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GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Avenue
Vanier, ON K1A 0L5XXXXXAttention: XXXXX
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Case: HQR0001289March 12, 1999
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Subject:
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GST/HST APPLICATION RULING
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Dear XXXXX
Thank you for your letter of August 5, 1998 (with attachments) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the operations of the XXXXX[.]
Statement of Facts
1. The XXXXX is a non-profit organization which was federally incorporated in XXXXX and is registered for GST/HST purposes. XXXXX funding comes primarily from membership fees and the revenues generated by its annual congress. XXXXX members receive the right to vote, notices, the XXXXX journal XXXXX and members may attend the XXXXX congress by paying reduced registration fees. The annual membership fee for full members is currently $XXXXX (tax included) with other categories available at lower rates (e.g., students at $XXXXX[)]. XXXXX annual revenues from all sources are approximately $XXXXX[.]
2. XXXXX has established a registered charity called the XXXXX XXXXX make voluntary contributions to this XXXXX and receive an official tax receipt for income tax purposes. The annual revenue of the XXXXX from all sources is approximately $XXXXX. The payments received within the XXXXX XXXXX are used exclusively to support activities geared to physics students in high schools and universities.
3. XXXXX currently charges GST/HST on its membership fees to all members residing in Canada. GST/HST is also charged on congress registrations as well as on subscriptions, and advertisements placed in its journal.
4. The annual congress is held in different locations throughout Canada, normally at a university. The congress is generally attended only by persons involved with the XXXXX[.] In XXXXX will be held at the XXXXX[.]
5. The XXXXX journal, XXXXX is produced in XXXXX and shipped to subscribers around the world. XXXXX has been charging GST/HST as applicable on all subscriptions for residents within Canada. XXXXX members receive a subscription to the journal as part of their membership fee. Non members who are Canadian residents pay a subscription fee of $XXXXX per year plus applicable tax. No tax is charged to non-resident subscribers.
6. XXXXX has been charging GST for advertisements placed in the XXXXX journal by organizations based in Canada (HST is charged for organizations within the participating provinces) as well as for offprint issue orders. The revenue from these sources varies from year to year; however, the publication consistently costs more to produce than the income generated through advertising, offprints, back issues, and extra issue sales. In effect, the journal is subsidized by XXXXX by an amount between $XXXXX[.]
7. XXXXX is in the process of applying for a trademark which it intends to "license" to members upon meeting very specified criteria (similar to an accreditation process). There will be an initial application fee and annual fees payable thereafter.
Rulings Requested
1. Is XXXXX required to charge GST/HST on the XXXXX registration and banquet fees, regardless of its location?
2. Are non residents participating at the congress required to pay GST/HST on registration and banquet fees?
3. Is the tax treatment of "XXXXX as described in fact #5 above, correct?
4. Is the tax treatment for advertisements and offprint issue orders as described in fact #6 above, correct?
5. Is GST/HST applicable to the license fee as described in fact # 7 above?
Rulings Given
Ruling #1
Is XXXXX required to charge GST/HST on the XXXXX registration and banquet fees, regardless of its location?
XXXXX is required to charge GST/HST on registration and banquet fees for the XXXXX XXXXX, regardless of its location in Canada. The HST (at a rate of 15%) will apply to the XXXXX congress held at the XXXXX[.]
Explanation
Pursuant to sections 221 and 225 of the Excise Tax Act (ETA), a GST registrant such as XXXXX is required to collect and remit the GST/HST on amounts payable for the taxable supplies that it makes. Taxable supplies are defined in the ETA as being supplies made in the course of a commercial activity which, given the broad definition of that phrase in the ETA, would include the activities carried on by XXXXX[.] A commercial activity, however, does not include making exempt supplies.
Exempt supplies for non-profit organizations and other public service bodies are specifically enumerated under Schedule V of the ETA. Since there is no exemption under Schedule V for the supplies of registrations and banquet admissions made by XXXXX as described in the Facts, these supplies are taxable and, as indicated above, XXXXX is required to charge GST/HST on these supplies. Effective April 1, 1997, the rate of tax for supplies made in the "participating provinces" is 15%. As previously noted, this is referred to as the HST. The 7% GST applies to supplies made in the other provinces.
