27 July 2004 GST/HST Ruling 47723 - XXXXX

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

Dear XXXXX:

This is in response to your letter XXXXX, (with attachments) to Chantal Desrosiers concerning the allocation of input tax credits (ITCs) by public colleges and universities.

Interpretation Requested

You requested a ruling as to whether general purpose grant revenue can be excluded from the total revenue base when calculating the input tax credit (ITC) allocation ratio between taxable and exempt supplies for public colleges and universities.

Interpretation Given

Since we have insufficient information concerning some aspects of the situation you have described, we cannot provide a ruling. However, we can provide an interpretation.

The output based method of calculating ITC allocations may not be suitable for use by public colleges and universities. If a public college or a university does use the output based method, it should include as part of its outputs any grants or subsidies that it receives.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Revenue Agency with respect to a particular situation.

Rationale

An application ruling provides the CRA's position on specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person. However, you requested a ruling for all public colleges and universities. We are unable to provide a ruling for such a broad group of entities without specific information on fact situations for an identified client. Since we do not have sufficient information to provide a ruling, we are providing an interpretation.

Subsection 141.01(5) of the ETA requires that a person use a fair and reasonable method in order to determine the extent to which properties or services are acquired, imported or brought into a participating province by the person for the purpose of making taxable supplies for consideration or for other purposes, or to determine the extent to which the consumption or use of properties or services is for the purpose of making taxable supplies for consideration or for other purposes.

The CRA's position with respect to ITC allocation methods is that the direct allocation method is the preferred method of allocation. Where it cannot be used, an input-based method may be used. Where these methods are not appropriate, an output based approach may be considered.

Policy Statement P-063, Output Based Method For Input Tax Credit Allocation, states that, in some circumstances, allocation methods based on inputs may not reasonably be possible. P-063 states that, in those limited circumstances, an output based method is acceptable for the allocation of certain property and services where it can be shown to be fair and reasonable in the circumstances. P-063 also states:

"An output based method implies that the revenue generated by an activity will give a reasonable approximation of the use of inputs in that activity. There are many factors that affect revenue that could result in this rationale being inappropriate."

However, we have particular concerns about the appropriateness of public colleges or universities using the output based method of ITC allocation since their educational services are generally supplied to students for consideration that is much less than the cost of providing such services. The difference is generally funded by grants and subsidies that may be other than consideration. Where a public college or university does use the output based method, the calculation should include any grants or subsidies that the public college or university receives, whether or not the grants or subsidies are consideration for supplies.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series. It indicates the circumstances in which we can decline to provide a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9211.

Yours truly,

Don Dawson
Corporate Reorganizations Unit
Financial Institutions & Real Property Division
Excise and GST/HST Rulings Directorate

Encl.

2004/07/28 — RITS 48596 — GST/HST Status of "Dim Sum" and Other Chinese Food