9 September 2002 GST/HST Interpretation 33627 - Tax Status of Memberships

Dear XXXXX:

Thank you for your facsimile of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of annual memberships. Your facsimile was sent to the XXXXX TIS Centre and forwarded to us for reply. We apologize for the delay in providing you with this response.

Our understanding is that XXXXX is a division of XXXXX XXXXX, which is a corporation registered for the GST/HST under business number XXXXX. The operations of XXXXX are physically located in XXXXX. In addition to supplies of XXXXX merchandise and personal XXXXX instruction, XXXXX provides annual memberships. These memberships XXXXX entitle members to access certain Web pages (such as chat rooms, editorials, photo gallery, and XXXXX profiles) that are unavailable to the general public. The memberships also entitle members to a XXXXX discount on personal XXXXX instruction and advice, as well as, a XXXXX discount on merchandise purchases.

Interpretation Requested

1. Is a non-resident person required to pay the GST/HST in respect of the annual membership?

2. Does XXXXX require a separate GST/HST number from XXXXX or is it sufficient to remit the GST/HST under XXXXX registration number? Do you wait until annual taxable revenues reach $30,000 before charging, collecting and remitting the tax or do you have to do so immediately because XXXXX is already registered for purposes of the GST/HST?

Interpretation Given

Pursuant to subsection 123(1) of the Excise Tax Act (the "Act"), "membership" for GST/HST purposes includes a right granted by a particular person that entitles another person to services that are provided by, ... the particular person and that are not available ... for the same fee or charge, to persons to whom such a right has not been granted. It appears that the right granted by XXXXX that entitles a person to access certain Web pages and to obtain discounts for goods and services that are not available to others who have not been granted the right meets the definition of "membership" for GST/HST purposes.

Based on the information provided, the supplies of annual memberships, which entitle members to access certain Web pages and obtain discounts for goods and services provided through XXXXX, are considered by the Canada Customs and Revenue Agency (CCRA) to be supplies of intangible personal property (IPP) for purposes of the Act.

Subparagraph 142(1)(c)(i) of the Act deems a supply of IPP that is not related to real property, tangible personal property or a service to be made in Canada if the IPP may be used in whole or in part in Canada. The expression "may be used" is interpreted to mean "allowed to be used". In other words, a supply of IPP could be considered to be made in Canada even if it is not actually used in Canada. The supply of the annual membership is deemed to be made in Canada pursuant to subparagraph 142(1)(c)(i) of the Act as the supply may be used in whole or in part in Canada. The fact that the supply may be made to a recipient who is outside Canada at the time the supply is made has no impact on the determination of whether the supply of IPP is made in Canada.

Every recipient of a taxable supply made in Canada is required to pay GST/HST in respect of the supply at the rate of 7% (or 15% when the supply is made in a participating province) (The three participating provinces are Nova Scotia, New Brunswick and Newfoundland and Labrador.) on the value of the consideration for the supply unless the supply is zero-rated (taxed at 0%). There are no provisions in Schedule VI to the Act that would zero-rate the supply of the membership. In addition, given that XXXXX is not a public service body such as a non-profit organization or charity, the supply of the membership is not exempt for GST/HST purposes.

Where the supply of the membership is made in Canada, a further analysis with respect to the province in which the supply is made is necessary.

Whether a supply of IPP made in Canada is made in a participating province or non-participating province is determined by section 144.1 of the Act and Schedule IX to the Act. Section 144.1 provides that a supply is deemed to be made in a province if it is made in Canada and is, under the rules set out in Schedule IX, made in the province. In any other case, the supply is deemed to be made outside the province. Section 144.1 also states that a supply made in Canada that is not made in a participating province is deemed to be made in a non-participating province.

Section 3 of Part IX of Schedule IX to the Act provides that, notwithstanding any other Part of Schedule IX, a supply of property or a service is made in a province if the supply is prescribed to be made in the province.

Pursuant to section 6 of the Place of Supply (GST/HST) Regulations, where a supply of a membership is made to an individual and the Canadian rights in respect of the membership may be exercised otherwise than exclusively in one province, the supply is made in a particular province if the mailing address of the individual is in that province. "Canadian rights" refers to that part of the IPP that may be used in Canada (Section 1 of the Place of Supply (GST/HST) Regulations). Where there are no restrictions regarding the province in which the membership may be used, it will always be the case that the membership may be used otherwise than exclusively in one province. Therefore, where the supply of the membership is made to an individual whose mailing address is in a participating province, the supply will be subject to HST at 15%. Otherwise, the supply of the membership is subject to GST at 7%. As such, a non-resident who acquires the annual membership from XXXXX is required to pay GST at 7%.

A "person" is defined in subsection 123(1) of the Act to mean an individual, a partnership, a corporation, an estate of a deceased individual, a trust, or a body that is a society, union, club, association, commission or other organization of any kind. A corporation is considered to be a person for GST/HST purposes. As a legal entity, the corporation is the person that registers for the GST/HST. Branches or divisions of a corporation are not separate legal entities from the corporation and cannot be separately registered. As such, XXXXX does not require a separate GST/HST number and XXXXX is required to account for the GST/HST collectible in respect of the memberships in XXXXX net tax. However, where a corporation has branches or divisions, the corporation may apply to the CCRA to have a separate GST/HST account to allow the branches or divisions to file separate GST/HST returns. For more information on branches and divisions we have enclosed a copy of GST/HST Memoranda Series section 2.4, Branches and Divisions.

Under the provisions of subsection 240(1) of the Act, every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada must register for the GST/HST, except where (among other things) the person is a small supplier. A person engaged in a commercial activity in Canada and who is a small supplier may voluntarily register for the GST/HST under the provisions of subsection 240(3) of the Act. A small supplier who has voluntarily registered for GST/HST purposes is, like any other registrant, obliged to charge, collect and remit the GST/HST in respect of taxable supplies made in Canada by the small supplier. Since XXXXX is a registrant, it will be required to collect the tax on taxable supplies made in Canada by its division XXXXX and to report the tax in XXXXX GST/HST return regardless of the level of annual taxable revenues. The small supplier's threshold applies to the person as an entity and does not apply to each division or branch. Additional information on small suppliers is available in the enclosed copy of GST/HST Memoranda Series section 2.2, Small Suppliers.

The foregoing comments represent our general views with respect to the subject matter of your letter. 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 CCRA with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-7931.

Yours truly,

Anne Kratz
Electronic Commerce Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

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