14 October 1998 GST/HST Ruling HQR0000761 - Tax Treatment of English Language Instruction

                                                                        GST/HST Rulings and Interpretations
 Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Avenue
Vanier, ON K1A 0L5

Dear XXXXX

This is in reply to your letter of December 10, 1995, to Revenue Canada in Ottawa on the above-noted subject. Your letter was transferred to this office for a reply. We apologize for the delay in responding to you and sincerely regret any inconvenience this may have caused you. Our comments are set out below.

On April 1, 1997, the harmonized sales tax (HST) replaced the goods and services tax (GST) and the provincial sales tax (PST) in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%. It is our understanding that you do not make any supplies in the participating provinces and for this reason our response will address only the GST.

Statement of Facts

Our understanding of the facts of your case, based on the documentation submitted and information provided in a telephone conversation between you and I on September 18, 1998, is set out below.

1. XXXXX is a business run by you as an unincorporated sole proprietorship. It was started in XXXXX and is registered with XXXXX as a sole proprietorship. It was established and is operated solely to provide ESL (i.e. English as a second language) to XXXXX students. The program is operated from your residence in XXXXX[.]

2. You teach classes at XXXXX but will hire other instructors as needed, on a subcontractor basis.

3. XXXXX offers XXXXX different programs, each for xx hours per week and tailored to individual needs. These are described below.

Intensive English - with focus on developing critical reading and communication skills; XXXXX preparation if required.

Intensive English for Juniors - with activities designed for person aged XXXXX[.]

Language and Culture Program - includes XXXXX hours per week of classroom study and a wide range of cultural and recreational activities in an English-speaking environment.

4. The courses may include the following activities:

•   Group instruction in seasonal sports, such as tennis, swimming, sailing, canoeing, cross-country and downhill skiing and skating;

•   Group singing and Canadian folk songs;

•   Games, bowling and movie evenings; and

•   Field trip to XXXXX[.]

5. XXXXX will arrange accommodation for the students with XXXXX for the duration of the course. It will also arrange transportation to and from XXXXX[.]

6. The cost of the program for the 1998 year is XXXXX[.] This fee covers all costs associated with the program, which are tuition and books, accommodation, three meals per day and recreational activities.

Ruling Requested

That the supply of the service of instruction in English as a second language provided by XXXXX is exempt of GST pursuant to section 11 of Part III of Schedule V of the Excise Tax Act ("section 11" and "the Act").

Ruling Given

Based on the facts above, we rule that XXXXX is making a single supply of instruction in English as a second language which is exempt pursuant to section 11 of Part III of Schedule V of the ETA.

Explanation

The course fee paid by students includes residential accommodation and meals XXXXX books, field trips and transportation to and from XXXXX from XXXXX[.] Although the course consists of the service of second-language instruction and other items, we are of the opinion that one supply of second-language instruction is being made.

We are of this opinion because the items mentioned would be considered inputs as they are integral to the language learning process. The fact that the contract for the course is all-inclusive indicates that the items constitute a single supply of second-language instruction. Furthermore, all items are supplied by one supplier, leading to the view that a single supply is being made.

Having determined that XXXXX is making a single supply of instruction in English as a second-language (which includes the various elements listed above), we would point out that all elements included in the course fee have the same tax status as the supply of second-language instruction.

Tax Treatment of English Language Instruction

Section 11 exempts the service of instructing individuals in language courses that form part of a program of second language instruction in either English or French, where the supply is made by an organization that is established and operated primarily to provide instruction in languages.

To determine whether an organization is established primarily to provide instruction in languages, we will examine an organization's governing documents. These documents include letters patent, articles of incorporation, memoranda of agreement and by-laws and should contain information as to the reason or purpose for the establishment of the organization. If that information is not readily available, how the organization is operated will be evidence of the purpose of its establishment. With respect to the operated primarily requirement, the organization's revenue and human resources should be primarily attributed to the supply of instruction in languages.

Based on the description of XXXXX activities, as outlined above, supplies of instruction in English as a second language provided by it qualify for exemption pursuant to section 11. This means that you are not required to charge GST on the portion of the program fee related to the supply of instruction in English as a second language. However, if XXXXX makes other language instruction supplies which are not within the exemption in section 11 (for example, provision of translation services), these may be taxable supplies. Where consideration (i.e. revenue) for taxable supplies exceeds $30,000 in a year, you will be required to register for GST and file a GST return on a regular basis. More information on registration can be obtained from XXXXX Tax Services office at XXXXX[.]

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 Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 954-5125.

Yours truly,

Pauline Greenblatt
Educational Services and Indians Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate