24 August 2005 GST/HST Interpretation 39293 - Section 156 of the Excise Tax Act

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5	Case Number: 39293
XXXXX XXXXX XXXXXXXXXX XXXXX XXXXX	August 24, 2005

Subject:

GST/HST APPLICATION RULINGS AND INTERPRETATIONS XXXXX

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 the transactions described below. We apologize for the delay in our response.

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

Statement of Facts

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

XXXXX (the Association) was founded in XXXXX as a non-profit association. It has its own by-laws, board of directors and committees, books and records and financial statements. The Association is not registered for purposes of the GST/HST.

XXXXX (the Chapter) was incorporated on XXXXX without share capital and has its own by-laws, board of directors and committees, books and records and financial statements. The Chapter is not registered for purposes of the GST/HST.

Both the Association and the Chapter meet the definition of non-profit organization (NPO) as that term is defined in subsection 123(1).

The Association is headquartered in XXXXX and in XXXXX had XXXXX members and XXXXX active chapters in several countries. The Chapter is one of XXXXX chapters active in Canada.

Membership Dues

The Association's dues vary depending on which of the XXXXX active chapters of the Association a prospective member indicates as his/her selected chapter. Members can be a member at large (i.e., not select any local chapter) or select only one chapter of the Association. Membership in the Association is a prerequisite for active leadership and participation in the local chapter.

According to XXXXX of the Association's by-laws, a chapter of the Association is XXXXX.

There are four classes of membership in the Association and the Chapter. Only individuals can join as members; firms and companies are not permitted to join as members. The classes of members are as follows:

•   XXXXX

•   XXXXX

•   XXXXX

•   XXXXX

•   XXXXX

The Association has not collected GST/HST on its memberships.

According to the Chapter's by-laws the fees payable by participating members and regular members in the Chapter shall from time to time be fixed by resolution of the board. A notice of the fees payable at any time shall be sent to each member by the secretary promptly before the due date.

Memorandum of Understanding

According to the Memorandum of Understanding, signed between the Association and the Association's Canadian chapters:

•   The Association will invoice and collect all membership dues/conference monies.

•   Canadian members will pay annual dues in Canadian dollars and the payment will be paid directly to the Association.

•   The Association will remit XXXXX% of dues monies collected to each Canadian chapter according to the monies paid by members to the Association.

•   Conferences and educational registrations, publications and all other charges must be paid in XXXXX dollars.

•   Each Canadian chapter will submit to the Association all reports indicated by the chapter by-laws. Failure to provide its by-laws, reviewed financial statements and confirmation of its not-for-profit status by specified due dates will result in the withholding of dues allocation by the Association.

•   Canadian chapters will notify the Association of any membership applications/dues sent to them as soon as they are received and immediately transfer such dues to the Association.

Association Membership Benefits

Members of the Association are entitled to:

•   Attend the XXXXX annual conferences, meetings and workshops organized by the Association; non-members can attend the conferences if they pay a higher price (e.g., $XXXXX vs. $XXXXX for a member); (footnote 1)

•   Call the Association for referrals or services;

•   Receive a complementary one-year subscription to the monthly XXXXX; non-members are charged $XXXXX for 12 issues or $XXXXX for a single issue;

•   Be listed in and receive a complementary annual XXXXX issued by the Association; non-members are charged $XXXXX for the XXXXX and cannot be listed in it. The XXXXX contains contact information and profiles of the majority of the Association's members, featuring an individual's primary occupation, client industry and specialization;

•   Receive notice of, and participation in, social events, meetings, annual symposiums, forums and workshops organized by their respective local Association chapters; non-members can attend many of these events, but are generally charged a higher price; and

•   A variety of discounts from third-party suppliers, such as travel, lodging, health care, liability insurance, long distance. These "other benefits" are listed each month in the XXXXX.

*

Dinner Seminars and Social Events

The Chapter organizes several dinner seminars and social events a year.

The events are open to members and non-members alike; non-members generally pay a higher charge than members. Non-members comprised up to 10% of attendees at dinner seminars in XXXXX.

Members are charged $XXXXX to attend the dinner seminar, non-members are charged $XXXXX. The charges are intended to cover the costs incurred by the Chapter to put on the seminar - the room rental and food.

The Chapter tries to have a speaker for each dinner seminar to speak on a published theme to encourage attendance.

Golf tournament, Billiards event and a Christmas reception

The Chapter also organizes an annual Golf tournament, Billiards event and a Christmas reception. In XXXXX non-members consisted of up to 15% of the attendees to these events.

