4 April 2006 GST/HST Interpretation 64473 - Medical Services Clinic

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

Statement of Facts

We understand that:

1. XXXXX was established in XXXXX as a non-profit trade association and is incorporated XXXXX.

2. XXXXX is a voluntary organization of professional XXXXX. Its mission is to promote and preserve XXXXX system as a secure, cost-effective, customer-oriented method of XXXXX provided by knowledgeable, professional XXXXX.

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

4. 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).

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

6. XXXXX is not an XXXXX who is licensed or otherwise authorized under the laws of Canada or a province to carry on an XXXXX business.

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

8. 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.

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

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

11. 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.

12. According to XXXXX By-law XXXXX, its objects are to:

(a) XXXXX;

(b) XXXXX;

(c) XXXXX;

(d) XXXXX; and

(e) XXXXX.

13. Pursuant to XXXXX Act and its Regulations, the XXXXX has delegated authority and responsibility to the XXXXX to license and regulate XXXXX in the province of XXXXX. There are XXXXX and they are the XXXXX. XXXXX are regulated through the XXXXX.

14. A XXXXX must be licensed in accordance with the requirements of the XXXXX. An XXXXX must have at least one XXXXX sponsored at all times, must maintain a valid policy of XXXXX, must maintain appropriate consumer protection requirements defined by the XXXXX and must register with the XXXXX Corporations Branch. XXXXX are required to comply with the continuing education requirements in order to maintain their licence.

15. An XXXXX does not have to be a member of XXXXX to be licensed by the XXXXX nor is membership in XXXXX required to maintain a professional status recognized by statute.

16. Under XXXXX the XXXXX Bylaws, a licensed XXXXX or licensee sponsored by a XXXXX shall, as a condition of licence:

(a) provide a bond in such form as prescribed by XXXXX in the amount of $XXXXX;

(b) provide XXXXX with an acceptable guarantee in the amount of $XXXXX; or

(c) provide evidence that the licensee is a current member of XXXXX and has or is contributing to the XXXXX.

17. XXXXX By-law XXXXX sets out XXXXX classes of membership in XXXXX: XXXXX Members, Associate Members, Honorary Life Members and Affiliate Members. A qualified person becomes a XXXXX Member, Associate Member or Affiliate Member by submission and approval of a membership application and payment of prescribed membership fees. A qualified licensed individual becomes a XXXXX Member upon becoming a XXXXX Member or a partner, officer or employee of a XXXXX Member and each XXXXX Member is deemed to have applied to XXXXX for membership on behalf of any partner, officer or employee of such XXXXX Member unless the individual or XXXXX Member indicates otherwise. A person becomes an Honorary Life Member by resolution of the Board.

18. According to XXXXX By-law XXXXX, membership fees for each class of members shall be such annual sum as determined from time to time by the Board, but any changes in such fees shall not become effective until approved by ordinary resolution of the voting members at an annual meeting or special meeting of members. XXXXX Members and Honorary Life Members do not pay annual membership dues.

19. XXXXX Members - A person, corporation or partnership is eligible to be a XXXXX Member where it meets the criteria listed under XXXXX Articles of Amendment. In part, the person, corporation or partnership must be the holder of a licence as XXXXX to engage in the XXXXX business for all classes of XXXXX, other than XXXXX, and cannot be controlled by an XXXXX.

XXXXX Members are entitled to one vote each at all meetings of members, except meetings at which only holders of a specified membership class are entitled to vote under XXXXX Act. XXXXX Members have the right to attend any meetings of the members. A XXXXX cannot acquire an Affiliate or Associate Membership in XXXXX.

