26 March 2007 GST/HST Interpretation 64509 - The application of GST/HST to vehicle leases

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

All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.

Statement of Facts

We understand that:

1. XXXXX is a trade association of XXXXX who provide XXXXX products and services to commercial, industrial and individual customers throughout XXXXX.

2. XXXXX was incorporated under the XXXXX Act of XXXXX as a body corporate without share capital XXXXX.

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 indicated that it meets the criteria as a non-profit organization as that term is defined under subsection 123(1).

6. XXXXX purposes and objects upon incorporating were to promote and protect the interest and well being of its members, the publication of a journal in the interests of its members and the growth and advancement of the XXXXX business generally.

7. XXXXX also provide that it shall be carried on without the purpose of gain for its members and that any profits or other accretions to XXXXX shall be used in promoting its objects.

8. XXXXX:

XXXXX.

9. XXXXX.

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, 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.

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

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

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. 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.

16. XXXXX set out the following qualifications for XXXXX Membership in XXXXX:

XXXXX Membership

XXXXX any individual XXXXX who is of good character and reputation and who meets the standards of qualification and subscribes to the Code of Ethics, and whose place of business is located in an area served by an XXXXX Association, and who wishes to become a member of XXXXX, shall make an application to such XXXXX Association. Upon acceptance by that XXXXX Association, the applicant shall, upon payment of the membership fee and assessment, if any, become an XXXXX Member of XXXXX.

XXXXX any individual XXXXX who meets the conditions XXXXX except that the XXXXX application for membership has not been accepted by the XXXXX Association, may make an application for membership to the Board of Directors of XXXXX. Upon approval by the Board of Directors, after consultation with the declining XXXXX Association and payment of the membership fee and assessment, if any, the applicant shall become an XXXXX Member of XXXXX.

XXXXX any individual XXXXX who meets the conditions XXXXX except that the XXXXX office is located in an area not served by an XXXXXAssociation, may make an application to the Board of Directors for membership. Upon approval, the applicant shall become an XXXXX Member of XXXXX.

XXXXX no individual XXXXX who is an employee or a partner of an XXXXX which is a partnership, or who is an officer, a director or an employee of an XXXXX which is a corporation, shall be an XXXXX Member unless all such individuals in the partnership or corporation, as the case may be, are members. In addition, XXXXX no person shall be an XXXXX Member who is not an individual XXXXX in XXXXX

XXXXX

•   XXXXX

•   XXXXX

XXXXX Membership

XXXXX any individual XXXXX who is of good character and reputation, who subscribes to the Code of Ethics, who holds the designation of XXXXX and/or XXXXX and/or XXXXX, who is a XXXXX, who works for a partnership or corporation where all of the individuals in which are not XXXXX Members of XXXXX, and who has no beneficial interest in the partnership or corporation where such XXXXX works, may make an application for membership to the Board of Directors of XXXXX. Upon approval by the Board of Directors and payment of the applicable membership fee and assessment, the applicant shall become a XXXXX Member of XXXXX.

17. XXXXX the Board of Directors of XXXXX may at any time confer XXXXX Membership with voting privileges on any member or XXXXX Membership without voting privileges for such a term as in their sole discretion they deem advisable on any individual. XXXXX.

18. XXXXX the following privileges of membership in XXXXX:

(a) All members shall be entitled to equal rights and privileges.

(b) XXXXX Members without voting privileges shall not be eligible to be Directors of XXXXX and shall not have voting privileges.

(c) XXXXX Members of XXXXX shall not be eligible to any rights or privileges as a member of XXXXX and shall not have any voting privileges, save and except that they shall be entitled to use their professional designation of XXXXX (provided that such XXXXX Member continuously meets all other requirements imposed with respect to the hold and use of the designations).

19. XXXXX the annual XXXXX Membership fee and any assessment to be levied on the members of XXXXX shall be such amounts as shall be from time to time approved at an annual, general or special general meeting of XXXXX. Notwithstanding the foregoing, the Board of Directors may order an increase in the membership fee or the levying of an assessment when decided by a XXXXX majority and such order shall be effective immediately and stand until the next annual, general or special general meeting called for the purpose of considering it.

