, a ruling provides the Canada Revenue Agency’s (CRA’s) position on specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person. As the circumstances are such that all of the pertinent facts cannot be established at this time (the fees being considered by the [Organization] and the [Organization]’s eligibility for a PSB rebate and the jurisprudence test fee), we are unable to rule on these issues. Rather, we are providing general information which we trust will be of assistance.

EXPLANATION

Annual licensing fees

Category 1 – A body created by a government in legislation;
Category 2 – A body incorporated by a government; and
Category 3 – A body that meets the following criteria –
- (a) a government has taken action relating to the body;
- (b) the body is set up to undertake a public service function that government usually undertakes; and
- (c) the government retains the overall authority for the regulatory program, and the body remains accountable to the government.

The [Organization] was established through [Act X] and is therefore considered to be an “other body established by government” under Category 1 for the purposes of section 20 of Part VI of Schedule V.

The supply of a licence by the [Organization] in exchange for the annual licensing fee is an exempt supply and is not subject to the GST/HST. Therefore, the [Organization] should not charge GST/HST on its annual licensing fee or other fees associated with the supply of the licences. There are no provisions within the ETA which would enable the [Organization] to elect to have an exempt supply of a licence treated as taxable.

INTERPRETATIONS GIVEN

Other fees

The following of the [Organization]’s other fees would be consideration for exempt supplies and GST/HST should not be charged on these fees:

initial registration fee,
expired licence fee,
temporary/restricted licencing fee,
change of licence class fee,
registration appeal fee,
licence reinstatement fee,
verification of licensure fee, and
insufficient funds fee.

The provincial exam fee would be consideration for a taxable supply and subject to the GST/HST.

Fines and penalties that may be imposed under [Act X] and [Regulations] are not consideration for a supply and are not subject to the GST/HST.

Expired licence fee

The expired licence fee is additional consideration for supply of a licence and would also be exempt.

Initial registration fee, temporary/restricted licencing fee, change of licence class fee, and reinstatement fee

As paragraph 20(c) of Part VI of Schedule V also exempts “a service of processing an application for a licence, permit, quota or similar right”, the following fees relate to the service of processing the […] licences:

initial registration fee,
temporary/restricted licencing fee,
change of licence class fee, and
reinstatement fee.

Registration appeal fee

Subparagraph 20(b)(i) of Part VI of Schedule V to the ETA exempts a supply of “a service of filing … a document … in accordance with legislative requirements” where the supply is made by a government or municipality or by a board, commission or other body established by a government or municipality.

The registration appeal fee is consideration for a supply of “a service of filing … a document … in accordance with legislative requirements”. Therefore, the supply would be exempt under subparagraph 20(b)(i) of Part VI of Schedule V and GST/HST should not be charged on the registration appeal fee.

Verification of licensure fee

The verification of licensure fee is consideration paid for the supply of “any document [or] a service of providing information, […] that indicates […] any other status of any person.” Therefore, the supply would be exempt under subparagraph 20(d)(iii) of Part VI of Schedule V and GST/HST should not be charged on the verification of licensure fee.

Insufficient funds fee

With respect to the insufficient funds fee, a dishonoured cheque triggers a situation in which the [Organization] obtains a “right to be paid money” by the drawer of the cheque. This “right to be paid” meets the definition of “debt security” in subsection 123(1). The debt security is a “financial instrument” and the processing of a financial instrument is an exempt supply of a “financial service” under section 1 of Part VII of Schedule V.

Provincial exam fee

Based on information from the [Organization]’s and […] websites, the [Organization] is not the person supplying the service of administering the [exam]. Therefore, the “provincial exam fee” is consideration for a service of processing an application.

There is no provision that would apply to exempt this supply and therefore the supply would be taxable.

