Certain taxable property and services may become exempt when they are sold at direct cost by a public service body. Direct cost rules do not apply to supplies made by lease, licence or other similar agreement. These rules also do not apply to sales of capital property or supplies of incorporeal movable property.

The direct cost of a property or service corresponds to its purchase price or the purchase price of its components and packaging (if the property is manufactured by the organization), including GST, QST and the duties and fees paid at the time of purchase.

However, direct cost does not include

• administrative expenses incurred to supply the property or service
• overhead expenses incurred to supply the property or service
• salaries and wages
• expenses incurred for outside services
• capital costs
• the partial QST rebate for a non-registered organization