20. XXXXX a member may pay for annual membership fees or dues in accordance with any payment plan which may, from time to time, be approved by the Board of Directors. Any member in arrears of paying annual membership fees XXXXX will cease to be a member of XXXXX.

21. XXXXX Membership fee was $XXXXX for its fiscal year ended XXXXX.

22. XXXXX Membership fee structure for its fiscal year from XXXXX is as follows:

XXXXX

XXXXX

XXXXX

XXXXX

23. XXXXX Member is considered part of the XXXXX Membership in XXXXX. XXXXX.

24. XXXXX. However, an XXXXX Member must pay the entire annual membership fee comprised of both the XXXXX component and the membership fee component.

25. XXXXX. In its membership information material, XXXXX states that it prides itself on delivering significant, tangible benefits to its members in helping them build their companies and grow their businesses. These benefits include the following:

Education and professional development - XXXXX must meet XXXXX licensing and continuing education requirements XXXXX. XXXXX curriculum includes all courses required for licensing and continuing education credits. XXXXX Members of XXXXX have access to all required courses and they pay lower fees for licensing courses. Also, XXXXX conducts education seminars and will develop customized education programs for in-house presentation at members' XXXXX. The following are some of the educational programs offered by XXXXX:

Program XXXXX Member Rate  Non-member rate

XXXXX

XXXXX. XXXXX also points out on its web site that obtaining one or more professional designations can increase a XXXXX opportunities for advancement and income growth.

Annual Convention - XXXXX annual convention, XXXXX, offers educational seminars, a wide range of speakers, exhibits by system vendors, booths manned by leading XXXXX company and industry service personnel offering their products and services, and opportunities to network with fellow XXXXX and liaise with XXXXX executives.

Registration fees for XXXXX annual convention were: $XXXXX for an XXXXX Member XXXXX; $XXXXX for an XXXXX Member; and $XXXXX for a company representative (non-members). Single day and event registration were also available with different fees for members and company representatives. In addition, XXXXX rents trade booths at the convention for a fee of $XXXXX for a single booth and $XXXXX for a double booth XXXXX and the fees are the same for members as for non-member industry-related organizations.

XXXXX Conference - The XXXXX conference is held each XXXXX and is on a smaller scale than the annual convention. The bulk of the session is spent on the strategic direction and financial and business aspects of XXXXX. There are also speeches and seminars offered to make the conference an educational opportunity for XXXXX Members.

Business and management support services - XXXXX Members receive the following:

•   regular updates on policy wording interpretation and the implications for XXXXX;

•   XXXXX free call per year with the legal firm XXXXX;

•   XXXXX free call per year with the accounting firm of XXXXX;

•   preferred rates for personnel services from XXXXX;

•   free access to XXXXX data to check the rating of XXXXX companies;

•   a free copy of the biannual XXXXX;

•   a free copy of the biannual XXXXX;

•   upon request, a free copy of the XXXXX publication;

•   at no charge, XXXXX monthly newsletter XXXXX, as well as special bulletins that provide up-to-date industry developments (non-member industry-related organizations can receive the monthly newsletter for an annual fee of $XXXXX);

•   upon request, a free copy of XXXXX Guidelines in the areas of XXXXX;

•   access to publications produced by other provincial XXXXX associations, XXXXX and associations based in XXXXX; and

•   an interactive members' section on XXXXX Web site that includes a XXXXX Bulletin Board and other features to communicate industry issues and share solutions.

Marketing support - In addition to the XXXXX program, XXXXX Members receive the following:

•   access to professionally designed sales aids from XXXXX;

•   member offices can have customized on-hold messages created by XXXXX official supplier, XXXXX, that informs clients of products and services while they wait to be connected to a customer service representative;

•   members may order XXXXX, a semi-annual, professionally produced newsletter designed to update clients on XXXXX issues which is also available electronically to be posted on members' web sites; and

•   consumers can use XXXXX search tool on its web site to locate a member XXXXX in their area (members are not charged a fee for space or links on XXXXX web site).