Fees for attending the events were as follows:

Event	Member charge	Non-member charge
Golf tournament	$XXXXX	$XXXXX
Billiards event	$XXXXX	$XXXXX
Christmas reception	$XXXXX	$XXXXX

The Chapter set the price for the dinner seminars, Golf tournament, Billiards event and a Christmas reception based on a break-even approach

Sponsorships

The Chapter offered four levels of sponsorship for its XXXXX Annual Symposium:

Sponsor level

Cost

Includes

XXXXX

$XXXXX

•   Three complimentary passes to the Symposium

•   Signage

•   Booth space at the exhibit hall

•   Recognition of the sponsor's logo in the Symposium's advertising and printed material

•   Opportunity to offer a giveaway

XXXXX

$XXXXX

•   Two complementary passes to the Symposium

•   Signage

•   Recognition of the sponsor's logo in the Symposium's advertising and printed material for one of the following:

•   Binder & promotional material holder

•   Luncheon keynote speaker

•   Cocktail reception.

XXXXX

$XXXXX

•   One complementary pass to the Symposium

•   Signage

•   Recognition of the sponsor's logo in printed material

•   Opportunity to display the sponsor's promotional material

XXXXX

$XXXXX

•   Recognition in binder materials, signage and in printed material for the sponsorship of any of the following:

•   A coffee break

•   Morning speaker

•   A break-out panel sponsor

•   Debate session sponsor

•   Afternoon speaker.

Rulings Requested

You would like to know if

1. The membership supplied by the Association is exempt from GST/HST pursuant to section 17 of Part VI of Schedule V to the ETA.

2. The dinner seminar charges to members of the Chapter are exempt from GST/HST pursuant to section 6 of Part VI of Schedule V to the ETA.

3. The charges to members and non-members for the Golf tournament, Billiards event, and Christmas reception social events organized by the Chapter are exempt from GST/HST pursuant to section 6 of Part VI of Schedule V to the ETA.

4. The sponsorship charges by the Chapter for the Annual Symposium are deemed not to be a supply under section 135 of the ETA and therefore, not subject to GST/HST.

Rulings Given

Based on the facts set out above, we rule that

1. Membership supplied by the Association is not exempt pursuant to section 17 of Part VI of Schedule V to the ETA.

2. Admissions to the dinner seminars made to members of the Chapter are not exempt from the GST/HST under section 6 of Part VI of Schedule V to the ETA.

3. Charges to members and non-members for the Golf tournament, Billiards event, and Christmas reception social events organized by the Chapter are not exempt from GST/HST pursuant to section 6 of Part VI of Schedule V to the ETA.

4. Sponsorship charges by the Chapter for the Annual Symposium are deemed not to be a supply under section 135 of the ETA and therefore, not subject to GST/HST.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

1. Membership supplied by the Association is not exempt pursuant to section 17 of Part VI of Schedule V to the ETA.

Section 17 of Part VI of Schedule V to the ETA, exempts a 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) provided the members do not receive, by reason of the membership, any benefits other than those specified in the paragraphs under this section.

Under paragraph 17(e), an NPO may provide supplies to members at a discount without affecting the exempt status of the membership, so long as the cumulative value of such discounts is insignificant compared to the consideration for the membership. The CRA considers the discounts to be insignificant in relation to the membership, if the discounts in total are less than 30% of the value of the consideration for the membership.

For purposes of paragraph 17(e), the discount is the difference in the fee payable by the members for property or services and the fair market value (FMV) of the property or services. You have drawn attention to an excerpt from letter XXXXX:

Generally, where an NPO supplies property and services to members and non-members alike, the discount available to members is the difference between the fee for members and the fee for non-members (assuming the fee for non-members is at FMV). If the fee for non-members exceeds the FMV of the property or services being provided, the amount of the discount to the members is the difference in the fee payable by members and the FMV of the supply.

Your submission takes the position that the price paid by the members is the FMV, as the member price is based on covering the cost of putting on the dinner seminars and conferences. The CRA generally considers the FMV as the highest price, expressed in terms of money or money's worth, obtainable in an open and unrestricted market between knowledgeable, informed and prudent parties acting at arm's length, neither party being under any compulsion to transact.

As the Association has set a price for the non-members it has determined

(a) A ready market exists for the supply; and

(b) The value of that supply in an open and unrestricted market.

