CRA recently released some information with respect to GST/HST and sponsorships in issue No. 93 of Excise and GST/HST News. 

We have included the CRA excerpt on sponsorships below:

Sponsorships

Public sector bodies often receive sponsorships from businesses to fund their activities. In return, a public sector body may supply property or services to its sponsors. For example, a public sector body may provide promotional services to a sponsor or may grant the sponsor the right to use its logo. Sponsorships may or may not be subject to GST/HST depending on the nature and the extent of the promotional benefits provided to the sponsor.

Pursuant to section 135 of the Excise Tax Act (the Act), a supply made in exchange for sponsorship funds is deemed not to be a supply and is therefore not subject to GST/HST where the following conditions are met:

the supplier is a public sector body, meaning a government, a non-profit organization, a charity, a municipality, a hospital authority, a school authority, a public college or a university;
the public sector body makes a supply of a service, or a supply by way of licence of the use of a copyright, trade-mark, trade-name or other similar intellectual property of the body;
the recipient of the supply is a person who is a sponsor of an activity of the public sector body;
the supply is for use by the sponsor exclusively in publicizing the sponsor's business; and
the payment by the sponsor is not primarily (more than 50%) for a service of advertising on television or radio, or in a newspaper, magazine or other publication published periodically.

Section 135 only applies to supplies of a service or certain types of intellectual property made by public sector bodies. Supplies of other types of property, such as real property or naming rights, are not relieved of tax by virtue of section 135. Where section 135 does not apply, a supply made by a public sector body in exchange for sponsorship funds will be subject to GST/HST unless an exempting provision applies. Advertising services and supplies of intellectual property are generally exempt from GST/HST when provided by a charity or public institution. When supplied by public sector bodies other than a charity or a public institution, these supplies would generally be subject to tax.

Generally, a GST/HST registrant is eligible to claim an input tax credit (ITC) for the GST/HST paid or payable on a property or service only to the extent that the registrant acquires the property or service in order to make a taxable supply for consideration. Although a public sector body that is a GST/HST registrant is not required to collect tax on sponsorship funds that meet the above conditions for section 135 to apply, this does not affect the public sector body's eligibility to claim an ITC on related expenses. As a result, if but for section 135 the sponsorship funds received would be consideration for a taxable supply, the public sector body will generally be eligible to claim an ITC on a property or service to the extent that the property or service is acquired by the body for use in making that supply.

Where the sponsorship funds received would otherwise be consideration for an exempt supply by the public sector body, no ITC is available if the property or service is exclusively for use in making that supply, and ITC allocation may be required if the input is not exclusively for use in making that supply. For more information on calculating ITCs, refer to GST/HST Memorandum 8.3, Calculating Input Tax Credits. Where ITCs are not available, the public sector body may be eligible for a public service body rebate. For more information on the public service body rebate, refer to Guide RC4034, GST/HST Public Service Bodies' Rebate.

Example 1

A sponsor contributes $10,000 to a non-profit organization that is a GST/HST registrant and, in return, receives promotional services from the non-profit organization. The supply of the promotional services is deemed not to be a supply pursuant to section 135 and the $10,000 is not subject to GST/HST. However, the supply of promotional services would otherwise have been a taxable supply made for consideration; therefore, the non-profit organization will be eligible to claim ITCs on property and services acquired to provide the promotional services, provided the other requirements in the Act for claiming ITCs have been met.

Example 2

A municipality is constructing a recreational facility. ABC Co. contributes $1 million and in exchange the facility will be named “ABC Co. Centre” for the next five years. The $1 million is consideration for a supply of naming rights by the municipality, which is a supply of intangible personal property that does not fall under section 135. Therefore, the $1 million is subject to GST/HST. The municipality will be eligible to claim ITCs on property and services acquired to provide the naming rights, provided the other requirements in the Act for claiming ITCs have been met. For example, ITC allocations may be required if an input is not for use exclusively in making the supply of the taxable naming rights.

To access the CRA release please visit http://www.cra-arc.gc.ca/E/pub/gr/news93/news93-e.html