GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Avenue
Vanier, ON K1A 0L5
XXXXX
XXXXX Case: HQR0001216
Business Number: XXXXX
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Subject:
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GST/HST APPLICATION RULING
Application of GST/HST to Membership Fees
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Dear XXXXX
This is in response to your letter of February 11, 1998, (with attachments) sent to the XXXXX Tax Services Office (TSO), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the activities of the XXXXX[.] The TSO has requested that we respond to you directly.
Statement of Facts
Our understanding of the facts from documentation submitted and conversations with Corporation representatives is as follows:
1. Pursuant to article XXXXX of the By-laws of the General By-Law of the Corporation (the by-laws), XXXXX[.]
2. Pursuant to article XXXXX of the by-laws, XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
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(g) XXXXX[.]
3. The Corporation is incorporated separately from its provincial institutes and it is a GST/HST registrant.
4. The XXXXX designates XXXXX professionals who have successfully completed XXXXX approved courses and exams (provided to the individual by another organization) as XXXXX[.] Once an individual successfully completes the course and exam requirements for a particular designation, the individual applies to the XXXXX to receive certification to use the particular designation. A person using the designation of XXXXX or XXXXX must be a certified member of the Corporation, or the designation and membership privileges are withdrawn. Currently, an individual does not require certification in order to work in the field o XXXXX[.]
5. The Corporation's primary revenue is obtained through sales of memberships. The Corporation invoices (with GST/HST added extra) its provincial institutes an amount of XXXXX times per year for every individual registered as a certified member with the provincial institute. Members (full/certified, student and affiliate members) receive discounted fees to attend Corporation educational programs (there is a XXXXX discount per item purchased, for all Corporation members) and are mailed the Corporation newsletter in the same mailing as the provincial institute newsletter.
6. The Corporation has elected to treat its memberships as taxable supplies, using the election: GST 23 - Election by a Public Sector Body to Have its Exempt Memberships Treated as Taxable Supplies.
7. The provincial institutes collect membership fees from their individual members (i.e. student members XXXXX affiliate members XXXXX, full members XXXXX[.] Membership in the provincial institutes accords discounted fees to attend provincial institute educational programs as well as other benefits (e.g. the right to vote, right to receive newsletter, etc.).
8. To summarize, by paying an annual fee to the provincial institute, individual XXXXX become members of both the provincial institute and the Corporation. Provincial Institutes pay an annual fee to the Corporation as consideration for their membership in the Corporation, as well as for the Corporation membership of the individual XXXXX.
9. The Corporation's secondary source of revenue is the sale of books, distance learning programs, and seminar based programs. The distance learning and seminar programs (available to individuals) usually cost between XXXXX each, but there are typically XXXXX which could cost up to XXXXX each. The Corporation also publishes and sells, for a fee that exceeds direct cost, several textbooks (part of the Corporation's approved core curriculum) to institutions that offer training programs to become aXXXXX. The Corporation invoices for the sale of books, and seminar based core curriculum programs, and charges GST/HST on all these materials.
10. Since the Corporation has historically charged GST/HST on all its supplies, it has taken full input tax credits on all property and services acquired for its operations.
Ruling Requested
1. If any of the Corporation's provincial affiliates determines that the supply of its memberships sold to individual members is exempt of GST/HST, should the Corporation continue to charge GST/HST on the total amount invoiced to provincial institutes for membership fees?
2. Should the Corporation charge GST/HST on the fees invoiced for the sale of textbooks and Corporation educational programs - distance learning and seminar based?
3. If the Corporation is not required to charge GST/HST on memberships, then what of the following items do not qualify for GST/HST input tax credits:
• a special computer program created to maintain a membership database,
• the cost to print newsletters and circulate to members,
• web site creation and maintenance if the primary use is for membership services?
Ruling Given
Based on the facts set out above, we rule that
1. The amount invoiced to Provincial Institutes by the Corporation is consideration for their membership in the Corporation, as well as for Corporation membership of individual counsellors. Since the Corporation has elected under section 17 of Part VI of Schedule V to the ETA to have its memberships taxable, the Corporation is required to charge GST/HST on the total amount invoiced to its provincial institutes regardless of the status of memberships provided by the provincial institutes.
2. Supplies of textbooks for a fee that exceeds direct cost and supplies of educational programs by the Corporation, both distance learning and seminar based, are taxable.
3. Since its memberships are taxable, the Corporation is entitled to claim input tax credits for GST/HST on the following purchases:
• a special computer program created to maintain a membership database,
• the cost to print newsletters and circulate to members,
• web site creation and maintenance used for membership services.
On April 1, 1997, the Harmonized Sales Tax (HST) replaced the Goods and Services Tax (GST) and the provincial sales tax (PST) in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%. For example, goods that are delivered or made available in a participating province are subject to the HST. To the extent that they are taxable supplies (which are not zero-rated), tax must be collected at the harmonized rate.
This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.
Explanation
1. Tax Status of Memberships
A supply by a non-profit organization is taxable and subject to GST/HST unless it is exempt under a specific provision in the ETA.
Pursuant to section 17 of Part VI of Schedule V to the ETA, membership in a public sector body which includes a non-profit organization, is exempt only if members are entitled to no benefits other than the following "allowable benefits":
• the right to receive an indirect benefit intended to accrue to all members collectively;
• the right to receive investigation, conciliation, or complaint-settlement services supplied by the body for issues involving members;
• the right to vote at or participate in meetings;
• the right to receive or acquire property or services at the fair market value of the property or services at the time of supply by the organization.