Jurisprudence test fee

Section 6 of Part III of Schedule V exempts “a supply of:

(a) a service of instructing individuals in courses leading to, or for the purpose of maintaining or upgrading, a professional or trade accreditation or designation recognized by a regulatory body, or

(b) a certificate, or a service of administering an examination, in respect of a course, or in respect of an accreditation or designation described in paragraph (a), where the supply is made by a professional or trade association, government, vocational school, university or public college or by the regulatory body, except where the supplier has made an election under this section in prescribed form containing prescribed information.”

A “regulatory body” is defined in section 1 of Part III of Schedule V to mean “a body that is constituted or empowered by an Act of Parliament or of the legislature of a province to regulate the practice of a profession or trade by setting standards of knowledge and proficiency for practitioners of the profession or trade”.

The [Organization] satisfies the definition of “regulatory body” set out above. If the [Organization] is the supplier of the jurisprudence test, that is the [Organization] is administering the examination, then the jurisprudence test fee would be consideration for a “supply of […] a service of administering an examination […] in respect of [a professional or trade accreditation or designation recognized by a regulatory body] where the supply is made by […] the regulatory body”. Where this is the case, the supply of the jurisprudence test would be exempt and GST/HST should not be charged on the fee, unless the [Organization] has made an election to exclude the supply of the administration of an examination from the exemption under section 6.

PSB rebate eligibility

To be eligible to claim a PSB rebate of the GST/HST, a person must be a selected public service body, a charity or a qualifying non-profit organization. As the [Organization] is neither a selected public service body, nor a charity, it would need to be a qualifying non-profit organization.

A “qualifying non-profit organization” is a non-profit organization whose percentage of government funding is at least 40% of its total revenue.

Qualifying non-profit organization

Subsection 259(2) states that “a person is a qualifying non-profit organization at any time in a fiscal year of the person if, at that time, the person is a non-profit organization and the percentage of government funding of the person for the year is at least 40%.”

Therefore, to be a qualifying non-profit organization the [Organization] must satisfy two conditions:

it must be a “non-profit organization”; and
its percentage of government funding must be at least 40%.

A “non-profit organization” is 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 a question of fact whether, at any particular time, the [Organization] meets the definition of a non-profit organization for ETA purposes. In particular, whether the [Organization] meets the criterion of operating solely for a purpose other than profit must be determined on an ongoing basis. For more information, see Policy Statement P-215, Determination of whether an entity is a Non-Profit Organization for purpose of the Excise Tax Act (‘ETA’).

Pursuant to subsection 259(1), the “percentage of government funding” of a person for a fiscal year of the person means the percentage determined in prescribed manner. The prescribed manner for determining the “percentage of government funding” is set out in section 3 of the Public Service Body Rebate (GST/HST) Regulations.

You mentioned […] that the [Organization] received a […] grant from [Province X] for the set-up of the [Organization]. This amount may be government funding. Generally, government funding refers to an amount of money (including a forgivable loan) that is easily measurable, identified as government funding in the non-profit organization’s financial statements and is paid by a grantor:

to support or promote the non-profit organization’s objectives but not to pay for property or services supplied by the non-profit organization to the grantor; or
for an exempt supply of property or services made by the non-profit organization, if the property and services are not for the use or consumption of the grantor or persons related to the grantor (for example, government funding of a local health unit to supply medical services to the public).

Assuming the grant received is government funding, the [Organization] can use this amount to calculate its percentage of government funding for its [yyyy - yyyy] fiscal year and its [yyyy - yyyy] fiscal year and determine its PBS rebate eligibility. If the [Organization] receives no other government funding, it is unlikely that the amount received would allow it to claim the PSB rebate beyond its two first fiscal years, if at all.

For more information on how to calculate the [Organization]’s percentage of government funding and determine its eligibility for the rebate, see Guide RC4034, GST/HST Public Service Bodies’ Rebate, and in particular the section entitled “Claiming a rebate as a qualifying non-profit organization”, and Form GST523-1, Non-profit Organizations - Government Funding, both available on CRA’s website. Please note that generally a person has four years from the end of the claim period in which it paid the tax to file its rebate application.

