5 December 1996 GST/HST Interpretation 11930 - GST Status of Membership Fees in a Public Sector Body

                                                                        File: 11930
Doc: HQR0000434(GN)

Dear XXXXX

We are replying to your letter of November 18, 1996 in which you are requesting an interpretation concerning the GST status of membership fees in a public sector body. More specifically, is a group insurance plan offered to members a benefit which would result in the membership fees being subject to GST under section 17 of Part VI of Schedule V to the Excise Tax Act (ETA)?

Facts

A membership organization is a public sector body representing professionals.

Membership in the organization is not required to maintain a professional status, therefore, the memberships are not exempt under section 18 of Part VI of Schedule V to the ETA.

The organization has not elected under section 17 or 18 of Part VI of Schedule V to the ETA to make the membership taxable.

Members of the organization can apply for group insurance, more specifically, group disability insurance, group life insurance and group accidental death and dismemberment.

The organization is the group policy holder and administrator of the plans.

The group insurance premiums paid by the members who subscribe to the group insurance plans represent the actual premiums established by the insurer.

The organization will refund to members who have subscribed for group insurance any premium refunds received from the insurer. The refunds of premiums are paid directly to the insured members and are not included as income of the organization and then remitted to the members.

Additional Facts obtained during a telephone conversation on November 26, 1996.

The membership fee is a separate fee from the insurance charge.

The organization receives the premium, keeps XXXXX and sends XXXXX to the insurer. However, the organization considers XXXXX to be the funds of the insurer and may ultimately be required to remit the amount to the insurer.

Our comments

A group insurance plan offered to members is not a benefit which would result in making the membership fees in the public sector body taxable as long as the conditions of paragraph 17(d) of Part VI of Schedule V to the ETA are met.

Pursuant to section 17 of Part VI of Schedule V to the ETA, a membership in a public sector body (other than a membership in a club the main purpose of which is to provide dining, recreational or sporting facilities) is exempt if each member does not receive a benefit by reason of the membership other than the benefits listed in paragraphs 17(a) to 17(f). Pursuant to paragraph 17(d), the right to receive or acquire property or services supplied to the member for consideration that is not part of the consideration for the membership and that is equal to the fair market value of the property or services at the time the supply is made is an acceptable benefit.

There are two conditions that must be met in order for paragraph 17(d) of Part VI of Schedule V to apply. First, the service conferred by the membership fee supplied to the member has to be distinct from the supply of the membership. Second, the fee charged for the supply has to be equal to the fair market value of the service at the time the supply is made.

The first condition is met if the group insurance coverage is a separate fee from the membership fee.

The second condition is met if the premiums paid by the members are the actual premiums established by the insurer and the members receive the service for consideration equal to its fair market value (taking any subsequent refunds of premiums into account).

The foregoing comments represent our general views with respect to this subject matter. Proposed or future amendments to the legislation may result in changes to our interpretation. These comments are not rulings and in accordance with the guidelines set out in the GST Memorandum Series Section 1.4 do not bind the Department with respect to a particular situation.

I hope that our comments will be of assistance to you. If you have any questions, please do not hesitate to contact me at (613) 952-4157.

Gabrielle Nadeau
Policy Officer
Charities, Non Profit Organizations and Educational Services
GST Rulings & Interpretations