12 May 2005 GST/HST Ruling 49850 - Application of the GST/HST to the Activities of the XXXXX

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

Dear XXXXX:

Thank you for your letter XXXXX, with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of XXXXX by XXXXX. We apologize for the delay in our response.

Statement of Facts

Our understanding of the facts is as follows:

XXXXX was incorporated as a federally chartered, not for profit corporation on XXXXX. It is a non-profit organization for purposes of the Excise Tax Act (ETA) that registered for purposes of the GST/HST effective XXXXX. Prior to incorporation, the XXXXX.

XXXXX.

XXXXX.

XXXXX receives funding from three main sources:

•   Sponsor contributions - The XXXXX partner companies provide funding to support the administrative costs of the organization. They also provide in-kind support to the local units. This includes some work and office space, telephone and computer support, time off work for volunteers/employees to perform the work XXXXX, etc. In return, the partner companies receive employee and retiree satisfaction and a positive image in the community through association with XXXXX on signage or t-shirts XXXXX.

•   Membership dues - XXXXX. Payment of dues does not result in any benefits or discounts for members other than the base benefits of participation, access to volunteering opportunities, receiving the XXXXX newsletter, and voting for and holding office in the XXXXX.

•   Fundraising - Money required for community projects comes from a variety of fundraising efforts. All fundraising activities are short-term, local initiatives that occur 2 - 4 times per year. Examples include: bake sales, clothing sales, book sales, assisting at bingo games, member donations (draws, raffles, etc.), XXXXX furniture sales, and XXXXX sales. The XXXXX operates no ongoing retail establishments or other commercial enterprises.

XXXXX. XXXXX, the XXXXX program is delivered by XXXXX. The XXXXX is heavily involved in the program providing much of the volunteer technical work used in XXXXX. However, XXXXX is the entity that has the licence to operate the XXXXX program in XXXXX and enters into agreements with schools to provide XXXXX.

The XXXXX program limits the XXXXX it provides to a minimum standard of XXXXX. In XXXXX, some XXXXX clubs obtain XXXXX that are not utilized in the XXXXX program, at no cost. The XXXXX by the XXXXX and are sold to raise funds for XXXXX activities. Occasionally, these XXXXX are donated to individuals who have special needs. This fund-raising activity has become a very successful endeavour for the XXXXX resulting in two clubs with retail revenues that exceed $50,000 per year. All other XXXXX clubs combined accumulate less than $50,000 in retail revenue.

Ruling Requested

You would like to know if the supply by the XXXXX of XXXXX is a taxable supply for purposes of the GST/HST.

Ruling Given

Based on the facts set out above, we rule that the supply of XXXXX by the XXXXX is a taxable supply for purposes of the GST/HST.

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

Explanation

In your letter you wondered if, because the XXXXX is so heavily involved in the XXXXX program, their sales of XXXXX could be considered to qualify as exempt under section 10 of Part VI of Schedule V to the ETA. While this exemption could have applied if the XXXXX was supplying the XXXXX under the XXXXX program, this is not the case. The XXXXX supplies the vast majority of its XXXXX for consideration. For this reason, section 10 of Part VI of Schedule V to the ETA cannot apply to the supply in question.

Interpretation Requested

You would like to know if every club and council under the XXXXX control is required to collect the GST/HST on their fund raising activities.

Interpretation Given

The XXXXX is registered for purposes of the GST/HST and, as a registrant, is generally required to collect tax on its taxable supplies. However, there is an exception that could apply in the case of most of the XXXXX various chapters, local councils, clubs, and other subordinate units.

A taxable supply, other than a supply of real property by way of sale, made through a branch or division of a GST/HST registered non-profit organization is deemed not to have been made by the non-profit organization provided that the branch or division is a designated small supplier division. The designated small supplier division is treated as a non-registrant even though the body itself is registered. No tax is collected on the taxable supplies of the small supplier division and no input tax credits are claimed by the body or the small supplier division with respect to the purchases of the small supplier division.

A non-profit organization that is eligible may apply to have its branches and divisions designated as small supplier divisions. To qualify for this designation, separate accounting records must be kept for the branch or division, and either its location or its activities must be separately identifiable. Additionally, in the past year, the non-profit organization must not have received a revocation of an earlier designation of the branch or division as a small supplier division.

In order for a branch or division to be designated a small supplier division, it must meet the definition of small supplier in section 148 of the ETA when examined as if:

•   the branch or division were a person separate from the non-profit organization and its other branches and divisions,

•   the branch or division were not associated with any other person, and

•   every other supply made by the body through the branch or division were made by the branch or division.

Generally, section 148 of the ETA provides that a non-profit organization is a small supplier during a calendar quarter and the following month, if its worldwide taxable revenue (including those of its associates) does not exceed $50,000 during the immediately preceding four calendar quarters. If the non-profit organization's worldwide taxable revenue exceeds $50,000 in one calendar quarter, the non-profit organization is not considered to be a small supplier immediately upon reaching that $50,000 threshold.

Non-profit organizations that qualify and wish to apply to have branches or divisions designated as small supplier divisions should file an application with the Minister using form GST 31, Application by a Public Service Body to Have Branches or Divisions Designated as Eligible Small Supplier Divisions (enclosed).

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-0329.

Yours truly,

Trent MacDonald
Charities, Non-Profit Organizations and Educational Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

2005/05/04 — RITS 57221 — Construction of a Replacement House