ADDITIONAL INFORMATION

Small supplier

In general, every person 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 the GST/HST, except where the person is a small supplier. A non-profit organization is a small supplier if its total revenues and those of its associates from taxable supplies are $50,000 or less in the last four consecutive calendar quarters and in any single calendar quarter.

The [Organization] makes a combination of taxable and exempt supplies. Therefore, not all of its income is revenue from taxable supplies. Its revenue from exempt supplies is not included in the small supplier calculation.

For more information, see Guide RC4081, GST/HST Information for Non-profit Organizations, available on our website.

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the CRA is bound by the rulings given in this letter provided that: none of the issues discussed in the rulings are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation or the additional information provided herein.

Yours truly,

Desneiges Arbour
Charities and Non-profit Organizations Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

FOOTNOTES

1. […].

2. […].

Summaries

Summary Under

Tax Topics - Excise Tax Act - Schedules - Schedule V - Part VI - Section 20

law society was an “other body established by a government”

An incorporated non-profit organization (the “Organization”) which regulated a profession in a province constituted an “other body...

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Summary Under

Tax Topics - Excise Tax Act - Schedules - Schedule V - Part VI - Section 20 - Paragraph 20(c)

consideration for licensing included expired licence fees

An incorporated non-profit organization (the “Organization”), perhaps a provincial law society, which regulated a profession in a province,...

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Summary Under

Tax Topics - Excise Tax Act - Schedules - Schedule V - Part VI - Section 20 - Paragraph 20(b) - Subparagraph 20(b)(i)

exempt processing and registration fees of professional society

An incorporated non-profit organization (the “Organization”), perhaps a provincial law society, which regulated a profession in a province,...

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Summary Under

Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Debt Security

NSF cheque charge exempt as for debt security

An incorporated non-profit organization (the “Organization”), being a provincial professional society makes NSF cheque charges. CRA...

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Summary Under

Tax Topics - Excise Tax Act - Schedules - Schedule V - Part III - Section 6

jurisprudence exam fee exempt, but not charge for processing exam administered by another body

A non-profit organization that was incorporated by special provincial Act to regulate a profession in a particular province and to grant licences...

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ETA Sch VI, Part II Sec. 38

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Section 38 - Feeding utensils and other gripping devices

Section 32 - Parts, accessories and attachments

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 190982
Business Number: [...]

Dear [Client]:

Subject: GST/HST RULING
Supply of various feeding utensils and other gripping devices

Thank you for your fax of September 26, 2017, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to sales of various products by […] (the Company). […].

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

STATEMENT OF FACTS

We understand the following from your correspondence and the Company’s websites (Footnote 1):

1. The Company is registered for GST/HST under the business number noted above. The Company […][sells] products, including the products described below.

2. Liftware Steady

The Liftware […][describes a handle with built-in sensors and computer that counteracts tremors and shaking when activated].

[…]

[…][Item #] Liftware Steady Starter Kit […][describes kit that includes stabilizing handle, soup spoon attachment, travel charge and travel case].

[…][Item #] Liftware Fork attachment […][describes fork attachment].

[…][Item #] Liftware Everyday Spoon attachment […][describes spoon attachment].

3. Angled / Contoured Cutlery

[…][describes knife with built-up handle and curved blade to cut using a rocker motion and other cutlery with angled and built-up handles to allow easier gripping].

[…][Item #s]

4. Weighted utensils

[…][describes cutlery with weighted handles to help counter shaky hands].

[…][Item #s]

5. Knork®

[…][describes a knife that has features of both a knife and fork to allow the cutting of food with one hand].

[…][Item #]

6. Scooper Bowl

[…][describes bowl with a high rim that has a reverse curve on one side similar to an ice-cream scoop to allow user to push food onto a utensil].

[…][Item #]

7. Scoop Dish

[…][describes flat dish with high walls and a thick rim to allow user to push food onto a utensil].

[…][Item #]

8. Soup/Cereal Bowl

[…][describes bowl with deep cavity and wide rim].

