GST/HST Exemptions & Exceptions
We frequently receive inquiries from our clients as to the GST/HST status of a particular supply. Occasionally this analysis can be somewhat tricky due to ambiguous wording in the Excise Tax Act (i.e. ETA). However, in most cases, it is a fairly straightforward determination as the general rule is that a supply is taxable unless it is exempted by a section in the ETA.
We would normally start searching for a particular supply within the ETA to see if it falls under a certain exemption. If an exemption can be found then we would consider how well the supply in questions fits within the full meaning of a particular exemption. Often there will be an exemption for the more general meaning of the supply but there will be an exception for a more specific description. For example, there is an exemption in the ETA for supplies of real property by public service bodies but an exception for long term rentals of real property.
If there is some question whether a particular supply fits under a particular exemption then we will seek guidance from ETA interpretations by government and industry as well as case law. If after this search there is still uncertainty, then we will often request a ruling from the Canada Revenue Agency (CRA). If, in the end, no exemption can be found, then per the general rule, the assumption is that the supply is taxable.
As if the process described above was not complex enough the general rule does not apply in all cases. The main exception is in the case of registered charities where in fact the general rule is reversed. Indeed, the general rule for a charity is that a supply is exempt unless specifically enumerated as taxable. This is achieved by what is commonly known as the general exemption for charities in the ETA. Under the general exemption there are currently a handful of exceptions which, in effect, become taxing provisions.
As a result, our analysis of whether a supply is taxable when made by a charity is done in the reverse manner. Instead of looking for an exemption for a supply we would consult the list of taxing provisions. As in the process described above, we must also consider how well a supply fits within the meaning of a taxing provision.
As well there are often exceptions to the taxing provision which in effect are exemptions to more specific descriptions of a supply. For example there is an exception to the general exemption for charities (i.e. a taxing provision) for a “service involving instruction in a recreational activity”. However, a full reading of this taxing provision reveals that it “does not apply when the service is provided primarily to children 14 and under or individuals who are underprivileged or who have a disability”. As result, while a supply by a charity of a service is exempt, a service involving instruction in a recreational activity is taxable unless it is supplied to children under 15 or individuals who are underprivileged or disabled, in which case the supply is exempt.
Assuming a supply fits well within the meaning of the exemptions and exceptions then the process can be somewhat straight forward. However, the meanings for particular words and phrases are often open to debate and common meanings often differs from legal definitions. In the example provided above for charities we may also need to consider the meaning of “recreational activity” if our client was a qualifying educational institution (i.e. university, college or school authority). Those entities qualify for a number of educational service exemptions and typically courses are exempt unless they are for recreational purposes. According to the CRA’s definition a “recreational activity” is “something designed to be an enjoyable diversion or pastime that occupies one’s leisure time”. As a result many workshops, conferences, retreats and seminars are generally not considered to be courses and therefore taxable as, while they may be informative, the CRA considers them to be recreational activities.
Needless to say, this analysis can become complicated and confusing. In order to help our clients make these determinations on an ongoing basis we will often provide a decision tree with applicable exemptions and exceptions in the nodes. It is then, in theory, simply a matter of working through the tree with a particular supply in mind to determine if it is taxable or not.
In summary, general rules are a good starting point for the analysis of whether GST/HST is applicable to a particular supply. Once you are confident you are applying the correct general rule then the process of analyzing the applicability of the ETA’s exemptions and exceptions to the supply may begin. Of course, Fairtax is always happy to assist in this process.