13 May 1998 GST/HST Interpretation HQR0001064 - Association Membership Fees

                                                                        GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Avenue
Vanier, Ontario
XXXXX                                                                                 K1A 0L5

Dear XXXXX

Thank you for your letter of January 27, 1998, with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your operations.

Our understanding of the facts, based on your letter and our conversation April 2, 1998, is as follows:

Statement of Facts

•   The XXXXX is a non-profit professional association representing approximately XXXXX XXXXX across Canada.

•   The Association is registered for GST purposes XXXXX medicine and makes referrals to recognized schools of XXXXX medicine. The association also provides information about XXXXX medicine and provides referrals to member XXXXX doctors across Canada.

•   Members of the Association receive:

•   a Guide to the Ethical Conduct of XXXXX Physicians;

•   Standards of Practice that have been developed by the association;

•   the association's quarterly newsletter, XXXXX, which provides a forum for sharing knowledge and information among members;

•   a complimentary subscription to the XXXXX[;]

•   a special discount to the XXXXX[;]

•   a membership directory;

•   brochures and promotion material for member's use at cost. The association coordinates participation and presentations by member doctors and displays promotion materials at national health care conferences, conventions and forums[.] The association develops and implements public relation strategies with regards to government, the public and other professions;

•   a political link between the profession and federal government

•   a common forum where members can share and exchange information with suppliers and business contacts at the annual general meeting; and

•   a vote at the annual general meeting or any special meetings called by the Board of Directors.

•   Annual dues are as follows: XXXXX[.]

•   Membership in the Association is not necessary in order for individuals to maintain their professional status.

Ruling Requested

You wish to receive a ruling as to whether or not the Association should be collecting the GST from its members when collecting their annual membership fees.

Ruling Given

Based on the information provided, the supply of the memberships by the Association is taxable for GST purposes. As the Association is registered for GST purposes and is currently collecting the GST on the value of their membership fees, they should continue filing using their current business number account.

Explanation

In order to establish the tax status of a membership in a non-profit organization, we refer to [s]ection 17 of Part VI to Schedule V to the Excise Tax Act (the Act). This section exempts memberships in most non-profit organizations, other than a membership in a club whose main purpose is to provide dining, recreation or sporting facilities, except where the membership entitles the members to direct benefits. As such, all possible benefits accruing to members must be taken into consideration in determining the tax status of a membership. However, paragraphs 17(a) to 17(f) inclusive, provide a list of "allowable" benefits which may be provided to members without affecting the exempt status of the membership dues. These are, in summary:

•   an indirect benefit intended to accrue to all members (whether or not all members, or only a few, actually do benefit from it);

•   investigation, conciliation and similar services for settling disputes among members;

•   the right to vote and participate in meetings;

•   the right to purchase property or services at their fair market value;

•   the right to membership discounts, where the total value of the discounts is insignificant (i.e. less than 30%) relative to the membership dues; and

•   newsletters, reports and publications that are insignificant in value relative to the membership fee or that contain information on the body's activities and financial status and that may be significant in value but for which no fee is normally charged to non-members.

A "benefit" of membership is the right to any property or service of value regardless of the extent to which the right is actually exercised by individual members.

Generally the supply of a membership is exempt from the GST unless the member is entitled to receive a direct benefit of significant value. All possible benefits accruing to members must be taken into consideration in determining the tax status of a membership. The accumulative value of all such discounts must be taken into account with respect to each paragraph referred to above. For example, the supply of the membership would become taxable if either the value of all the discounts referred to in paragraph (e) were significant in relation to the value of the membership, or if the value of all the discounts referred to in paragraph (f) were significant in relation to the value of the membership.

When determining whether the value of a publication or a benefit is significant in relation to the consideration for membership, "value" is the amount that would be charged in an arm's length transaction (i.e. a non-member) on the open market.

According to the information in your letter, the complimentary subscription to the XXXXX represents more than 30% of the consideration of the value of the memberships for the XXXXX, second year practitioner, and first year practitioner. Further, the Association also offers a special discount to members to the XXXXX at a value of approximately 10%. These rights appear to exceed the "allowable" limits described under paragraph 17(f) described above.

Since the exempting criteria of section 17 of Part VI of Schedule V to the Act is not met in respect of memberships to the Association because the value of the discounts offered by the Association is considered significant in relation to the value of the memberships, the supply of the memberships by the Association is taxable for GST purposes. Further, since the Association is registered for GST purposes and is currently collecting the GST on the value of their membership fees, they should continue filing using their current business number account.

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.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. 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.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST Memoranda Series. 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, Non-Profit Organizations and Educational Services Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate

case:                                        920031; HQR0000747,