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
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Case: 76850XXXXXJuly 11, 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 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of memberships by the XXXXX. We apologize for the delay in responding to your enquiry.
Statement of Facts
We understand that:
1. XXXXX is a body corporate without share capital incorporated under the XXXXX Act XXXXX.
2. XXXXX is registered for GST/HST purposes XXXXX with the effective date XXXXX.
3. XXXXX is not a registered charity within the meaning assigned by subsection 248(1) of the Income Tax Act.
4. In its submission XXXXX, XXXXX stated that it meets the criteria as a non-profit organization as that term is defined under subsection 123(1) of the Excise Tax Act (ETA).
5. XXXXX mission and values are stated under XXXXX its Constitution and By-laws (the By-laws). XXXXX mission is to actively promote the common interests of XXXXX. XXXXX:
(i) XXXXX;
(ii) XXXXX;
(iii) XXXXX;
(iv) XXXXX;
(v) XXXXX; and
(vi) XXXXX.
6. XXXXX is a member of the XXXXX. As a member, XXXXXparticipates in XXXXX Program XXXXX which is a national advertising campaign.
7. 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.
8. 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.
9. XXXXX who are not members of XXXXX, or any other XXXXX member association, are not entitled to use and display the XXXXX.
10. 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.
11. Membership in XXXXX is voluntary. Included under XXXXX its By-laws are the following categories of memberships:
XXXXX Members - Any self-employed individual, firm or corporation operating within the XXXXX as an XXXXX, authorized by law, where XXXXX% of the firm's revenue comes from XXXXX and whose aims and practices are consistent with the objectives of XXXXX, shall be eligible for XXXXX Membership. XXXXX Members are entitled to serve on the Executive Committee and have voting rights.
XXXXX Members - Any self-employed individual, firm or corporation operating outside the XXXXX as an XXXXX, authorized by law, where XXXXX% of the firm's revenue comes from XXXXX and whose aims and practices are consistent with the objectives of XXXXX, shall be eligible for XXXXX Membership. XXXXX Members must also be members in good standing of the XXXXX to qualify for membership in XXXXX. XXXXX Members are not entitled to serve on the Executive Committee nor shall they have voting rights. XXXXX Members shall not have any vested interest in the finances of XXXXX.
XXXXX Members - Any self-employed individual, firm or corporation offering supportive services to XXXXX, and whose aims and practices are consistent with the objectives of XXXXX, shall be eligible for XXXXX Membership. The services of XXXXX are not considered to be XXXXX services to XXXXX and, therefore, do not qualify for XXXXX Membership.
12. Pursuant to the XXXXX Act and its Regulations, the XXXXX has been delegated the authority and responsibility for licensing and regulating XXXXX in the province of XXXXX. While an XXXXX must be licensed through 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.
13. According to XXXXX By-laws, applications for XXXXX Membership shall be made, in writingXXXXX. All applications must be approved by resolution of the Executive Committee.
14. XXXXX the By-laws sets out that membership fees for XXXXX Membership are established by the Executive Committee from time to time.
15. According to XXXXX the By-laws, the Executive Committee may expel any member who is XXXXX delinquent in payment of dues and any other special assessments XXXXX without further reference.
16. Under XXXXX the By-laws, the expenses of XXXXX shall be paid for by an annual assessment of its membership, the method and amount of such assessment to be determined by the Executive Committee from time to time XXXXX.
17. Under XXXXX the By-laws, the Executive Committee has the power to levy such special assessment as deemed necessary for special purposes.
18. XXXXX Members are invoiced a single amount as a membership due in XXXXX of each year. XXXXX determines the membership due for a particular XXXXX Member by adding the following XXXXX components: XXXXX. XXXXX the components of the XXXXX Membership due are not shown on the invoice, XXXXX.
19. The annual membership fee for an XXXXX Membership is $XXXXX. The membership XXXXX lists the benefits of XXXXX Membership as: first notice of networking events, including the golf tournament; formalized venue to communicate with like-minded XXXXX; and increased understanding of the governmental and other issues that affect their business. While XXXXX Members do not get board representation nor the right to vote at annual general meetings, they are entitled to attend the annual general meetings, seminars, the annual XXXXX dinner and the annual golf classic.
20. The annual membership fee for a XXXXX Membership is $XXXXX. The membership XXXXX lists the benefits of XXXXX Membership as: branding and sponsorship opportunities XXXXX; formalized venue to communicate with XXXXX members; increased understanding of the issues that affect their customers; opportunities to participate in select XXXXX events (for example, the golf tournament and the XXXXX dinner); and opportunity to invite XXXXX members to educational/informational events they may choose to coordinate. XXXXX Members do not get board representation or votes at the annual general meeting.
21. XXXXX lists the following benefits of membership for all members:
• XXXXX;
• XXXXX;
• XXXXX;
• XXXXX; and
• XXXXX.