The annual membership dues assessment for a XXXXX Member is based on the total XXXXX volume of business done by the XXXXX Member for all locations. According to the membership dues structure for XXXXX, a XXXXX with a total XXXXX volume of up to $XXXXX would pay an annual membership dues assessment of $XXXXX, while a XXXXX with a total XXXXX volume of over $XXXXX would pay an annual membership dues assessment of $XXXXX. The membership dues assessment is comprised of a membership due and a XXXXX due based on XXXXX volume. In addition, members who have one or more full-time branch office(s) are required to pay a surcharge of $XXXXX for each full-time branch office as part of their membership dues assessment.

According to XXXXX Policies, it is mandatory for all XXXXX Members to contribute to the XXXXX. A XXXXX Member cannot acquire membership in XXXXX without payment of both the membership due and the XXXXX due which comprise the annual membership dues assessment.

20. Associate Members - According to XXXXX Articles of Amendment, an individual is eligible to be an Associate Member if the individual has successfully completed an education program sponsored by XXXXX and is otherwise qualified for a nationally recognized designation. In addition, the individual must hold a valid XXXXX licence as XXXXX for all classes of XXXXX, other than XXXXX, and the individual is not a XXXXX Member or a partner, officer or employee of a XXXXX Member and the individual is employed by a person eligible to be, but is not, a XXXXX Member.

Associate Members are not entitled to vote at meetings of the members and do not have the right to attend any meetings of the members except with the permission of the Board or the meeting of the members. Associate Members are not eligible to be elected to the Board.

Associate Members have the right to participate in education programs offered by XXXXX and to use any educational designation to which they may become entitled. Associate Members also have the right to receive XXXXX newsletters free of charge and be listed in any XXXXX directory published by XXXXX as an Associate Member. Associate Members receive a free copy of the XXXXX Directory. With the exception of these rights, Associate Members have no other rights to participate in the management of XXXXX or to enjoy the benefits of any other rights of membership of XXXXX, including use of the XXXXX logo.

Associate Members are employees of non-member XXXXX and pay an annual membership dues assessment of $XXXXX.

21. Affiliate Members - According to XXXXX Articles of Amendment, an individual or firm is eligible to be an Affiliate Member if the individual or firm does not qualify for membership as a XXXXX Member or an Associate Member and, in the opinion of the Board of Directors, there is a benefit to XXXXX for the individual or firm to become a member.

Affiliate Members are not entitled to vote at meetings of the members and do not have the right to attend any meetings of the members except with the permission of the Board or the meeting of the members. Affiliate Members are not eligible to be elected to the Board.

Affiliate Members have the right to participate in education programs offered by XXXXX, to receive XXXXX newsletters free of charge and be listed in any XXXXX directory published by XXXXX as an Affiliate Member. Affiliate Members receive a free copy of the XXXXX Directory. Affiliate members also have the right to advertise as an Affiliate Member of XXXXX. With the exception of these rights, Affiliate Members have no other rights to participate in the management of XXXXX or enjoy the benefits of any other rights of membership of XXXXX, including use of the XXXXX logo. Affiliate Members are not eligible to use XXXXX-sponsored education designations.

Affiliate Members who are XXXXX related businesses such as XXXXX, XXXXX companies and managing XXXXX, pay an annual membership dues assessment of $XXXXX plus an additional fee for each full-time branch office as follows: XXXXX% of the annual dues assessment for the first full-time branch; XXXXX% of the annual dues assessment for the second full-time branch; and XXXXX% of the annual dues assessment for the third full-time branch.

Affiliate Members who are non-XXXXX related businesses pay an annual membership dues assessment of $XXXXX.

22. XXXXX - According to XXXXX By-law XXXXX, XXXXX shall maintain a separate fund, known as the XXXXX (the Fund), for the purpose of compensating eligible claimants who have suffered financial loss of XXXXX, fees or XXXXX benefits due to the insolvency, misappropriation or fraudulent act of any XXXXX Member of XXXXX.

