23 June 1999 GST/HST Interpretation HQR0001418 - PROPOSED REGULATION Applicability of Subsection 240(4) of the Excise Tax Act to Memberships

GST/HST Rulings and Interpretations Directorate Place Vanier, Tower C, 10th Floor 25 McArthur Avenue Vanier, OntarioXXXXXAttention: XXXXX

Case: HQR0001418June 23, 1999

Subject:

GST/HST INTERPRETATION PROPOSED REGULATION Applicability of Subsection 240(4) of the Excise Tax Act to Memberships

Dear Sirs:

Your letter of November 6, 1998, to the attention of Randy Nanner concerning the application of the Goods and Services Tax (GST) to memberships and subscriptions has been referred to the undersigned for reply. Also received was your letter of May 31, 1999, addressed to the attention of the undersigned.

Interpretation Requested

You have made reference to an interpretation letter issued by Revenue Canada dated October 3, 1994, as file number 11645-2, to XXXXX concerning the application of subsection 240(4) of the Excise Tax Act ("ETA") to supplies of memberships in an association where the membership includes the right to receive magazine subscriptions having independent monetary value.

The association you are inquiring about has the following membership rights and obligations:

•   the membership is to a non-resident professional association;

•   the membership dues are XXXXX per year;

•   members receive the following benefits:

•   professional networking;

•   professional recognition;

•   leadership opportunities;

•   competitions and awards;

•   opportunity to be published;

•   continuing education;

•   on-line education;

•   access to experts in the field;

•   job referral service;

•   access to medical insurance and a credit card program;

•   internet discussion forums; and

•   voting rights.

•   members are entitled to receive the following publications, at no charge:

•   a catalogue of publications in their professional field;

•   a monthly newsletter;

•   a monthly magazine; and

•   a quarterly journal.

•   non-members could receive both the catalogue and the newsletter for free while they would have to pay $XXXXX per issue in respect of the magazine and the journal;

•   magazine cost per year is therefore	$XXXXX
•   journal cost per year is therefore	$XXXXX
•   total cost per year:	$XXXXX
•   members are entitled to a discount on seminars and educational programs at an average savings of approximately	$XXXXX

Your have asked two specific questions.

Question 1:

Whether the fact that members of this association are entitled to receive publications having a yearly market price exceeding the annual membership dues, does not, in and of itself, mean that there is not a single supply that is essentially a membership if many other benefits accrue to the members, who consider the publications as incidental to their membership.

Question 2:

If it can be concluded that there could be a supply of a magazine subscription for publications rather than a single supply of a membership, could the application of subsection 240(4) of the ETA be excluded if the publicity by the association takes place exclusively at trade shows located outside of Canada, on its website (where the sale price is quoted in US dollars and no special mailing address is provided for Canadian subscribers in the advertisement) and through a catalogue which is automatically mailed to members and persons who ask about membership information (again the sale price is quoted in US dollars and no specific mailing address is provided for Canadian subscribers in the catalogue). However, the association would directly send a renewal notice to Canadian residents in respect of their memberships.

Interpretation Given

Question 1:

Revenue Canada Policy Number P-077R "Single and Multiple Supplies" provides factors and guidelines to review which the Department will consider in determining whether a supply will be considered to be a single supply or multiple supplies.

According to this policy, the single supply/multiple supplies analysis is invariably a question of fact. Therefore, to determine whether a transaction comprises a single supply or multiple supplies, one should analyze its form and substance. Such an analysis should focus on the interrelationships among the various constituent elements to determine whether each element is autonomous or an integral part of a composite whole.

Additional questions which this policy provides as being useful are:

1. If the recipient did not receive all of the elements, would each element, in itself, and in the context of this transaction, be of any use to the recipient? [If yes, likely multiple supplies; if no, likely a single supply.]

