3 April 2007 GST/HST Interpretation 50644 - Government Funding

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.

Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5XXXXX XXXXX XXXXX XXXXX	Case Number: 50644
XXXXX	April 3, 2007

Subject:

GST/HST RULING Government funding

Dear XXXXX:

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

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

Statement of Facts

We understand the following:

1. XXXXX was incorporated XXXXX as a corporation without share capital. It is a registered charity under subsection 248(1) of the Income Tax Act, and therefore a charity for purposes of the ETA. XXXXX.

2. XXXXX registered for the GST/HST XXXXX.

3. XXXXX was incorporated XXXXX as a corporation without share capital. Its objects are to XXXXX. The purpose of XXXXX.

4. You have indicated that XXXXX is a non-profit organization (NPO), as that term is defined in subsection 123(1). It registered for the GST/HST XXXXX.

Provincial Funding

5. XXXXX.

6. The XXXXX meets the definition of "grantor" in section 2 of the Public Service Body Rebate (GST/HST) Regulations (the Regulations).

7. XXXXX.

8. XXXXX.

9. XXXXX.

10. XXXXX.

11. XXXXX.

12. XXXXX.

13. XXXXX.

14. XXXXX.

15. XXXXX.

16. XXXXX.

17. XXXXX.

18. XXXXX.

19. XXXXX.

20. XXXXX.

21. XXXXX.

22. XXXXX.

23. XXXXX.

Municipal Funding

24. XXXXX.

25. The City meets the definition of "grantor" in section 2 of Public Service Body Rebate (GST/HST) Regulations.

26. XXXXX

- XXXXX.

27. XXXXX.

28. XXXXX.

Ruling Requested

You would like to know

1. Does XXXXX meet the definition of "charity" under subsection 259(1)?

2. If XXXXX does not meet the definition of "charity", are the following included in the definition of "government funding" in the Regulations for the purpose of determining if XXXXX is a qualifying NPO:

•   Amounts received from XXXXX under the XXXXX (i.e., the Provincial Funding), and

•   Amounts received from XXXXX (i.e., the Municipal Funding)?

Ruling Given

Based on the facts set out above, we rule that

1. XXXXX does not meet the definition of "charity" under subsection 259(1).

2. Amounts of money received by XXXXX from XXXXX under the XXXXX (i.e., the Provincial Funding) meet the requirements of "government funding" under section 2 of the Regulations.

3. Amounts of money received by XXXXX from XXXXX (i.e., the Municipal Funding) meet the requirements of "government funding" under section 2 of the Regulations.

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

Explanation

1. A charity, for purposes of subsection 259(1), includes an NPO that operates, otherwise than for profit, a health care facility within the meaning of paragraph (c) of the definition of that expression in section 1 of Part II of Schedule V. Based on the information provided it is the XXXXX that operates the XXXXX, not XXXXX. As XXXXX is not the operator, it cannot meet the definition of charity for purposes of subsection 259(1).

2. Although XXXXX authorized and directed XXXXX to forward to the XXXXX the Provincial Funding due and payable to XXXXX under the XXXXX in respect of the cost of construction and development of the XXXXX XXXXX, the funding from XXXXX remains payable to XXXXX, and not to the XXXXX.

Since the Provincial Funding is an amount of money that is readily ascertainable and paid or payable to XXXXX by XXXXX, a grantor, for the purpose of financially assisting XXXXX in carrying out its purpose of constructing long-term care homes and not as consideration for supplies made by XXXXX, the Provincial Funding will meet the definition of government funding in section 2 of the Regulations.

As the Provincial Funding is payable to XXXXX, there is no requirement that the XXXXX provide XXXXX with a form GST523 Certificate of Government Funding.

3. Unlike the Provincial Funding, the Municipal Funding was never payable to XXXXX. The City, a grantor, paid the Municipal Funding to XXXXX. Even though the amount of money was not payable to XXXXX, it is our opinion that the Municipal Funding will be government funding of XXXXX as XXXXX paid the amount as an intermediary for purposes of the definition of government funding in the Regulations.

In order to be government funding of XXXXX, the Municipal Funding would have to be considered government funding if it were paid by the City directly to XXXXX for the same purpose as the amounts were paid by XXXXX. The Municipal Funding that was paid by XXXXX was readily ascertainable and was paid to financially assist XXXXX in carrying out its purpose of constructing long-term care homes, and not as consideration for a supply. Given that the amount would have met the definition of government funding, had it been paid by the City directly to XXXXX, it will be government funding of XXXXX when it is paid by XXXXX to XXXXX. At the time the Municipal Funding is paid to XXXXX, XXXXX will be required to certify that the Municipal Funding meets the requirements of the definition of government funding by providing XXXXX with a completed form GST523 Certificate of Government Funding.

Please note that the question of XXXXX meeting both the definition of NPO under subsection 123(1) and qualifying NPO under subsection 259(2) is a question of fact that must be determined on an on-going basis. A person (other than an individual, an estate, a trust, a charity, a public institution, a municipality or a government) organized solely for a purpose other than profit, with no part of its income payable to or otherwise available for the personal benefit of any member, and that in fact operates for a purpose other than profit, would qualify as an NPO under subsection 123(1) of the ETA.

Subsection 259(3) provides for a rebate of a percentage of the GST/HST paid by certain persons, including a qualifying NPO. Subsection 259(2) specifies that a person is considered a qualifying NPO at any time in a fiscal year of the person if, at that time the person is a NPO, and the percentage of government funding for the fiscal year is at least 40%. Therefore the percentage of government funding test must be determined on a yearly basis.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-4206.

Yours truly,

Carol A. Gaudet
Charities, Non-profit organizations and Educational Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

2007/04/04 — RITS 53583 — Sections 6, 7 and 8 of Part III of Schedule V