23. Under XXXXX By-law XXXXX, all XXXXX Members, upon admission to membership, are required to pay an initial assessment into the Fund of $XXXXX payable in one lump sum or in five equal annual installments. The Board may determine that additional assessments are required for the Fund from existing XXXXX Members although, to date, no additional assessments have been required. However, where, because of a previous contribution by a related party, corporate reorganization, re-application or otherwise, the Board considers it unjust for a XXXXX Member to pay an assessment into the Fund, the Board may waive such assessment. All assessments paid into the Fund become the property of XXXXX and are non-refundable and non-transferable.

24. The Fund is not a registered Trust plan. It is an internally restricted fund controlled by the Board of Directors of XXXXX.

25. XXXXX lists participation in the Fund as one of the values of membership on its website and in its XXXXX brochure. It states that the Fund XXXXX. The advantages of contributing to the Fund are:

•   XXXXX.

•   XXXXX.

•   XXXXX.

•   XXXXX.

26. XXXXX - In its XXXXX brochure, XXXXX also lists the XXXXX as a member benefit stating that the XXXXX brand represents the professional XXXXX distribution channel, the value of the products a XXXXX recommends and the promise of customer satisfaction. It is the symbol of trust, choice and professionalism. On its website, the XXXXX is listed as one of the values of membership in XXXXX.

XXXXX. XXXXX billboards were set up in major cities in XXXXX. XXXXX Members received a XXXXX Toolkit CD-Rom that provided information on enhancing the XXXXX profile in their offices. XXXXX Members can use the XXXXX logo on all of their XXXXX. In addition to an inflatable XXXXX logo, XXXXX Members have access to a XXXXX tradeshow/display booth and XXXXX golf pin flags and other promotional materials. All XXXXX Members are required to participate in the XXXXX program.

27. Education - XXXXX supplies educational courses, programs and books to members as well as to non-members. It also offers to members specially designed in-house training programs. Members are eligible to participate in the XXXXX Plan (XXXXX Plan) which is available exclusively to members of XXXXX. Annual enrollment in the XXXXX Plan entitles members to free attendance at XXXXX seminars (excluding meals if provided), free use of video seminars (excluding shipping and handling), and reduced fees for educational programs. The annual cost to members to enroll in the XXXXX Plan for the period from XXXXX to XXXXX, is $XXXXX per enrollee.

XXXXX website provides information on the registration fees for its educational programs. For example, XXXXX will be offering XXXXX as an immersion course. The basic registration fee for this course includes a textbook, practice exams, instruction, class materials and final exam and is $XXXXX for members and $XXXXX for non-members. The full registration fee which includes the elements of the basic registration fee plus accommodations, meals and parking is $XXXXX (shared room) or $XXXXX (single room) for members and $XXXXX (shared room) or $XXXXX (single room) for non-members.

XXXXX also offers the XXXXX courses as well as other courses by immersion, self-study or on-line. The following are some of the courses provided by XXXXX and their registration fees:

28. Publications/Communications - XXXXX. Members receive a free copy of the XXXXX Directory. Additional directories are $XXXXX for XXXXX Members and $XXXXX for Associate and Affiliate Members. Non-members pay $XXXXX for the directory.

XXXXX newsletters are provided to members and interested stakeholders for no charge. While the newsletter is not directly provided to non-members of XXXXX, it is published on XXXXX website providing free access to the public. Members may advertise in the newsletter at no cost. Non-members may also advertise in the newsletter and the current rates are:

29. Annual Convention - XXXXX held its three-day XXXXX Convention in XXXXX and the registration fee for all members for the full convention was $XXXXX and $XXXXX for non-members. There were separate prices for individual days or events ranging from $XXXXX to $XXXXX for members and $XXXXX to $XXXXX for non-members.

30. Annual Golf tournament - XXXXX holds an annual golf tournament providing participants with the opportunity of networking with fellow XXXXX and other industry patrons.

31. XXXXX - XXXXX and its subsidiary, XXXXX has partnered with XXXXX to offer a voluntary group XXXXX program specifically designed for XXXXX. Members receive a XXXXX% XXXXX reduction for attending approved seminars and a XXXXX% experience credit, if eligible.

