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
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March 9, 2005
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Subject:
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GST/HST APPLICATION RULING
XXXXX
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Dear XXXXX:
Thank you for your letter XXXXX (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below. All legislative references are to the Excise Tax Act (the ETA) unless otherwise noted. We apologize for the delay in our response.
Statement of Facts
Our understanding of the facts, the transactions, and the purpose of the transactions is as follows:
XXXXX is a non-profit organization (NPO) incorporated under the Companies Act XXXXX[.] The XXXXX is located in XXXXX and is not registered for GST/HST purposes. The XXXXX is an NPO under subsection 123(1) of the ETA.
The XXXXX was established to represent the interests of XXXXX engaged in the XXXXX industry, conduct studies and provide information to the XXXXX, and to act as a representative for the XXXXX with various government agencies. Included in the XXXXX purpose and objects are:
• XXXXX
• XXXXX
• XXXXX
• XXXXX
• XXXXX
In its financial statements for the fiscal year ending XXXXX, the XXXXX receives the majority of its revenues from the following sources:
• membership fees;
• XXXXX reimbursements; and
• interest income.
Membership Fees
Membership in the XXXXX consists of regular and associate members. Regular members consist of holders of a XXXXX, or being a XXXXX who is a XXXXX provided that the partnership has been in existence for at least one season before application for membership is made. Associate members consist of being a helper or an employee engaged in the XXXXX industry on a XXXXX with a XXXXX licence or XXXXX permit holder who is a regular member of the XXXXX.
The XXXXX charges a yearly membership fee to each of its members. The membership fee is fixed from time to time by resolution at the annual general meeting of the XXXXX. For the years XXXXX, the annual membership fee was set at $XXXXX per XXXXX. For the year XXXXX, the membership fee was raised to $XXXXX per XXXXX. The only benefits of membership are entitlement to vote and attend meetings.
Only regular members are entitled to vote. There are currently no associate members in the XXXXX.
Ruling Requested
Is the supply of memberships by the XXXXX a taxable supply made in the course of a commercial activity?
Ruling Given
Based on the facts set out above, we rule that the supply of memberships by the XXXXX is exempt from the GST/HST.
This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the ETA, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.
Explanation
In order to establish the tax status of a membership in a NPO, we refer to section 17 of Part VI of Schedule V. This section exempts memberships in most NPOs (other than a membership in a club whose main purpose is to provide dining, recreation or sporting facilities), except where the membership entitles the members to benefits beyond those listed in section 17 of Part VI of Schedule V. As such, all possible benefits accruing to members must be taken into consideration in determining the tax status of a membership. Paragraphs 17(a) to 17(f) inclusive, provide a list of "allowable" benefits which may be provided to members without affecting the exempt status of the membership dues. These are, in summary:
• an indirect benefit intended to accrue to all members (whether or not all members, or only a few, actually do benefit from it);
• investigation, conciliation and similar services for settling disputes involving members;
• the right to vote and participate in meetings;
• the right to purchase property or services at their fair market value;
• the right to membership discounts on the value of consideration paid for supplies made by the NPO, where the total value of the discounts is insignificant (i.e. less than 30%) relative to the membership dues; and
• newsletters, reports and publications that are insignificant in value relative to the membership fee or that contain information on the body's activities and financial status and that may be significant in value but for which no fee is normally charged to non-members.
The benefits of membership in the XXXXX are not beyond what is permitted in section 17, therefore the supply of the membership in the XXXXX is exempt.
If a membership in an NPO is exempt under this provision, the NPO may elect to make its memberships taxable by completing form GST 23, Election by a Public Sector Body to Have its Exempt Memberships Treated as Taxable Supplies. This election does not have to be filed with the Canada Revenue Agency (the CRA), but a copy of the completed election form GST 23, or a statement containing the prescribed information, must be kept with the NPO's books and records. A copy of this election is enclosed for your convenience.
Interpretation
We are unable to provide you with a ruling on the tax status of your other sources of revenue, specifically the XXXXX reimbursements, due to the lack of information surrounding these transactions. We will, however, provide you with an interpretation on how the GST/HST applies to the following transactions and the XXXXX eligibility to register for the GST/HST and input tax credits (ITCs).
XXXXX Reimbursements
According to the invoices provided, the XXXXX invoices its members once a year, itemizing several amounts due by its members. The annual payment is designed, in part, XXXXX. On average, the annual payment is approximately $XXXXX per XXXXX (including XXXXX). Some of these items included in the invoice are:
• XXXXX
• XXXXX
• XXXXX Licence
• Other expenses
XXXXX
The Minister has established a XXXXX. The purpose of this plan is to facilitate the sharing of resources, thus ensuring certainty and stability for the XXXXX and providing for a broader distribution of benefits to XXXXX.
