30 November 2000 GST/HST Ruling 3038 - Contract Service Fees and Administration Fees

Dear XXXXX:

Thank you for your letters of May 12, 2000 and July 8, 1999, with attachments, in which you requested a ruling with respect to the contract service fees and the administration fees paid by XXXXX to the XXXXX. Your letters were subsequently forwarded to this office for reply.

Statement of Facts

The facts, as we understand them, are as follows:

1. The XXXXX is a trade union whose members consist of XXXXX XXXXX. Each XXXXX who is a union member pays membership dues to the XXXXX.

2. The XXXXX negotiates and administers various national collective agreements on behalf of and for the benefit of its members with XXXXX. These agreements provide that the XXXXX is the exclusive bargaining agent for specified categories of XXXXX whose services are contracted for by XXXXX.

3. Local unions/branches of the XXXXX throughout Canada administer the agreements and collect GST/HST in accordance with the terms of these agreements.

4. The XXXXX who are party to these agreements must pay the XXXXX certain fees in adherence to the various agreements (i.e., the XXXXX Agreement and the XXXXX Agreement). These fees are referred to as the "contract service fee," the "administration fee" and the "XXXXX administration fee". The fees serve to partially defray the XXXXX cost of monitoring, enforcing, negotiating and administering the agreements.

5. The XXXXX Agreement between the XXXXX, covers XXXXX. The term of the agreement ends XXXXX.

6. XXXXX of the XXXXX Agreement, "Contract Service Fee", requires an engager to pay contract service fees to the XXXXX to "compensate for the enforcement of this Agreement by the XXXXX and service and stewarding provided by the XXXXX in connection with the production of XXXXX."

7. The XXXXX Agreement between the XXXXX, covers XXXXX. The term of the agreement ends XXXXX.

8. XXXXX of the XXXXX Agreement, "Administration Fees", requires a producer to "partially defray the cost of administering the terms of this Agreement, by paying to XXXXX ... an Administration Fee." XXXXX XXXXX of the Agreement, "XXXXX Administration Fee", requires a XXXXX to "partially defray the cost of monitoring and enforcing the provisions of XXXXX of this Agreement", by paying the XXXXX an administration fee.

9. Section 3 of the Canada Labour Code defines a "trade union" as "any organization of employees, or any branch or local thereof, the purposes of which include the regulation of relations between employers and employees."

Ruling Requested

Are the contract service fees and the administration fees subject to GST/HST?

Ruling Given

Based on the facts set out above, we rule that the contract service fees and the administration fees payable by the XXXXX to the XXXXX are consideration for an exempt supply pursuant to subparagraph 189(a)(i) of the Excise Tax Act and therefore the XXXXX is not required to collect tax on these fees.

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 our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

The trade union, XXXXX, negotiates collective agreements with various XXXXX that set out the obligations of these XXXXX and the minimum rates or terms and working conditions negotiated and administered by the XXXXX for the benefit of its members. According to these agreements, the XXXXX are required to make payments (i.e., contract service fees and administration fees) to the XXXXX to assist it in administering the provisions of the agreements.

Section 189(a)(i) of the ETA provides that:

"... where an amount is paid by a person to an organization as(a) a membership due paid to a trade union as defined

(i) in section 3 of the Canada Labour Code ...

... the organization shall be deemed to have made an exempt supply to the person and the amount shall be deemed to be consideration for the supply."

The XXXXX is a "trade union" as defined in s. 3 of the Canada Labour Code as it regulates relations between employers and employees through collective bargaining in Canada.

The members of the XXXXX pay membership dues to the organization, a trade union. Pursuant to s. 189 of the ETA, the XXXXX is deemed to have made an exempt supply to its members. We are of the view that the amounts paid by the XXXXX in this case represent consideration for that deemed exempt supply to the members, notwithstanding that the amount is paid by the XXXXX. That is to say, pursuant to the collective agreements, the XXXXX have undertaken to pay part of the consideration for services, deemed to be exempt, provided by the union to all its members.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-4206.

Yours truly,

Hélène McGraw
Charities, NPOs, and Educational Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate