Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
XXXXX
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XXXXX
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
July 22, 2010
Attention: XXXXX XXXXX
Case Number: 123258
Dear XXXXX:
Subject:
GST/HST INTERPRETATION
Application of Ontario HST Transitional Rules to Supplies of Memberships
Thank you for your XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of memberships in Ontario.
HST applies at the rate of 15% in Nova Scotia, 13% in New Brunswick, Newfoundland and Labrador, and Ontario, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.
The New Harmonized Value-Added Tax System Regulations (the Regulations) were published in Part II of the Canada Gazette on June 9, 2010. Part 1 of the Regulations sets out the place of supply rules, Part 2 of the Regulations sets out the anti-avoidance rules relating to harmonization, and Part 3 of the Regulations sets out the Ontario and British Columbia general HST transitional rules.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We understand that your client is a society (hereinafter referred to as the Society) that supplies annual memberships in Ontario. Invoices for the membership year from July 1, 2010 to June 30, 2011 will be issued by the Society prior to May 1, 2010. However, as per the Society's by-laws, the annual membership fee is not payable by the member until July 1, 2010. In previous years, the Society issued the invoices for the annual memberships in the month of May.
Interpretation Requested
You would like to know whether the Society would charge 5% GST or 13% HST on the membership fees, and whether changing the invoicing procedures for this year only would cause the supply of the memberships to fall within the parameters of the current anti-avoidance rules in the ETA or the additional anti-avoidance rules in the Regulations.
Interpretation Given
A membership, as defined in subsection 123(1), includes a right granted by a particular person that entitles another person to services that are provided by, or to the use of facilities that are operated by, the particular person and that are not available, or are not available to the same extent or for the same fee or charge, to persons to whom such a right has not been granted, and also includes such a right that is conditional on the acquisition or ownership of a share, bond, debenture or other security.
Under subsection 152(1), consideration for a taxable supply, including a taxable supply of a membership, becomes due on the earliest of:
• the day the supplier first issues an invoice in respect of the supply;
• the date of the invoice;
• the day the supplier would have, but for an undue delay, issued an invoice in respect of the supply; and
• the day the recipient of the supply is required to pay the consideration pursuant to a written agreement.
The Society will issue invoices before May 1, 2010 for its taxable supplies of memberships for the period from July 1, 2010 to June 30, 2011. The consideration for the taxable supplies of the memberships will therefore become due after October 14, 2009 and before May 2010.
Subsection 165(2) requires every recipient of a taxable supply made in a participating province to pay the provincial part of the HST on the value of the consideration for the supply. Effective July 1, 2010, Ontario is a participating province.
As noted previously, Part 3 of the Regulations sets out the Ontario general HST transitional rules relating to the application of the provincial part of the HST under subsection 165(2).
Section 48 in Part 3 of the Regulations sets out the transitional rules for memberships.
Subsection 48(4) of the Regulations applies when a taxable supply of a membership (other than a membership for the lifetime of an individual) in a club, an organization or an association is made in a specified province (e.g., Ontario) by a registrant to a person that is not a consumer of the membership. If an amount of consideration for the taxable supply of the membership becomes due, or is paid without having become due, after October 14, 2009 and before May 1, 2010 and any part of the amount of consideration is for a part of the period of membership that was not before July 1, 2010, for the purposes of applying 165(2) of the ETA to the supply (i.e., the provincial part of the HST), that part of the amount of consideration is deemed to have become due on July 1, 2010 and not to have been paid before that day. Also, under subsection 48(4) of the Regulations, the person that is not a consumer of the membership is required to pay (i.e., self-assess) the provincial part of the HST payable in respect of the supply on that part of the amount of consideration.
Subsection 48(5) of the Regulations specifies the exception for certain persons that are not consumers of the membership from the requirement under subsection 48(4) to self-assess the provincial part of the HST. Subsection 48(6) of the Regulations sets out how a person who is required to self-assess the provincial part of the HST would account for the tax.
The membership period for the Society's memberships is from July 1, 2010 to June 30, 2011; all of the membership period is on or after July 1, 2010. You have not indicated whether the Society is supplying memberships to non-consumers.
Based on the information provided, the Society is not required to charge the provincial part of the HST on its taxable supplies of memberships made in Ontario when any part of the membership period is on or after July 1, 2010 and the consideration is due or paid before May 2010. As a result, the Society would charge GST on the membership dues.
However, members that are not consumers may have to self-assess the provincial part of the HST on the consideration since all of the membership period occurs on and after July 1, 2010. More information on how a non-consumer would account for and pay the provincial part of the HST is available in GST/HST Info Sheet GI-057, Ontario and British Columbia: Transition to the Harmonized Sales Tax - Memberships, which can be found on the Canada Revenue Agency Web site at http://www.cra-arc.gc.ca/E/pub/gi/gi-057/README.html.
Anti-Avoidance
The general anti-avoidance provisions are set out in section 274. As stated in subsection 274(2), where a transaction is an avoidance transaction, the tax consequences to a person shall be determined as is reasonable in the circumstances in order to deny a tax benefit that, but for this section, would result, directly or indirectly, from that transaction or from a series of transactions that include that transaction.
Subsection 274(3) states that an avoidance transaction means any transaction
(a) that, but for this section, would result, directly or indirectly, in a tax benefit, unless the transaction may reasonably be considered to have been undertaken or arranged primarily for bona fide purposes other than to obtain the tax benefit; or
(b) that is part of a series of transactions, which series, but for this section, would result directly or indirectly in a tax benefit, unless the transaction may reasonably be considered to have been undertaken or arranged primarily for bona fide purposes other than to obtain the tax benefit.
Other terms used in this section are defined in subsection 274(1), including:
• "tax benefit" which means a reduction, an avoidance or a deferral of tax or other amount payable under Part IX of the ETA or an increase in a refund or rebate of tax or other amount under this Part;
• "tax consequences" to a person which means the amount of tax, net tax, input tax credit, rebate or other amount payable by, or refundable to, the person under this Part, or any other amount that is relevant to the purposes of computing that amount; and
• "transaction" which includes an arrangement or event.
Subsection 274(4) states that for greater certainty, subsection 274(2) does not apply in respect of a transaction where it may reasonably be considered that the transaction would not result, directly or indirectly, in a misuse of the provisions of Part IX of the ETA or in an abuse having regard to the provisions of this Part (other than this section) read as a whole.
Whether subsection 274(2) applies in any particular situation is a question of fact. Subsection 274(2) would not apply if the Society's issuing of invoices before May 2010 is undertaken or arranged primarily for bona fide purposes other than to obtain a tax benefit or if it does not result, directly or indirectly, in a misuse of provisions of Part IX of the ETA or in an abuse having regard to the provisions of this Part (other than section 274) read as a whole.
As noted previously, Part 2 of the Regulations sets out the anti-avoidance rules relating to harmonization.
Under subsection 37(2) in Part 2 of the Regulations, if
(a) a transaction, or a series of transactions, involving property is made between two or more persons, all of whom are not dealing with each other at arm's length at the time any of those transactions are made,
(b) the transaction, any of the transactions in the series of transactions or the series of transactions would in the absence of this section result directly or indirectly in a tax benefit to one or more of the persons involved in the transaction or series of transactions, and
(c) it may not reasonably be considered that the transaction, or the series of transactions, has been undertaken or arranged primarily for bona fide purposes other than to obtain a tax benefit, arising from a harmonization event, for one or more of the persons involved in the transaction or series of transactions,
the amount of tax, net tax, input tax credit, rebate or other amount payable by, or refundable to, any of those persons under Part IX of the ETA, or any other amount that is relevant for the purposes of computing that amount, shall be determined as is reasonable in the circumstances in order to deny the tax benefit to any of those persons.
The terms used in this section are defined in subsection 37(1) of the Regulations:
• "harmonization event" means the transition by a province to the new harmonized value-added tax system or any change referred to in paragraph 277.1(3)(a) of the ETA as "provincial tax policy flexibility";
• "person" does not include a consumer;
• "tax benefit" means a reduction, an avoidance or a deferral of tax or other amount payable under Part IX of the ETA or an increase in a refund or rebate of tax or other amount under that Part; and
• "transaction" has the same meaning as in subsection 274(1) of the ETA.
Under paragraph 277.1(3)(a), "provincial tax policy flexibility" refers to a change in the tax rate for a participating province or a change to another parameter affecting the application of the new harmonized value-added tax system in relation to a participating province.
Where parties are dealing at arm's length, the anti-avoidance rules relating to harmonization would not apply.
Therefore, if the Society is dealing with its members at arm's length, we would not view the Society issuing the invoices before May 2010 for its taxable supplies of memberships, when normally the invoices would have been issued after April 2010, as a transaction that would fall within the parameters of the anti-avoidance rules relating to harmonization.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-7909. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Jacqueline Russell, CGA
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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