Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 126726
Business Number: [...]
June 15, 2011
Dear [Client]:
Subject:
GST/HST RULING
Tax Status of Memberships
Thank you for your letter of July 20, 2010, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of memberships made by [...] ([Association A]).
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
Statement of Facts
1. According to its mission statement, [...].
2. [Association A] is federally incorporated without share capital under the Canada Business Corporations Act as a not-for-profit organization.
3. [Association A] is registered for purposes of the HST under Business Number [...].
4. [Association A] is a [...] filer for GST/HST purposes with a year end of December 31st.
5. [Association A] has negotiated a new membership structure with [...] [Associations B] in Canada that was implemented on [mm/dd/yyyy].
6. [Association A] Bylaws approved at [Association A's] Annual General Meeting (AGM) held on [mm/dd/yyyy] outline the provisions relating to the new membership structure.
7. Section [...] of [Association A] Bylaws states: [...]. [classes of membership described]
8. Section [...] of [Association A] Bylaws states:[...]. [who can become a member of a certain class of membership described]
9. Section [...] of [Association A] Bylaws states: [...]. [benefits of a certain class of membership described]
10. Section [...] of [Association A] Bylaws states: [...]. [how annual fees are calculated for a certain class of membership described]
11. Section [...] of [Association A] Bylaws states: [...].
12. Section [...] of [Association A's] Bylaws states: [...]
13. Section [...] of [Association A] Bylaws states: [...]
14. Section [...] of [Association A] Bylaws states: [...]. [how to and implications of withdrawing from a certain class of membership described]
15. Section [...] of [Association A] Bylaws states: [...]. [consequences for failing to pay annual fee for a certain class of membership described]
16. Section [...] of [Association A] Bylaws states: [...].
17. Section [...] of [Association A] Bylaws states: [...].
18. Section [...] of [Association A] Bylaws states: [....]. [requirement imposed on a certain class of membership described]
19. Section [...] of [Association A] Bylaws states: [...]. [requirement imposed on a certain class of membership described]
20. Section [...] of [Association A's] Bylaws states: [...].
21. The following [Associations B] and [...] are [...] Members of [Association A]: [...]
22. [Association A] and its [...] Members entered into a Memorandum of Understanding with respect to memberships. Clause [...] states:
[...] Members agree to make an array of their programs and products [...] available to other [...]. In general, [...] Members will make programs and products developed for their members available to other [...] Members at no charge. Costs may be incurred by the [...] Members using the materials for customization, additional production and distribution costs or to cover external contract or licence fees to reproduce a product.
23. The [...] [Association C] has chosen not to support [Association A] and therefore, will not be one of its [...] Members. In the province of [...], individual [...] will be able to join [Association A] as [...] members upon paying an annual fee.
24. [Associations B] will collect the membership fee for membership in the [Associations B] from the individual [...].
25. The fee paid by the [...] Member will be considered a [...] fee and not the remittance of a portion of the membership fee collected by [Associations B] from the individual [...].
26. The [...] Membership fee entitles the [...] Member access to [Association A's] programs and products.
27. On [Association A's] website, the following excerpt describes [Association A's] membership: [...]
28. On [Association A's] website, Membership Benefits are listed [...]
29. Under the heading[...] the following information is listed: [...] [services available to members described]
30. Under the heading [...] the following information is listed: [...] [services available to members described]
31. Under the heading [...] the following information is listed: [...] [programs and services available to members described]
32. [Association A] is providing [Associations B] and [...], by way of sale or licence, with a right to use and access [Association A's] products and services in exchange for a membership fee. In addition, these products and services will be supplied to [...] Members. These products and services are not available to the same extent or for the same fee to non-members.
33. [...] Members will have the right to appoint a Voting Representative who will have the right to vote at the AGM.
34. [...] Members are entitled to access [Association A's] programs, products and services.
35. [Association A] is not a club whose main purpose is to provide dining, recreational or sporting facilities and it is not a registered party.
36. [Association A] has not made an election pursuant to either section 17 of Part VI of Schedule V to the ETA or section 18 of Part VI of Schedule V to the ETA to make their supplies of [...] Memberships to [Associations B] and [...] taxable supplies.
37. The following information was contained in an e-mail sent on November 22, 2010, to the CRA by [...] of [Association A]: [...]
38. [...].
39. [...].
Ruling Requested
You would like to know if the sale of [...] Memberships by [Association A] to [Associations B] and [...] are exempt of the GST/HST.
Ruling Given
Based on the facts set out above, we rule that the supply of a [...] Membership by [Association A] to [Associations B] or [...] is a taxable supply for purposes of the GST/HST.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
Explanation
In your letter you have noted that the relevant provisions in the ETA for exempting the supply of memberships by a non-profit organization are sections 17 and 18 of Part VI of Schedule V to the ETA. Section 17 of Part VI of Schedule V to the ETA exempts:
A supply of 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 or in a registered party) where each member does not receive a benefit by reason of the membership, other than
(a) an indirect benefit that is intended to accrue to all members collectively,
(b) the right to receive services supplied by the body that are in the nature of investigating, conciliating or settling complaints or disputes involving members,
(c) the right to vote at or participate in meetings,
(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,
(e) the right to receive a discount on the value of the consideration for a supply to be made by the body where the total value of all such discounts to which a member is entitled by reason of the membership is insignificant in relation to the consideration for the membership, or
(f) the right to receive periodic newsletters, reports or publications
(i) the value of which is insignificant in relation to the consideration for the membership, or
(ii) that provide information on the activities of the body or its financial status, other than newsletters, reports or publications the value of which is significant in relation to the consideration for the membership and for which a fee is ordinarily charged by the body to non-members,
except where the body has made an election under this section in prescribed form containing prescribed information.
In order for a supply of a [...] Membership to be exempt under section 17 of Part VI of Schedule V to the ETA each member must not receive a benefit by reason of the membership other than the listed exceptions. The CRA has established that a benefit of membership is the right to any property or service of value regardless of the extent to which the right is actually exercised by individual members. On [Association A's] website, under the heading Membership Benefits is a listing of benefits available to members by reason of the membership. If a [...] Member receives benefits that exceed those enumerated in paragraphs (a) to (f) of section 17 of Part VI of Schedule V to the ETA the supply of the [...] Membership will not meet the exemption.
In examining the benefits available to [...] Members of [Association A] the "right to appoint a Voting Representative who will have the right to vote at the AGM" is a permissible benefit under paragraph17(c) of Part VI of Schedule V to the ETA.
Likewise the benefit of a right to receive [Association A] publications such as [...] would be a permissible benefit under paragraph 17(f) of Part VI of Schedule V to the ETA. However, the CRA does not agree that the right to access a database such as the [...] database, [...] is a periodic newsletter, report or publication contemplated in paragraph 17(f) of Part VI of Schedule V to the ETA.
Other benefits available to [...] Members involve access to [Association A's] programs and products. [Association A] provides [Associations B] and [...], by way of sale or licence, with a right to use and access [Association A's] products and services. These products and services, which include [...] are not available to the same extent or for the same fee to non-members.
Additionally the [...] Members have agreed to make available to other [...] Members programs and products that were initially developed for their [...] members at no charge.
Under paragraph 17(a) of Part VI of Schedule V, a member of a non-profit organization may receive an "indirect benefit" that is intended to accrue to all members collectively without causing an otherwise exempt membership to be taxable. Indirect is not defined in the ETA. However, we can look to its ordinary meaning as defined in the following dictionaries, in part, as:
- not directly connected; secondary (Gage Canadian Dictionary);
- not directly aimed at or achieved; not resulting directly from an action or cause; being the secondary goal of an action; roundabout (Webster's Third New International Dictionary); and
- not direct in relation or connection; not having an immediate bearing or application;
- circuitous, not leading to aim or result by plainest course or method or obvious means, roundabout, not resulting directly from an act or cause but more or less remotely connected with or growing out of it (Black's Law Dictionary, 6th edition).
The fact that a benefit is available to all members does not necessarily mean that the benefit is indirect. A benefit can be direct and accrue to all members or to all members in a particular class of membership where an organization has set out different classes of membership with different rights and privileges in its governing documents. A benefit has to be indirect and intended to accrue to all members collectively in order to fall under paragraph 17(a) of Part VI of Schedule V. Benefits that are meant to accrue only to members by reason of their membership are generally direct benefits. Generally, activities carried out by a non-profit organization on behalf of a broad public sector so that both members and non-members alike benefit in a roundabout or secondary manner will be considered to be an indirect benefit. On the other hand, where the activities are directly aimed at benefiting only the members of a particular organization, then the activities will generally be considered a direct benefit.
With this understanding of what constitutes an indirect benefit, the CRA is of the opinion that each [...] Member receives a benefit by reason of the membership that is a direct benefit. Access to [Association A's] programs and services [...] are a right to any property or service of value and are directly aimed at benefiting only the [...] Members or members of the [...] Members. Tertiary benefits may spin off to [...] clients and [...] from a particular [...] having access to [Association A's] programs and services but only in relation to their business with the particular [...].
With respect to [...] Members making available to other [...] Members their programs and products at no charge, this is a direct right to property or service of value.
For these reasons, regardless of the extent to which the right is actually exercised by [...] Members or more specifically, the [...] Members' members, section 17 of Part VI of Schedule V to the ETA would not exempt the supply of a [...] Membership made by [Association A] to a [Associations B] or [...].
Section 18 of Part VI of Schedule V to the ETA exempts:
A supply of a membership made by an organization membership in which is required to maintain a professional status recognized by statute, except where the supplier has made an election under this section in prescribed form containing prescribed information.
The supply of a [...] Membership made by [Association A] to a [Associations B] or [...] would not be exempt pursuant to section 18 of Part VI of Schedule V to the ETA because [Association A] is not an organization membership in which is required to maintain a professional status recognized by statute. In fact, [Association A's] own by-laws state, [...]. This creates a situation where the new [...] structure and the By-Laws of [Association A] are directly at odds with the By-Laws of some of [Associations B] or [...].
The following question was posed to [...] of [Association A].
[...] response was: [...]
The CRA was unable to find any evidence that membership in [Association A] is required to maintain a professional status recognized by statute. For this reason, section 18 of Part VI of Schedule V to the ETA would not exempt the supply of a [...] Membership made by [Association A] to a [Association B] or [...].
Given that no other exempting provision applies, the supply would be taxable for purposes of the GST/HST.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-0420. 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,
Trent MacDonald
Charities, Non-Profit Organizations and Educational Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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