Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 162107
Dear [Client]:
Subject: GST/HST RULING
Application of section 140 – [Additional contributions]
Thank you for the letter of [mm/dd/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to payments of additional contributions made by existing members of the […] Club (“the Club”).
The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador, 14% in Prince Edward Island and 15% in Nova Scotia. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
We understand the facts based on your submissions and information on the Club’s website as follows:
1) The Club is a private yacht club that is registered for purposes of the GST/HST. It is a not-for-profit corporation without share capital that operates a clubhouse and docks for use by members who are recreational boaters.
2) When applying for membership, individuals certify that they agree to pay all fees and assessments set by the Club and that privileges of the Club will not be available until notification of the acceptance of their application.
3) Access to the property is by use of a proximity card where parking is free and close to the docks and clubhouse.
4) The Club maintains a website for general information and has a members’ section which is used to provide confidential information and Club specific information.
5) The Club has [#] wet mooring slips ([…] to […] ft.) provided with potable water and 20 or 30 amp outlets, for which there is no additional charge; the service docks and their self-service pump-out facility and a crane are available to members at no charge.
6) The Club has several membership categories but only one permits members to dock their boats in one of the Club’s boat slips; it is the […][Type X] membership.
7) Ten directors from the [Type X] membership are responsible for the management of the Club and the work of committees.
8) According to the Membership Information Bulletin, a [Type X] member is […]. In contrast, a […][Type Y] member is […]. Other membership categories (e.g., […]) have no voting rights.
9) In addition to the annual membership fees, all [Type X] members are required to make a capital contribution in the form of a non-interest bearing, repayable debenture. In the case of a new [Type X] member that has not made any previous capital contribution to the Club, whether in the form of a debenture or otherwise, HST is accounted for by the Club on the initial debenture payment.
10) Upon termination of a [Type X] membership (resignation or death of member), the capital invested is returned to the member.
11) In [mm/yyyy], the Club’s membership voted to levy an additional capital contribution to be paid by [Type X] members in the form of a debenture to pay for capital improvement projects with respect to the Club facilities. The debenture was increased by $[…] for [yyyy] and [yyyy]. This additional capital is also repayable upon termination of the [Type X] membership.
12) The Club considers the sum of any initial debenture payment and any subsequent capital call, characterized at the time of call as repayable, as representing a debt by the Club to the member making such payments.
RULING REQUESTED
You would like to know whether HST applies with respect to the additional [mm/yyyy] capital contribution as well as with respect to any subsequent similar capital calls, when such amounts are paid by existing [Type X] members.
RULING GIVEN
Based on the facts set out above, we rule that the Club is required to account for the HST payable on the [mm/yyyy] capital contributions paid by [Type X] members.
EXPLANATION
Whether an additional contribution paid by an existing member of the Club is additional consideration for the supply of a “membership” as defined under subsection 123(1), or consideration for a security that is deemed to be a supply of a membership under section 140 is a question of fact. Where a membership in the Club is a taxable supply, as a GST/HST registrant, the Club would be required to account for the HST payable on such consideration.
Subsection 123(1) sets out that “membership” includes a right granted by a particular person that entitles another person to services that are provided by, or to the use of facilities that are operated by, the particular person and that are not available, or are not available to the same extent or for the same fee or charge, to persons to whom such a right has not been granted, and also includes such a right that is conditional on the acquisition or ownership of a share, bond, debenture or other security. The conditions may be set out in by-laws, a separate agreement under which the membership is conveyed, or the term or conditions of the security.
Section 140 provides that where a person makes a supply of a share, bond, debenture or other security (with certain exceptions) that represents capital stock or debt of a particular organization, and ownership of the security by the recipient is a condition of the recipient’s, or another person’s, obtaining a membership, or a right to acquire a membership, in the particular organization or in a related organization, the supply of the security is deemed to be a supply of a membership and not a supply of a financial service.
Section 140 is to ensure that the full value of a taxable supply of a membership in an organization, such as a private recreational club, is subject to tax if the cost of obtaining the membership consists partly of the cost of purchasing otherwise exempt shares or other securities of the organization as a condition of membership.
Part VI of Schedule V to the ETA includes exemptions for certain supplies of memberships, none of which would appear to apply with respect to a supply of a membership that is made or is deemed to be made by the Club.
The [mm/yyyy] capital contribution paid by [Type X] members as well as any similar future payments made by existing [Type X] members is additional consideration for a supply of a membership as defined in subsection 123(1) that is taxable, or is consideration for a security that is deemed to be a supply of a membership under section 140 that is taxable; therefore the Club would be required to account for the HST payable on such amounts.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling given in this letter provided that: none of the issues discussed in the ruling is currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-4393. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Jasmine Gallant
Special Provisions-FI Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
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