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GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Avenue
Vanier, ON K1A 0L5XXXXXAttention: XXXXX XXXXX
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Case: HQR0001561June 18, 1999
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Subject:
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GST/HST APPLICATION RULING
XXXXX
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Dear XXXXX
Thank you for your letter of December 3, 1998, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the operations of the XXXXX[.]
Background Facts
1. The XXXXX a non-profit-organization whose mandate is to provide education courses, business opportunities and services related to "error and omission" insurance for its members.
2. Each member pays membership dues which the XXXXX expends on education courses, general communication and business opportunities.
3. The purpose of the education courses provided by XXXXX to improve the knowledge of members with regards to their profession.
4. Members pay XXXXX an insurance "collection fee" for services XXXXX provides with respect to "error and omission" (i.e. liability) insurance. Presently, the annual collection fee that XXXXX earns is about $XXXXX[.] During recent telephone conversations, you have provided the following additional information concerning these services and the procedures followed by the XXXXX[.]
• Assume Jane Doe applies for membership in XXXXX. Once it is determined that Jane meets certain appraisal standards, she is certified by XXXXX and becomes a member. If Jane is a residential appraiser, she is required [i]1 to carry XXXXX 's "group" insurance.
• Jane provides XXXXX sufficient information on an application form which XXXXX forwards to its broker who in turn forwards it to the insurance company who issues the policy to Jane Doe.
• Jane also encloses a cheque payable to XXXXX with her application form for the insurance premium plus XXXXX fee. The cheque is payable XXXXX[.]
• XXXXX then forwards the application to the broker. The broker issues a certificate of insurance (indicating the policy issued by the insurance company) to the member and a copy of the certificate and the invoice for the policy XXXXX XXXXX then forwards a cheque to the broker. The difference between the cheque XXXXX receives from the member and the cheque issued to the broker is XXXXX collection fee.
• XXXXX has entered no "agreement" with the member concerning the XXXXX[.] Rather, the fee is an XXXXX an association that collects a premium on behalf of an insurance carrier is legally entitled to retain the XXXXX fee under provincial law. The fee is to compensate XXXXX for its administrative services (processing applications and fees, and dealing with the broker with respect to applications and claims).
• Part of XXXXX's mandate is to find the best "deal" for its members, and it does this through its broker. Its members have the ability to oppose this choice (at the Annual General Meeting for example). In practice XXXXX has a fairly long standing relationship with one carrier and its members are quite satisfied.
• The arrangement is not "group insurance" as described in the Departments Policy Statement P-092 since XXXXX is not a party to the policy. It is XXXXX understanding that this insurance arrangement is typical in the industry with regards to liability insurance. One advantage is that this type of arrangement is more flexible (than group insurance) since the members are insured individually - for example, the insurer may adjust the rates of a particular member, if that member's risk varies significantly. This means a better premium for the average member, in addition to the reduced premium they receive by dealing with the carrier as a group.
• XXXXX does receive a copy of the policy issued by the carrier to the member. A copy of such a policy accompanied XXXXX submissions.
5. Currently XXXXX total annual revenues are approximately XXXXX. The XXXXX has no revenues other than those described above. Accordingly, regardless of the tax status of the supplies described above, XXXXX presently qualifies as a small supplier for GST/HST purposes and is thus not required to become a GST/HST registrant.
Ruling Requested
XXXXX required to charge GST/HST on the membership fees and the insurance collection fee paid by members? Furthermore, the XXXXX requests information on the requirements to register and on procedures to deregister.
Ruling Given
Memberships
Based on the facts set out above, we rule that memberships supplied by the XXXXX are taxable for GST/HST purposes. However, as a small supplier, the XXXXX is not required to register for GST/HST purposes and therefore does not collect GST/HST on its membership fees. It will be required to register and charge tax on its taxable supplies if and when it is no longer a small supplier.
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.
Insurance Collection Fee
We require further information in order to provide a ruling on the tax status of the service provided to members with respect to insurance, for which the members pay a "collection fee."
However, for your assistance, we will provide general comments below concerning this supply.
