GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 9th Floor
25 McArthur Avenue
Ottawa ONT
XXXXX K1A 0L5
March 31, 1998
Dear XXXXX
Thank you for your letter of June 13, 1997, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the membership dues of the XXXXX. On the basis of the information you provided, as well as our telephone conversation of January 23, 1998, our understanding of the facts is as follows:
Statement of Facts
1) You are in the process of starting an association for non-management employees of XXXXX to be named the XXXXX[.]
2) The XXXXX is primarily involved in labour relations between employees and employers and aims to standardize the XXXXX industry. It may also become involved in training courses and seminars.
3) The XXXXX will originate in XXXXX and you intend for it to receive national recognition and support.
4) Membership in the XXXXX is voluntary and employees who join will pay annual membership dues. These dues entitle members to:
• advice on labour regulations within their province of jurisdiction;
• suggestions regarding contractual items or topics;
• legal advice on an individual basis pertaining to a particular problem or to labour regulations in a member's province of jurisdiction; and
• employment information in the member's area or elsewhere in the member's province.
Rulings Requested
You are asking whether the XXXXX would be required to collect the GST/HST on the membership dues it charges to its members. In addition, you inquired as to whether the membership dues be deductible for income tax purposes against the members' earnings.
Rulings Given
On the basis of the information provided, there are two possible exempting provisions, as described below, that should be considered with respect to the XXXXX memberships. It should be noted that if no exemptions apply to the XXXXX memberships, they will be "taxable supplies" for GST/HST purposes. If the total of all taxable supplies exceeds $50,000 annually, the XXXXX will be required to register for the GST/HST and charge the tax. As a registrant, it will be entitled to fully recover the tax it paid on related purchases by claiming input tax credits.
Ruling 1
Based on the information provided, the exemption for memberships provided under section 17 of Part VI of Schedule V of the Excise Tax Act (the "ETA") will not apply to the XXXXX[.]
Section 17 of Part VI, Schedule V of the ETA provides an exemption from tax to supplies of memberships made by a public sector body, including a non-profit organization. However, this exemption does not apply to clubs whose main purpose is to provide dining, recreational, or sporting facilities. Memberships to a non-profit organization may be exempt pursuant to section 17 provided that the member does not receive any benefit from the membership, other than certain "allowable" benefits listed in that section. These benefits are:
a) an indirect benefit that is available to all members collectively;
b) the right to receive services supplied by the non-profit organization relating to the investigation and settling of disputes involving its members;
c) the right to vote at or participate in meetings;
d) the right to purchase goods or services at a cost equal to the fair market value of the supply;
e) the right to receive discounts on supplies to be made by the organization where the total value of such discounts is insignificant in relation to the amount paid for the membership fee; or
f) the right to receive periodic newsletters, reports or publications as long as the value is insignificant in relation to the membership fee, or publications that provide information on the activities of the organization or its financial status, other than such publications which have a significant value in relation to the membership and for which a fee is ordinarily charged by the organization to non-members.
Based on the information provided, it is the Department's view that the following supplies to be provided by the XXXXX to its members constitute direct benefits received by those persons in respect of their membership fees and are in excess of the permissible benefits listed in section 17 of Part VI of Schedule V of the ETA:
a) advice on labour regulations within their province of jurisdiction;
b) suggestions regarding contractual items or topics;
c) legal advice on an individual basis pertaining to a particular problem or to labour regulations in a member's province of jurisdiction; and
d) employment information in the member's area or elsewhere in the member's province.
Consequently, the membership dues would not be exempt under this section. When members pay their annual membership fee to the XXXXX they are paying consideration for the right to receive supplies provided to them throughout the year according to the mandate of the XXXXX[.] It is important to note that is not necessarily the actual benefit provided to the member but rather the right to receive benefits that determines the tax status of the supply of the membership.
Please note that we have ruled that an "indirect benefit" under paragraph 17(a) of Part VI of Schedule V to the ETA is a benefit which accrues to members in an incidental or secondary manner. That is, the benefit to members must be incidental to a broader objective of the organization. It does not appear that the benefits that may accrue to the XXXXX members are "indirect".
Ruling 2
On the basis of the information provided, it is not possible to rule definitively whether the XXXXX memberships are exempt under the provision of section 189 of the ETA. However, if the XXXXX is a trade union as defined in section 3 of the Canada Labour Code, its memberships will be exempt under this provision.
That is, pursuant to paragraph 189(a)(i) of the ETA:
"... where an amount is paid by a person to an organization as
(a) a membership due paid to a trade union as defined
(i) in section 3 of the Canada Labour Code ...
... the organization shall be deemed to have made an exempt supply to the person and the amount shall be deemed to be consideration for the supply."
Section 3 of the Canada Labour Code defines a "trade union" as "any organization of employees, or branch or local thereof, the purposes of which include the regulation of relations between employers and employees." In other words, membership dues paid to a defined trade union are described in paragraph 189(a)(i) of the ETA as consideration for an exempt supply and therefore the trade union would not be required to collect tax on these dues.
On April 1[,] 1997, the HST replaced the GST and the provincial sales tax in the three participating provinces of Nova Scotia, New Brunswick, and Newfoundland with a harmonized rate of 15%. If the association supplies goods that are delivered or made available in a participating province, services to be performed in a participating province, or intangible property that may be used in a participating province, to the extent that they are taxable supplies, tax must be collected at the harmonized rate.
These rulings are subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST Memoranda Series. We are bound by these rulings 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 transactions for which you requested a ruling.
If you would like additional information, you may contact your local Tax Services Office at the following address:
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
Deduction of Membership Dues From Employment Income
As we discussed by telephone, the issue of deducting membership dues from employment income for income tax purposes falls under the responsibility of Revenue Canada, Taxation. The Income Tax Rulings Directorate interprets the provisions of the Income Tax Act and related statutes, and establishes the Department's policy regarding these interpretations. You can mail written requests for advance rulings or technical interpretations on complex issues to:
Income Tax Rulings Directorate
Revenue Canada
875 Heron Road
Ottawa ON K1A 0L8.
You can also fax requests to the following number: (613) 957-2088, or telephone the Directorate at (613) 957-8953.
Should you have any further questions or require clarification on the above matters, please do not hesitate to contact me at (613) 952-6761.
Yours truly,
Susan Eastman
Charities, Non-Profit Organizations and Educational Services Unit
Public Service Bodies and Governments Division
| c.c.: |
J.A. Venne
M. Place
S. Eastman |
| Legislative References: |
Excise Tax Act: paragraph 189(a)(i); Section 17 of Part VI, Schedule V
Income Tax Act: subparagraph 8(1)(i)(iv) and paragraph 8(5)(c) |
| NCS Subject Code(s): |
I-9
XXXXX
Casework Number HQR0000737 |
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