22. XXXXX also offers a calendar of events, a suggested XXXXX education path including a listing of available educational courses from the XXXXX, a listing of current members including links to their websites, member news updates and bulletins, XXXXX reports and By-laws, XXXXX related links and links to organizations within which it advocates its members' interests. XXXXX does not charge a fee to members for space or links on its website.
23. The following are some of the functions members have the right to attend:
XXXXX Dinner - Every year XXXXX hosts a XXXXX Dinner where representatives from the member XXXXX firms and the XXXXX community come together not only to network but also for social and entertainment purposes. XXXXX recently held its XXXXX anniversary XXXXX Dinner XXXXX and the cost to attend for XXXXX members was $XXXXX or $XXXXX and for non-members it was $XXXXX or $XXXXX.
Annual Golf Tournament - Each year XXXXX hosts a golf tournament XXXXX. The XXXXX registration fee for its XXXXX golf tournament was $XXXXX.
XXXXX Reception - XXXXX hosts an annual XXXXX Reception as a forum at which senior executives from its member firms and from XXXXX company counterparts can come together to discuss common issues and information. The event is by invitation only and no fees are charged.
XXXXX Seminar - XXXXX puts on an annual XXXXX seminar as part of its mandate to provide continuing education to all of its members. XXXXX. XXXXX charged $XXXXX per person XXXXX for members to attend.
24. Other than its XXXXX seminars, XXXXX does not provide educational programs to its members. However, XXXXX Members of XXXXX are able to acquire educational programs provided by the XXXXX at their member rates rather than non-member rates. XXXXX.
25. XXXXX previously made an election under section 17 of Part VI of Schedule V to the ETA in respect of its memberships but revoked the election effective XXXXX.
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, XXXXX Memberships and 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 Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.
A XXXXX that becomes a XXXXX Member in XXXXX is a participant in the XXXXX. This program is an integral and interdependent element of the supply of a XXXXX Membership in XXXXX. Further, the XXXXX charge is a mandatory component of the annual membership fee for a XXXXX Member and a XXXXX cannot acquire a XXXXX Membership without paying all the components of the annual membership fee XXXXX. As a result, the XXXXX is not a separate supply from the supply of a XXXXX Membership in XXXXX.
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.
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.
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.
A XXXXX that becomes a XXXXX Member in XXXXX is a participant in the XXXXX. A XXXXX Member's right to be identified by the XXXXX and use the XXXXX promotional materials is not an indirect benefit as contemplated under paragraph 17(a) of Part VI of Schedule V nor is it an allowable benefit under any other paragraph in section 17 of Part VI of Schedule V. This benefit has commercial applications for XXXXX Members, who are XXXXX, as it identifies, distinguishes and promotes the XXXXX Members from their competitors in the XXXXX industry. As such, this benefit could not be considered a secondary or unintended consequence of membership and is therefore not an indirect benefit. The XXXXX brands the XXXXX Member and is a marketing tool. Non-members do not have the right to use or be identified by the XXXXX.
As a note, a XXXXX that becomes an XXXXX Member in XXXXX is also a participant in the XXXXX and receives a direct benefit even though XXXXX does not charge a XXXXX component in the membership fee XXXXX.
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 also an allowable benefit.
As set out in 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.
Therefore, 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.
XXXXX Members, by reason of their membership in XXXXX, are able to acquire educational programs from the XXXXX at its member rates, which are lower than the fair market value rates charged to non-members. 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.
Further, under paragraph 17(e) of Part VI of Schedule V, the right to receive a discount on a supply to be made by the public sector body, where the cumulative value of all such discounts to which a member is entitled is insignificant (less than 30%) in relation to the membership fee, is an allowable benefit.
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.
All members of XXXXX have the right to a receive a discount on the registration fee to attend the annual XXXXX Dinner. This discount is not insignificant in relation to the membership fee for an XXXXX Membership in XXXXX. For instance, an XXXXX Member, who had the right to attend the XXXXX Dinner for $XXXXX, received a discount of $XXXXX from the non-member price of $XXXXX, which was more than 30% of the member's annual membership fee of $XXXXX. Thus, XXXXX Members received a benefit that exceeded the allowable benefit in paragraph 17(e) of Part VI of Schedule V.
Therefore, as XXXXX Members receive benefits that exceed the "allowable benefits" listed in paragraphs 17(a) to (f) of Part VI of Schedule V and, as there are no other provisions in Schedule V to exempt XXXXX supplies of these memberships made in XXXXX, they are taxable supplies subject to GST.
Please note that the Minister of Finance announced in the Federal Budget of May 2, 2006, a proposal to reduce the rate of the GST and the federal portion of the HST by 1%, effective July 1, 2006. Bill C-13 was tabled in Parliament on May 2, 2006, and received royal assent on June 22, 2006. The general rule is that the rate of GST is reduced from 7% to 6% and the rate of the HST from 15% to 14% on supplies for which the GST/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.
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
2006/06/23 — RITS 78986 — GST/HST Status of XXXXX Herbal Teas
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