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.
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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
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XXXXX
XXXXX
XXXXX
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Case Number: 51322
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XXXXX
XXXXX
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July 20, 2005
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Subject:
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GST/HST RULING
XXXXX Association affinity programs
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Dear XXXXX:
Thank you for your letters XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to various affinity programs provided by the XXXXX Association (the Association). We apologize for the delay in our response.
You also provided the following documents:
• A copy of the XXXXX Affinity XXXXX Program Agreement between the Association and Party A.
• A copy of the Business Agreement between the Association and Party B.
• A copy of the Agreement between the Association and Party C.
• A copy of the Agreement between the Association, Party D and Party E.
• A third party authorization that authorizes XXXXX to represent the Association.
Statement of Facts
Our understanding of the facts, the transactions, and the purpose of the transactions is as follows:
• The Association is a non-profit organization and a public sector body as defined under subsection 123(1) of the Excise Tax Act (the ETA).
• The Association is not registered for the purposes of the GST/HST.
• The Association is a separately incorporated entity from Party F and is the XXXXX of Party F.
• The Association receives funds from selected organizations to fund its various activities. These organizations have agreed to provide the Association with special programs and discounts that are not typically offered to the public.
• The highlights of the four agreements provided are as follows:
XXXXX Affinity XXXXX Program Agreement
* Party A and the Association have entered into an agreement where PARTY A and the Association desire to offer to Association Supporters XXXXX.
• In the agreement between PARTY A and the Association, the Association obliges to
• Clearly disclose PARTY A's name on all XXXXX (printed and other material bearing any of PARTY A's trade marks which are used to solicit applications or promote the Affinity XXXXX Program) as the owner and issuer of all XXXXX;
• Cooperate with PARTY A in the joint development by them of promotional programs for the Affinity XXXXX Program directed to Association Supporters in Canada, and to XXXXX, during the term of this Agreement, all as mutually determined and agreed to in writing by the parties;
• Assist PARTY A, as part of its responsibilities under the previous bullet, in delivering the Affinity XXXXX Program information to current Association Supporters in Canada, at PARTY A's expense,
• Provide verification of current Association Supporters in Canada which shall consist of a minimum of XXXXX mailable Supporters' names upon request by PARTY A, at least once per calendar year at no cost or expense to PARTY A;
• Not be involved with the acceptance or processing of the XXXXX applications; and
• Not enter into any affinity, co-brand or cooperative XXXXX agreement or arrangement substantially similar to the Affinity XXXXX Program.
• PARTY A obliges to
• Administer the services made available by or through PARTY A to XXXXX, including issuance of XXXXX;
• Make all arrangements for the production and issuance of XXXXX to XXXXX in the form and manner agreed upon in writing by the Association and PARTY A from time to time;
• Cooperate with the Association in the joint development by them of promotional programs for the Affinity XXXXX Program directed at Association Supporters;
• At the Association's request, execute such documentation and agreements and do all other things reasonably required for PARTY A to become a licensee of the Association's Trade Marks:
• Contribute up to $XXXXX per annum for costs and expenses incurred in marketing and advertising the Affinity XXXXX Program during the term of the agreement; and
• Pay the following amounts to the Association:
• $XXXXX for each XXXXX issued to a new XXXXX under this agreement;
• $XXXXX for each XXXXX on which XXXXX are renewed;
• $XXXXX for each XXXXX issued to a new XXXXX as a result of the Association's direct marketing efforts; and
• XXXXX% of all amounts XXXXX posted to each XXXXX during years 1 through 5 of the term of the agreement.
• PARTY A will pay fees to the Association on a quarterly basis with a guaranteed payment of not less than $XXXXX per quarter.
• The agreement with PARTY A will be in full force for an initial term of XXXXX, commencing on XXXXX, and will automatically renew for successive additional terms of XXXXX, subject to renegotiation.
• PARTY A sold their XXXXX PARTY G. PARTY G assumed the terms and conditions of this agreement effective XXXXX.
Party B
• Party B and the Association have entered into an agreement whereby Party B offers XXXXX directly to the Association members and Party F.