The XXXXX is one of XXXXX who have entered into a XXXXX (the Agreement) with Her Majesty the Queen in Right of Canada, as represented by the Minister.
Both the Minister and the Associations are required, under the Agreement, to fulfil monetary and in-kind responsibilities. XXXXX:
• XXXXX
• XXXXX
• XXXXX
• XXXXX
• XXXXX
• XXXXX
• XXXXX
The Associations were required to pay to the Minister a total of $XXXXX for the XXXXX season. This amount represents the amount the Associations have agreed to contribute to the XXXXX of the Minister.
The financial contribution of the XXXXX is in accordance with XXXXX. The XXXXX is responsible for the collection of project contributions from its members on a yearly basis.
Funds received by the Minister from the Associations are to be accounted for in accordance with applicable Treasury Board Regulations. Any amount remaining from the funds paid to the Minister are to be repaid to the Associations in accordance with the Repayment of Receipts Regulations [xxix]1 made under section 20 of the Financial Administration Act. Funds repaid to the XXXXX under XXXXX the Agreement amount to approximately $XXXXX per year.
In the event that the Agreement is terminated, the Minister shall return to the Associations the unused portion of the funds received from the Associations after deducting all amounts required to pay for goods and services and other commitments which the Minister is unable to cancel.
None of the Associations nor any of their personnel or agents is an employee, servant or agent of the Minister or of Her Majesty. The Associations are alone responsible and liable for all claims, demands, losses, costs, debts, actions, damages, suits or other proceedings brought against them in any way arising out of or attributable to their obligations under the Agreement.
XXXXX
XXXXX (the Fund) was established under a voluntary agreement between XXXXX associations and the Minister to provide XXXXX.
The Fund is managed by an arm's length foundation made up of representatives of all sectors of the industry. XXXXX.
An amount will be levied by industry, on all XXXXX for payment into the Fund. The industry was proposing to levy a charge of XXXXX.
The XXXXX collects the contributions for the Fund from its members as part of the XXXXX payment and remits them to the Minister. XXXXX.
XXXXX Licence
Pursuant to XXXXX, the Minister is responsible for implementing licensing policy and the issuance of licences. The XXXXX will collect the licence fee from each member (included in the annual payment). The XXXXX will then remit the licence fee directly to the Minister. The Minister then issues the XXXXX licence to the member and not to the XXXXX. Based on your submission, licence fees are approximately $XXXXX.
Other expenses
In fulfilling its responsibilities under XXXXX. XXXXX:
• XXXXX
• XXXXX
• XXXXX
• XXXXX
• XXXXX
• XXXXX
Interpretation Given
Based on the information provided, we have the following comments on the amounts included in the annual invoices to the XXXXX members.
XXXXX
Whether a payment of an additional amount by members of an NPO constitutes an additional payment for the membership or consideration for some other supply depends on the facts of the case. Where the payment is additional consideration for the membership in the XXXXX this consideration will take on the same tax status as the supply of the membership in the NPO.
Alternatively, the payment could represent a reimbursement of the costs the XXXXX has incurred. Depending on the approach taken in recovering its costs the "direct cost" exemption, which applies to a supply of a service purchased by a public service body (which includes an NPO such as the XXXXX), may apply.
The "direct cost" of a supply is defined in subsection 123(1). Where a person purchases goods or services for resale, the "direct cost" of the goods or services generally means that purchase price including the GST/HST. Direct cost does not include administrative or overhead expenses, or employee salaries incurred to provide the goods or services.
The direct cost exemption under section 6 of Part VI of Schedule V exempts, in part, from GST or HST a supply by way of sale of a service where the total charge for the supply is the usual charge by the XXXXX for such supplies to such recipients and:
• if the XXXXX does not charge the members the GST/HST in respect of the supply, the total charge for the supply does not, and could not reasonably be expected to, exceed the direct cost of the supply; and
• if the XXXXX charges the members GST/HST in respect of the supply, the consideration for the supply does not, and could not reasonably be expected to, equal or exceed the direct cost of the supply determined without reference to GST/HST and, for Quebec Sales Tax (QST) registrants, the QST.