• the right to receive a discount on the fee paid for a supply provided by the organization where the total value of all such discounts to which a member is entitled is insignificant in relation to the membership fee; and
• the right to receive periodic newsletters.
If a membership in a public sector body is exempt under this provision, the organization may elect to make its memberships taxable by completing form GST 23 - Election by a Public Sector Body to Have its Exempt Memberships Treated as Taxable Supplies. This election does not have to be filed with the Department, but a copy of the completed election form GST 23, or a statement containing the prescribed information, must be kept with the registrant's books and records.
For your information and assistance, we note that since individual members are accorded by reason of their membership in the Corporation, benefits other than the "allowable benefits" specified in section 17 of Part VI of Schedule V to the ETA, it appears that supplies of membership by the Corporation to individual counsellors would be taxable even if the above noted election had not been made. We have not been provided sufficient information regarding membership benefits provided by the Corporation to provincial institutes to determine if these memberships would have been taxable if the election had not been made.
Also, although we have not been asked to provide a ruling regarding the tax status of memberships provided by provincial institutes, the documentation submitted indicates that provincial institutes provide members educational programs at a discounted fee. If the discount is significant in relation to the membership fee, or if other benefits, except for the allowable benefits listed above, are conferred upon members, supplies of membership in the provincial institute are taxable.
2. Tax Status of Textbooks and Educational Programs
A supply of tangible personal property (e.g. text-book) by a non-profit organization is taxable provided the non-profit organization charges GST/HST and the consideration before tax equals or exceeds the direct cost of the supply without reference to the GST/HST. A supply of tangible personal property would be exempt if the non-profit organization does not charge GST/HST and the consideration does not exceed the direct cost of the supply, including GST/HST. The following examples illustrate how the direct cost exemption applies:
Example 1
A non-profit organization acquires books for $1000 plus 7% GST. The direct cost of the books is $1070. It sells the books for $1070 and does not charge an amount as tax.
In this situation, the sale of the books is exempt under paragraph 6(a) of Part VI of Schedule V to the ETA as the amount charged does not exceed the direct cost of the supply.
Example 2
A non-profit organization acquires books for $1000 plus 7% GST. The direct cost of the books is $1070. It sells the books for $1000 plus $70 of GST.
The resupply in this situation is taxable. The direct cost exemption does not apply since the organization charged tax on the sale and the sale price "is equal to or exceeds" the direct cost after deducting the GST paid on the purchase.
Section 6 of Part III of Schedule V to the ETA sets out an exemption for (a) a service of instructing individuals in courses leading to a professional or trade accreditation recognized by a regulatory body or (b) a certificate, or a service of administering an examination, in respect of a course, or accreditation or designation described in (a). A regulatory body is defined in section 1 of Part III of Schedule V to the ETA as "a body that is constituted or empowered by an Act of Parliament or of the legislature of a province to regulate ... a profession or trade. ..."
Since the Corporation educational programs do not lead to an accreditation that is recognized by a regulatory body, the programs are not exempt under this provision.
Section 8 of Part III of Schedule V to the ETA sets out an exemption for a service of instruction or administering examinations supplied by a school authority, vocational school, public college or university in respect of courses leading to certificates, diplomas, licences or similar documents, or classes or ratings in respect of licenses that attest to the ability to practice or perform a trade or vocation where:
(a) the document, class or rating is prescribed by federal or provincial regulation;
(b) the supplier is governed by federal or provincial legislation respecting vocational schools, or
(c) the supplier is a non-profit organization or charity.
"Vocational school" is defined in section 1 of the same Part as "an organization that is established and operated primarily to provide students with correspondence courses, or instruction in courses that develop or enhance students' occupational skills".
Based on the information submitted, it does not appear that Corporation falls within the meaning of "vocational school" (nor school authority, public college or university); consequently Corporation educational programs are not exempt under section 8, of Part III of Schedule V to the ETA.
3. Other Items: Input Tax Credits
In accordance with subsection 169(1) of the ETA, a person is entitled to an input tax credit equal to the extent (expressed as a percentage) to which the property or service is for consumption, use or supply in the course of the registrant's commercial activities. Section 141.01 clarifies that a registrant will be entitled to claim an input tax credit in respect of an acquisition only to the extent that it has been acquired for the purpose of making taxable supplies for consideration. If the registrant is not able to track the extent to which the property is for consumption, use or supply in the course of its commercial activities, it must use a fair and reasonable method of apportioning these inputs for the purpose of claiming input tax credits. It should be noted that where substantially all of the consumption or use of the property by the registrant is in the course of the registrant's commercial activities, based on a direct attribution method, the registrant would be entitled to full input tax credits on the acquisition of the property.
A non-profit organization that is making taxable supplies of membership is entitled to claim input tax credits for tax paid on purchases related to the provision of those memberships.
Although we have not been provided detailed information concerning the use of the purchases in question, it is apparent that these are directly related to the supply of Corporation memberships which are taxable supplies. On this basis, full input tax credits may be claimed.
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-0420.
Yours truly,
Lorrie Grannary
Charities and Non-profit Organizations Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate
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D. Jones
J.M. Place
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Legislative References: 17/VI/V
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