2. Is the provision of a particular element contingent on the provision of another element? [If yes, likely a single supply; if no, likely multiple supplies.] Put differently, would the recipient of a supply have the option to acquire the elements of the supply separately? If the answer is no, and therefore the provision of all the elements is contingent on the provision of the others, then there is likely a single supply.

3. Is the recipient made aware of the specific elements (in detail) that are part of the package? [If yes, likely multiple supplies; if no, likely a single supply.]

Viewing all of the rights and constituent elements accruing from the membership from the perspective of the factors and additional questions contained in Policy Number P-077R, one can more easily come to a determination that the various rights accruing from the membership constitute an integral part of a composite whole rather than to a determination that each of the elements are autonomous. Aside from the publications, none of the other membership rights can be purchased separately by non-members and they are not accorded any market value. Consequently, the supply of these association memberships appear to be a single rather than multiple supplies.

Given that two sets of the publications have a combined market price per year that significantly exceeds the amount of the annual association membership dues, that the four sets of publications are automatically received by the members, that no market value is placed on any of the other (non publication) rights and services accruing from membership, that the use by members of these other membership rights and services are optional, and that the usage of many of these other rights and services are by a minority of the number of members, this supply of an association membership would very likely be viewed by the Department as a single supply of a publication rather than of a membership.

Subsection 240(4) provides that every person (other than a small supplier), whether or not resident in Canada, who, in Canada, whether through an employee or agent or by means of advertising directed at the Canadian market, solicits orders for the supply by the person of, or offers to supply, property that is prescribed property for the purposes of section 143.1 and that is to be sent by mail or courier to the recipient at an address in Canada

(a) shall be deemed, for the purposes of Part IX of the ETA, to be carrying on business in Canada; and

(b) is required to be registered for the purposes of Part IX.

The Publications Supplied By a Non-Resident Registrant Regulations (with draft amendments) details which property is prescribed for the purposes of (what is now) section 143.1. It includes a book, newspaper, periodical, magazine, and any similar printed publication.

Question 2:

We refer you to the GST/HST Guide titled "Information For Non-Resident Suppliers of Publications" (a copy of which is attached). The relevant portions are contained under the heading "Soliciting Sales" on pages 3 and 4 of this guide and which are reproduced below.

We do not usually consider advertising in non-Canadian publications which have Canadian circulation to be advertising directed at the Canadian market, unless there is a specific price for Canadian residents or some other indication that the advertisement is directed at the Canadian market.

You do not solicit sales for books, newspapers, magazines, periodicals, or similar printed publications in Canada if:

•   you advertise in non-Canadian broadcast or print media available to Canadian residents, but you do not specifically direct the advertising at the Canadian market; or

•   you include subscription offer notices in your publications or in another non-resident company's publications destined for the Canadian market, but the offers are not specifically directed at the Canadian market.

If you send a renewal notice to a Canadian resident for a subscription that was not originally obtained as a result of solicitation, and the renewal price is quoted in Canadian dollars, we do not consider this to be solicitation. If you have not tried to identify or pursue a market in Canada using specific plans or advertising activities, and you are not seeking sales beyond your existing subscribers or offering publications in Canada, then it is our policy that you are simply continuing a business relationship that was previously established through the Canadian resident's own initiative.

However, if you are seeking sales in Canada beyond your existing subscribers, we consider you to be soliciting sales in Canada and you have to register for the GST.

The foregoing comments represent our general views with respect to the proposed amendments to the Publications Supplied By a Non-Resident Registrant Regulations as they relate to the subject matter of your letter. Any change to the wording of these proposed amendments or any future 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 Department with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-2560.

Yours truly,

Richard Aronoff
Border Issues Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate

c.c.:

Randy Nanner Ivan Bastasic Richard Aronoff

Encl.:	GST/HST Guide titled "Information For Non-Resident Suppliers of Publications"
Legislative References:	section 143.1, subsection 240(4) ETA Publications Supplied By a Non-Resident Registrant Regulations
NCS Subject Code(s):	I-11690-11 XXXXX