Take for example where the XXXXX acquires services for $10,000 plus $700 of GST. In the case where the XXXXX sells the services to a member, two possibilities exist. First, if the XXXXX does not charge GST/HST on the sale of the service to the member and the consideration is equal to or less than the cost of the services ($10,700) the resupply will be exempt pursuant to section 6 of Part VI of Schedule V.
Alternatively, where the XXXXX charges the member $10,700 (the cost of the expense without reference to the GST/HST) and charges the GST/HST to the member on the sale of the services, the supply will not be exempt under section 6 of Part VI of Schedule V, as the consideration is equal to or more than the direct cost of the supply determined without reference to GST/HST.
Some reimbursement charges may have been incurred by the XXXXX as an agent of the members. Please see our discussion on XXXXX that follows, as this may impact the application of the GST/HST to these reimbursements.
XXXXX
The supply by a government (or a municipality, board, commission or other body established by a government or municipality) of a licence, permit, quota or similar right, other than a right in respect of the importation of alcoholic beverages, is exempt from tax under the provision contained in paragraph 20(c) of Part VI of Schedule V. The exemption extends to any service supplied in respect of an application for such a right. However a supply of a right to hunt or fish when supplied to a consumer is excluded from the exemption and is generally taxable at 7% or 15%. A consumer of property or service is defined in the ETA, in part, to include an individual acquiring property or a service for personal consumption, use, or enjoyment, but excludes an individual who acquires the property or service in the course of commercial or exempt activities.
Where the XXXXX is acting as an agent of its members in the acquisition of the licence from the Minister (or any other acquisition from a third party), the transaction will be treated as if the members had acquired the licence directly from the Minister (or that third party, as the case may be). The words "agent" or "agency" are not defined in the ETA. For GST/HST purposes, the CRA's position is that a person is an agent acting on behalf of another person if the person is an agent at law. In general terms, agency describes the relationship between parties where one person (the agent - i.e., the XXXXX) is used by another (the principal - i.e., the member) to perform certain tasks on behalf of the principal. This may be to make or receive supplies as an agent of the principal. Whether a person is the agent of another is a mixed question of fact and law. In this respect, all relevant documents and facts must be considered as a whole.
XXXXX
From the information submitted we are unable to determine if payments to the XXXXX represents consideration for a supply.
Where there is a direct link between a payment made by a person and a supply received by that person or a specified third party, the payment will be regarded as consideration for the supply. However, if there is no direct link between the payment and a supply received by the person or a third party, the payment is not consideration for a supply.
It is only when a payment is consideration for a supply that the payment can attract GST/HST. If a payment is consideration for a supply, then it must be determined whether or not the consideration is for a taxable or exempt supply.
GST/HST Registration
Subsection 240(1) sets out the rules for GST/HST registration. All persons who make taxable supplies in the course of a commercial activity in Canada (other than "small suppliers", persons whose only commercial activity is making supplies of real property not in the course of a business, or non-resident persons who do not carry on business in Canada) are required to register for the GST/HST.
Pursuant to subsection 148(1), a public service body is a "small supplier" if its total revenues from taxable supplies (other than supplies of financial services and sales of capital property) for its previous four calendar quarters, or for any particular quarter, are $50,000 or less. Small suppliers are excluded from the requirement to register for GST/HST.
In the case of a person who is required to apply to be registered under subsection 240(1), the person is considered a "registrant" under the ETA whether or not the person actually registers. As a registrant, the person is subject to the requirements and entitlements under the ETA. At the time the person applies to be registered, the person's effective date of registration will be the day that the person first makes a taxable supply in Canada otherwise than as a small supplier. Therefore, in the case of mandatory registration, the person's effective date of registration will correspond to the date from which the person became a "registrant" under the ETA.
For more information about this, please refer to the enclosed publications GST/HST Memoranda Series 2.1 Required Registration.
Input Tax Credits
Generally, subsection 169(1) allows a GST/HST registrant to claim an ITC for GST/HST paid or payable on the acquisition of property or a service based on the extent to which the property or service is consumed, used, or supplied in the registrant's commercial activities (subject to certain restrictions). A commercial activity is defined in the ETA to exclude the making of exempt supplies.
In addition, please note that provisions exist under the ETA for registrants to claim ITCs on certain expenses incurred by claimants prior to their registration. For further information on ITC entitlements and restrictions we refer you to the enclosed Guide RC 4022, General Information for GST/HST Registrants.
The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memoranda Series 1.4 Goods and Services Tax Rulings, do not bind the CRA with respect to a particular situation.
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me 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
2005/03/24 — RITS 44623 — Importation of Warranty Replacement Goods
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