[…][Item #]

9. Round Up Plate

[…][describes plate with high inner wall around the circumference of the plate to prevent food sliding off plate].

[…][Item #]

10. Inner Lip Plate

[…][describes plate with deep inner lip to allow user to push food onto utensil].

[…][Item #s]

11. […]Plate

[…][describes plate with four legs, deep inner lip and high slope on one side to prevent food from sliding off the plate].

[…][Item #]

12. HALO™ Cup

[…][describes cup with large base and large handle].

[…][Item #]

13. […]Mug

[…][describes mug with large handle for ease in lifting and holding. The mug comes with two different lids for easy flow of liquid; one with a spout and one with anti-splash features. Both lids can be used with a straw].

[…][Item #]

14. Soft Nosey Cup

[…][describes plastic cup with nose cut-out to simplify drinking without moving shoulders or bending the neck].

[…][Item #]

15. […][X Cup]

[…][describes plastic cup with nose cut-out to simplify drinking without moving shoulders or bending the neck].

[…][Item #s]

16. Universal Built-Up Handles

[…][describes soft-ribbed, built-up handles rounded to fit in hands comfortably].

[…][Item #]

17. Anti-slip sheath

[…][describes an anti-slip sheath that fits over cutlery handles].

[…][Item #]

18. Closed-Cell Foam Tubing

[…][describes foam tubing that fits over cutlery handles].

[…][Item #]

RULING REQUESTED

You would like to know the GST/HST treatment of the assisted living items described above.

RULINGS GIVEN

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

1) Sales of the following products are zero-rated under section 38 of Part II of Schedule VI:

Liftware Steady Starter Kit - […][Item #]
Angled / Contoured Cutlery - […][Item #s]
Weighted utensils - […][Item #s]

2) Sales of the following products are zero-rated under section 32 of Part II of Schedule VI:

Liftware Fork attachment - […][Item #]
Liftware Everyday Spoon attachment - […][Item#]

3) Sales of the following products are subject to GST/HST:

Knork® - […][Item #]
Scooper Bowl - […][Item #]
Scoop Dish - […][Item #]
Soup/Cereal Bowl - […][Item #]
Round Up Plate - […][Item #]
Inner Lip Plate - […][Item #s]
[…]Plate - […][Item #]
HALO™ Cup - […][Item #]
[…]Mug – […][Item #]
Soft Nosey Cup - […][Item #]
[…][X Cup] - […][Item #s]
Universal Built-Up Handles - […][Item #]
Anti-slip sheath - […][Item #]
Closed-Cell Foam Tubing - […][Item #]

EXPLANATION

Generally, all supplies of property and services made in Canada are taxable unless an exemption from the GST/HST applies. Taxable supplies are supplies made in the course of a commercial activity and may be taxable at the rate of 0% (zero-rated supplies), 5%, 13%, or 15% on the value of the consideration for the supply depending on the province in which the supply is made. Exempt supplies are not subject to the GST/HST and are included in Schedule V. Zero-rated supplies are included in Schedule VI. Part II of Schedule VI zero-rates supplies of certain medical and assistive devices.

Section 38 - Feeding utensils and other gripping devices

Section 38 of Part II of Schedule VI zero-rates a supply of a feeding utensil or other gripping device that is specially designed for use by an individual with impaired use of hands or other similar disability.

The expressions “feeding utensil” and “other gripping device” are not defined in the ETA and therefore for GST/HST purposes their common or ordinary meaning apply. In addition, it is the Canada Revenue Agency’s (CRA) view that the reference made to “other gripping device” in section 38 of Part II of Schedule VI restricts the scope of feeding utensils that may be zero-rated under this section. As a result, in the context of section 38 of Part II of Schedule VI, the CRA considers that a feeding utensil refers to a gripping device that is specially designed for the use described in this section, and as such, must have a connection with gripping as well as with feeding.

