14 April 1997 GST/HST Interpretation HQR0000557 - Memberships

                                                                        April 14, 1997

Dear XXXXX

Thank you for your letter of February 12, 1997 concerning the application of the harmonized sales tax (the HST) to XXXXX supply of memberships to individuals and businesses.

Interpretation Requested

With respect to the supply made by XXXXX of memberships to its customers, you request that we confirm the application of the HST in three situations: a supply of memberships to individuals, a supply of memberships to businesses, and whether a renewal of a membership is viewed as a new agreement or a continuation of the previous agreement.

XXXXX operations encompass the issuance of XXXXX membership cards to individuals and the issuance of Business membership cards, including company cards, to commercial enterprises. In order to obtain a XXXXX membership card, in addition to meeting the initial qualifications, one must also fill out a membership contract and pay an annual fee. The membership entitles the members to purchase goods from any XXXXX location anywhere in the world.

Prior to the expiration of the membership card (both for the XXXXX and Business memberships), a renewal advice form is sent out to the affected members, either to the address of the individual member, as for XXXXX members, or to the business address and to the individual cardholder's address for Business memberships.

The initial membership fee is usually paid at a XXXXX store, whereas the renewal fee can be made either at a local store or at XXXXX head office, located in XXXXX[.]

Interpretation Given

Based on the information provided, the application of the HST in connection with the above three situations is as follows:

Supplies of Memberships to Individuals

Supplies of XXXXX memberships by XXXXX are made only to individuals. The term "individual" is defined in the Excise Tax Act (the Act) to mean "a natural person" - this would include businesses such as sole proprietorships, trade-persons, and professionals acting in their own capacity.

A supply of a membership to an individual is considered to be a prescribed supply, pursuant to section 6 of the draft Place-Of-Supply GST/HST Regulations. Currently, the draft regulation in respect to prescribed supplies, provides that where a supply of a membership is made to an individual and the Canadian rights in respect of the membership can be exercised otherwise than exclusively in one province, the supply is made in a province if the mailing address of the individual is in the province. Therefore, the supply of XXXXX memberships may be subject to the HST if the mailing address of the individual member is in a participating province, regardless if the XXXXX member can make use of the XXXXX card anywhere in the world.

Supplies of Memberships to Persons other than Individuals

Paragraph 2(d)(ii) of Part III of Schedule IX to the Excise Tax Act, provides that a supply of an intangible personal property (IPP), such as a membership, will be made in the province if the place of negotiation of the supply is in the province and the IPP can be used otherwise than exclusively outside the province. For XXXXX Business members in the maritime provinces, if the members can make use of their rights in the participating provinces and in non-participating provinces, the place where the supply was negotiated becomes relevant in determining whether the supply of the intangible personal property is subject to the HST or the goods and services tax (the GST). If a XXXXX store in a participating province is the place where the negotiation of the membership agreement took place, the supply of the IPP would be subject to the HST.

Please note that the above provision does not apply to individuals (including businesses owned and operated by individuals).

Membership Renewals

XXXXX memberships are XXXXX[.] Prior to the expiration of XXXXX membership, XXXXX mails out a renewal notice to those affected members. Depending on the nature and the terms of the membership agreement the renewal may or may not constitute a new agreement.

Generally, a renewal of a contract means to begin again or continue in force the old contract; the contract continues when the member exercises his right of renewal and no new contract is entered into. However, additional information or the review of the XXXXX and Business membership agreements would be required before such a determination can be made.

The foregoing comments represent our general views with respect to the current legislation and proposed amendment(s) to the Excise Tax Act as it(they) relate(s) to the subject matter of your letter. In addition, unannounced proposed or future amendments to the current legislation may result in changes to our interpretation.. Furthermore, these comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST Memoranda Series, do not bind the Department with respect to a particular situation.

Should you have any further questions or require clarification on the above, please do not hesitate to contact me at (613) 957-8220.

Yours truly,

Daniel E. B. Chamaillard
Senior Rulings Officer
Border Issues
General Operations and Border Issues Division
Rulings and Interpretations Directorate