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.
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: 64501February 7, 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 was organized XXXXX as a not-for-profit trade association representing the interests of member XXXXX. XXXXX also provides educational programs specific to those within the XXXXX industry.
2. In its submission XXXXX, 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.
4. XXXXX is not a registered charity within the meaning assigned by subsection 248(1) of the Income Tax Act.
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, 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.
7. 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.
8. XXXXX who are not members of XXXXX, or any other XXXXX member association, are not entitled to use and display the XXXXX logo.
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. XXXXX By-laws addresses the following two categories of memberships:
11. XXXXX does not have any XXXXX.
12. According to XXXXX the By-laws, all XXXXX Members of XXXXX shall be entitled to equal rights and privileges, including the right to vote and the privilege to hold office as an officer or director of XXXXX. Firms or corporate bodies are entitled to one vote only in the same manner as individual XXXXX Members.
13. According to XXXXX website, a person may become a member by submitting a written application to XXXXX. If the application is accepted, the person will be sent an invoice for annual dues that consist of membership dues and a XXXXX assessment. Membership begins upon receipt of the person's payment of the annual dues.
14. Under XXXXX the By-laws, the expenses for XXXXX shall be met out of dues, fees and special assessments on the members. The amount of these charges are determined by the Board of Directors and approved at the next annual meeting. Any charges for special expenditures shall first be approved by the members at a special general meeting called for that purpose or at the annual general meeting. The fee calculated for each member agency shall be based on the number of XXXXX in that office or the total number of employees, including owners, or the total annual XXXXX income or a combination of these or any other factors deemed, from time to time by the Board of Directors to be fair and equitable.
15. In XXXXX, XXXXX annual dues consisted of a basic membership fee of $XXXXX plus member dues of $XXXXX per licensed person plus graduated XXXXX dues of: $XXXXX. The annual dues were payable on XXXXX, and members could make one payment or split the dues into two payments with the last one dated no later than XXXXX. In XXXXX, the annual dues were the same except for a decrease in the member due component from $XXXXX to $XXXXX per licensed person.
16. In addition to the benefits of the XXXXX and the right to receive XXXXX promotional materials at cost, XXXXX Members in XXXXX receive the following membership benefits:
Education - Members can receive professional development accreditation programs at discounted prices. XXXXX offers the XXXXX course, the XXXXX course and the XXXXX course to members at more than a XXXXX% discount from non-members. The following are some examples of the educational programs offered by XXXXX according to its website:
XXXXX Member price $XXXXX Non-member price $XXXXX
XXXXX - self-study Member price $XXXXX Non-member price $XXXXX
XXXXX - self-study; one module Member price $XXXXX Non-member price $XXXXX
XXXXX - Members have access to XXXXX through XXXXX at cost savings. It is a requirement under the XXXXX Licensing Regulations to the XXXXX Act of the province of XXXXX for every XXXXX holding a XXXXX licence to hold and maintain XXXXX or some other form of financial guarantee as approved by the XXXXX. Further, every XXXXX that holds a XXXXX licence shall maintain XXXXX in a form approved by the XXXXX. XXXXX offers a XXXXX% discount on the cost of the XXXXX to members who remain current with the professional development programs offered by XXXXX.
Publications - Members receive a copy of the XXXXX magazine on a quarterly basis. This magazine is available free of charge to non-members upon request. Members also receive a copy of the annual XXXXX Directory. The directory is offered to non-members for a $XXXXX fee.
Convention - XXXXX hosts a XXXXX convention XXXXX and the convention charges are the same for members as for non-members.
Website - XXXXX provides information to its members on its website and also has a dedicated section for members only. In addition, members can post their resume on XXXXX website and members who are hiring can access those resumes online. Further, members receive a XXXXX listing on XXXXX website so consumers can search online for a XXXXX in their neighbourhood.
XXXXX film - Members are able to buy XXXXX film from XXXXX at wholesale cost which is estimated by XXXXX to be a discount of $XXXXX for a carton XXXXX.
Member discounts - Members are eligible to receive discounts for other products and services that they can use in their businesses. For instance, members can acquire a XXXXX calculator at a discount of $XXXXX.
Public affairs activity and networking - Members have the opportunity to participate with other XXXXX to network and create policy for the XXXXX industry.
17. The XXXXX regulates the business of XXXXX in the province of XXXXX and enforces the XXXXX Act and its Regulations. 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.
18. XXXXX has not made an election under section 17 of Part VI of Schedule V of the ETA in respect of its 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 accept that GST/HST is only applicable on future transactions made by XXXXX?
Please note that a ruling provides the Canada Revenue Agency's (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.
A XXXXX that becomes an XXXXX Member in XXXXX is a participant in the XXXXX. This program is an integral and interdependent element of the supply of an XXXXX Membership in XXXXX. Further, the XXXXX due is a mandatory component of the annual dues for an XXXXX Membership in XXXXX as a person cannot acquire an XXXXX Membership without paying all the components of the annual dues (that is, the basic membership fee, the membership due and the XXXXX due). 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 dues invoice.
Generally, supplies of memberships made 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.
An 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 more than XXXXX% from non-member rates. These are not insignificant discounts when compared to the consideration for membership in XXXXX. For instance, an XXXXX Member, who is a XXXXX licensed XXXXX, has the right to take the XXXXX course by self-study and pay $XXXXX; a discount of $XXXXX which is more than XXXXX% of the member's XXXXX annual membership dues assessment 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%.
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
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