Based on the CRA’s position outlined above, the supply of the following products are feeding utensils specially designed for use by an individual with impaired use of hands or other similar disability and are zero-rated under section 38 of Part II of Schedule VI:

Liftware Steady - […][Item #]
Angled / Contoured Cutlery - […][Item #s]
Weighted utensils - […][Item #s]

In contrast, although the following products are feeding utensils, it is the CRA’s view that these products do not have design features that demonstrate a connection with gripping, regardless of whether the product has suction cups or non-skid pads:

Knork® - […][Item #]
Scooper Bowl - […][Item #]
Scoop Dish - […][Item #]
Soup/Cereal Bowl - […][Item #]
Round Up Plate - […][Item #]
Inner Lip Plate - […][Item #s]
[…]Plate - […][Item #]

In addition, the following feeding utensils, although they may have design features that allow for easy gripping, are not specially designed for use by an individual with impaired use of hands or other similar disability:

HALO™ Cup - […][Item #]
[…]Mug - […][Item #]
Soft Nosey Cup - […][Item #]
[…][X Cup] - […][Item #s]

Therefore, for the last eleven items listed above the requirements in section 38 of Part II of Schedule VI have not been met. There are no other provisions in the ETA to zero-rate supplies of these products and, as such, any sales are subject to GST/HST at the applicable rate, depending on the place of supply.

Section 32 - Parts, accessories and attachments

Section 32 of Part II of Schedule VI zero-rates the supply of a part, accessory or attachment that is specially designed for medical or assistive devices listed in Part II of Schedule VI.

Based on the information provided, it is the CRA’s view that sales of the following products are zero-rated under section 32 of Part II of Schedule VI as a specially designed part, accessory or attachment to the Liftware feeding utensil packaged in the Liftware Steady Starter Kit and zero-rated under section 38 of Part II of Schedule VI:

Liftware - […][Item #s]

It is the CRA’s view that the following products do not have design features that allow us to conclude these products are a part, accessory or attachment specially designed for a medical device listed in Part II of Schedule VI:

Universal Built-Up Handles - […][Item #]
Anti-slip sheath - […][Item #]
Closed-Cell Foam Tubing - […][Item #]

Accordingly, supplies of the last three items listed above are not zero-rated under section 32 of Part II of Schedule VI. There are no other provisions in Part II of Schedule VI to zero-rate supplies of these products and, as such, any sales are subject to GST/HST at the applicable rates, depending on the place of supply.

If you require clarification with respect to any of the issues discussed in this letter, please call Chantal Desrosiers at 613-670-7931. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Alison Jones
Health Care Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

FOOTNOTES

1. […].

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ETA Sch V, Part VI Sec. 28

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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 194819
Business Number: […]

Dear [Client]:

Subject:	GST/HST RULING
		Para-municipal supplies

Thank you for your fax of October 30, 2018, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to supplies between the […](“County”) and the […](“Commission”).

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

STATEMENT OF FACTS

We understand the following:

1. The County is a municipal district that was incorporated under The County Act and continued under the Municipal Government Act. The County is a municipality as defined under paragraph (a) of the definition of "municipality" in subsection 123(1) and is registered for GST/HST purposes.

2. The County is located in […] Alberta, […] and has jurisdiction over the rural areas within its boundaries. The […][Hamlets] are unincorporated areas that are part of the County. The County’s boundaries envelope the […][town] and the […][village], but their jurisdictions do not overlap.

3. The Commission was established by the Province of Alberta under […] Alberta Regulation […], pursuant to section 602.02 of Part 15.1 of the Municipal Government Act.

4. According to Alberta Regulation […] (with amendments up to and including Alberta Regulation […]), the Commission is authorized to provide solid waste management services. The County, […][and other municipalities] are member municipalities of the Commission […]. Unless otherwise approved by the Minister, the Commission may not operate for the purposes of making a profit, or distribute any of its surpluses to its member municipalities.