The price for members finds itself in a restricted market - only available to those who are members. The discount in the cost for the annual conference ($XXXXX) to members is significant in comparison to the cost of the membership ($XXXXX CDN); therefore the benefit received is beyond what is permitted in paragraphs (a) to (f) of section 17 of Part VI of Schedule V to the ETA. The supply of the membership in the Association is not exempt under section 17 of Part VI of Schedule V to the ETA.

2. Admissions to the dinner seminars to members of the Chapter are not exempt from the GST/HST under section 6 of Part VI of Schedule V to the ETA.

The supply of the dinner seminar is not a resupply of a meal and a room rental, but of an admission. Subsection 123(1) of the ETA defines an admission in respect of a place of amusement or a seminar, an activity or an event, as a right of entry or access to, or attendance at, the place of amusement or the seminar, activity or event. The dinner seminar would fall under the category of an activity or event. As the supply of the admission is neither a supply of a service nor tangible personal property, but the supply of intangible personal property (i.e., right of entry or access to, or attendance at), the supply cannot be exempt under section 6 of Part VI of Schedule V. As there is no other provision to exempt the supply of the admissions to the dinner seminars by the Chapter, the supply is taxable.

3. Charges to members and non-members for the Golf tournament, Billiards event, and Christmas reception social events organized by the Chapter are not exempt from GST/HST pursuant to section 6 of Part VI of Schedule V to the ETA.

The supply of the participation in the three other social events (Golf tournament, Billiards event, and Christmas reception) is a supply of an admission in respect of an activity or event as the supply is the right of entry or access to that activity or event. As the supply is intangible personal property, section 6 of Part VI of Schedule V to the ETA cannot apply. There is no other provision to exempt these supplies by the Chapter, therefore, the supplies are taxable.

4. Sponsorship charges by the Chapter for the Annual Symposium would be deemed not to be a supply under section 135 of the ETA and therefore, not subject to GST/HST.

We agree with your conclusion that the sponsorship charges by the Chapter for the Annual Symposium would be deemed not to be a supply under section 135 of the ETA and therefore, not subject to GST/HST.

Interpretations

We are unable to provide a ruling for your remaining questions, as we have not been provided with all the facts surrounding these scenarios. We will therefore provide you with an interpretation of the application of the GST/HST to some of the transactions we have previously described and the following transactions:

XXXXX

XXXXX has provided a proposal to provide marketing, administrative, registration, sales, logistical and on-site services designed to meet the needs of the Chapter's annual event.

The XXXXX is one of Canada's XXXXX.

The XXXXX will provide:

•   Program administration;

•   Marketing;

•   Desktop design of conference brochure;

•   Sales and registration;

•   Conference coordination; and

•   Post event management.

The Chapter will provide

•   Details of all information to be included in the conference brochure;

•   Complete, up-to-date list of Chapter's members, associates, prospects and contacts;

•   Details of room set-up, exhibits, cocktail reception set-up and signage;

•   All costs associated with holding the conference;

•   Speaker notes for inclusion in the conference manual; and

•   $XXXXX payment for all complementary conference manuals supplied.

The following is the recommended price structure for the conference:

Early-bird price for registrations 7 weeks or prior to the event

Past the early-discount date

Chapter Members

$XXXXX

$XXXXX

Chapter Non-members

$XXXXX

$XXXXX

Chapter members are given a XXXXX% discount (or $XXXXX), enticing non-delegates to join the Chapter in order to benefit from this special discount offer.

All registered non-members will be offered a Chapter membership. The conference registration form will be designed to act as an official membership registration form in addition to the conference registration form. Any revenues collected as Chapter membership fees will be held in trust by XXXXX and will be payable two weeks after the event to the Chapter.

The Chapter will receive all sponsorship revenue.

The revenue will be shared as follows:

•   Revenue of $XXXXX or less:

-    XXXXX% to the XXXXX

•   Revenue above $XXXXX:

-    XXXXX% to the XXXXX

-    XXXXX% to the Chapter

•   Revenue above $XXXXX:

-    XXXXX% to the XXXXX

-    XXXXX% to the Chapter

Payment to attend the conference will be collected by the XXXXX. The XXXXX collects GST on the charges and remits the GST to the Canada Revenue Agency (the CRA).

Sponsorships

In XXXXX the Chapter received about $XXXXX in sponsorship funds from the Golf tournament, Billiards event and a Christmas reception. In return, the corporate sponsors received very limited advertising.

Interpretations Requested

1. The funds remitted by the Association to the Chapter on an ongoing basis are not in respect of any specific supply of property or services, and therefore not subject to GST/HST.

