6 August 1998 GST/HST Interpretation HQR0001082 - Application of the GST/TPS to Fund-raising Activities and Supplies of Memberships by Charitable Theatre Organizations

Dear XXXXX

This is in response to your request for our comments on the memorandum of December 3, 1997, from XXXXX of the XXXXX Tax Services Office, concerning fund-raising activities and supplies of memberships by charitable theatre organizations, with particular reference to the XXXXX[.]

All legislative references are to the Excise Tax Act (the Act) and Regulations thereunder, unless otherwise specified. In addition, please note that on April 1, 1997, the provincial sales tax (PST) in the three "participating provinces" of Nova Scotia, New Brunswick, and Newfoundland was unified with the GST to create the HST. The HST, at a rate of 15%, replaces both PST and GST on supplies that are made (or deemed to be made) in the participating provinces and applies to the same base of goods and services as the GST. This letter does not reflect any legislation regarding the provincial component of the HST. In the event that you require further information regarding the HST, please contact our office.

Background

An audit of the XXXXX was recently completed and while the XXXXX TSO is not presently intending any assessing action concerning memberships or fund-raising activities, it has requested general information concerning treatment of these activities. It will provide this information to the XXXXX for its future reference.

The XXXXX is a charity that is registered for GST purposes under account XXXXX (please note that the business number account does not reflect the charitable status of the XXXXX and that the client should contact their local TSO to have their account updated).

XXXXX

The XXXXX actively solicits the sale of memberships through the publication of a brochure and a telemarketing campaign. According to the brochure, all members receive "practical benefits of membership" and these benefits increase at various levels of contribution. Memberships are available for any amount over XXXXX however, no discounts to admissions are available for memberships under XXXXX[.] At this lowest level of membership XXXXX members receive the following: advance ordering of tickets; complimentary refreshments during the intermission at one of the theatres; an opportunity to attend "member's days"; no handling charges on their initial ticket order of the season; subscription to the member's newsletter and discounts at the gift shop. As the levels of membership progress, members may receive a XXXXX discount on ticket sales (for memberships over XXXXX for non-prime performances, tours of the theatres and the opportunity to attend a dress rehearsal. The XXXXX issues charitable receipts for the full amount of the membership. In 1996 the XXXXX had XXXXX members.

The XXXXX also sells tickets to the XXXXX which entitle the purchaser to attend a dinner and an auction. Items sold at the auction are donated by various businesses and only individuals who have purchased tickets for the dinner/auction are eligible to bid on items. The XXXXX issues charitable receipts for the difference between the cost of the dinner and the price of the ticket. To date the XXXXX has not charged the GST for the full price of the admission to the auction, nor on the consideration for the sale items auctioned.

Rulings

Interpretations Requested

1. Is the GST exigible on the sale of memberships by the XXXXX[.]

2. Is the GST exigible on the admission the dinnerauction presented by the XXXXX at the auction?

Interpretation Given

1. Is the GST exigible on the sale of memberships by the XXXXX[.]

It is not possible for us to rule definitively as to whether the GST is exigible on the sale of memberships to the XXXXX or whether such supplies are GST exempt, in the absence of pertinent information such as that concerning the price of admissions, the number of performances and the extent to which discounts offered to members is available and used.

However, as we discussed with you, and as indicated in his memorandum, the request from XXXXX of the XXXXX TSO is concerned more with how the fund-raising and membership provisions of the Act apply generally to organizations like the XXXXX with reference where warranted to the limited facts available concerning the XXXXX[.] In that context, we provide the following interpretations.

Most supplies of personal property or services made by a charity are exempt from the GST under the "general" exemption of section 1 of Part V.1 of Schedule V to the Act. This section also lists a number of "exceptions to the exemption" (i.e. supplies that are not exempt under this section). As well, there are several "overriding" exemptions (e.g. the "direct cost" exemption, the "fund-raising" exemption) that might apply to some of these "exceptions" to the general exemption. Please not that a supply will be taxable if no exemption applies to it. Some of the supplies included under the "exceptions" to the general exemption are:

1. zero-rated supplies (supplies that are "taxable" at a rate of zero per cent, such as basic groceries);

2. personal property used in a commercial activity immediately prior to the supply;

3. new goods acquired, manufactured or produced for resale purposes, and services supplied in respect of such goods;

4. admissions to a place of amusement where the maximum admission price exceeds one dollar;

5. services or memberships entitled a person to supervision or instruction in recreational or athletic activities;

6. membership that entitle members to otherwise free or discounted admission of significant value in relation to the membership fee;

7. vacant land sold to an individual or a personal trust;

8. real property for which the charity has claimed or is entitled to claim an input tax credit.