5. Under the provisions of Part 15.1 of the Municipal Government Act, the Commission is a corporation, governed by a Board of Directors. The Board may not delegate the power to adopt budgets or to approve financial statements. The Commission may provide its services within the boundaries of its members, and outside the boundaries of its members with the approval of the Minister and the municipal authority within whose boundaries the services are to be provided, and in the case of a province or territory adjoining Alberta, the authority from that province or territory.

6. The Commission was determined to be a municipality as a special purpose provincially established organization pursuant to paragraph (b) of the definition of "municipality" in subsection 123(1) with an effective date of [mm/dd/yyyy].

7. The Commission is not registered for GST/HST purposes.

8. The Commission supplies garbage collection and disposal services, and disposal of non-landfill materials, to the County. The Commission does not charge the GST.

9. The Commission purchases gravel from the County. The Commission also hires the County to dig the cells in the ground for disposal of garbage, clean trees from potential landfill sites, and to reclaim the pits after they are filled to capacity. The County uses its own heavy equipment to provide these services. The County invoices the Commission for the gravel and the services provided.

RULING REQUESTED

You would like to know if the County’s supplies to the Commission are exempt under section 28 of Part VI of Schedule V.

RULING GIVEN

Based on the facts set out above, we rule that the County’s supplies to the Commission are not exempt under section 28 of Part VI of Schedule V.

EXPLANATION

Generally, every recipient of a taxable supply (other than a zero-rated supply) made in Canada is required to pay GST/HST on the value of the consideration for the supply pursuant to subsections 165(1) and 165(2). An exempt supply is not subject to GST/HST and is included in Schedule V.

Section 28 of Part VI of Schedule V exempts the following:

A supply between

(a) a municipal body and any of its para-municipal organizations,

(b) a para-municipal organization of a municipal body and any other para-municipal organization of the municipal body,

(c) a regional municipality and any of its local municipalities or any para-municipal organization of any of those local municipalities,

(d) a para-municipal organization of a regional municipality and any local municipality of the regional municipality or any para-municipal organization of the local municipality, or

(e) a regional municipality or any of its para-municipal organizations and any other organization (other than a government) the designated activities of which include the provision of water or municipal services within an area over which the regional municipality has jurisdiction,

but not including

(f) a supply of electricity, gas, steam or telecommunication services made by a municipal body or a para-municipal organization, or a branch or division thereof, that acts as a public utility, or

(g) any supply made or received by

(i) a provincially established designated body,

(ii) a para-municipal organization designated under section 259 of the Act or section 22 or 23, or

(iii) another organization referred to in paragraph (e),

otherwise than in the course of the designated activities of the body or organization, as the case may be.

Section 1 of Part VI of Schedule V defines several terms for the purposes of Part VI of Schedule V. The following definitions are relevant in this case:

“local municipality” of a regional municipality means a municipality that has jurisdiction over an area that is within the area over which the regional municipality has jurisdiction;

“municipal body” means a municipality or a provincially established designated body.

“para-municipal organization” of a municipal body means an organization (other than a government) that is owned or controlled by the municipal body and that

(a) where the municipal body is a municipality,

(i) is designated under section 259 of the Act, or under section 22 or 23, to be a municipality for the purposes of that section, or

(ii) is established by the municipal body and determined, under paragraph (b) of the definition "municipality" in subsection 123(1) of the Act, to be a municipality for the purposes of Part IX of the Act, or

(b) where the municipal body is a provincially established designated body, is determined under that paragraph to be a municipality for the purposes of that Part,

and for the purposes of this definition, an organization is owned or controlled by a municipal body if

(c) all or substantially all of the shares of the organization are owned by the municipal body or all or substantially all of the assets held by the organization are owned by the municipal body or are assets the disposition of which is controlled by the municipal body so that, in the event of a winding-up or liquidation of the organization, those assets are vested in the municipal body, or

(d) the organization is required to submit to the municipal body the periodic operating and, where applicable, capital budget of the organization for approval and a majority of the members of the governing body of the organization are appointed by the municipal body;

“provincially-established designated body” means a body that is established by Her Majesty in right of a province and designated, under section 259 of the Act, to be a municipality for the purposes of that section.

