23 December 1999 GST/HST Interpretation 8224 - Application of the GST/HST to Supplies of Membership

Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th Floor 320 Queen Street Ottawa, ON K1A 0L5XXXXX XXXXXAttention: XXXXX President

Case: HQR00001830RITS # 8224December 23, 1999

Subject:

GST/HST INTERPRETATION Supplies by XXXXX

Dear XXXXX

Thank you for your letter of February 5, 1999, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies made by the XXXXX[.] Please note that as of November 1, 1999, Revenue Canada became the Canada Customs and Revenue Agency.

The following outlines, in summary, our understanding of your operations:

1. In May 1996 XXXXX was federally incorporated as a non-profit organization.

2. XXXXX is a GST/HST registrant, its registration number is XXXXX[.]

3. XXXXX offers an annual membership entitling members to attend its annual general meeting and vote at, or participate in, the meeting; receive or acquire goods or services at fair market value; and receive a newsletter three times per year. The annual membership fee is $XXXXX and XXXXX currently has members from Canada and the United States.

4. XXXXX[.] Approximately XXXXX of these are sold through mail orders and the remainder are sold in the XXXXX[.]

5. Each year XXXXX (with instructions). These designs are then copied and combined in a package called the XXXXX The XXXXX is sold to members for XXXXX each.

6[.] XXXXX[.] Members who want to become XXXXX XXXXX. Members must complete each XXXXX and send the completed project to XXXXX for review and grading. In order to become certified, a member must receive a passing grade on at least XXXXX of the XXXXX[.]

7. XXXXX sells copies of business education articles for XXXXX each. This price covers the costs of reproducing the articles plus shipping and handling.

8. XXXXX sells space to persons who wish to advertise in its newsletter. The charge is determined by the size of the advertisement.

[9.] XXXXX receives donations of goods from both its Canadian and American members. These items are subsequently raffled off.

10. Following its annual general meeting XXXXX holds an auction to raise funds for its educational XXXXX[.] The items being auctioned are donated by both Canadian and American members.

Interpretation Requested

1. Is the XXXXX membership subject to GST/HST?

2. Following its annual general meeting, XXXXX holds an auction to raise funds for its educational XXXXX[.] Does XXXXX charge all buyers, despite their resident province or country, only GST?

3. If XXXXX members from the United States or other foreign countries purchase goods while visiting Canada, will they be eligible to apply for a Visitor's Rebate?

4. Is the XXXXX (i.e. goods) subject to GST/HST?

5. Is the XXXXX (i.e. goods) by mail order, within Canada, subject to GST/HST?

6. Is the XXXXX (i.e. goods), by mail order, to residents of the United States and other foreign countries subject to GST/HST?

7. If, at any time, XXXXX decides to clear out its inventory by selling off goods for less than direct cost will the sale be subject to GST/HST?

8. Is the sale of copies of business education articles for XXXXX each subject to GST/HST?

9. Is the sale of advertising space, in the XXXXX newsletter, subject to GST/HST?

10. Is the sale of the XXXXX subject to GST/HST?

11. Is the sale of raffle tickets subject to GST/HST?

12. Are the proceeds from the sale of raffle tickets considered to be donations?

13. Is it correct to state that: "Goods sold for less than XXXXX each by volunteers as part of a fund raising activity are exempt, as long as you are not in the business of providing such goods ... these sales cannot be made at an event where people who are in the business of selling such goods are also selling their goods?" Does this mean that if XXXXX produced XXXXX and sold them for XXXXX and were not in competition with other sellers at an event that no GST would be charged? Would XXXXX be eligible to apply for the 50% input tax credit on taxes paid to produce the cards?

14. On the input tax credit form (i.e. "Goods and Services Tax/Harmonized Sales Tax Return for Registrants") provided by Revenue Canada, does GST and HST have to be separately identified?

15. Is XXXXX exempt from paying GST/HST on Directors' Liability and Special Event Insurance?

16. Is it correct to say that the GST and HST are federal consumer taxes and have to be submitted in total?

17. Is the XXXXX subject to provincial sales tax?

Interpretation Given

Based on the information set out above:

1. The supply of a membership by XXXXX is exempt pursuant to section 17 of Part VI of Schedule V to the Excise Tax Act (the Act). This provision exempts memberships where any benefits to members are limited to those enumerated under this provision (e.g. the right to vote, indirect benefits, insignificant discounts). It is apparent that the benefits conferred by XXXXX do not exceed those allowed under section 17.

2. The supplies made by XXXXX by way of auction will be subject to the 15% HST if the auction is held in one of the participating provinces (i.e. Nova Scotia, New Brunswick and Newfoundland), or the 7% GST if the auction is held in a non-participating province. That is, pursuant to Part II of Schedule IX of the Act, it is the place where the goods are sold rather than the residence of the purchaser that is relevant in determining "place of supply." You should also note than no tax would apply if one of the exempting provisions enumerated in Part VI of Schedule V to the Act were to apply. However, based on the facts, it appears that the only exemption that might apply is the XXXXX fundraising exemption discussed in #13 below.

3. A non-resident recipient of goods (other than excisable goods such as wine, tobacco, liquor, etc.) acquired for use primarily (i.e. more than 50%) outside Canada may claim a rebate of GST/HST paid provided the property is exported within sixty days after it is delivered to the non-resident. Eligible non-residents must file an application for the visitor's rebate within one year after the day the person exports the claimable goods. In addition, the receipt for the goods must show a purchase amount of at least CAN$50 (not including GST, provincial sales tax, or supplies taxable at 0%).