Affinity programs - Group purchasing allows XXXXX Members to receive the following:

•   preferred rates for XXXXX and expanded coverage on the XXXXX of their own businesses XXXXX;

•   preferred rates for group life and health plans and group RRSP for member XXXXX employees;

•   preferred rates on business banking costs from the XXXXX;

•   discounts on long distance rates, monthly telephone charges and business Internet access from XXXXX;

•   discounts on cellular phone programs from XXXXX;

•   reduced rates for a specialized web site design package developed specifically for XXXXX; and

•   discounts on customized cards from XXXXX.

Networking and leadership opportunities - Members can benefit from information sharing and common strategy building by networking with colleagues at monthly local meetings, annual regional meetings, the annual convention, the XXXXX conference and meetings of the XXXXX. XXXXX Membership in XXXXX provides leadership opportunities such as serving on XXXXX committees XXXXX or on the Board of Directors and Executive Committee.

Industry and Government Liaison - One of XXXXX goals is to influence government offices to such an extent that it will be credited with having persuaded legislators at all levels, regardless of party affiliation, that XXXXX represent the preferred delivery system for XXXXX. XXXXX makes formal presentations and lobbies government at all levels to achieve its goal. It meets with other organizations such as the XXXXX and XXXXX, as well as members of political parties, promoting the interests of its members.

26. XXXXX has not made an election under section 17 of Part VI of Schedule V in respect of its memberships.

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 the 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.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are 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

An XXXXX who 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 charge is a mandatory component of the annual membership fee for an XXXXX Membership in XXXXX and an XXXXX cannot acquire an XXXXX Membership without paying all the components of the membership fee. As a result, the XXXXX is not a separate supply from the supply of an XXXXX Membership in XXXXX even where a breakdown of the components of the membership fee is available to members.

Generally, a supply of a membership made in XXXXX by an association will be a taxable supply 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.

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. The fact that a benefit is available to all members does not necessarily signify that the benefit is indirect. Benefits that are meant to accrue only to members by reason of their membership are generally direct benefits. It is only when the benefit accruing to a member is incidental, in the sense that it is a secondary consequence of a broader objective involving more than just the interests of the members, that it will be viewed as indirect.

An XXXXX Member's right to be identified by the XXXXX and use the XXXXX 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 brands the XXXXX Member and is a marketing tool. Non-members do not have the right to use or be identified by the XXXXX.

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 XXXXX Membership in XXXXX. For instance, an XXXXX Member has the right to take the XXXXX course for $XXXXX; a discount of $XXXXX from the non-member rate of $XXXXX. This discount alone is greater than the minimum annual XXXXX Membership fee of $XXXXX without even considering the cumulative value of all available discounts. Thus, this benefit exceeds the allowable benefit in paragraph 17(e) of Part VI of Schedule V since XXXXX Members have the right to receive discounts on the rates for educational programs that are not insignificant in relation to their annual membership fees.

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 the GST on the consideration for the memberships, including the XXXXX component.

XXXXX Members

XXXXX Members are not eligible to any rights or privileges as a member except that they are entitled to use their professional designation of XXXXX. Thus, the specific purpose of this class of membership is to confer a primary benefit to XXXXX Members of the right to use these designations.

These designations also carry a level of recognition and achievement in the XXXXX industry and only members of XXXXX, or particular members of another XXXXX association that is a member of XXXXX, have the right to use the designations.

As such, this benefit could not be considered an incidental or secondary consequence of XXXXX Membership in XXXXX and is therefore not an indirect benefit under paragraph 17(a) of Part VI of Schedule V. Rather, a XXXXX Member's right to use the designations by reason of their membership in XXXXX is a direct benefit that does not fall under any other paragraphs in section 17 of Part VI of Schedule V.

Therefore, as no other provisions in Schedule V apply to exempt XXXXX supplies of XXXXX Memberships made in XXXXX, they are taxable supplies subject to the GST on the consideration for the memberships.

If you have any further questions or require clarification with respect to any of the issues discussed in this letter, please call me directly at 306-975-6210.

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

2007/03/06 — RITS 77041 — Sale of Real Property XXXXX