Explanation
Memberships
A membership in a non-profit organization such as the XXXXX is generally taxable if the members receive any benefits other than those set out under section 17 of Part VI of Schedule V to the Excise Tax Act (the ETA). These "allowable benefits" are:
• 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 for consideration equal to the fair market value of the property or services at the time the supply is made;
• 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, reports or publications for which the value is insignificant in relation to the consideration paid for the membership, or that provide information on the activities of the body or its financial status, other than newsletters, reports or publications the value of which is significant in relation to the consideration for the membership and for which a fee is ordinarily charged by the body to non-members.
As indicated by the background facts, since the members receive benefits other than those "allowable benefits" described above, such as education courses and business opportunities, the membership in XXXXX is taxable for GST/HST purposes. However, as mentioned previously, since XXXXX not registered for GST/HST purposes, it will not charge GST/HST on its supplies.
Registration Requirements
XXXXX is not required to register for GST/HST by virtue of subsection 148(1) of the ETA. Under this provision, a public service body, such as the XXXXX is a small supplier if its total revenues from taxable supplies (other than supplies of financial services and sales of capital property) for its previous four quarters or for any particular quarter are $50,000 or less. Where its annual revenues from taxable supplies is $50,000 or less, it may voluntarily register for GST/HST purposes. If its annual revenues from taxable supplies exceeds $50,000, it is required to register for the GST/HST.
As noted above, XXXXX may voluntarily register for GST/HST and if it does so, it will be required to charge GST/HST on its taxable supplies and will be entitled to claim input tax credits to recover the tax paid on its purchases used to make taxable supplies.
You also asked about XXXXX status if, at some later date, it is required to register for the GST/HST but then, at a date beyond that, its revenues again fall below the small supplier's threshold. Please note that any time a GST/HST registrant becomes a small supplier, it may apply to have its registration cancelled. However, in accordance with subsection 242(2) of the ETA, once registered, an organization must retain its registration status for at least one year before applying for cancellation of its registration.
Insurance Collection Fee
As to the XXXXX we are unable to determine if this amount is subject to GST without a clearer understanding of what services are being provided by the XXXXX for the receipt of this amount.
Under the Excise Tax Act, a supply of services is generally subject to tax unless the supply is an exempt supply such as a supply of financial services. In the case concerning an insurance policy, the services of an intermediary of "arranging for" the issue of the insurance policy will qualify as exempt financial services, and any fee paid or payable for these services are not subject to tax.
In general, an "arranging for" service can be described as the activities of a person acting as a "go-between" in bringing together, in an active manner, the insurance company and the insured in the issue of an insurance policy, and both the insurance company and the insured may count on the person for assistance in completing the issue of the policy. However, the mere service of referring, introducing or recommending the insurance company to the insured will not qualify as an "arranging for" service. The phrase "arranging for" applies to services provided by license insurance brokers or by persons when they are acting as agents, salespersons, or brokers primarily involved in the placement of the insurance policy where a clear nexus between their activities and the provision of the insurance policy can be established.
Therefore, we would be able to advise if the XXXXX for the provision of its services is subject to GST if you could provide us, in writing, with a detailed description in addition to the information already submitted of the activities and responsibilities of the XXXXX in connection with the issue of the insurance policy by the insurance company to the Association's members; for example:
• does the XXXXX send out the insurance application forms to its members;
• does the XXXXX help the members in completing the forms;
• does the XXXXX collect and verify the completed forms from its members before forwarding them to the insurance company;
• does the XXXXX provide any assistance to the members or the insurance company whenever necessary in matters relating to the application or the issuance of the insurance policy;
• does the XXXXX provide any assistance to the members with respect to the insurance claims.
In order to receive an application ruling with respect to the insurance collection fee, please forward the required information, as outlined above, to:
John Sitka
Director
Financial Institutions & Real Property Division
GST/HST Rulings & Interpretation Directorate 10/F Tower "C"
25 McArthur Road, Vanier
Ontario K1A 0L5
Should you have any further questions concerning insurance and the "collection fee" issue, please contact Phil Tang at (613) 954-1433. For other matters concerning this reply, please feel free to contact me at (613) 952-0329.
Yours truly,
Gabrielle Nadeau
Charities and Non-Profit Organizations Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate
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M. Place
G. Nadeau
E. Weisberg
P. Tang |
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