Place Vanier, Tower C, 10th Floor
25 McArthur Avenue
Vanier, Ontario
XXXXX K1A 0L5
XXXXX
Edmonton Tax Services Office
5th Floor, 9700 Jasper Avenue
Edmonton AB T5J 4C8 Case: HQR0000587
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Subject:
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XXXXX Materials Supplied With Correspondence Courses
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Dear XXXXX
This is in reply to the letter of October 31, 1996 from XXXXX to Elaine Bonnah of this office, concerning the application of the GST to lesson materials provided with correspondence courses.
Based on documentation provided to our office, our understanding of the facts in this case is as follows:
1. XXXXX
XXXXX through an entity known as the XXXXX , provides the supply of a service of instructing individuals in, and administering examinations in respect of, courses for elementary and secondary school students and also courses for which credit may be obtained toward a diploma or degree. XXXXX is a branch of the XXXXX Department of Education. XXXXX is a "school authority" as described in the Excise Tax Act ("ETA").
3. All XXXXX courses are by way of correspondence, telephone, or computer contact between the students and XXXXX staff, including instructors and teachers.
XXXXX
a) registered students who are 18 years of age and under and in regular schooling;
b) registered students who are 18 years of age and under and in a home education program;
c) registered students who are 16 years of age and older and not attending school; and
d) people who are only acquiring materials.
5. During the period of assessment, XXXXX made the following supplies in the course of carrying on its activities:
a) the service of instructing individuals in, or administering examinations in respect of, courses for which credit may be obtained toward a diploma (instruction);
b) lesson materials which related to the courses;
c) textbooks;
d) novels;
e) laboratory kits;
f) loan kits;
g) audiocassettes;
h) videocassettes; and
i) computer disks.
6. In the draft "Reply to Notice of Appeal," the Department concluded that the supplies of a service of instructing individuals in or administering exams in courses for which credit may be obtained toward a diploma are exempt. However, with respect to the supplies listed in items 5 b) through i), the Department concluded that these were taxable at 7% since these represent supplies that are separate from the following exempt supplies:
a) a service of instructing individuals or administering exams;
b) courses leading to certificates, diplomas, licences or similar documents;
c) a service of tutoring or instructing an individual in a course; or
d) a program of second-language instruction in English or French.
7. Furthermore, the Department concluded that XXXXX did not supply instruction together with lesson materials, audiocassettes, computer disks, or video tapes for a single consideration.
8. All lesson materials, textbooks, novels, audiocassettes, laboratory kits, loan kits, video tapes, and computer disks referred in the Handbooks may be purchased from the XXXXX or the XXXXX , which is also a branch of the XXXXX Department of Education, produces the lesson materials.
9. Students are required to pay XXXXX a registration fee which is an aggregate of the amounts charged for tuition, lesson materials, audiocassettes, computer disks or as refundable deposits on videocassettes. The fee identifies the portion relating to tuition payable, the cost of lesson materials, the cost of compulsory audiocassettes, and the deposits for any compulsory video tapes.
10. Lesson materials are required for every course offered by XXXXX These lesson materials are generally modular and are designed by XXXXX The assignments which are submitted to XXXXX for marking are generally in assignment packs, with one pack for each modular lesson.
11. There is no requirement to register in a course in order to purchase lesson materials for reference use only.
12. In addition to instruction and lesson materials, some courses offered by XXXXX also require textbooks, novels, and plays. The student can purchase these materials through XXXXX or a bookstore, or in some cases, borrow them from a library.
13. A separate "Book Order Form" is required whenever a textbook is bought from XXXXX also require access to a laboratory kit to complete laboratory experiments or special assignments. These kits are composed of various supplies needed to do the experiments and are purchased separately from the registration fee.
15. The courses noted in Fact 14 also require access to laboratory equipment. Loan kits are available to those students who do not have access to such equipment. The loan kits are composed of tangible personal property, such as a beam balance, microslide viewer, and measuring tape included in the XXXXX kit. These items are readily available at stores. Students pay a refundable deposit for the loan kits.
16. Laboratory kits and loan kits are not provided to students living outside Canada due to the shipping costs and difficulties in clearing such articles through customs. Such students are provided with a list of the kit items so they may obtain the required articles in their country of residence.
17. A number of courses require audiocassettes. These compulsory audiocassettes either contain readings and are included in the registration fee. In some cases, the audiocassettes are blank for recording assignments and retained by the student when the course is completed. In addition, some courses are supplemented with optional audiocassettes which can be purchased separately from the registration fee.
18. A number of courses require videocassettes. These compulsory videocassettes contain lesson modules, such as for XXXXX . In addition, some course are supplemented with optional videocassettes. Students pay a refundable deposit for both the compulsory and optional videocassettes. The deposit for the compulsory videocassettes is included in the registration fee.
19. XXXXX has only collected, accounted for, and remitted tax on its supplies of novels and plays. The XXXXX There is no GST on XXXXX instructional fees, lesson materials, textbooks, or laboratory kits. However, resource items such as novels and plays for English Language Arts courses are subject to the GST. The GST is included in the price of novels shown in this handbook. x
20. The price of the lesson materials range from XXXXX of the combined total of lesson materials and instruction and in most cases, the cost of the lesson materials is greater than the tuition paid. For instance:
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
In addition, there is a textbook costing XXXXX a laboratory kit costing XXXXX and a loan kit costing XXXXX for this course.
XXXXX has different policies for refunding amounts paid as tuition, amounts paid for instructional materials, amounts paid for laboratory kits, amounts paid for textbooks, amounts paid for audiocassettes and computer disks, and for refunding deposits for video cassettes and loan kits.
22. In certain courses, such as math, the textbooks used by students who take the course in a classroom setting have been replaced by XXXXX lesson materials.
Interpretations Requested
1. Are the supplies listed in Fact 5 above exempt supplies pursuant to Schedule V, Part III of the ETA as elements comprising a single supply of instruction in an exempt course?
2. With respect to the registration fee, is XXXXX supplying instruction together with lesson materials, audiocassettes and videocassettes for a single consideration?
3. Would the conditions in section 138 of the ETA apply to make the consideration for the lesson materials, audiocassettes, and videocassettes exempt as incidental to an exempt supply of instruction?
Interpretations Given
1. Are the supplies listed in Fact 5 above exempt supplies pursuant to Schedule V, Part III of the ETA as elements comprising a single supply of instruction in an exempt course?
It is the Department's view that in most cases, lesson materials and other items such as audiocassettes and videocassettes, provided with a correspondence or distance learning course are integral elements of a single supply of a service of instructing individuals and as such, hold the same tax status as the course itself. Generally, this view applies where the supply of instruction is contingent upon the acquisition of these items (i.e., a student could not purchase the service of instruction without having the lesson materials, compulsory audiocassettes, videocassettes, etc.).
In a correspondence course, the materials are the main or only "supply of instruction" and will be exempt when the course itself is exempt. Pursuant to section 2 of Part III of Schedule V of the ETA, a service of instructing individuals in courses that are provided primarily to elementary and secondary school students is exempt. Furthermore, section 7 of the same Part exempts a service of instructing individuals in, or administering examinations in respect of, courses for which credit may be obtained toward a diploma or degree.
Based on the information provided and a "single vs. multiple supplies" analysis as set out in Policy P-077, our interpretation as to whether the supplies listed in b) through i) in Fact 5 are an element of a single supply of instruction or a separate supply is as follows:
• lesson materials which relate to the courses: an element of a single supply of instruction;
• textbooks: a separate supply;
• novels: a separate supply;
• laboratory kits: a separate supply;
• deposits on loan kits: a separate supply;
• compulsory audiocassettes: an element of a single supply of instruction;
• optional audiocassettes: a separate supply;
• deposits on compulsory videocassettes: an element of a single supply of instruction;
• deposits on optional videocassettes: a separate supply;
• computer disks: a separate supply.
2. With respect to the registration fee, is XXXXX supplying instruction together with lesson materials, compulsory audiocassettes and videocassettes for a single consideration?
With respect to the registration fee, XXXXX is supplying instruction together with lesson materials, compulsory audiocassettes, and compulsory videocassettes for a single consideration. With respect to the refundable deposits on videocassettes, where such deposits are forfeited, no GST applies to the forfeited deposit as the loan of the videocassette is part of an exempt supply. Please note however, that where an individual does not receive instruction along with a supply of materials (e.g., where a student does not register in a course), the nature of that supply may be tangible personal property.
3. Would the conditions in section 138 of the ETA apply to make the consideration for the lesson materials, compulsory audiocassettes, and videocassettes exempt as incidental to an exempt supply of instruction?
It is our position that section 138 of the ETA (incidental supplies) applies only in circumstances where it is determined that at least two supplies are being made together for a single consideration. Accordingly, since it is our view that there is but one supply in this case, we do not consideration section 138 to be applicable to the registration fee.
Analysis
The fact that a course may consist of instructional services and various materials does not necessarily mean that there is more than one supply. To determine the tax status of the instructional materials, it is necessary to perform a "single supply vs. multiple supplies" analysis as set out in Policy P-077. Such an analysis would include discussions of the following concepts:
• inputs vs. supplies;
• number of suppliers/recipients; and
• terms of invoice/contract/agreement.
The fact that a single transaction may be apportioned into its various elements without difficulty does not necessarily mean that there is more than one supply. Where an analysis of the above factors does not resolve the issue, the following additional questions should be considered:
1. If the customer did not receive all of the elements, would each in itself be of any use to the customer? If no, there is likely a single supply.
2. Is the provision of a particular element contingent on the provision of another element? If yes, there is likely a single supply.
3. Is the customer made aware of the specific elements, in details, that are part of the package? If no, there is likely a single supply.
If a determination has been made that the transaction involves a single supply, the nature of the supply must then be determined. In order to categorize or determine the nature of the supply, the following criteria may be used:
• description of the supply;
• objective of the supply;
• agreement between the parties;
• intent of purchaser.
As requested, we have performed a "single vs. multiple supplies" analysis for each of the elements listed in fact 5 above, and have attached our analysis as a separate appendix to this letter. One of the key factors considered in this analysis is whether students are given the choice of acquiring one element (instruction) without acquiring the other element (lesson materials and, where applicable, compulsory audiocassettes or compulsory videocassettes). In this particular case, it appears that the elements that comprise the registration fee (e.g., tuition, lesson materials, audiocassettes and deposits on videocassettes) are elements of a single supply of instruction that is supplied for a single consideration.
The fact that separate amounts in respect of different elements are indicated on the invoice does not necessarily mean that each element is a separate supply. Furthermore, the proportion of the cost attributable to each element of the supply is not to be used in itself to determine the nature of the supply, although it is a factor that must be considered. Lesson materials allow a student to receive, by way of written or computer correspondence, a supply of services that is provided to students in a classroom setting. A student would be unable to successfully complete XXXXX course without obtaining the instructional materials. These materials are an integral element of the supply of such a course and are not independent of the provision of XXXXX course. In our view, XXXXX is providing one single supply of instruction and as such, the manner in which the supplies are invoiced makes no difference to the nature of those supplies.
With respect to the other elements, i.e., textbooks, novels, laboratory kits, loan kits, computer disks, and audiocassettes and videocassettes that are not compulsory, our single vs. multiple supply analysis indicates that these are separate supplies where student can acquire these elements from a supplier other than XXXXX or XXXXX and where a student is not required to obtain these items in order to complete the course. Generally, such supplies would be taxable, unless other exempting provisions apply, such as the "direct cost" exemption.
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact Michael Place at (613) 954-7936 or Susan Eastman at (613) 952-6761.
Yours truly,
J. A. Venne
Director
Public Service Bodies and Governments Division
Att.
| c.c.: |
B. McGivern
W. Houston
J.A. Venne
M. Place
S. Eastman |
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