XXXXX queries regarding the sale of memberships by the XXXXX specifically refer to paragraph 1(g) of Part V.1 of Schedule V to the Act. The provision excludes from the exemption the supply of memberships where the member is entitled to free admission to a place of amusement which would otherwise be taxable if it was supplied separately from the membership, or where the member is entitled to a discount on the value of consideration for such an admission. Memberships that include a right to participate in a recreational or athletic activity, or use of facilities, at a place of amusement are also taxable for GST purposes. However these supplies will remain exempt if the value of the admission, discount or right is considered "insignificant" in relation to the consideration for the membership.

Based on the above, the XXXXX memberships will be exempt if the discounted admissions for members are insignificant in relation to the membership fee. Generally, we view "insignificant" as meaning "less than 30%." On this basis, there is evidence that the memberships may be exempt since the discounts apply only to memberships sold for more than XXXXX the discount is only XXXXX and it applies only to "non-prime" performances. In other words, notwithstanding our policy that unlimited discounts are usually regarded as significant benefits, this presumption is refutable, particularly where the facts indicate that the limitations concerning discounted admissions make evident that they are of insignificant value compared to the membership fee.

We should also mention that it appears that a free or discounted admission may be more than of "nominal value" for purposes of determining whether a membership fee is a receiptable gift for purposes of The Income Tax Act, and yet may be of "insignificant" value in relation to the membership fee. That is, since we have not equated "nominal" with "insignificant", a membership fee may be consideration for an exempt supply, and yet may not be viewed as a gift at law.

1. Is the GST exigible on the admission to the dinnerauction presented by the XXXXX memorandum, was repealed in 1997. Under that provision, where the price of admission to a charity "fund-raising dinner, ball, concert, show or like fund-raising event" was in excess of the fair market value of the event, this excess amount was not subject to the GST (i.e., it was treated as a gifted amount).

For supplies made after 1996, section 2 of Part V.1 of Schedule V to the Act exempts the entire admission to a "fund-raising dinner, ball, concert, show or like fund-raising event" where the charity is entitled to issue a charitable donation receipt for Income Tax purposes in respect of any part of the admission price.

In respect of supplies made prior to 1997, section 164 of the Act referred to "an admission to a fund-raising dinner, ball, concert, show or like fund-raising event". As the term "like fund-raising event" is not defined within the Act, we equate the Income Tax interpretation of a "like event" for GST purposes. IT-110R3 and its predecessor IT-110R2 consider a "like event" to be "an event which provides services and consumable goods, the equivalent of which are readily available in the marketplace and which by their very nature are necessarily purchased with the intention that they be used on a specific date in the near future by the ticket purchaser (and guests) and which, if not used, have no resale value". The Department considers neither an auction, nor admission to a dinner coupled with an auction to be a "like event" as they do not meet these guidelines.

XXXXX memorandum, he states that no part of the payment for the ticket to the dinnerauction can be treated as a receiptable charitable donation, presumably since it is not a "like event". If such is the case, the section 2 exemption described above would not apply for admissions supplied after 1996. However, the admissions may be exempted from the GST pursuant to section 3 of part V.1 of Schedule V to the Act. This provision exempts "fund-raising" sales that are not made on a regular or continuous basis throughout the year or a significant portion of the year and do not entitle recipients to receive property or services from the charity throughout the year or a significant portion of the year. If this exemption also does not apply to the admission for the dinnerauction, the supply of the total admission charged by the XXXXX would be taxable for GST purposes.

1. Is the GST exigible on the items sold by the XXXXX at the auction?

The GST does not apply to the resale of used or donated goods by a charity. Such supplies fall under the general exemption of section 1 of Part V.1 of Schedule V to the Act.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9214.

Yours truly,

Doris Rist
Charities and Non-Profit Organizations
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate

Log of Action

980423 received case

980513 first draft response given to M. Place for review

980630 draft submitted to M. Place for review

980715 draft submitted to M. Place for review

980729 final copy of letter completed and submitted to M. Place for signature