15 August 2006 GST/HST Interpretation 64492 - Tax Status of Freight Transportation Service

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 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of XXXXX memberships by the XXXXX. We apologize for the delay in responding to your enquiry.

Statement of Facts

We understand that:

1. According to its website, XXXXX is an association representing XXXXX.

2. XXXXX is registered for GST/HST purposes XXXXX with the effective date of XXXXX.

3. XXXXX is not a registered charity or a registered Canadian amateur athletic association within the meaning assigned to those expressions by subsection 248(1) of the Income Tax Act and, thus, it is not a charity as defined under subsection 123(1) of the Excise Tax Act (ETA).

4. XXXXX is not a municipality, a school authority, a hospital authority, a public college or a university as those terms are defined under subsection 123(1) of the ETA.

5. XXXXX is a member of the XXXXX. As a member, XXXXX participates in XXXXX Program XXXXX which is a national advertising campaign.

6. XXXXX has a registered trademark, XXXXX, that it uses for brand identity in its XXXXX campaign to differentiate and promote XXXXX who are members of their XXXXX associations from those who are not.

7. XXXXX and members of XXXXX who are XXXXX are entitled to use and display the XXXXX. XXXXX may also use the XXXXX in its own local advertising campaign promoting its member XXXXX.

8. XXXXX who are not members of XXXXX, or any other XXXXX member association, are not entitled to use and display the XXXXX.

9. XXXXX charges XXXXX a XXXXX assessment fee based on the population of the province. Members of XXXXX are not required to pay a XXXXX assessment fee to XXXXX.

10. Pursuant to XXXXX Act and its Regulations, the XXXXX has delegated authority and responsibility to the XXXXX for the purpose of licensing and regulating XXXXX in the province of XXXXX. While an XXXXX must be licensed through the XXXXX to transact XXXXX in the province, the XXXXX does not have to be a member of XXXXX to be licensed nor is membership in XXXXX required to maintain a professional status recognized by statute.

11. XXXXX By-laws addresses the following classes of membership in XXXXX:

XXXXX member - is a person who holds a XXXXX Licence and operates or is employed by a XXXXX:

(i) XXXXX;

(ii) XXXXX;

(iii) XXXXX;

(iv) XXXXX; and

(v) XXXXX.

XXXXX member XXXXX is an individual who holds a XXXXX Licence and does not qualify as a XXXXX member and:

(i) XXXXX; or

(ii) XXXXX.

12. According to XXXXX the By-laws, the members of XXXXX must remain in good standing, subscribe to and comply with its Constitution and By-laws and with its standards of professional conduct.

13. XXXXX the By-laws states that all applications for any class of membership in XXXXX must be made in writing and include all information required by the directors from time to time and be accompanied by the application fee as determined by the directors from time to time.

14. Under XXXXX the By-laws, the directors will determine from time to time the fees for each category of membership. XXXXX the By-laws defines "fees" to mean any fees, including membership fees, dues or other amounts which may be assessed of the members by the directors from time to time.

15. According to XXXXX the By-laws, a member ceases to be a member in good standing of XXXXX days following the payment date relating to any fees, if the member has not either:

(a) paid any such fees in full or made arrangements for the payment of any such fees which are satisfactory to XXXXX in its sole discretion; or

(b) upon passage of a resolution by a majority of the directors declaring that the conduct of the member is adverse to the interests of XXXXX.

16. Under XXXXX the By-laws, a member ceases to be a member of XXXXX upon being a member not in good standing for a period of XXXXX consecutive months.

17. XXXXX the By-laws provides that every XXXXX member in good standing is entitled to vote at a general meeting and to vote to elect directors. No XXXXX member is entitled to vote at a general meeting or to vote to elect directors.

18. You included a copy of XXXXX with your incoming letter. For a XXXXX member, the membership dues XXXXX are $XXXXX. For XXXXX members, the membership dues are $XXXXX.

19. In addition to the benefit of being identified and promoted through the XXXXX advertising campaign, members are entitled to the following benefits:

Education courses - XXXXX provides educational courses XXXXX and seminars to members as well as non-members. Non-members are charged up to XXXXX% more for courses and seminars than members. XXXXX. The following are some examples of the educational programs offered by XXXXX according to its website:

Program     Member Price  Non-member price

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

Annual conference and trade show - Members and non-members may attend XXXXX annual conference and trade show. Non-members pay XXXXX% more in fees to attend.

Publications - XXXXX produces a XXXXX magazine, XXXXX, which is provided to members and industry partners at no charge. Also, XXXXX sends XXXXX communications to remind members of upcoming events, educational opportunities, new membership services, regional meetings, etc. In addition, XXXXX annually produces the XXXXX, which lists XXXXX businesses. Each member XXXXX office receives a complimentary copy XXXXX. Additional copies are available to members and non-members for a fee plus GST.

Website - XXXXX provides information for the general public and its members on its website. Also on its website, a XXXXX locator containing the names, addresses, phone/fax numbers, website addresses or email contacts for all of the member-XXXXX is maintained by XXXXX. In addition, there is a XXXXX section of the website that includes information on online education courses, membership services, job resumes, posting of examination results as well as advertisements.

XXXXX - XXXXX. XXXXX administers an XXXXX program through its office. XXXXX. Overall XXXXX rates are negotiated annually.

Group Benefit Plan - XXXXX endorses a group health plan for members. The plan is not compulsory and is contracted out to an independent provider. Rates are set according to the XXXXX experience of the group. Coverage is for supplementary medical and dental expenses as well as income protection for members.

Legal and accounting services - XXXXX has negotiated an agreement with an accounting and legal firm to provide XXXXX of consultation per year at no charge.

Toll-free number - XXXXX has a XXXXX toll-free line so that members can call at no expense to them.

XXXXX information line - XXXXX has a listing in the local phone book. It receives several calls per day asking for XXXXX information and all calls are dealt with immediately or referred to the correct XXXXX area or organization.

Resume service - XXXXX provides a resume service at no charge to members. It collects resumes and posts them on its website or faxes them to interested members.

Supplies - XXXXX has a membership services committee that negotiates group rates for its members with different suppliers for office equipment and other supplies. It informs members of these rates via XXXXX.

Surveys - The Board of Directors for XXXXX identifies areas of interest and arranges for suitable surveys to be undertaken XXXXX to provide information so that policy and direction can be modified as needed.

20. XXXXX has not made an election under section 17 of Part VI of Schedule V to the ETA in respect of its memberships.

Rulings Requested

1. What is the tax status of XXXXX memberships supplied by XXXXX?

2. If the supply of XXXXX memberships are taxable, would the Canada Revenue Agency (CRA) accept that GST/HST is only applicable on future transactions made by XXXXX?

Please note that a ruling provides the CRA's position on specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person. The CRA reserves the right not to issue a ruling where it considers that one would not be appropriate. As your second ruling request does not involve a specific provision of the legislation and how it relates to a clearly defined factual situation we are unable to issue a ruling on this matter.

Ruling Given

Based on the facts set out above, we rule that XXXXX supplies of XXXXX memberships made in XXXXX are taxable supplies 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 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 (a) to (f) of that section.

Thus, the first condition that must be met under section 17 of Part VI of Schedule V is that the supply of the membership must be in a "public sector body". Under subsection 123(1), a "public sector body" is defined to mean a government or a public service body. Under the same subsection, a "public service body" is defined to mean a non-profit organization, a charity, a municipality, a school authority, a hospital authority, a public college or a university.

A "non-profit organization" is defined under subsection 123(1) to mean a person (other than an individual, an estate, a trust, a charity, a public institution, a municipality or a government) that:

•   was organized solely for a purpose other than profit;

•   is operated solely for a purpose other than profit; and

•   no part of the income of which is payable to, or otherwise available for the personal benefit of, any proprietor, member or shareholder thereof unless the proprietor, member or shareholder is a club, a society or an association the primary purpose and function of which is the promotion of amateur athletics in Canada.

An entity must meet all of the above conditions to be considered a non-profit organization for ETA purposes. For more information on these conditions, please refer to the GST/HST Policy Statement P-215, Determination of Whether an Entity is a "Non-Profit Organization" for Purpose of the Excise Tax Act ("ETA"), which is available on the CRA website at www.cra.gc.ca.

XXXXX has not substantiated that it meets the ETA definition of a non-profit organization and consequently, it is not a public sector body for ETA purposes. As a result, section 17 of Part VI of Schedule V will not apply to its supplies of memberships and, since there are no other provisions in Schedule V that apply, XXXXX supplies of XXXXX memberships are taxable supplies subject to the GST when made in XXXXX.

Under subsection 221(1) of the ETA, every person who makes a taxable supply is required to collect the GST or HST payable by the recipient in respect of the supply. Further, section 165 of the ETA requires every recipient of a taxable supply (other than a zero-rated supply) made in Canada, to pay the GST or HST calculated on the value of the consideration for the supply.

Effective July 1, 2006, the rate of the GST has been 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 website at http://www.cra-arc.gc.ca/agency/budget/2006/gstrateqa-e.html.

If you 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, 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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