3 February 2000 GST/HST Ruling 13484 - Application of the GST/HST to Memberships of a Non-profit Organization

Dear XXXXX

Thank you for your letter of November 30, 1999, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below.

Please note that as of November 1, 1999, Revenue Canada became the Canada Customs and Revenue Agency.

Statement of Facts

Our understanding of the facts, the transactions, and the purpose of the transactions is as follows:

1. XXXXX is a non-profit organization established to XXXXX[.]

2. XXXXX has no employees and is administered by a XXXXX[.]

3. The principle objective of the XXXXX[.]

4. Competitors in sanctioned events, including the XXXXX must be members of the XXXXX[.] There are approximately XXXXX members, with the average membership fee being XXXXX[.] Each member receives a rule book and a subscription to an XXXXX XXXXX XXXXX[.]

5. The XXXXX also secures corporate sponsorship revenues during the year. The sponsors receive very limited advertising in return. Within any competition, XXXXX[.] Three XXXXX[.] Each corporate sponsor has a designated "XXXXX["]. During the competition, the announcer will call out, as an example, "XXXXX - sponsored by XXXXX XXXXX." XXXXX[.]

Transactions

In XXXXX, revenues from the XXXXX were as follows:

XXXXX[.]

Ruling Requested

Does the XXXXX have to register for GST/HST purposes?

Ruling Given

Based on the facts set out above, we rule that the XXXXX XXXXX has to register for GST/HST purposes.

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 transactions for which you requested a ruling.

Explanation

Subsection 240(1) of the Excise Tax Act (the "ETA") requires, with certain exceptions, that a person who makes a taxable supply in Canada in the course of a commercial activity must be registered for GST/HST. One exception to the registration requirement is for a person who is a small supplier. For a non-profit organization, the small supplier threshold is $50,000 in annual taxable supplies. Since, on the basis of the information provided, it is apparent that the XXXXX XXXXX has annual taxable supplies that exceed $50,000, the organization is required to register for GST/HST purposes. In addition, where a non-profit organization's total revenues from taxable supplies in a particular calendar quarter exceed the small supplier threshold of $50,000, the non-profit-organization ceases to be a small supplier immediately before the consideration becomes due or is paid for the particular taxable supply that puts the person over the $50,000 small supplier threshold. Following are our views concerning the tax status of the XXXXX supplies.

It appears that the XXXXX entry fees, parking fees, XXXXX rentals and banquet tickets are taxable supplies, since there is no exemption for such supplies.

A membership in a non-profit organization such as the XXXXX 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:

17(a)           the right to receive an indirect benefit intended to accrue to all members collectively;

17(b)           the right to receive investigation, conciliation, or complaint-settlement services supplied by the body for issues involving members;

17(c)           the right to vote at or participate in meetings;

17(d)           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;

17(e)           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

17(f)           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.

There is limited information provided concerning services provided to members. However at the minimum, members receive the right to participate in sanctioned events. As well, members receive the XXXXX publication which may not meet the requirements under 17(f) as described above. On this basis, it appears that the memberships in the XXXXX may be taxable.

Concerning the XXXXX sponsorships, section 135 of the ETA provides that where a public sector body (e.g. a non-profit organization) supplies either a promotional service or a right to use its logo or similar property to a sponsor of an activity of the body, for use by the sponsor exclusively in publicizing it's business, the supply is deemed not to be a supply. An exception to this deeming provision is where the payment for the supply is primarily for a service of advertising by means of radio or television or in a newspaper, magazine or other publication published periodically. Based on this provision, it appears that, the promotional service supplied to the XXXXX sponsors is deemed not to be a supply assuming that the payment for the supply is primarily not for a service of advertising by means of radio or television or in a newspaper, magazine or other publication published periodically. Accordingly, the XXXXX does not charge tax when they receive a payment from the sponsors, however the XXXXX may claim input tax credits for the GST it paid on purchases related to the promotional service. Supplies deemed "not to be supplies" under section 135 do not affect entitlements to input tax credits.

Also, according to the XXXXX submission, the "Revenues/GST Receipts" total at least XXXXX[.] On this basis the XXXXX is required to be registered. Please note that the amount may even be greater if the memberships are taxable. Furthermore, in that submission, the organization deducted cash prizes for a total of XXXXX[.] This is correct only if subsection 188(3) of the ETA applies. That is, subsection 188(3) provides that where a competitor in a competitive event contributes an amount to the prizes to be given to competitors, the contribution shall be deemed not to be consideration for a supply and no GST will apply. However, pursuant to subsection 188(4), this treatment will not apply where the contribution is made as part of a fee for the right or privilege of participating in the event and is not separately identified as a contribution to the prizes.

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, NPOs and Educational Services Unit
Public Service Bodies and Governments Division