Subsection 123(1) defines “municipality” to mean:

(a) an incorporated city, town, village, metropolitan authority, township, district, county or rural municipality or other incorporated municipal body however designated, and

(b) such other local authority as the Minister may determine to be a municipality for the purposes of this Part;

“Regional municipality” is not defined in the ETA. However, the CRA has taken the position in GST/HST Technical Interpretation Bulletin B-046, Administrative Guidelines for Municipalities, that a regional municipality is a regional, county, metropolitan or other entity which operates at a level of authority between the provincial and municipal levels and shares jurisdiction with one or more municipalities.

Since the County is a municipality under paragraph (a) of the definition "municipality" in subsection 123(1), and the Commission is a municipality under paragraph (b) of the definition "municipality" in subsection 123(1), both entities are “municipal bodies” pursuant to the definition noted above. Although the County and the Commission were both established by the Province of Alberta, neither entity is a “para-municipal organization” of the Province, as the Province itself is not a “municipal body”. Finally, neither entity is a “para-municipal organization” of the other, as neither entity established the other, and neither entity owns or controls the other. Therefore, paragraphs 28(a), (b) and (d) of Part VI of Schedule V do not apply.

Paragraph 28(c) of Part VI of Schedule V could only apply if one entity were a regional municipality and the other entity were a local municipality of that regional municipality.

The Commission is authorized to provide solid waste management services under Alberta Regulation […] throughout an area that includes the area over which the County has municipal jurisdiction. Although the County’s jurisdiction falls within the area in which the Commission provides solid waste management services, the Commission does not serve as a level of authority between the Province and the County in the manner of a regional municipality, and it does not share jurisdiction with the County in the sense intended for purposes of the definition of “local municipality”, as it is responsible solely for the disposal of solid waste and has no powers of government.

The County has municipal jurisdiction over a broad area that envelopes the [town] and the [village]. However, its jurisdiction does not overlap with that of the town and village. Moreover, it does not serve as a level of authority between the Province and the town and village. Therefore, the County is not a regional municipality with respect to the town or village. With respect to the Commission, although the County is a member of the Commission, it does not serve as a level of authority between the Province and Commission in the manner of a regional municipality, and it does not share jurisdiction with the Commission in the sense intended for purposes of the definition of “local authority”, as noted above.

Therefore, neither the Commission nor the County is a “regional municipality” or a “local municipality” of the other for purposes of section 28 of Part VI of Schedule V. Accordingly, supplies between the County and the Commission are not exempt under paragraph 28(c) of Part VI of Schedule V.

Finally, since neither entity is a para-municipal organization of the other, paragraph 28(e) of Part VI of Schedule V could only apply if one of the entities were designated to be a municipality under subsection 259(1) in respect of provision of water or municipal services. Since neither the County nor the Commission has been so designated, paragraph 28(e) does not apply.

Accordingly, supplies between the County and the Commission are not exempt under section 28 of Part VI of Schedule V.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 905-984-2332. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Maria Forte-Long
Municipal Sectors Unit
Legislative Policy and Regulatory Affairs Branch Division
Excise and GST/HST Rulings Directorate

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ETA [Part IX: 165], Sch VI, Part III Sec. 1

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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 173026
Business Number: […]

Dear [Client]:

Subject: GST/HST RULING
Application of the GST/HST to the supply of […][X Brand] kombucha beverage and […]

Thank you for your letter concerning the application of GST/HST to the supply of […][X Brand] Kombucha (Product A) and […] (Product B).

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

STATEMENT OF FACTS

Our understanding of the facts is as follows:

1. The Company is a GST/HST registrant.

2. The Company is a brewery that manufactures and distributes Product A. In addition, the Company is a wholesaler of Product B.

3. The Company brews and distributes various flavours of Product A.

4. Product A is a brand of kombucha, which is a fermented tea beverage produced by a Symbiotic Culture of Bacteria and Yeast (SCOBY) added to various tea blends.

5. By-products of the fermentation process are carbon dioxide and alcohol (less than 0.5% alcohol by volume).

6. Product A is being sold in […]L […] to retailers to be sold at their premises.

7. The Company also supplies empty Product B to be used as a […] container.

8. Although Product B is […], it is not supplied as a returnable container.

9. Product B is used to cut down on packaging waste and to offer premium quality Product A at an affordable price.

RULING REQUESTED

You would like to know how the GST/HST applies to supplies of Product A and Product B.

RULING GIVEN

Supplies of Product A are excluded from zero-rating pursuant to paragraph 1(c) of section 1 of Part III of Schedule VI. Supplies of Product B are taxable based on the general taxing provision in section 165. Therefore, both Product A and Product B are subject to GST/HST at the applicable rate based on the place of supply.

EXPLANATION

Generally, in accordance with subsections 165(1) and 165(2), every recipient of a taxable supply made in Canada is required to pay the full rate of GST/HST on the value of the consideration for the supply, unless the supply is zero-rated (listed in Schedule VI to the ETA and subject to the GST/HST at the rate of 0%).

Section 1 of Part III of Schedule VI to the ETA zero-rates supplies of food or beverages for human consumption, including sweetening agents, seasonings and other ingredients mixed with or used in the preparation of such food or beverages, other than supplies included in paragraphs (a) to (r) of that section.

Product A, as described, is a beverage that results from the fermentation of tea. The fermentation process creates carbon dioxide that is absorbed into the fermented tea creating a naturally carbonated beverage. Paragraph 1(c) of Part III of Schedule VI excludes from zero-rating the supply of carbonated beverages. Supplies of Product B are taxable based on the general taxing provision in section 165.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (905)721-5184. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Siraj Patel, CPA, CGA
Basic Groceries and Recaptured Input Tax Credits Unit
General Operation and Boarder Issues Division
Excise and GST/HST Rulings Directorate

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ETA Sch VI,: Part III Sec. 1(a),Part III Sec. 1(c),Part III Sec. 1(d),Part III Sec. 1(n)

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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 173964
Business Number: […]

Dear [Clients] :

Subject: GST/HST RULING
Tax status of kombucha

Thank you for your facsimilies concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to kombucha products sold by […](the Company).

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

STATEMENT OF FACTS

We understand the following:

1. Based on the Company’s website […], the Company supplies many flavours of […][Product A] kombucha and […][Product B] kombucha […].

2. The Company markets its [Product B] kombucha […] as […].

3. The kombucha is supplied in […]ml bottles and […].

4. The Company’s brand of kombucha is created by combining raw kombucha (filtered water, teas, evaporated cane juice, and a kombucha culture (Symbiotic Culture of Bacteria and Yeast also known as a SCOBY,[…], and other ingredients.

5. The raw kombucha results from a fermentation process and creates the by-products of carbon dioxide and alcohol (generally less than 0.5% alcohol by volume). These by-products are retained in the final beverage product.

6. The kombucha products contain zero forced carbonation.

RULING REQUESTED

You would like to know how the GST/HST applies to the Company’s kombucha products.

RULING GIVEN

Based on the facts set out above, we rule that all supplies of the kombucha products are excluded from zero-rating under paragraph 1(c) of Part III of Schedule VI, and are therefore subject to GST/HST at the applicable rate determined by the place of supply.

EXPLANATION

Paragraph 1(c) of Part III of Schedule VI excludes carbonated beverages from zero-rating. Excluded beverages can be carbonated either naturally or artificially. The words carbonated, sparkling, soda water, and effervescent are indicative of carbonation. The Product, as described, is a fizzy beverage that results from the fermentation of tea. The fermentation process creates carbon dioxide that is absorbed into the fermented tea creating a naturally carbonated beverage.

Yours truly,

Elizabeth Onsiong
Basic Groceries & Recapture Input Tax Credits Unit
General Operation and Border Issues Division
Excise and GST/HST Rulings Directorate

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