The relevant provincial legislation (the Legislation) affecting the Employer’s obligations to an agent for collective bargaining in a part of the construction industry (the “Organization”) provides that the provisions of a collective agreement are binding on each employer on whose behalf an organization (such as the Organization) was bargaining collectively and that such an organization may require an employer who is bound by a collective agreement bargained for or entered into by it to pay dues to it that are reasonably related to the services performed by the registered employers’ organization in respect of its duties under the Act.
During the negotiation of the collective agreements between the Organization and the unions, it was agreed that for each hour worked by employees pursuant to the collective agreements, amounts would be contributed by each employer to support workforce development initiatives. In order to give effect to this, a “Funding Agreement” was entered into with the Organization, which provided that employers would contribute on the basis of hours worked to a trust (the “Trust,” that the Organization would collect these funds, along with Organization dues and fees, and contributions for other programs, and that the contributions for the workforce development initiatives would be forwarded to the Trust Fund.
After ruling that the contributions to the Trust Fund made by the employers through the Organization pursuant to the collective agreements were not consideration for a supply, CRA stated:
[T]he payment of amounts is an industry development fee set by [the Organization] which is authorized [under the Legislation] to do so […]. Contractors/employers are required to pay the amounts to [the Organization], who then provides it to the Trust Fund in accordance with the Funding Agreement.
There is no direct link between the contributions made by the contractors to the Trust Fund and a supply made by the Trust Fund to the contractors. The payment of amounts as an industry development fee set by [the Organization] are therefore not consideration for a supply and therefore not subject to GST/HST.