4. The XXXXX (i.e. goods) is subject to GST or HST. The applicable tax rate will be determined with reference to the place of supply of the goods. The enclosed Technical Information Bulletin: "Place of Supply Rules Under the HST" explains these rules in detail. Regarding sales of goods, the place of supply is described as the province in which "the supplier delivers the property or makes it available to the recipient."

5. Pursuant to paragraph 3(b) of Part II of Schedule IX to the Act, the XXXXX by mail order, within Canada is subject to HST if mailed to an address in a participating province or to GST if mailed to an address in a non-participating province.

6. Pursuant to paragraph 142(2)(a) of the Act, the XXXXX is deemed to be a supply made outside Canada since these goods are delivered or made available outside Canada, and as such are subject to neither GST nor HST.

7. The direct cost exemption under section 6 of Part VI of Schedule V applies when goods are sold at the "usual charge" and the consideration is equal to or less than the direct cost. The provision concerning the "usual charge" is meant to address situations where goods are sold on a taxable basis, and a few items are sold at a reduced price in order, for example, to clear them from inventory. In this situation the few items sold would not become exempt, since they were not sold at the "usual charge."

On the other hand, where there is a larger inventory on hand, it is possible that the "re-pricing" of such inventory could result in a new "usual charge" that does not exceed the direct cost, and in this situation the sales of these items would fall under the direct cost exemption.

Because of the limited facts at hand, we are unable to determine whether the direct cost exemption applies to XXXXX in this situation. However, we trust the above information will assist you in making this determination.

8. The sale of copies of business education articles is subject to GST or HST as determined by the place of supply.

9. The supply of advertising is considered to be a supply of a service. In order to determine whether a service is subject to the GST or HST it is necessary to refer to the "place of supply" rules in Schedule IX, as previously mentioned. Under these rules, a service is considered to be supplied in a particular province if all or substantially all (i.e. 90% or more) of the "Canadian element" of the service is performed in that province. The "Canadian element" of a service is the portion of a service which is performed in Canada.

If the above-noted does not determine the place of supply, the supply of a service will be considered to be made in a particular province if the place of negotiation of the supply is located in the province, unless all or substantially all of the service is performed outside the province.

If a supply of a service cannot be determined to be made in a participating province in the above-noted circumstances, it may be regarded as being made in a particular province, if the place of negotiation for the supply is located in Canada and the "Canadian element" of the service is to be performed primarily (i.e. more than 50%, as opposed to the 90% or more described above) in the participating provinces. In this situation, the supply of the service is considered to be made in the participating province in which the greatest proportion of the "Canadian element" is performed.

Where the place of negotiation for the supply is located outside Canada, but all or substantially all of the service is to be performed in Canada, and it is to be performed primarily in the participating provinces, the supply is considered to be made in the participating province and will be subject to the 15% HST unless the supply is zero-rated (i.e. taxed at a rate of 0%).

It should also be noted that the supply of an advertising service to a non-resident who is not registered for GST/HST purposes is zero-rated pursuant to section 8 of Part V of Schedule VI to the Act.

10. The supply of the XXXXX is considered to be a service. Therefore, our comments (excepting the final paragraph) as presented in # 9 above will apply to the supply of these kits.

11. Pursuant to section 5.1 of Part VI of Schedule V, the sale of raffle tickets by a non-profit organization is exempt of GST/HST. Accordingly no GST/HST has to be charged.

12. The proceeds from the sale of raffle tickets are not considered to be donations since such proceeds represent consideration for the supply of the tickets. However, as noted above, the sale of such tickets is exempt from GST/HST.

13. Pursuant to section 4 of Part VI of Schedule V to the Act, it would be correct to state that the sale of goods by a non-profit organization would be exempt from GST/HST if: the NPO does not carry on a business of selling such property, all the salespersons are volunteers, the consideration for each item is $5.00 or less and the goods are not sold at an event at which supplies of property of the same kind or class are being sold by persons who carry on the business of selling such property. If XXXXX produced, and then sold for XXXXX at an event in which they were not in competition with vendors who are in the business of selling such goods, the sale would be exempt. As the supply of XXXXX would be exempt, XXXXX would not be entitled to claim an input tax credit for the GST/HST paid to produce the XXXXX[.] However, if XXXXX is a qualifying non-profit organization (i.e. receives 40% of its total revenues in the form of government funding) it may be eligible to claim a 50% rebate of the GST/HST.

14. GST and HST do not have to be separately identified on the "Goods and Services Tax/Harmonized Sales Tax Return for Registrants."

15. Under the Act, the supply of a financial service in Canada is exempt from GST/HST. A "financial service" is defined in subsection 123(1) of the Act to include the issuance of an "insurance policy." Therefore, the payment of an amount for an insurance policy is not subject to the GST/HST. However, under the Act, a contract to provide insurance coverage will not qualify as an "insurance policy" unless the contract is issued by a person authorized by the laws of Canada or a province or under the laws of another jurisdiction to carry on an insurance business.

16. It is correct to say that both the GST and HST are federal consumer taxes. Also, where normal accounting methods are used, a GST/HST registrant is required to remit the total GST/HST collected or collectible in a particular reporting period.

17. To determine whether the XXXXX XXXXX is subject to provincial sales tax you will have to contact the provincial government. It is beyond our jurisdiction to comment on matters concerning provincial sales taxes.

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%. To the extent that they are taxable supplies (which are not zero-rated), 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/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-952-8531.

Yours truly,

Donna Harding
Charities, NPO's and Education Unit
Public Service Bodies & Governments Division
Excise and GST/HST Rulings Directorate

Encl.:

Legislative References:
NCS Subject Code(s):	R-