7 August 1998 GST/HST Ruling HQR0001054 - Tax Status of Sponsorships

                                                                        GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 9th Floor
25 McArthur Avenue
Ottawa ON
XXXXX                                                                                 K1A 0L5

Dear XXXXX

Your request of January 7, 1998, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to sponsorships received by the XXXXX was forwarded to us from the XXXXX Tax Services Office for reply.

Statement of Facts

Our understanding of the facts is as follows:

1. The XXXXX was incorporated under XXXXX XXXXX on March 18, 1992. It was also registered for the purposes of the Excise Tax Act (the "ETA") effective February 26, 1997.

2. The XXXXX is a non-profit organization for the purposes of the ETA, and as such, meets the definitions of "public service body" and "public sector body" in Part VI of Schedule V.

3. Over the years, the XXXXX has received funds from various sources, including sponsorships from other organizations, to fund its general operations.

4. In exchange for the sponsorships, the XXXXX made the following supplies to the sponsors:

a) complimentary booth space at the annual meeting;

b) complimentary registration to the annual meeting;

c) complimentary registration to other activities hosted by the XXXXX[;]

d) special recognition in the XXXXX newsletter, e.g., sponsors received space in each issue of the newsletter to display their company logo and contact information, and each issue included a sponsor profile to highlight a different sponsor or group of sponsors;

e) sponsor recognition in the XXXXX booths at trade shows, i.e., all major sponsor were listed in the XXXXX "Sponsor Sign" which was displayed at trade shows and at other XXXXX activities, such as the annual meeting;

f) material in the XXXXX annual meeting registration kits, i.e., sponsors given the option of including promotional material for their products in the XXXXX meeting registration kits.

5. The exhibit booths and registrations were sold separately to others who were not sponsors.

Ruling Requested

Were the sponsorships received by the XXXXX consideration for taxable supplies?

Ruling Given

Based on the facts set out above, we rule that the XXXXX was making a number of supplies in exchange for the sponsorship payments. As such, we look at each individual supply to determine its tax status. On the basis of the information provided, the supplies made by the XXXXX to the sponsors were taxable. However, as explained below, some of these supplies are deemed not to be supplies pursuant to section 135 of the ETA.

The taxable supplies that were made by the XXXXX that are not subject to section 135 are the following:

•   complimentary booth space at the XXXXX annual meeting;

•   complimentary registration to the XXXXX annual meeting;

•   complimentary registration to other activities hosted by the XXXXX and

•   special recognition in the XXXXX newsletter.

The promotional supplies made by the XXXXX that are subject to section 135 are the following:

•   sponsor recognition on the XXXXX "Sponsor Sign" displayed in XXXXX booths at trade shows and other activities hosted by the XXXXX and

•   the sponsor's right to include material in the XXXXX annual meeting registration kits.

Since section 135 deems these not to be supplies, any consideration paid or payable by the sponsors for these supplies is not subject to the GST.

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 transactions for which you requested a ruling.

Explanation

Pursuant to section 135, "... where a public sector body makes

(a) a supply of a service, or

(b) a supply by way of licence of the use of a copyright, trade-mark, trade-name or other similar property of the body, to a person who is the sponsor of an activity of the body for use by the person exclusively in publicizing the person's business, the supply by the body of the service or the use of the property shall be deemed not to be a supply, except where it may reasonably be regarded that the consideration for the supply is primarily for a service of advertising by means of radio, or television or in a newspaper, magazine or other publication published periodically or for a prescribed service."

The booth space, registration to the XXXXX annual meeting and registration to other activities hosted by the XXXXX and space and sponsor profiles in the XXXXX newsletter are taxable since no exemption applies to these supplies. Furthermore, these supplies are not promotional rights and services as described under section 135 and are thus not subject to this provision. Booth space and registration to XXXXX activities are not supplies of services. In addition, section 135 specifically excludes advertising by means of a newspaper, magazine or other publication published periodically and therefore this section would not apply to the space and sponsor profiles in the XXXXX newsletter.

The sponsor recognition on the XXXXX "Sponsor Sign" and the sponsor's right to include material in the XXXXX annual meeting registration kits are considered supplies of promotional services as described under section 135.

It is our understanding that the issue of the tax status of the above supplies is important to determine whether the XXXXX was required to register for the GST prior to February 26, 1997; i.e., whether the XXXXX total taxable supplies exceeded the small suppliers' threshold of $30,000 prior to April 23, 1996, and $50,000 thereafter. In making this determination, it should be noted that only part of the sponsorship payments was consideration for taxable supplies. Therefore, in determining whether it exceeded the above noted small supplier thresholds, the XXXXX must distinguish the consideration for taxable supplies from the consideration for those supplies that fall under section 135. Usually, of course, a sponsor contributes a lump sum amount, so that it is not evident what should be the consideration attributable to the various supplies received from the XXXXX[.] In this circumstance, we would accept the fair market value of the supply as the basis for a reasonable allocation.

Please note that subsection 153(1) provides that the "value of consideration" for a supply is deemed to be:

"(a) where the consideration ... is expressed in money, the amount of the money; and

(b) where the consideration ... is other than money, the fair market value of the consideration ... at the time the supply was made."

Pursuant to subsection 165(1), it is this amount (i.e., the value of the consideration for the supply) that is subject to tax. As noted above, we would generally accept the fair market value of the supply as a reasonable basis for the value of the consideration. This policy would only apply in circumstances where the remaining supplies are subject to the deeming provisions of section 135.

For example, suppose a sponsor contributes $10,000 to the XXXXX and in return receives promotional services valued at $1000 and other taxable supplies valued at $2000. The excess of $7000 is a donation to support the XXXXX activities. Based on the ETA provisions described above, the XXXXX could reasonably attribute $2000 of the amount received from the sponsor as being the consideration for the XXXXX taxable supplies (on the basis that their fair market value is $2000). It is this amount that is subject to GST/HST. The remainder of the $10,000 is not subject to GST since part of it is consideration for a supply that falls under the deeming provision of section 135, and the rest is a donation rather than consideration for a supply.

Please note that even though certain of the XXXXX taxable supplies to sponsors are deemed not to be supplies, this will not, pursuant to subsection 141.01(7), limit the XXXXX entitlement to input tax credits. That is, the XXXXX will be entitled to input tax credits for purchases related to these supplies. The ETA does provide specific exemptions for certain types of supplies, and no input tax credits may be claimed for purchases related to tax-exempt supplies. However, there is no indication from the facts on hand that the XXXXX is making any tax-exempt supplies.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6761.

Yours truly,

Susan Eastman
Charities and Non-Profit Organizations Unit
Public Service Bodies and Governments Division