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 0L5XXXXX
XXXXX
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XXXXX
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Case Number: 54497XXXXXSeptember 5, 2006
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Subject:
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GST/HST RULING
Tax status of memberships
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Dear XXXXX:
Thank you for your letter XXXXX requesting a subsequent ruling on the application of Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to membership fees charged by XXXXX. We apologize for the delay in responding to your enquiry.
GST/HST Rulings of the XXXXX Tax Services Office previously issued a ruling XXXXX stating that XXXXX supply of the membership to a member is taxable at the rate of 7%. You have requested that we reconsider this ruling.
Statement of Facts
We understand that:
1. XXXXX is XXXXX incorporated under the XXXXX Act of XXXXX.
2. XXXXX goal and mission is to assist all charity/non-profit groups across XXXXX to earn funds to support cultural, sporting, religious, youth, educational and community services activities in XXXXX communities through XXXXX events.
3. XXXXX is not currently registered for GST/HST purposes and it is not a registered charity within the meaning assigned by subsection 248(1) of the Income Tax Act.
4. You stated that XXXXX is a non-profit organization as defined in the Excise Tax Act (ETA) and is therefore a public sector body under that legislation.
5. XXXXX:
6. Under the XXXXX Act and the XXXXX Regulation of XXXXX, and in accordance with the XXXXX, the XXXXX is delegated the authority to license, regulate and monitor XXXXX activities in XXXXX. While a XXXXX association must have a licence issued by the XXXXX to operate a XXXXX event in the province of XXXXX, the XXXXX association does not have to be a member of XXXXX to be licensed.
7. Under XXXXX By-laws, a "Member" means:
(a) Any XXXXX association holding a valid licence issued by the XXXXX for the purpose of holding XXXXX, which has made an application to become a member and paid all fees and dues as required by the By-laws XXXXX. A member in this category may enjoy all rights and privileges of XXXXX and shall be entitled to one vote at a general meeting either by the association representative or by the association manager, when duly appointed by their XXXXX association.
(b) Any XXXXX holding a valid licence issued by the XXXXX for the purpose of holding XXXXX, which has made an application to become a member and paid all fees and dues as required by the By-laws XXXXX. A member in this category may enjoy all rights and privileges of XXXXX.
(c) Any XXXXX holding a valid licence issued by the XXXXX, duly appointed to the Board of Directors by the XXXXX. A member in this category may serve on XXXXX Board of Directors and shall have voting privileges as a Director, but shall not have a vote at the annual or general meetings unless appointed as a representative by their XXXXX associations.
8. Under XXXXX the By-laws, the Board, upon approval of the membership, may prescribe annual and/or other non-refundable fees payable by the membership and set a date when such fees are due and payable.
9. XXXXX the By-laws provide that the membership may impose levies upon themselves for the purposes of enabling XXXXX to pursue its objects. For these purposes, a levy is a one-time assessment of funds payable equally by all members within the same category of membership within XXXXX. To date, XXXXX has not assessed any levies under this provision.
10. According to XXXXX the By-laws, a member in good standing may vote at all meetings of XXXXX (but only through its representative), participate in the general activities of XXXXX and attend all meetings of the membership through the attendance of its representative or any (non-voting) delegates as permitted by the membership.
11. Under XXXXX the By-laws XXXXX, if requested by the XXXXX for input into a concern, the Directors should canvass the member associations involved prior to making any announcement to the XXXXX. If a member asks for support on an issue affecting them with the XXXXX, then other groups that may be affected by the request are to be asked for their input prior to making a decision as to the support. If there is conflict then XXXXX should take no stance and just forward the request to the XXXXX with acknowledgement of same.
12. According to XXXXX the By-laws, members are not in good standing if their dues are more than XXXXX in arrears. Members in good standing will receive group rates that have been negotiated by XXXXX.
13. The XXXXX currently lists XXXXX association facilities in XXXXX and XXXXX of those XXXXX associations are XXXXX members. The number of XXXXX associations in XXXXX and the number of those XXXXX associations that are members of XXXXX fluctuate from year to year. At present, XXXXX does not have any XXXXX members.
14. XXXXX.
15. XXXXX charges its XXXXX association members a membership fee based on XXXXX. Membership fees for XXXXX association members range from $XXXXX to $XXXXX per year. XXXXX.
16. Members of XXXXX receive the following membership benefits:
Advocacy - XXXXX acts as an advocate representing its members' interests with respect to issues that arise. This is done through the media, in meetings with XXXXX and other industry stakeholders and in sessions with government departments, committees, elected officials and the XXXXX. XXXXX has made submissions with respect to XXXXX rules and regulations, XXXXX. The XXXXX considered XXXXX input on behalf of its members when drafting its XXXXX.
