Definition of "Vocational School" in Section 1 of Part III of Schedule V to the Excise Tax Act

GST/HST Policy Statement P-229

Please note that the following Policy Statement, although correct at the time of issue, may not have been updated to reflect any subsequent legislative changes.

DATE OF ISSUE

May 18, 1999

SUBJECT

Definition of "Vocational School" in Section 1 of Part III of Schedule V to The Excise Tax Act (ETA)

LEGISLATIVE REFERENCE(S)

Section 1 of Part III of Schedule V to the ETA

NATIONAL CODING SYSTEM FILE NUMBER(s)

11915-1 & 11915-7-2

EFFECTIVE DATE

Effective for supplies made after 1996

TEXT
Issue and Decision

This Policy Statement sets out the Department's position for identifying whether an organization qualifies as a vocational school for purposes of the ETA. An organization which qualifies as a vocational school may provide courses exempt of tax where the supply satisfies the criteria in sections 6 or 8 of Part III of Schedule V. A vocational school is defined in section 1 of Part III of Schedule V as "an organization that is established and is operated primarily to provide students with correspondence courses, or instruction in courses that develop or enhance students' occupational skills".

Consequently, the ETA sets out three principle criteria that an organization must meet to be considered a vocational school:

1. The organization must be established primarily to provide correspondence courses or instruction in courses, that develop or enhance students' occupational skills;
2. The organization must be operated primarily to provide correspondence courses, or instruction in courses that develop or enhance students' occupational skills; and,
3. The correspondence courses or instruction in courses must develop or enhance students' occupational skills.

This paper will discuss each of these criteria individually.

Established Primarily

To ascertain whether an organization is "established primarily" to provide correspondence courses, or instruction in courses that develop or enhance students' occupational skills, the Department will review the organization's governing documents. These documents, which include the letters patent, articles of incorporation, memoranda of agreement, by-laws, and articles should reveal the purpose of the organization. Where these documents are not available or are not determinative, the Department will look to the activities of the organization (i.e., the extent to which the organization provides courses that develop or enhance students' occupational skills) as evidence of the purpose for its establishment.

Also, where an organization is governed by provincial legislation respecting vocational schools, this will be considered an indication that one of the main purposes of the organization is to provide vocational training. Generally, organizations that provide vocational training are required to register and comply with requirements set out in provincial vocational schools' acts. However, registration with a province as a vocational school is not in and of itself conclusive evidence that the organization is "established primarily" as a vocational school for purposes of the ETA.

Operated Primarily

The Department will consider an organization to be "operated primarily" to provide correspondence courses or instruction in courses that develop or enhance students' occupational skills, if more than 50% of its total annual revenues are derived from tuition for courses, or may be attributed to the provision of instruction in courses, that develop or enhance students' occupational skills. Grants and contributions received from government bodies to provide occupational training courses to individuals will be included in the calculation of revenues received for providing instruction to individuals. Consequently, revenues earned from the provision of property or services that are related to, or dependent on, the provision of the instruction will be included in the revenue calculation for determining the primary purpose of the organization. For example, this could include revenues from:

• sale of textbooks and other course material to students;
• lease of residential accommodation to students;
• locker rentals;
• photocopying services to students;
• library or lab fees; and,
• parking;
• issuance of official transcripts and documents.

For example, an organization has total annual revenues of $100,000 of which approximately $40,000 is from tuition for occupational courses. The organization also has revenues from the sale of textbooks and course material to students ($20,000), and lab fees ($5,000). As a result, the organization meets the "operated primarily" requirement, since 65% of its total annual revenues can be attributed to the provision of instruction in courses that develop or enhance students' occupational skills.

Where an organization is commencing operations or considering commencing operations, the Department will consider it to be "operated primarily" as a vocational school if its intent is to primarily offer courses that develop or enhance students' occupational skills. For example, the business plan may be considered to determine the intended purpose of the organization. Further, an organization should review its operations on an annual basis to ascertain whether it is "operated primarily" to provide correspondence courses, or instruction in courses that develop or enhance students' occupational skills. If an organization meets the "operated primarily" requirements in its previous fiscal year, and its intent continues to be primarily to offer courses that develop or enhance students' occupational skills, it will be considered a vocational school for the following fiscal year. However, if during that following year the organization fails to meet the requirements, it will cease to be a vocational school for supplies made after that year.

Develop or Enhance Students' Occupational Skills

To be considered a vocational school, the correspondence courses, or instruction in courses offered by an organization must develop or enhance students' occupational skills. On this basis, "occupational courses" must have a direct link to skills that are essential for an individual to gain or retain employment.

The Department does not consider the following courses to develop or enhance a student's occupational skills:

• sports
• games
• hobbies; or
• other recreational or cultural pursuits, that are designed for personal interest.

The Department will examine the curriculum and promotional material of an organization to identify the type of courses provided, whether the courses lead to certificates, diplomas or similar documents, and whether the courses are marketed as providing skills needed for employment or for recreational or personal interest. How the organization promotes its activities (e.g., in its brochures, advertisements, literature, course calendar, telephone listings) will also provide insight into whether its courses "develop or enhance students' occupational skills."

SAMPLE RULINGS

Sample Ruling 1

Statement of Facts

1. Bob Jones is a sole proprietor operating as the Bookkeeping Trade School (BTS).
2. BTS is registered as a vocational school under the private vocational schools act of the province.
3. BTS provides a 6 month certificate bookkeeping course and a comprehensive 12 month diploma accounting and bookkeeping course.
4. BTS also offers accounting, bookkeeping and tax services.
5. Mr. Jones employs one full-time instructor and one part-time instructor, as well as a full-time office assistant.
6. BTS generates more than 70% of its revenues from the provision of the certificate and diploma courses.
7. In its promotional material, BTS is marketed as a registered vocational school which provides professional bookkeeping training for individuals pursuing employment as bookkeepers for small businesses.

Ruling Given

Based on the facts set out above, we rule that BTS is a vocational school as defined in section 1 of Part III of Schedule V to the ETA.

Rationale

The courses offered by BTS are occupational in nature as they are intended to provide the person with the skills necessary to gain or retain employment as a bookkeeper.

BTS does not have letters patent, articles of incorporation, or other governing documents indicating the purpose for which it was established. The fact that BTS is registered under the vocational school act of the province is indicative of its purpose, but not determinative. In the absence of determinative factors, we will consider how BTS operates as evidence of its purpose.

With respect to the "operated primarily" requirement, more than 50% of BTS' annual revenues are generated from the provision of courses that develop or enhance students' skills (e.g. accounting and bookkeeping courses). Furthermore, BTS is marketed as a registered vocational school which provides vocational training. Therefore, we consider that BTS is "operated primarily" to provide instruction in courses that develop or enhance students' occupational skills.

Sample Ruling 2

Statement of Facts

1. ABC is a non-profit organization established as a representative association for an industry.
2. The objectives of the association are varied and include:
   • the publication, distribution and sale of pamphlets, books and other literature related to the industry;
   • the promotion of the welfare of the members of the association;
   • acting as a representative for the industry in matters relating to legislation and regulations governing that industry;
   • the provision of courses and examination on the principles and practices of the industry.
3. ABC is involved on a national level with the licensing process for industry professionals, including the preparation of training material and licensing exams. In some provinces, ABC administers the exam on behalf of provincial regulators.
4. ABC acts as a representative of the industry on provincial councils established to oversee and regulate the industry.
5. ABC is also involved in the provision of courses through which individuals may obtain a designation attesting to the requisite level of knowledge and skill in their profession.
6. ABC also provides personal interest courses and workshops.
7. ABC derives 48% of its total revenue from membership fees. Tuition fees from the occupational courses account for 25% of its total revenue. The sale of textbooks to students account for another 5% of ABC's total revenue. Fees charged for the personal interest courses and workshops represent 15% of the total revenue. ABC earns the remainder of its revenues from the provision of supplies unrelated to the provision of instruction in occupational courses.

Ruling Given

Based on the facts set out above, we rule that ABC is not a vocational school for purposes of the ETA.

Rationale

The courses offered by ABC are recognized as important for employment in the specified industry. Therefore, we consider that the instruction in the courses is intended to develop or enhance the students' occupational skills.

However, it is unclear from reviewing the governing documents whether ABC is "established primarily" to provide instruction in the aforementioned courses. The provision of examination and courses is only one of the objectives of the organization. Therefore, the manner in which ABC is operated will be indicative of the purpose for which it is primarily established.

The Department considers that an organization is "operated primarily" to provide correspondence courses, or instruction in courses, that develop or enhance students' occupational skills if more than 50% of its total annual revenues are derived from tuition for courses, or may be attributed to the provision of courses that develop or enhance student's occupational skills. Since only 30% of ABC's total revenue may be attributed to the provision of instruction in courses that develop or enhance students' occupational skills, ABC fails the "operated primarily" requirement. ABC is not a vocational school for purposes of the ETA.

Sample Ruling 3

Statement of Facts

1. Modern Laboratories Inc. (ML) is registered as a vocational school under the private vocational schools act of a province.
2. Its by-laws describe its principal purposes as the provision of computer training courses leading to certificates and diplomas.
3. In addition to the provision of the computer courses, ML sells textbooks to students, and provides computer consulting services independent of the provision of the computer courses.
4. In its previous fiscal year, ML earned total revenues of $150,000. Tuition fees accounted for approximately 45% of that amount, while the revenues from its consulting contracts accounted for 30% of the revenues. The sale of textbooks to students accounted for the other 25% of the revenues.

Ruling Given

Based on the facts set out above, we rule that ML is a vocational school for purposes of the ETA.

Rationale

The courses offered by ML are intended to provide students with the skills and knowledge requisite for employment and as such, they develop or enhance students' occupational skills.

In its by-laws, ML outlines that its principal purpose is the provision of instruction in occupational courses. Therefore, we consider that ML is "established primarily" to provide instruction in courses that develop or enhance students' occupational skills.

Further, approximately 70% of its total revenues can be attributed to the provision of courses that develop or enhance students' occupational skills. As its revenues from the provision of such courses is more than 50% of its total revenues, ML is "operated primarily" as a vocational school.

Therefore, ML is a vocational school for purpose of section 1 of Part III of Schedule V to the ETA.

Date modified:

2002-08-01