24 April 2006 GST/HST Ruling 64488 - Ice Cream Products

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 and XXXXX memberships by the XXXXX. We apologize for the delay in responding to your enquiry.

Statement of Facts

We understand that:

1. XXXXX is a non-profit trade organization that was incorporated under the XXXXX Act of XXXXX. XXXXX mission is to promote the member XXXXX as the premier distributor of XXXXX products and services in XXXXX.

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

3. XXXXX indicated 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).

4. XXXXX is not a registered charity within the meaning assigned by subsection 248(1) of the Income Tax Act.

5. According to XXXXX its Constitution, the purposes of XXXXX are:

(a) XXXXX;

(b) XXXXX;

(c) XXXXX;

(d) XXXXX; and

(e) XXXXX.

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

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

8. XXXXX and XXXXX Members of XXXXX are entitled to use and display the XXXXX logo. XXXXX also uses the XXXXX logo in its own local advertising campaign promoting its XXXXX Members.

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

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. XXXXX the By-laws sets out XXXXX categories of membership which include the following:

XXXXX Member - A XXXXX and its affiliates who have satisfied the requirements of XXXXX Membership as determined by the Directors of XXXXX from time to time may become XXXXX Members. A XXXXX and its affiliates will be entitled to only one XXXXX Membership and one XXXXX Membership in respect of the XXXXX and all of its affiliates, which membership will be in the name of the XXXXX (as represented by its main office) regardless of how many corporations, partnerships, individuals, employees or offices are represented by the XXXXX and its affiliates. Each XXXXX Member will be entitled to an additional number of XXXXX Memberships on the basis of one XXXXX Membership for every other office of the XXXXX and its affiliates in XXXXX (other than the main office) as determined by the Directors.

A XXXXX is defined under XXXXX By-laws to mean a corporation, partnership or individual which holds a valid licence XXXXX to transact XXXXX issued by the XXXXX and has not entered into XXXXX agreements which prohibit the representation of other XXXXX. However, a XXXXX does not include a XXXXX.

XXXXX Member - XXXXX who are unable to meet the requirements for XXXXX Membership or XXXXX Membership but who satisfy the requirements of XXXXX Membership as determined by the Directors from time to time may become XXXXX Members of XXXXX. XXXXX located outside the province of XXXXX who satisfy such requirements may also be XXXXX Members of XXXXX.

12. According to XXXXX the By-laws, every XXXXX Member in good standing is entitled to vote at a general meeting and to vote to elect a representative Director, President, First Vice-President, Second Vice-President and Treasurer. An XXXXX Member is not entitled to vote at a general meeting or to vote to elect a representative Director, President, First Vice-President, Second Vice-President and Treasurer.

13. Under XXXXX the By-laws, the Directors will determine from time to time the "fees" for each category of membership. "Fees" are defined in XXXXX the By-laws 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.

14. In part, under 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 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. According to 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.

15. The XXXXX membership fee structure for a XXXXX Member was comprised of the following: a charge per XXXXX, plus a charge for the XXXXX. The maximum charge for the number of XXXXX and the maximum charge for the number of XXXXX. The XXXXX charges were identical amounts based on the number of XXXXX.

16. For XXXXX, the membership fee structure for XXXXX Members was XXXXX. The maximum charge for the number of XXXXX. The charges for the XXXXX were the same as in XXXXX.

17. XXXXX charges, both XXXXX, are mandatory components of the membership fee for XXXXX Members. Membership billing for the XXXXX charges and the XXXXX is issued yearly in XXXXX while billing for the XXXXX is issued in XXXXX of each year. The XXXXX is billed separately in order to alleviate or minimize the initial cost of membership billing to members; however, as with the other membership fee charges, they cover the period from XXXXX to XXXXX of XXXXX fiscal year.

18. For an XXXXX Member, a XXXXX% discount applies to the total amount of billing per the membership fee structure under XXXXX Membership excluding charges for the XXXXX. XXXXX Members are not eligible for XXXXX benefits.

19. Members and potential members are made aware of the benefits of membership in XXXXX from information available on its website and in its XXXXX kit (the Membership Kit). The following are some of the benefits of membership in XXXXX:

XXXXX - In addition to the benefit of being identified and promoted through the XXXXX advertising campaigns which direct consumers to shop where they see the XXXXX logo, XXXXX Members also receive a XXXXX, which is a two-CD package of marketing and media support tools. XXXXX also has XXXXX promotional products such as pens, decals, posters, pins, notes, shirts, etc., that can be ordered by XXXXX Members, either free of charge or for a small fee.

Education - XXXXX provides educational programs in the XXXXX field for industry stakeholders and continuing education opportunities for current and prospective members. Members are eligible for discounts from XXXXX% to XXXXX% on the fees charged to non-members for educational programs such as the XXXXX course, the XXXXX course, seminars, videos, online learning and correspondence courses. The following are examples of the educational programs offered by XXXXX according to its website and Membership Kit:

Program      Member Price  Non-member price

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

XXXXX also sells textbooks and workbooks at discounted prices to members (e.g., the XXXXX workbook is $XXXXX for members and $XXXXX for non-members). XXXXX rents videos on XXXXX seminars for a charge of $XXXXX to members and $XXXXX to non-members. Equipment used for XXXXX seminars via video conferencing is available for rent for corporate meetings.

Publications - The XXXXX magazine is published XXXXX times per year with the latest industry news, events and opportunities and is distributed free of charge to all XXXXX members. For non-members, the annual subscription rate for the magazine is $XXXXX plus GST. Also, according to the magazine's website, classified advertising rates are $XXXXX per column inch and XXXXX members pay XXXXX.

Members also receive a free periodic e-newsletter that provides timely updates on XXXXX activities, education events and industry news. XXXXX also has resource materials available to members on compliance issues and legislation and regulations pertaining to the XXXXX industry. Members are also able to download and print handy XXXXX reference guides that cover a variety of topics from XXXXX website.

Annual events - XXXXX holds an annual conference. This event includes XXXXX seminars, a trade show, entertainment, the annual general meeting and networking opportunities with colleagues from XXXXX and beyond. XXXXX also hosts an annual golf tournament.

Online Resources - With the XXXXX function on XXXXX website, consumers can search online by postal code to find the XXXXX closest to them. XXXXX is an online marketplace for XXXXX with openings and people looking for work where positions available can be posted as well as resumes of available personnel.

Various scholarships - XXXXX offers various scholarships from $XXXXX to $XXXXX toward studies at a post-secondary institution for students with family ties to the XXXXX industry.

Advocacy - XXXXX promotes the interests of its members at all levels of government. XXXXX represents members' interests with the XXXXX and maintains positive, professional relationships with the XXXXX and several business-coalition groups.

XXXXX Program - XXXXX provides funding and support to the XXXXX which offers mediation, arbitration and mini-trial services as an alternative to costly litigation in the event of XXXXX disputes. An initial half-hour consultation is free to members as well as non-members. XXXXX, manages the activities of the XXXXX

XXXXX coverage - Special rates are available for members for XXXXX insurance provided through XXXXX.

Group benefit plan and RSP program - XXXXX is the insurer and, through XXXXX, members are eligible to participate in a group benefit plan (health, dental, life and disability insurance). XXXXX indicates that XXXXX% of its members would not be eligible for a quotation on the plan except for the fact that they are part of a larger group. Further, the coverage that is available would not be available to most member firms individually. In addition, each member XXXXX can choose to set up a group RSP as either employees only contribute, employers only contribute or both contribute. There is no policy set-up fee for member XXXXX joining the group RSP program.

Financial and banking services - XXXXX members offering premium financing from XXXXX to their small and medium-sized business clients are eligible to receive a XXXXX% commission per financed transaction of small-business XXXXX. The XXXXX offers key banking products and services for member XXXXX and their employees including access to capital at preferred rates, XXXXX valuation services and cash management services. In addition, through XXXXX, XXXXX members receive a XXXXX merchant discount rate of XXXXX%, a XXXXX merchant discount rate of XXXXX% and debit card transactions at XXXXX per transaction.

Software - XXXXX offers discounts on XXXXX, its XXXXX rate comparison software program and on XXXXX, its XXXXX program. XXXXX members are entitled to a one-time XXXXX% discount at time of purchase and to ongoing software renewal discounts of XXXXX%. Also, new XXXXX members are entitled to receive a free, XXXXX single workstation licence of either XXXXX or XXXXX.

20. Members of XXXXX are also eligible to receive discounts on gasoline and diesel fuel purchases, car rentals, hotel accommodations, valet parking at the airport, office and stationery supplies, internet services, advertising specialty items, travel services, cellular phone coverage and human resource services from various suppliers.

21. Pursuant to the XXXXX Act and its XXXXX Regulation, the XXXXX has delegated authority and responsibility to the XXXXX for the purposes 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.

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

23. XXXXX indicated that it has been collecting GST on its XXXXX and XXXXX Memberships since its fiscal year starting XXXXX.

Rulings Requested

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

2. If the supply of memberships is 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 and XXXXX Memberships made in XXXXX are taxable supplies subject to the GST at 7%.

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.

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 dues are mandatory components of the annual membership fee for a XXXXX Membership in XXXXX and a XXXXX cannot acquire a XXXXX Membership without paying all the components of the membership fee (that is, the charge per XXXXX plus the charge per XXXXX plus the charge for the XXXXX). As a result, the XXXXX is not a separate supply from the supply of a XXXXX Membership even where the XXXXX is billed half-way through the year.

In general, a supply of a membership made in XXXXX by an association will be taxable supplies subject to GST at the rate of 7% 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.

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.

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, both direct and indirect, accruing to members must be taken into consideration in determining the tax status of a membership.

A XXXXX Member's right to be identified by the XXXXX and use the XXXXX logo and promotional materials is not an indirect benefit as contemplated under paragraph 17(a) 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 logo brands the XXXXX Member and is a marketing tool. Non-members do not have the right to use or be identified by the XXXXX logo.

Also, XXXXX Members as well as XXXXX Members have the right to receive or acquire educational programs at reduced rates from XXXXX. Member rates for some of XXXXX educational programs are discounted up to XXXXX% from non-member rates. These are not insignificant discounts when compared to the consideration for a XXXXX or XXXXX Membership in XXXXX.

For instance, a member has the right to take the XXXXX correspondence course for $XXXXX, which is a discount of $XXXXX from the non-member rate of $XXXXX. The member also has the right to take the XXXXX online course for $XXXXX which is a discount of $XXXXX from the non-member rate of $XXXXX. For a XXXXX Member XXXXX, these discounts totalling $XXXXX account for XXXXX% of the member's annual membership fee of $XXXXX, without even considering the cumulative value of all available discounts. For an XXXXX Member XXXXX, these discounts alone exceed the member's annual membership fee of $XXXXX. As a result, this benefit exceeds the allowable benefit in paragraph 17(e) of Part VI of Schedule V since XXXXX and XXXXX Members have the right to receive educational programs at discounts that are not insignificant in relation to their annual membership fees.

Therefore, as XXXXX and XXXXX Members receive benefits that exceed the "allowable benefits" listed in paragraphs 17(a) to (f) of Part VI and 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 at 7%.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me 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

2006/04/24 — RITS 64810 — Dried Fruits