Advertising and promotion - According to its XXXXX newsletter, XXXXX produced and distributed XXXXX brochures on the benefits of XXXXX. The brochures were distributed to member XXXXX, various travel and tourist information centres and attractions, seniors' centres and motels and hotels throughout XXXXX. This brochure listed XXXXX association members and their locations, phone numbers and scheduled XXXXX events XXXXX. It also listed XXXXX website address and a few suppliers XXXXX. XXXXX published and distributed the brochures XXXXX in XXXXX. The XXXXX brochure was also distributed in XXXXX and XXXXX.
At the time of publishing the brochures, only XXXXX associations that were members of XXXXX could be listed. XXXXX asked its members for voluntary contributions of $XXXXX to help defray the costs of printing the brochures XXXXX but the majority of members did not respond. XXXXX also sold advertising XXXXX to one supplier for $XXXXX. All other suppliers provided services or merchandise in exchange for having their names on the brochure XXXXX.
XXXXX also lists its XXXXX association members on its website including their locations, phone numbers and scheduled XXXXX events XXXXX. In addition, XXXXX regularly issues news releases to the general media to promote XXXXX throughout the province. In the future, XXXXX may promote its XXXXX association members through radio advertising.
Insurance - XXXXX negotiated a special group rate on a custom-designed insurance program for its XXXXX association members through XXXXX. The insurer is XXXXX. Individual XXXXX associations are the policy holders of the insurance policies and pay the premiums. Under the insurance program designed for XXXXX members, XXXXX associations are eligible for a discount and higher deductible options for additional premium savings.
In a telephone conversation XXXXX with XXXXX GST/HST Rulings, XXXXX, indicated that XXXXX had negotiated a XXXXX% discount on the annual insurance premiums charged by the insurance company from what non-members would pay for the insurance. In your XXXXX, you stated that because XXXXX strongly encourages its members to use XXXXX, any XXXXX member is given a XXXXX% to XXXXX% discount on premiums. XXXXX lets XXXXX know who the XXXXX members are so that the discounts can be granted which you also stated are only available to XXXXX members.
Conferences - XXXXX negotiated reduced rates for its members to attend XXXXX conferences held each year. One conference is the XXXXX. The registration form for the XXXXX conference lists an early bird rate of $XXXXX and a regular rate of $XXXXX. XXXXX negotiated a reduced rate of $XXXXX (a reduction of $XXXXX off the early bird rate) for its members to attend the XXXXX conferences. Also, according to XXXXX newsletter, XXXXX negotiated a reduction in registration from $XXXXX to $XXXXX to attend the XXXXX.
With your XXXXX you attached a copy of the XXXXX registration form for the XXXXX conference which XXXXX did show a reduced rate of $XXXXX (a reduction of $XXXXX off the early bird rate) for members of XXXXX associations and workers within the XXXXX industry.
The other conference is the XXXXX. The registration form for the XXXXX listed early bird rates and regular rates for individuals and for groups XXXXX. The early bird group rate for XXXXX days of the conference was $XXXXX and for the full XXXXX days was $XXXXX. The regular group rate for XXXXX days was $XXXXX and for XXXXX days was $XXXXX. Due to XXXXX negotiations, its members were entitled to an early bird group rate of $XXXXX for XXXXX days and $XXXXX for XXXXX days; a discount of $XXXXX from the advertised early bird group rates. You indicated that XXXXX also negotiated the same discount for the XXXXX. To obtain the discounted rate, XXXXX association members must register through XXXXX as a group. It is XXXXX who sends the group registration to XXXXX.
In addition, according to XXXXX newsletter, it negotiated a reduction in the early bird registration fees (if a member registers through XXXXX as a group) to $XXXXX for members to attend the XXXXX (XXXXX indicated that this is a savings of approximately $XXXXX in the newsletter). Further, in its XXXXX newsletter, XXXXX informed its members that it would again be offering registration reductions for its members when they registered as one group to attend the XXXXX. XXXXX stated that the full conference discounted group rate was $XXXXX; a saving of approximately $XXXXX for each member.
Publications - XXXXX gathers information that affects XXXXX and the XXXXX association members and passes the information, with its comments, along to its members via its website, meetings, regular newsletters, mail-outs and faxes.
17. XXXXX has never charged the GST on its supplies of memberships to XXXXX associations.
Ruling Requested
What is the tax status of supplies of XXXXX association memberships made by XXXXX?
Ruling Given
Based on the facts set out above, we rule that the supply of a XXXXX association membership made by XXXXX in XXXXX is a taxable supply subject to the GST.
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
All following legislative references are to the ETA and the regulations therein, unless otherwise specified.
Generally, supplies of memberships made in XXXXX by an association will be taxable supplies subject to the GST unless the supply meets the conditions for exemption under a provision in Schedule V.
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 17(a) to 17(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.
As stated in the ruling issued by GST/HST Rulings in XXXXX, 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.
Where the benefits members have the right to receive exceed the allowable benefits under section 17 of Part VI of Schedule V, then the supply of the membership will not be exempt under that provision even when those benefits are available to each and every member.
In your letter, you submitted that XXXXX association memberships are exempt under section 17 of Part VI of Schedule V and, in particular, the membership benefits do not exceed the allowable benefits found under paragraphs 17(a) and 17(d) of Part VI of Schedule V.
Paragraph 17(a) of Part VI of Schedule V
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.
XXXXX association members had the right to acquire a listing that included their names, locations, phone numbers and scheduled XXXXX events in XXXXX promotional XXXXX brochures. The brochures were distributed beginning in XXXXX and have continued to be distributed to various travel and tourist centres, places of accommodation and other sites throughout XXXXX.
This benefit has commercial applications for XXXXX association members as the brochures specifically identify and promote the operations of the XXXXX association members. This benefit was aimed solely at XXXXX association members and any gain resulting from the advertising was meant to accrue directly to those members since non-member XXXXX associations and XXXXX did not have the right to acquire a listing in the brochures at the time XXXXX made the supply. As such, this benefit could not be considered a secondary or unintended consequence of membership and, therefore, is not an indirect benefit.
While it is a possibility that a XXXXX association, that did not renew its membership in XXXXX after XXXXX, may still benefit from its listing as a result of subsequent distributions of the brochures, this does not negate the fact that XXXXX association members receive a direct benefit that has commercial applications from the continuing distribution of the brochures.
Therefore, as XXXXX association members have the right to promotional and advertising benefits as a result of receiving listings in the brochures (as well as on XXXXX website), this is a direct benefit that will not fall under paragraph 17(a) or any other paragraph under section 17 of Part VI of Schedule V.
Paragraph 17(d) of Part VI of Schedule V
Under paragraph 17(d) of Part VI of Schedule V, 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 is an allowable benefit.
Under subsection 123(1), "fair market value" is defined as meaning the fair market value of a property or a service supplied to a person without reference to any tax excluded by section 154 from the consideration for the supply. According to GST/HST Policy Statement P-165R, Fair Market Value for Purposes of Part IX of the Excise Tax Act, the Canada Revenue Agency generally considers that fair market value represents the highest price, expressed in terms of money or money's worth, obtainable in an open and unrestricted market between knowledgeable, informed and prudent parties acting at arm's length, neither party being under any compulsion to transact.
As such, where one of the benefits of membership in a non-profit organization is the right to receive or acquire property or services from the organization or a third party, that benefit will not cause the membership to be taxable as long as the members pay a separate consideration equal to the fair market value of the property or services.
Based on the facts provided, XXXXX association members are eligible to attend the XXXXX conferences for XXXXX negotiated group rates which are less than the fair market value group rates (that is, the higher group rates listed on the conference registration forms for other conference participants) when registering through XXXXX as a group. This benefit exceeds the allowable benefit under paragraph 17(d) of Part VI of Schedule V and is not an allowable benefit under any other paragraph in section 17 of Part VI of Schedule V.
XXXXX also negotiated discounts on a custom-designed insurance program for its XXXXX association members with XXXXX. XXXXX informs this agency of who the members are so that the discounts can be granted. You stated XXXXX that although other XXXXX in XXXXX can obtain the XXXXX insurance program through XXXXX, only XXXXX association members can obtain the XXXXX% to XXXXX% discounts on their premiums. As such, as members have the right to receive or acquire the custom-designed XXXXX insurance program for discounted rates by reason of their membership in XXXXX and these rates are not available to other non-member groups, this is not an allowable benefit under paragraph 17(d) of Part VI of Schedule V.
In conclusion, XXXXX association members do receive direct benefits by reason of their membership that exceed the allowable benefits listed in paragraphs 17(a) to 17(f) of Part VI of Schedule V and, as there are no other provisions in Schedule V to exempt XXXXX supplies of XXXXX association memberships made in XXXXX, they are taxable supplies subject to the GST.
Effective July 1, 2006, the rate of the GST was reduced from 7% to 6% and the rate of the HST from 15% to 14%. The new rates apply to supplies for which the GST or HST is paid on or after July 1, 2006, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to Reduction in the Rate of the GST/HST - Questions and Answers on the CRA web site at http://www.cra-arc.gc.ca/agency/budget/2006/gstrateqa-e.html.
Other Information
You requested in your fax XXXXX that should we rule the XXXXX association memberships were taxable, to provide you with a clear indication of what XXXXX could do to satisfy the requirements of the exempting provisions in order to avoid XXXXX having to charge unrecoverable GST to its members. Please note that the Excise and GST/HST Rulings Directorate does not provide advice on tax planning or tax strategy and, therefore, we cannot advise XXXXX on how to structure its operations or transactions to get a desired tax result.
More information on our services can be found in GST/HST Memoranda Series 1.4, Goods and Services Tax Rulings, available on our website at: www.cra-arc.gc.ca. If you have any further questions or require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9592.
Yours truly,
Nadine Kennedy
Charities, Non-profit Organizations and Educational Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
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