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XXXXX
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Rits #HQR0000208
XXXXX File #11930-3(LG)
XXXXX November 7, 1996
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Dear XXXXX
This letter is in 11930-3. We hope that the following information will clarify the treatment of memberships provided by member clubs of XXXXX and the issue related to the entitlement of the same clubs to rebates under the Excise Tax Act. It is our understanding that the member clubs are not regarded as charities, but rather as non-profit organizations for GST purposes. Also, it is our understanding that they are separate legal entities.
Membership
As you are aware, the Department of Finance announced a number of proposed changes to the GST effective April 23, 1996, one of which would have resulted in certain memberships to be considered taxable supplies. Subsequent to that announcement, the Department of Finance announced in a press release dated August 29, 1996, that it had decided not to proceed with the proposed amendment to remove the exemption for memberships in certain non-profit organizations. Consequently, a membership provided by a public sector body (e.g. a non-profit organization) is exempt where the member is entitled to receive only certain limited benefits that are specified in the legislation. An organization may elect to have an otherwise exempt membership made taxable.
It is important to note that the legislation includes another exemption for a membership in a program established and operated by the supplier:
• where the program consists of supervised instructional classes or activities involving recreational activities;
• where it may reasonably be expected, given the nature of the classes or activities or the degree of relevant skill or ability required for participation in them, that the program will be provided primarily to children 14 years of age or under, and
• where there is not overnight supervision throughout a substantial part of the program.
It is critical to determine what constitutes a club's program(s) in order to apply the aforementioned criteria. The determination as to whether a club supplies one or more programs will be a decision for the club itself - that is, the club itself may define its own programs provided it is done on a reasonable basis. For example, a reasonableness test may be based on whether other member clubs of the same organization that offer similar activities have grouped their programs in a similar fashion. If it is decided that each instructional class or activity is a separate program, then those programs for children aged 14 and under would be exempt. The programs for members over 14 years of age would be taxable.
On the other hand, if a club determines that it is only providing one program to all members, it must apply the aforementioned criteria to the overall program.
The organization may not elect to make these memberships taxable. This type of membership was not included in the announcement by the Department of Finance and would not have been affected by the proposed changes.
Rebates
Finally, a non-profit organization is entitled to a 50% rebate of the GST paid on expenses that it would not have been able to recover otherwise (i.e., through input tax credits) if it receives at least 40% of its total annual revenue from government. Consequently, a local club that is making exempt memberships will be entitled to the rebate only if it receives at least 40% of its annual revenue from government.
The forgoing comments represent our general views with respect to the subject matter of your query. Proposed or future amendments to the legislation may result in changes to our interpretation. These comments are not rulings and, in accordance with the guidelines set out in GST Memoranda Series 1.4, do not bind the Department with respect to a particular situation.
I hope these comments will clarify the treatment of activities of member clubs of XXXXX under the GST. If you have a question of a general nature, please contact the local Revenue Canada Office. If you have any questions or require additional information on information included in this letter, please do not hesitate to contact me at (613) 952-0420.
L. Grannary
Tax Policy Officer
Public Service Bodies and Governments
GST Rulings and Interpretations
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J. Houlahan
L. Grannary |
Subject File
Ref: s. 259
s. 12, Pt. VI, Sch. V
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