Ruling #2
Are non residents participating at the congress required to pay GST/HST on registration and banquet fees?
Non residents will be required to pay GST/HST on registration and banquet fees for attending the XXXXX[.] However, as provided under subsection 167.2(1) of the ETA, the portion of the fee that is reasonably attributable to the provision of the convention facility or related convention supplies shall not be included in calculating the tax payable.
Explanation
Paragraph 142(1)(c) of the ETA provides that a supply of intangible personal property (such as the right to attend a convention and banquet) is deemed to be made in Canada where "... the property may be used in whole or in part in Canada." Therefore, supplies to non-residents of admissions to the congress and banquet are deemed to be made in Canada. Since they are taxable supplies, GST/HST is charged on these fees, subject to the provisions of subsection 167.2(1) of the ETA.
Subsection 167.2(1) of the ETA, as indicated above, provides that portion of the fee that is reasonably attributable to the provision of the convention facility or related convention supplies shall not be included in calculating the tax payable. Generally, "related convention supplies" includes purchases by the supplier XXXXX related to the convention other than, in summary, transportation, food, beverages, entertainment, catering, and certain other supplies not include in the registration fee that are connected to the convention. Please refer to attached Appendix A for more information concerning the meaning of "related convention supplies," and for a description of the two methods available for calculating the tax payable on these fees.
Ruling #3
Is the tax treatment of XXXXX as described in fact #5 above, correct?
There is no GST/HST applicable to subscriptions where the publication is delivered to recipients outside of Canada. The GST/HST is applicable to fees charged (i.e., to non-members) for subscriptions delivered to recipients in Canada. Where publications are provided to members for no extra fee, there is no GST/HST applicable on the supply of the publication. However, the membership fee itself may be taxable and therefore subject to GST/HST.
Explanation
GST is not applicable on a subscription supplied to a person outside Canada. That is, subsection 142(2) of the ETA provides that a supply of tangible personal property (i.e. a subscription) is deemed to be made outside Canada if the supply is, or is to be delivered or made available outside Canada to the recipient of the supply. In this situation, the supply is not subject to the tax under Division II of the ETA.
Since the supplies of subscriptions are taxable supplies, the GST or HST is applicable to fees charged to the non-member recipients in Canada. Based on the information provided, there is no exemption for such supplies. Section 6 of Part VI of Schedule V of the ETA provides an exemption where the consideration for a supply is equal to or less than its direct cost. However, since direct cost is defined as including only the material costs of the property, it is apparent that this exemption would not apply to XXXXX publication.
Although you haven't requested a ruling concerning the tax status of XXXXX memberships, please note that this supply will only be exempt if the benefits of memberships are limited to those described in paragraph (a) to (f) of section 17 of Part VI of Schedule V of the ETA. For your assistance we have attached a transcript of section 17 (see Appendix B).
Ruling #4
Is the tax treatment for advertisements and offprint issue orders as described in fact #6 above, correct?
The GST or HST is applicable to amounts charged for advertising and offprint issues.
Explanation
Based on the facts, XXXXX charges a fee for advertisements in its journal and for offprint issues. These are taxable supplies, since there is no exemption for them. Therefore, they are subject to GST or HST.
Please note that the fact that the cost of the publication consistently costs more to produce than the revenues derived for it will not affect the tax status of the advertising service.
#5 (No Ruling Given)
Is GST/HST applicable to the license fee as described in fact # 7 above?
Application rulings apply to present, ongoing activities. Since this is a "planned activity" rather than a present ongoing one, we are unable to issue an application ruling, but we will provide the following interpretation for your assistance.
As indicated above, GST or HST must be charged on taxable supplies made in Canada by a GST/HST registrant (such as XXXXX[.] Generally, the "licensing" of a trademark to members would be regarded as the supply of intangible personal property, and since there is no apparent exemption for it, the consideration for the supply would be subject to tax. This would include both the application fee and the annual fees paid for the license.
The XXXXX[.] You briefly described the XXXXX in your correspondence, and we have included this description under the Facts above. Although you have not requested any rulings concerning the XXXXX we will provide the following general interpretation for your assistance.
GST/HST is not applicable to the receiptable donations to the XXXXX that you have described, since gifts at law are not viewed as consideration for a supply. Also, we should mention that most supplies by charities are exempt from GST/HST, particularly supplies of rights (such as memberships) and services. Accordingly, even if the XXXXX does receive other revenues (e.g., membership fees that are not receiptable, fees for services), it is likely that such amounts would be viewed as consideration for exempt supplies, and thus not subject to tax.
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.
Should you have any further questions or require clarification on the above matter, please do not hesitate 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
Appendix A
Subsection 167.2(1) of the Act provides that, where a sponsor of a convention makes a taxable supply of an admission to the convention to a non-resident person, no tax is payable on the portion of the admission that is reasonably attributable to the provision of the convention facility or related convention supplies.
Subsection 123(1) of the Act defines "related convention supplies" as property or services acquired or imported by a person exclusively for consumption, use or supply by the person in connection with a convention, but does not include
(a) transportation services, other than a chartered service acquired by the person solely for the purpose of transporting attendees of the convention between any of the convention facilities, places of lodging of the attendees or transportation terminals,
(b) food, beverages or entertainment,
(c) property or services that are supplied to the person under a contract for catering, or
(d) property or services supplied by the person in connection with the convention for consideration that is separate from the consideration for the admission to the convention, unless the recipient of the supply is acquiring the property or services exclusively for consumption or use in the course of promoting, at the convention, property or services supplied by, or a business of, the recipient.
The portion of the admission that is "reasonably attributable" to the provision of the convention facility or related convention supplies may be determined in either of two ways.
1. Regular method
The percentage that the amount reasonably attributable to the provision of a convention facility or related convention supplies is of the total admission charge is the same as the percentage that the expenses relating to the provision of the convention facility and related convention supplies is of the total convention expenses.
If the total expenses incurred by a sponsor in relation to a convention were $100,000, $40,000 of which were related to things other than the provision of the convention facility or related convention supplies, a $100 admission to the convention supplied to a non-resident delegate would be subject to tax of $2.80 ($100 x 7% x 40%) - i.e., tax would be payable on the 40 per cent of the price of admission that is attributable to expenses other than the provision of the convention facility or related convention supplies.
2. Streamlined method
In order to streamline the operation of the tax for sponsors of taxable conventions, 4 per cent of the 7 per cent tax normally applicable to an admission to a taxable convention will be considered to be "reasonably attributable" to the provision of the convention facility or related convention supplies.
This will mean that, in effect, sponsors of taxable conventions will be permitted to charge non-resident delegates tax on their admissions to taxable conventions at a rate of 3 per cent. This will streamline the administration of the tax for sponsors of taxable conventions, by relieving them of the requirement to determine the exact portion of an admission to a taxable convention supplied to non-residents in respect of which tax is payable. This will also assist sponsors of taxable conventions in setting tax-included prices of admissions in advance of the convention.
Appendix B
17. A supply of a membership in a public sector body (other than a membership in a club the main purpose of which is to provide dining, recreational or sporting facilities or in a registered party) where each member does not receive a benefit by reason of the membership, other than
(a) an indirect benefit that is intended to accrue to all members collectively,
(b) the right to receive services supplied by the body that are in the nature of investigating, conciliating or settling complaints or disputes involving members,
(c) the right to vote at or participate in meetings,
(d) the right to receive or acquire property or services supplied to the member for consideration that is not part of the consideration for the membership and that is equal to the fair market value of the property or services at the time the supply is made,
(e) the right to receive a discount on the value of the consideration for a supply to be made by the body where the total value of all such discounts to which a member is entitled by reason of the membership is insignificant in relation to the consideration for the membership, or
(f) the right to receive periodic newsletters, reports or publications
(i) the value of which is insignificant in relation to the consideration for the membership, or
(ii) 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,
except where the body has made an election under this section in prescribed form containing prescribed information.
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