CRA recently released three rulings clarifying whether certain supplies by charities are exempt from Good and Services Tax (“GST”) and Harmonized Sales Tax (“HST”). The three rulings relate to specific fact scenarios and offer some clarity to charities who make similar supplies. In particular, the documents deal with fees charged by a charity to employers/sponsors for apprentice training, tournament registration fees, supplies of educational and consultancy services, annual conference registrations, and product sales.
Ruling #1
Document #158637 addresses whether GST/HST applies “to a commitment fee and cancellation fee charged by a charity to the employer/sponsor of an apprentice in relation to training services.” After reviewing the specific facts of the arrangement, CRA ruled that the organization, which is a charity and registrant under the Excise Tax Act (“ETA”), should not charge GST/HST on fees paid by the employer/sponsor or apprentice in relation to training services nor should it charge GST/HST on the cancellation fee when there is withdrawal from training. CRA also noted that if a charity has erroneously collected GST/HST on such exempt supplies, that 100% of the GST/HST amount collected is still required to be remitted to CRA. The charity can choose to “adjust, refund or credit the excess tax within two years after the day the amount was so charged or collected” by issuing a credit note in accordance with the ETA. Other options include accounting for the error in its net tax calculation or having the person who paid the GST/HST in error apply for a rebate using Form GST 189, General Application for Rebate of GST/HST.
Ruling #2
Document #152989r was issued by CRA to correct a previously issued ruling. In this scenario, the organization was also a charity for the purposes of the ETA and charged registration fees for its fundraising tournaments. CRA ruled “that the supply of a right to participate in” the charity’s tournament was an exempt supply. In its explanation of the ruling, CRA stated that the registration fees were distinguishable from fees charged “on admissions to a place of amusement” and that the previous ruling had mischaracterized the fact scenario. In contrast to the supply of a right to participate in a tournament, most fees charged on admissions to a place of amusement are likely not exempt under the ETA even if made by a charity.
Ruling #3
Document #127947r is another revised ruling, which was issued by CRA to reflect changes to its interpretation of a previously issued ruling involving an organization that is a charity and registrant for the purposes of the ETA. The charity requested a ruling on whether its supplies of educational services, educational consultancy services, registrations to its annual conference, and sales of certain products were exempt from GST/HST. The revised ruling only made changes to CRA’s previous comments on the sales of certain products, as its interpretations of the taxability of the supplies of the educational services, educational consultancy services, and registrations remained unchanged. In this regard, the latter three supplies continued to be exempt supplies, but the sales of certain products were a mix of zero-rated, i.e. taxable at the rate of zero, and taxable at the GST/HST rate applicable “depending on the province in which the supply is made.” Unfortunately, because the rulings are redacted by CRA prior to issuance, the detail on the types of products sold and zero-rated are limited to the fact that they were found by Health Canada to be drugs under the federal Food and Drugs Act. The types of products sold that were taxable, but not at a rate of zero, were not found to be drugs under the federal Food and Drugs Act and did not further qualify as exempt under other provisions of the ETA. However, CRA did note that supplies of these products could potentially be exempt if the charity “were to charge less than direct cost” on future sales.
Although these CRA documents certainly help clarify how the GST/HST might apply in certain situations, if your organization makes supplies similar to those referenced above, it is always a good idea to seek further guidance from your accounting or legal professionals.