21 December 2005 GST/HST Interpretation 49336 - Tax Status of Memberships

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.

Dear XXXXX:

Thank you for your letter XXXXX (with attachments), requesting a Goods and Services Tax (GST)/Harmonized Sales Tax (HST) application ruling on the tax status of supplies of memberships by provincial and regional member associations of the XXXXX. We apologize for the delay in responding to your enquiry.

As we have not received a business consent form or written authorization from the XXXXX authorizing your firm as a representative, we are unable to issue a ruling with respect to supplies of memberships by those associations nor can we address your request for prospective application. However, we are pleased to provide a general interpretation on the application of GST/HST to supplies of memberships made by a trade association that is not a registered charity and membership in which is not required to maintain a professional status recognized by statute.

As we have received a business consent form or written authorization from the following provincial and regional member associations authorizing your firm as a representative, we will be issuing under separate cover, a ruling for each association addressing the issues raised in your incoming correspondence. The associations are:

•   XXXXX;

•   XXXXX;

•   XXXXX;

•   XXXXX;

•   XXXXX;

•   XXXXX; and

•   XXXXX.

Interpretation Requested

What is the tax status of supplies of memberships provided by a trade association that is not a registered charity and membership in which is not required to maintain a professional status recognized by statute?

Interpretation Given

All legislative references are to the ETA and the regulations therein, unless otherwise specified.

In general, supplies of memberships made in Canada by a trade association will be taxable supplies subject to GST at the rate of 7% or HST at the rate of 15% where the supply is made in a province that is participating in the HST (i.e., Nova Scotia, New Brunswick, Newfoundland and Labrador), unless the supply meets the conditions for exemption under a provision in Schedule V.

As you noted in your letter, section 17 of Part VI of Schedule V 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 the "allowable benefits" listed in paragraphs (a) to (f) of that section.

An organization that is a "non-profit organization" as defined in subsection 123(1) is also a "public sector body" for ETA purposes. It is a question of fact whether any particular trade association is a non-profit organization for ETA purposes. For more information, please refer to our GST/HST Policy Statement P-215, Determination of Whether an Entity is a "Non-profit Organization" for Purpose of the Excise Tax Act ("ETA"), on our website at www.cra-arc.gc.ca.

Where a trade association meets the criteria as a non-profit organization under the ETA, its supplies of memberships may be exempt where the benefits of membership are restricted to the allowable benefits under paragraphs 17(a) to (f) of Part VI of Schedule V. However, a non-profit organization whose memberships are exempt under this provision may elect to have its memberships excluded from exemption under section 17 of Part VI of Schedule V. Where such an election is made, the non-profit organization's memberships will generally be taxable supplies unless another exempting provision in Schedule V applies to exempt its memberships. Further, where a non-profit organization has different fees for different classes of memberships, with different rights and privileges associated with each class provided for in its governing documents, it may elect to exclude its exempt memberships from exemption under section 17 of Part VI of Schedule V on a class-by-class basis.

In your letter, you referred to an amendment to section 17 of Part VI of Schedule V on April 23, 1996, which provided that memberships conferring significant direct benefits will be taxable and subject to GST. The amendment, which was applicable to supplies made after April 23, 1996, (other than a supply of a membership for which the supplier issued an offer in writing, or an invoice, to the recipient of the supply before June 1996), had the effect of excluding from exemption under that section, memberships supplied by a registered party (these memberships are now exempt under section 18.1 of Part VI of Schedule V). Memberships supplied by public sector bodies that confer direct significant benefits to members have always been excluded from exemption under section 17 of Part VI of Schedule V.

Generally, 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. All possible benefits accruing to members must be taken into consideration in determining the tax status of a membership. In your letter, you focused on the "allowable benefits" under paragraphs 17(a), 17(d) and 17(e) of Part VI of Schedule V, which we discuss below.

Indirect benefit

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. The fact that a benefit is available to all members does not necessarily signify that the benefit is indirect. Benefits that are meant to accrue only to members by reason of their membership are generally direct benefits. It is only when the benefit accruing to a member is incidental, in the sense that it is a secondary consequence of a broader objective involving more than just the interests of the members, that it will be viewed as indirect.

Whether lobbying activities carried on by a non-profit organization is or is not a direct benefit is determined on a case-by-case basis. Generally, lobbying which is carried out on behalf of a broad public sector so that both members and non-members alike benefit in an incidental or secondary manner will be considered to be an indirect benefit. On the other hand, where the lobbying has a direct financial or commercial impact for members of a particular association only, then the lobbying would generally be considered a direct benefit.

Acquisition of property or services at fair market value

Under paragraph 17(d) of Part VI of Schedule V, an allowable benefit is one where a member has the right to receive or acquire property or services for an additional fee that is equal to the fair market value of the property or services at the time the supply is made. Generally, the fair market value is the amount that would be charged in an open and unrestricted market between knowledgeable, informed and prudent parties acting at arm's length.

The fact that members are entitled to a discount on a supply made by a third party may or may not in itself cause a membership to be excluded from exemption depending on whether that discount is of value to the members and whether that discount is offered in the open market to other parties at arm's length.

The right to receive discounts on supplies

Under paragraph 17(e) of Part VI of Schedule V, a non-profit organization may provide supplies to members at a discount without affecting the exempt status of the membership, where the cumulative value of such discounts is insignificant compared to the membership fee. "Insignificant" is not defined in the ETA. However, if a term is not defined in the ETA one will normally consider the ordinary meaning of the term. Insignificant is generally understood to mean something having little or no importance or value. The Canada Revenue Agency (CRA) has interpreted insignificant as meaning less than 30% and this position is stated in current and previous versions of our guides RC4082, GST/HST Information for Charities and RC4081, GST/HST Information for Non-Profit Organizations.

Generally, where a non-profit organization supplies property and services to members and non-members alike, the discount available to members is the difference between the fee for members and the fee for non-members. Where the non-profit organization does not supply any property or services to non-members, then the discount is the difference in the consideration payable by the members for property or services and the fair market value of the property or services.

Where members have the right to receive discounts on supplies made by the organization and the cumulative value of all such discounts exceeds 30% of the membership fee, the discounts will generally be considered significant in relation to the membership fee.

XXXXX Program

In your letter, you mention the XXXXX Program XXXXX. The XXXXX is run by the XXXXX on a national level and it represents an advertising program for the purpose of promoting the XXXXX industry in Canada. Only the provincial or regional trade associations are members of XXXXX and XXXXX charges its members a fee for the XXXXX program. Each provincial and regional trade association determines what to charge their own members including any fees for the XXXXX or for any provincial or local advertising program. In addition, each provincial and regional trade association decides whether to separate out such fees from the membership fees when invoicing members.

The application of GST/HST to fees charged by a provincial or regional trade association for the XXXXX will depend on whether it is an element of a single supply of a membership or is a separate supply apart from the membership. The way in which the price for a transaction is set out does not in itself determine whether there are one or more supplies. A single price does not automatically mean that there is one supply nor do separately identified prices for certain elements indicate that there are two or more supplies. The CRA uses the principles set out in GST/HST Policy Statement P-077R2, Single and Multiple Supplies (available on our website), to determine whether a transaction consisting of several elements is a single supply or multiple supplies.

You referred to a letter issued by us XXXXX, (of which you submitted a copy), concerning the tax status of the XXXXX and supplies of memberships by XXXXX. However, this letter did not rule that the XXXXX was an exempt supply but rather addressed the situation where a non-profit organization receives a sponsorship from a commercial supplier for which it undertakes to provide a promotional service. This letter was an interpretation and was based on the facts made known to us at that time and the facts may or may not have changed. Please note that a request for a current ruling on the tax status of XXXXX memberships, including the XXXXX program, may be made by an authorized representative or contact.

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, Goods and Services Tax Rulings, do not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9592.

Yours truly,

Nadine Kennedy, CMA
Charities, Non-profit Organizations and Educational Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

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