File: 11830-1(MB)
Doc: 587G
Ref: ss. 2(e), Pt VI, Sch V
XXXXX May 1, 1995
Dear XXXXX
This is in reply to your round trip memo dated March 19, 1993 concerning the tax status of publications and memberships supplied by the XXXXX. We regret the delay in responding due to extensive consultations with the General Applications Division of Policy and Legislation.
Statement of Facts
1) XXXXX a charity for GST purposes, provides a magazine, a products catalogue and a membership to persons who subscribe to its magazines;
2) XXXXX at times, advertises that every magazine subscription includes a membership;
3) the by-laws of the XXXXX recognize that the persons subscribing to the magazine issued by the XXXXX are members of the XXXXX however, beyond receiving their magazines, the products catalogue and the membership, this category of members do not acquire any particular rights in respect of their membership;
4) XXXXX charges a single amount in respect of all the elements provided to its subscribers;
5) the costs incurred to produce the magazine represent approximately 52% of the revenue generated by the subscriptions;
Questions:
1. Is the supply of a magazine subscription, a products catalogue and a membership by XXXXX to individuals for a single consideration, a single or multiple supply?
2. Is the supply by XXXXX a supply of membership and therefore exempt pursuant to section 2 of Part VI of Schedule V of the ETA or a supply of a magazine and therefore taxable pursuant to subsection 2(e) of the same Part?
Conclusion:
The magazine, the catalogue and the membership constitute a single supply.
Where XXXXX is making a single supply which includes the subscription to the magazine, then it is making a taxable supply of tangible property pursuant to subsection 2(e) of Part VI of Schedule V of the ETA.
Analysis:
The elements that are provided by the XXXXX to the subscribers are the magazine, a catalogue advertising the products of the XXXXX and a membership. Consequently, we will only consider these three elements and determine whether they are part of the same supply or constitute separate supplies and, if necessary, whether some are incidental to another. It is worth noting that the three elements are outputs, i.e. things being provided to the customers and not inputs being used by the XXXXX in the making of supplies. Within each transaction, all three elements are provided by one supplier to one recipient. In addition, the conditions of the agreements between the XXXXX and its subscribers are not specific enough to determine whether each element constitutes a separate supply or is part of a single supply. Given that these three factors are not conclusive, it is appropriate to use the three specific questions included in the policy on single and multiple supplies.
a) If the customer did not receive all of the elements, would each, in itself, be in the context of these transactions, of any use to the customer?
Yes. In the context of these transactions, each element may be considered to have a separate use. The magazine would be of use to the subscriber even if it was not provided together with the product catalogue and the membership. In substance, the subscribers want to obtain a magazine to increase their knowledge and to obtain some form of entertainment, and the magazine would satisfy these particular needs even if the two other elements were not provided (this would seem to be confirmed by the manner in which the XXXXX markets these elements, i.e. virtually focusing solely on the magazine). Similarly, the catalogue provides information on the products marketed by the XXXXX and has a separate use in itself. However, in the context of these transactions, the catalogue has a limited use, given that the subscribers' primary purpose is to obtain the magazine and not to obtain information about other products being sold by the XXXXX It is uncertain whether the membership has a separate use. It appears that it has limited use for the subscribers given that, for instance they may not use the membership to obtain other properties or services that they could not otherwise acquire. However, some subscribers may feel some satisfaction by receiving this membership.
The answer to the above question indicates that all three elements may constitute separate supplies given that at least one element has a separate use.
b) Is the provision of a particular element contingent on the provision of another element?
Yes. All the elements are contingent on each other and the XXXXX would not provide the magazine without providing the catalogue and the membership.
Similarly, in the context of these transactions, the XXXXX would not provide the catalogue and the membership without providing the magazine. Nevertheless, it is recognized that the XXXXX may provide the catalogue to persons not subscribing to their magazines, given that the catalogues are a marketing tool used to promote the sale of their products. Similarly, the manner in which to obtain a membership, in the context of these transactions, is to subscribe to a magazine and it is not possible to obtain the membership without the magazine and the catalogue.
The answer to this question indicates that the three elements may be part of a single supply.
c) Is the customer made aware of the specific elements that are part of the package?
No. The XXXXX does not always advertise or otherwise explain that subscribers to their magazines will receive the catalogue and the membership.
Specifically, at the time they subscribe to the magazine, the subscribers are not always made aware in detail (or at all) of all the elements that the XXXXX includes with the subscription. The subscribers are only made aware that they will receive issues of a specific magazine during a specified period of time.
The answer to the above question indicates that all the elements provided by the XXXXX to its subscribers may be part of a single supply.
On balance, the answers to the above questions indicate that the magazine, the catalogue and the membership constitute a single supply. Therefore, we need not consider the question of incidental supplies, although it remains necessary to determine the nature of this supply.
In the context of these transactions, we believe that the intent of the XXXXX and the subscribers is, respectively, to supply and to acquire a magazine. In other words, the object of the agreement between the XXXXX and the subscribers is the supply of a magazine and the provision of the catalogue and the membership does not modify the nature of the supply. This is further supported by the fact that the value of the catalogue and the membership is so insignificant compared to the value of the magazine.
Accordingly, based on the information provided, the supply made by XXXXX of a magazine is taxable pursuant to paragraph 2(e) of Part VI of Schedule V of the ETA.
If you have any comments or questions concerning the above, please do not hesitate to contact Michèle Brûlé at (613) 952-9208.
Yours truly
J.A. Venne
Director
Special Sectors
GST Rulings & Interpretations
c.c.: J. Houlahan
M. Brûlé
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