3 September 1999 GST/HST Ruling HQR0001860 - Charity Export Rebate

Dear XXXXX

Thank you for your letter of June 21, 1999, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your operations.

In November 1998 you were informed by XXXXX, that your charity did not qualify for a 100% rebate under section 260 of the Excise Tax Act (the ETA) with respect to exports of radios. You would like us to reconsider our position on this matter.

Statement of Facts

Based on your submissions, our understanding of the relative facts is as follows:

1. XXXXX is a charity for GST purposes. Its purpose is to provide durable technical equipment for communicating the XXXXX world wide at the lowest possible price.

2. XXXXX purchases radio components and assembles the radios in Canada.

3. XXXXX radios are then exported to 3rd world countries and are distributed to mostly illiterate groups for no consideration.

Ruling Requested

Is XXXXX entitled to the 100% rebate provided under section 260 of the ETA?

More specifically, you were advised of our previous comments that if a charity purchased radio components, manufactured the radios and then exported them, it would not qualify for the rebate since, to qualify, it would have to export the items purchased (i.e. the radio components). If this remains our position, you have requested an explanation of it.

Ruling Given

Based on the facts set out above, we rule that XXXXX is not entitled to the rebate provided under section 260 of the ETA with respect to the radios that it ships to 3rd world countries.

Pursuant to section 260 of the ETA, a 100% rebate is available where a charity is the recipient of a supply of property, has paid tax in respect of this property and has exported the property. Therefore, as mentioned in Policy Paper P-132 ("Rebate for Charity Exports"), in order for section 260 to apply the property purchased by the charity has to be exported. In your case, the charity purchases radio components, assembles the radios and then exports the radios. Section 260 does not apply since the property purchased (the components) is not the property exported but rather is an input into the property exported (the radios).

On page 4 of your letter you state that "this section does not indicate that the purchases must be exported in the same form as purchased." With respect, it is our view that the section does impose this requirement, for it provides that it applies only where the charity is "a recipient of a ... property or service," pays tax "in respect of it," and then "exports the property or service." We interpret this as requiring that the property exported must be the property purchased. As noted above, the provision does not apply, in our view, to inputs (components) that are used to produce another property (radios) that is exported.

Furthermore, section 5 of part V.1 of Schedule V to the ETA exempts a supply made by a charity of a property or service for no consideration. Therefore such supplies are not considered to be made in the course of a commercial activity and accordingly, no input tax credits are available.

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 (613) 952-0329.

Yours truly,

Gabrielle Nadeau
Charities and Non-Profit Organizations Unit Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate