22 January 2003 GST/HST Ruling 35053 - Tax Status of Memberships Supplied by a Non-profit Organization

Dear XXXXX:

Thank you for your letter XXXXX (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies made by your client, XXXXX. We apologize for the delay in our response.

Statement of Fact

Our understanding of the facts, the transaction(s), and the purpose of the transaction(s) is as follows:

1. XXXXX (the Association) is a non-profit organization incorporated on XXXXX, in the province of XXXXX.

2. The Association receives the vast majority of its revenues in the form of membership fees. Membership fees for the year ending XXXXX totalled XXXXX.

3. The Association has not elected to have the supply of memberships be taxable.

4. The Association has not indicated any charge for GST on its invoices for memberships, but has taken 7/107 of the membership fees and reported the amount as GST on the Association's GST/HST returns.

5. The Association has claimed full input tax credits (ITCs) for all the GST/HST paid or payable on its purchases.

6. The Association promotes and protects the rights of XXXXX.

7. The objects of the Association state, in part, that the Association was established to protect the rights XXXXX and for these purposes XXXXX.

8. Documentation provided by you states that membership in the Association XXXXX It also states that the Association pays all legal fees and associated costs.

9. XXXXX Ruling Requested

Memberships supplied by the Association are exempt from GST/HST pursuant to section 17 of Part VI of Schedule V to the Excise Tax Act (the ETA).

Ruling Given

Based on the facts set out above, we rule that, pursuant to section 17 of Part VI of Schedule V to the ETA, memberships supplied by the Association are taxable supplies and therefore not exempt.

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

Explanation

Section 17 of Part VI of Schedule V to the ETA exempts the 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 the value of which is insignificant in relation to the consideration 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, except where the body has made an election under the section in prescribed form containing prescribed information.

In other words, memberships in public sector bodies are taxable if members receive any benefits other than those described in section 17 as listed above.

As noted above, paragraph (a) allows an indirect benefit only. The free legal services provided by the Association are a direct benefit to XXXXX. The legal services provided also constitute a benefit going well beyond the investigation of complaints or the conciliation of disputes involving members referred to in paragraph (b).

Thus, the legal services provided by the Association are excluded from the exemption by virtue of both paragraphs (a) and (b) of section 17 of Part VI of Schedule V to the ETA.

Additional Information

We would like to clarify some points mentioned in your letter. First, although the type of organization making a supply may have an impact on the determination of the tax status of a supply, it is the supply that is either taxable or exempt, not the organization making the supply.

Secondly, while for most persons the small supplier threshold amount is $30,000, for a public service body the threshold amount is $50,000.

If the taxable supplies of a public service body registered for GST/HST fall below the $50,000 threshold, the public service body has the option of cancelling its registration. Once deregistered, the public service body would generally no longer charge GST/HST on its taxable supplies and would not be eligible to claim ITCs.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9592.

Yours truly,

Helena Ingr
Charities, NPOs and Educational Services Unit
PSBs and Governments Division
Excise and GST/HST Rulings Directorate