32. Advocacy/Lobbying - XXXXX meets regularly with members of the provincial and federal government, major XXXXX, XXXXX and other provincial and industry associations representing the interests of its members. XXXXX represents members on important issues that affect their business operations.

33. XXXXX. The health plan is available to XXXXX with a minimum of two staff with no family consent restrictions. The insurer is XXXXX and the group health plan is underwritten on an individual basis for each participating member. The participating member is the policy holder under the plan. Participation in the plan is voluntary.

34. XXXXX - XXXXX supports young XXXXX through the XXXXX. Its objectives are to promote awareness of the network, involve young XXXXX in XXXXX, develop and promote professionalism among young XXXXX and foster industry activities that involve young XXXXX participation.

35. Group employee Registered Savings Plan (RSP) program - XXXXX Members of XXXXX have access to a group RSP program. Participation in the program is voluntary. The program is administered by a third party, XXXXX.

36. Exclusive revenue opportunities - Members of XXXXX have the exclusive right to earn commissions with sales of the following revenue-generating programs: XXXXX. Members can also purchase a point of sale debit/credit terminal at a reduced cost and have the option to charge a user fee.

37. Member discount program - Members of XXXXX are eligible to receive discounts on banking and financial services with the XXXXX, special rates for hotel accommodations XXXXX, reduced rates for car rentals from XXXXX, special rates for computer support services with XXXXX, a discount of XXXXX per litre of gasoline from XXXXX, and a $XXXXX discount off XXXXX software used for calculating XXXXX.

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

39. For the past three years, XXXXX has been collecting GST on its membership fees as well as on the Fund assessment fee charged to new XXXXX Members.

Rulings Requested

1. What is the tax status of XXXXX Memberships, Associate Memberships and Affiliate 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, Associate Memberships and Affiliate 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 legislative references are to the ETA and the regulations therein, unless otherwise specified.

A licensed 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 due is a mandatory component of the annual membership dues assessment and all XXXXX Members are required to contribute and participate in the XXXXX. The XXXXX due and the membership due that comprise the annual membership dues assessment for a XXXXX Member are calculated based on the total XXXXX volume of business done by the XXXXX and a XXXXX cannot acquire membership in XXXXX without paying both components. As a result, the XXXXX is not a separate supply from the supply of an XXXXX Membership even if it is separately itemized on the annual membership dues assessment invoice.

In general, supplies of memberships 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.

Participation in the Fund is also not an indirect benefit for XXXXX Members under paragraph 17(a) of Part VI of Schedule V. Non-members are not able to contribute to the Fund and receive the benefit of participating in the Fund. Further, this benefit is worth at least as much as $XXXXX to a XXXXX Member for each following year, as long as no additional assessments are required.

Also, XXXXX Members as well as Associate and Affiliate 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 more than XXXXX% (higher for XXXXX Plan members) from non-member rates. These are not insignificant discounts when compared to the consideration for a XXXXX, Associate or Affiliate Membership in XXXXX.

For instance, a member, who is not a XXXXX Plan participant, has the right to take the XXXXX immersion course for $XXXXX (basic registration), which is a discount of $XXXXX from the non-member rate of $XXXXX. For a XXXXX Member who has a XXXXX volume of up to $XXXXX, this discount accounts for almost XXXXX% of the member's annual membership dues assessment of $XXXXX, without even considering the cumulative value of all available discounts. For Associate and single-branch Affiliate Members, this discount is more than XXXXX% of their annual membership dues assessments. Thus, this benefit exceeds the allowable benefit in paragraph 17(e) of Part VI of Schedule V since XXXXX, Associate and Affiliate Members have the right to receive educational programs at discounts that are not insignificant in relation to their annual membership dues assessments.

Therefore, as XXXXX, Associate and Affiliate 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

2006/03/08 — RITS 64495 — Tax Status of Memberships