6 June 1999 GST/HST Ruling HQR0001717 - Small Supplier and Voluntary Registration

Dear XXXXX

Thank you for your letter of January 20, 1999, (with attachments) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the activities of the XXXXX[.]

Statement of Facts

Our understanding of the facts is as follows:

1. The XXXXX a non-profit organization and was incorporated as an XXXXX XXXXX[.]

2. Pursuant to section 23 of the Act, the objects of an XXXXX are,

•   to promote the development, sale and export of XXXXX; and

•   to provide educational opportunities related to XXXXX[.]

3. In addition to the objects as prescribed by the Act, according to XXXXX XXXXX its objects include:

•   to co-ordinate research relating to all aspects of XXXXX and

•   to foster and make available funds for research relating to all aspects XXXXX[.]

4. The main activity of XXXXX to coordinate the XXXXX[.] In addition, the XXXXX XXXXX conduct the research.

5. The membership of the XXXXX[.]

6. Prior to the establishment of XXXXX conducted their own research. They have since agreed to contribute toward the funding of the XXXXX coordinate and fund research of common interest.

7. For the year ending December 31, 1998, revenues of XXXXX aid to XXXXX XXXXX is to provide funding for innovative projects designed to foster increased long term growth, self-reliance, employment and competitiveness for XXXXX XXXXX[.] This money represented approximately XXXXX[.]

8. According to the funding proposal submitted to the XXXXX in consideration of the funding, XXXXX is to coordinate the XXXXX will focus on improving characteristics at the XXXXX[.] Future work will pursue improved XXXXX especially in early maturing material, while retaining the characteristics already realized.

9. For the year ending December 31, 1998, XXXXX received additional revenues of XXXXX collected these funds through a XXXXX levy assessed on their member processors and this amount was matched by XXXXX[.]

10[.] XXXXX a copy of the research report at the end of the project. Use of the research results is not restricted in any way and other organizations, including those conducting the research, are able to use the results for commercial purposes.

11. Expected short-term impacts of the XXXXX

•   increase yield by XXXXX[;]

•   improved varieties to sustain and enhance the competitive XXXXX[.]

12. Expected long-term impacts of the XXXXX

•   the release of new XXXXX specifically for XXXXX[;]

•   a reduction in the application of XXXXX and XXXXX XXXXX[;]

•   the generation of increased revenues for the industry and the Institute, which will enable the research to become self-funded eventually; and

•   to serve as a model to other sectors of XXXXX can collaborate for the competitive benefit of the entire industry.

Ruling Requested

1. Is XXXXX making a supply?

2. Is XXXXX required to register or entitled to register voluntarily?

Ruling Given

Based on the facts set out above, we rule that

1[.] XXXXX is making a taxable supply consisting of the coordination of the XXXXX XXXXX[.]

2. For the year ending December 31, 1998 XXXXX is not required to register for GST/HST purposes since, on the basis of the information provided, it is a small supplier. It may, however, voluntarily register.

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%. Please contact the undersigned if you require additional information concerning the HST.

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.

Explanation

Research such as that carried out under the XXXXX constitutes a supply of a service. Since there is no exemption in the Excise Tax Act for such a service, it is a taxable supply. If XXXXX were a GST/HST registrant, it would be required to charge tax on the payments received from XXXXX, since those payments represent the consideration for the supply of research services XXXXX, as a registrant, would then be entitled to claim input tax credits with respect to the tax paid on related purchases.

The reason the above payments are treated as consideration for the research services, as opposed to a "gift" or "grant," is because XXXXX and XXXXX they represent, have a vested commercial interest in the services provided by XXXXX This is so even though any benefits arising from the research may be uncertain and may not necessarily accrue to everyone involved in the XXXXX[.] The following comments concern the payments received from XXXXX[.] Technical Information Bulletin B-067 which explains how the GST/HST applies to certain grants, contributions, gifts, subsidies and similar payments (referred to as "transfer payments") is enclosed for your additional information. In general, this policy indicates that transfer payments made in the public interest or for charitable purposes will not be regarded as consideration for a supply and, therefore, will not be subject to the GST/HST.

The Department views the payment from the XXXXX as a "grant" rather than as consideration for a supply for the following reasons:

•   the coordination of the XXXXX is a supply of a service which is provided to a person other than the XXXXX, the granting body;

•   the payment is regarded as having a "public purpose" rather than a "purchase purpose" since, consistent with the purpose of the XXXXX, to provide funding for innovative projects to benefit XXXXX the use of the research results is not restricted in any way and many different organizations involved in the XXXXX (including XXXXX and those conducting the research) are able to use the results for commercial purposes; and,

•   the payment is from a funding or granting organization rather than a commercial entity which may have a vested commercial interest in the services provided by XXXXX[.] On the basis of the information on hand, XXXXX revenues from taxable supplies for the fiscal year in question is approximately XXXXX[.] A non-profit organization (and its associates) does not have to register for GST/HST purposes if its total consideration for taxable supplies other than sales of capital property in the preceding year (or in a particular calendar quarter) does not exceed $50,000. If XXXXX exceeds this threshold, it is required to register for GST/HST purposes and to account for GST/HST on its taxable supplies.

Even if it is not required to register, XXXXX may choose to register voluntarily. As mentioned previously, it would then be required to collect and remit the GST/HST on amounts received from XXXXX but could also claim full input tax credits for the GST/HST paid on expenses related to its taxable supplies (XXXXX Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-0420.

Yours truly,

Lorrie Grannary
Charities and Non-profit Organizations Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate