8 March 2006 GST/HST Ruling 64495 - Tax status of memberships

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

Statement of Facts

We understand that:

1. XXXXX incorporated under the XXXXX Act XXXXX. XXXXX is a trade association representing XXXXX.

2. In its submission 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).

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

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

5. According to its Letters Patent and Application for Incorporation, XXXXX purposes and objects are:

(a) XXXXX;

(b) XXXXX;

(c) XXXXX;

(d) XXXXX;

(e) XXXXX;

(f) XXXXX;

(g) XXXXX;

(h) XXXXX;

(i) XXXXX; and

(j) XXXXX.

6. The Letters Patent and Application for Incorporation also set out that XXXXX shall not carry on any business or trade for the profit of its members, directors or officers and any profit or other accretion to XXXXX shall be held in trust and used in promoting its objects and purposes.

7. XXXXX By-laws provides that in the event of the dissolution or winding up of XXXXX, the assets of XXXXX shall, after payment of all debts and obligations, be turned over to a chartered Trust Company to be named by the Directors, with instructions that such funds are to be used exclusively for furthering the education of XXXXX and their employees. The precise manner in which these funds shall be used will be determined by the Directors in office at the time of the dissolution of XXXXX. No part of such remaining funds, however, shall be used for personal gain or benefit of any member.

8. Under XXXXX the By-laws, no Director will be remunerated for being or acting as a Director but a Director will be reimbursed for all expenses necessarily and reasonably incurred by the Director while engaged in the affairs of XXXXX.

9. Under XXXXX the By-laws, officers may be remunerated by an honourarium in such amounts as the Board of Directors may from time to time approve, in addition to all expenses they necessarily and reasonably incur while engaged in the affairs of XXXXX as approved or disapproved by the membership at the annual general meeting.

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

11. 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.

12. XXXXX Members 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.

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

14. 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.

15. XXXXX the By-laws addresses membership in XXXXX which is voluntary. XXXXX are prohibited from membership in XXXXX. The categories of membership in XXXXX are:

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 in respect of the XXXXX and all of its affiliates regardless of how many corporations, partnerships, individuals, employees or offices are represented by the XXXXX and its affiliates. Every XXXXX Member in good standing is entitled to vote at general meetings, to vote for a Director and/or Officer and to be elected or appointed as a Director and/or Officer of XXXXX.

XXXXX Member - Professional Designation - To be eligible for this membership, a person has qualified for the designation of XXXXX and holds a valid XXXXX licence to transact XXXXX issued by the XXXXX as an employee of a XXXXX who is not a member of XXXXX and has no voting rights.

XXXXX Member - XXXXX - To be eligible for this membership, the business does not meet the definition of a XXXXX as set out in the By-laws but its source of income must be derived from the XXXXX industry. An XXXXX Member - XXXXX will receive education services or programs at member rates, the XXXXX Magazine and has no voting rights.

16. Membership fees for each category of membership are determined by the Directors of XXXXX from time to time and are due annually based on XXXXX fiscal year XXXXX.

17. The annual fee for an XXXXX Membership is set at $XXXXX. XXXXX does not have anyXXXXX Members - Professional Designation or XXXXX Members - XXXXX.

18. According to XXXXX website, the current annual XXXXX Membership fee is comprised of two components; a fee per XXXXX of $XXXXX plus a fee per employee at:

•   XXXXX;

•   XXXXX;

•   XXXXX;

•   XXXXX;

•   XXXXX; or

•   XXXXX.

19. Under XXXXX the By-laws, the expenses and other financial obligations of XXXXX will be met, to the greatest extent possible, from the fees. The term "fees" is defined in the By-laws to mean any fees, including membership fees, dues or other amounts that may be assessed of the members by the Directors from time to time.

20. According to XXXXX the By-laws, XXXXX may also raise funds by engaging in such activities as advising bodies or groups regarding XXXXX matters and writing business for and rendering services to government and municipal bodies and their agents.

21. In addition to the benefit of being identified and promoted through the XXXXX campaign and use of the XXXXX logo and promotional materials, XXXXX Members of XXXXX are entitled to the following benefits:

Education - XXXXX offers a variety of professional development courses and seminars for XXXXX. XXXXX offers the XXXXX course, the XXXXX courses and XXXXX course to members at up to a XXXXX% discount from the fees charged to non-members. The following are some examples of the educational programs offered by XXXXX according to its website:

Professional Liability XXXXX program - An XXXXX program is provided to members through XXXXX and members receive up to XXXXX% discounts on premiums available to non-members.

Publications - Members receive a copy of the XXXXX magazine on a quarterly basis free of charge. Members receive updates on issues relating to legislative or regulatory changes or the operation of XXXXX on a timely basis. In addition, members receive a copy of the XXXXX Directory free of charge. XXXXX also provides certain XXXXX with a complimentary copy of the directory and anyone else wishing a copy is charged $XXXXX.

Annual Convention, trade show and golf tournament - XXXXX hosts an annual convention, trade show and golf tournament that delegates (XXXXX and suppliers) and their companions can attend. Registration fees vary depending on if a delegate chooses the full three day package, the three-day package with a booth rental or individual events. The registration fee for the golf tournament is extra. The XXXXX convention was the XXXXX convention held by XXXXX.

XXXXX website locator - Members receive a listing on XXXXX online databases so consumers can search for a XXXXX in their area. XXXXX also has a members' only section on its website.

XXXXX financial services program - The bank offers a comprehensive package of banking services to members of XXXXX at preferred rates.

XXXXX Film Discount - Members are able to purchase XXXXX film from XXXXX at cost plus a small fee for postage.

XXXXX software program - Members are entitled to receive this XXXXX software program at a discount of $XXXXX.

Networking and partnering - XXXXX conducts industry liaison activities on behalf of members with XXXXX, other XXXXX industry organizations and the government. It represents its member XXXXX on issues that are of concern to its members. XXXXX partners with the XXXXX each fall to honour all industry graduates of the XXXXX and XXXXX programs. XXXXX also has a XXXXX.

Annual XXXXX company survey - Member XXXXX complete an annual survey rating the XXXXX companies they do business with on a number of categories. The survey provides members with information on service levels and ranking of XXXXX in the marketplace.

XXXXX - Members receive a discount on secure shredding services offered by XXXXX.

Electronic bill payment - Members can pay their dues, courses and seminar registration fees and XXXXX premiums on-line.

22. Pursuant to the XXXXX Act and its Regulations, the XXXXX is delegated the authority and responsibility for the supervision, licensing and regulating of XXXXX in the province XXXXX. While an XXXXX must have a licence issued by 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.

23. XXXXX has not made an election under section 17 of Part VI of Schedule V in respect of its memberships. During XXXXX, XXXXX began charging HST on its supplies of memberships.

Rulings Requested

1. What is the tax status of the 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 in XXXXX of XXXXX Memberships are taxable supplies subject to the HST at 15%.

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 HST at the rate of 15% 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 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. 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.

In addition, 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 membership in XXXXX. For instance, a XXXXX Member, who has eight employees, has the right to take the XXXXX course by immersion and pay $XXXXX; a discount of $XXXXX from the non-member price of $XXXXX which is more than XXXXX% of the member's annual membership fee of $XXXXX. Thus, this benefit exceeds 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 XXXXX Memberships made in XXXXX, they are taxable supplies subject to HST at 15%.

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

2006/03/23 — RITS 65482 — [Whether an Organization Meets the Definition of Non-profit Organization (NPO)]