• Under the agreement with Party B, the Association shall:
• Maintain to its ability an accurate list of its XXXXX and Party F including the name, address and phone number of each XXXXX. On an annual basis, the Association shall provide this list to Party B, in electronic form, on a timely basis for the purpose of a mutually agreed upon marketing campaign(s) and shall not provide such a list or any selection of such a list to another XXXXX for the purpose of marketing XXXXX so long as the agreement is in effect;
• Facilitate the marketing of the XXXXX to eligible XXXXX;
• Endorse and recommend the XXXXX to its XXXXX; and
• During the term of the agreement, the Association will not sponsor or endorse any other XXXXX.
• Under this agreement the responsibilities of Party B are that it shall:
• Provide XXXXX under the products listed in XXXXX the agreement to the Association members and Party F who apply and who satisfy the eligibility requirements for the XXXXX;
• Be responsible for the costs and expenses of producing and distributing any of its printed advertising, solicitation letters, and other promotional materials;
• Pay to the Association an annual marketing expense allowance in arrears, based on XXXXX generated from the XXXXX for the particular year;
• Pay to the Association XXXXX% of the annual growth in XXXXX;
• Pay to the Association, in consideration of the Association granting to Party B its endorsement and exclusive right to market the XXXXX, an amount as determined in XXXXX the agreement;
• In accordance with XXXXX the agreement the Association shall participate in a profit-sharing arrangement for the XXXXX, maintained by Party B on a pooled basis with other similar XXXXX association plans underwritten by Party B. The profit sharing will be based on a complex formula included in XXXXX the agreement.
• If the resulting profit-sharing formula is a positive amount for the calendar year, the profit-sharing amount will be payable to the Association. If the resulting profit-sharing formula is a negative amount for the calendar year, the profit sharing amount to the Association will be XXXXX.
• The agreement is effective XXXXX, and is to remain in effect until XXXXX, and will automatically renew upon that expiry date for successive XXXXX periods.
Party C
• Party C wishes to offer XXXXX to the Association members, staff, Party F and their spouses (collectively referred to as the Members).
• In the agreement entered into with Party C, the Association agrees to
• Encourage the participation of its Members in the XXXXX;
• Provide to Party C, at their request, access to updated lists of the XXXXX of the Association, including their name, address and telephone numbers for solicitation and promotional purpose;
• Authorize Party C to use the names, trademarks, crests and logos of the Association on all related XXXXX documentation;
• Offer exclusively to Party C any XXXXX advertisement in the Association's official publications; and
• Not sponsor any other XXXXX during the term of the agreement.
• In the agreement Party C agrees to
• Ensure that the XXXXX will be administered in accordance with the present agreement;
• Accept all reasonable requests for XXXXX under the XXXXX;
• Give the Association the information contained in XXXXX, that being statistical information on the number of:
• XXXXX;
• XXXXX;
• XXXXX;
• XXXXX; and
• XXXXX.
• Promote the XXXXX using various promotional methods;
• Assume all costs associated with the XXXXX - from package design, promotional material, mailing, postage, insurance policies, etc.; and
• Indemnify and save the Association harmless.
• In consideration for the exclusive right given to Party C to promote the XXXXX and subject to access of updated lists of the XXXXX of the Association, Party C will provide the Association with the following financial consideration during the term of this agreement. This financial consideration is for visibility given to Party C at different events held throughout the year by the Association such as, annual conferences and board of directors meetings:
• Pay the Association an annual sum of $XXXXX;
• Increase the annual amount payable by $XXXXX for each XXXXX; and
• Increase the annual amount payable by $XXXXX for each XXXXX.
• The agreement took effect XXXXX and will continue for a period of XXXXX and is to be renegotiated for renewal at the end of the XXXXX period.
Party D XXXXX and Party E
• The Association operates an affinity program (the Program) exclusively for the XXXXX, XXXXX (the Members) of the Association.
• The Program refers to the XXXXX to the Members and the Association will be compensated on the sale of XXXXX to Members.
• Party D XXXXX will act as an administrative interface for services and products offered through XXXXX. Party E, one such XXXXX, will carry out any obligations or responsibilities pertaining to the solicitation, sale or negotiation of XXXXX.
• Under the agreement the Association agrees to
• Acknowledge its exclusive support of the Program;
• Promote the Program through a combination of advertising opportunities that are available to them including the web site, XXXXX events and other opportunities that arise;
• Appoint Party E as its official and XXXXX;
• Not enter into any similar affinity proposal with any other XXXXX during the term of this agreement;
• Promote Party E to its Members through written endorsements of specific offers and promotions;
• Encourage the participation of its Members in the Program;
• Authorize Party D and Party E to use the names, trademarks, crests and logos of the Association on all related Program documentation; and
• Provide Party D and Party E, on a regular basis, with updated lists of the XXXXX of the Association, including their name and XXXXX.
• Under the agreement, Party E agrees to:
• Administer the Program. As previously mentioned, the Program refers to XXXXX to the Members;
• Compensate the Association on the XXXXX of each XXXXX to Members;
• Along with Party D, collaborate with the Association to offer the Members the Program;
• Pay the Association XXXXX per XXXXX for any Member;
• Send out two direct mail pieces per year to all mailable Association XXXXX. All promotion opportunities will be developed and mutually agreed to by Party D, Party E and the Association throughout the term of the agreement; and
• Provide products and/or services on behalf of Party D to the Association Members. It is noted that the Association is not party to the contract between the Member and Party D.
• The agreement will be in effect for XXXXX, beginning XXXXX and will automatically renew for successive XXXXX, unless terminated.
Other Observations
• Although in all agreements submitted there is a clause that provides, to various extents, access to the membership list of the Association, the Association confirmed that a list is never directly provided to the other parties to the agreements. When the other parties wish to do a direct mailing to members, the Association sends a list of member names and addresses to a mailing house, where information to be mailed is addressed and sent out. The other parties never see the mailing list due to privacy issues.
• On the Association's web site XXXXX there is an area that promotes the various XXXXX benefits and has links to web pages that promote the previously mentioned affinity programs. Once on the web page of a specific affinity program, an Association member can apply for or receive further information on the special offers.
Ruling Requested
You would like to know if the supply made by the Association is deemed not to be a supply pursuant to section 135 of the ETA under the:
• XXXXX Affinity XXXXX Program Agreement;
• Business Agreement between the Association and Party B;
• Agreement between the Association and Party C; and
• Agreement between the Association and Party D and Party E.
Ruling Given
Based on the facts set out above, we rule that the supply of the service of publicizing PARTY A's (business effective under the same agreement), Party B's, Party C's, Party D and Party E's business made by the Association is deemed not to be a supply pursuant to section 135 of the ETA under the:
• XXXXX Affinity XXXXX Program Agreement;
• Business Agreement between the Association and Party B;
• Agreement between the Association and Party C; and
• Agreement between the Association and Party D and Party E.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by this ruling provided that none of the above issues is 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
Section 135 of the ETA deems the supply of a service or a supply by way of licence of the use of a copyright, trade-mark, trade-name or other similar property of a public sector body not to be a supply. The supply must be made to the sponsor of an activity of the public sector body for use by the sponsor exclusively in publicizing the sponsor's business. Where it may reasonably be regarded that the consideration for the supply is primarily for a service of advertising by means of radio or television or in a newspaper, magazine or other publication published periodically or for a prescribed service, it will not be captured by the provision in section 135 of the ETA.
Based on the agreements submitted the Association is providing a supply of a service of publicizing the business of the persons that have entered into agreements with it. In order to meet the requirements of section 135, the supply must be made to a sponsor of the Association. As you mentioned in your letter, although not defined in the ETA for purposes of section 135, the CRA accepts the general meaning of the term "sponsor", which usually indicates either a person who supports or accepts responsibility for another, or more commonly in the commercial sense, one who agrees to provide financial support with respect to another's activities or events while, or by, acquiring advertising or certain promotional rights. A sponsor can also be defined as a person who provides financial or material support for an activity which is not intrinsic to the furtherance of commercial aims but from which the person might expect to gain commercial benefit. In these agreements, the businesses involved are a sponsor of an activity of the Association; that activity being the operation of the Association as an NPO.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-4206.
Yours truly,
Carol A. Gaudet
Charities, Non-profit Organizations and Educational Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
2005/07/08 — RITS 54470 — Requirement to Register
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