2. Although the memberships supplied by the Association are not exempt, they would not be subject to GST/HST pursuant to subsection 143(1) of the ETA.

3. The Chapter would not be required to charge GST/HST on the dinner seminar charges to members and non-members, or the charges to non-members to attend the billiards event and the Christmas reception due to the Chapter's status as a small supplier.

4. The XXXXX is correctly charging and remitting GST/HST on the $XXXXX charged to persons attending the XXXXX conference.

5. GST/HST should not be charged by the XXXXX on the pro-rated $XXXXX membership dues paid by new members of the Association who also wish to attend the XXXXX conference.

6. The distribution of net receipts from the XXXXX to the Chapter, pursuant to the formula set out in the XXXXX Proposal, is an exempt distribution of money. Alternatively, the Chapter would not be required to charge GST/HST on net receipts received from the XXXXX, if determined to be consideration for a taxable supply, due to its status as a small supplier.

7. The sponsorship charges by the Chapter for the dinner seminar, billiards event and the Christmas reception would be deemed not to be a supply under section 135 of the ETA and therefore, not subject to GST/HST.

Interpretations Given

1. The funds remitted by the Association to the Chapter on an ongoing basis are not in respect of any specific supply of property or services, and therefore not subject to GST/HST.

From the information that you have submitted the nature of the relationship between the parties in regards to the transfer of the funds is not clear. The Chapter's by-laws indicate that the Chapter's board of directors can set fees payable by participating members and regular members by resolution. We have requested confirmation and a copy of the membership resolution, but we have not received this information.

To determine the tax status of the transferred funds, one would have to determine in what capacity is the Association collecting membership fees. Is the amount collected by the Association from its members solely for membership dues in the Association (and not partly for the Chapter)? Is there consideration payable for the membership in the Chapter or is the Chapter making a supply of memberships for no consideration? (and thus possibly exempt under section 10 of Part VI of Schedule V to the ETA) To what extent, if any, is the Association acting as agent of the Chapter if there is consideration for the membership in the Chapter? Where it is determined that there are two separate supplies of memberships made by separate persons, the tax status of the memberships in each organization has to be determined separately.

2. Although the memberships supplied by the Association are not exempt, they would not be subject to GST/HST pursuant to subsection 143(1) of the ETA.

Although we have ruled that the supply of the membership in the Association is not exempt pursuant to section 17 of Part VI of Schedule V to the ETA, the supply may be deemed to be made outside Canada pursuant to subsection 143(1) of the ETA where the Association is a non-resident person that is not registered for GST/HST at the time the supply is made and the supply is not made by the Association in the course of carrying on a business in Canada. The Association is currently not registered for GST/HST purposes. Based on the information provided the Association does not appear to be carrying on business in Canada for GST/HST purposes. However, the determination is a question of fact that requires consideration of all relevant facts. As set out in policy P-051R2 Carrying on Business in Canada, the CRA will consider a number of factors when making the determination.

It should also be noted that any person who in Canada, be it through an employee or agent or by means of advertising directed at the Canadian market, solicits orders for the supply of prescribed property (such as books, periodicals, magazines, or other similar publication) that is to be sent by mail or courier to the recipient at an address in Canada, is deemed to be carrying on business in Canada. Should this be the case for the Association, subsection 143(1) of the ETA would not be applicable to deem the supply of the memberships to be made outside Canada, and as such, the Association would be required to register for GST/HST purposes and collect GST/HST on the supply of its memberships that are made in Canada.

3. The Chapter would not be required to charge GST/HST on the dinner seminar charges to members and non-members, or the charges to non-members to attend the billiards event and the Christmas reception due to the Chapter's status as a small supplier.

Although the supplies of the admissions to the dinner seminars, billiards event and the Christmas reception are taxable supplies, where a person is a small supplier that is not registered for the GST/HST, it will not have to collect any GST/HST on those taxable supplies. An NPO is a small supplier during any particular calendar quarter and the following month if the total value of the consideration for taxable supplies, including zero-rated supplies, made by the NPO (or an associate of the NPO) that became due, or was paid without becoming due, in the previous four calendar quarters does not exceed $50,000.

Furthermore, an NPO ceases to be a small supplier at any time in one calendar quarter if the total value of the consideration that becomes due, or is paid without becoming due, in that quarter for world-wide taxable supplies made by the NPO (or an associate of the NPO), exceeds $50,000.

4. The XXXXX is correctly charging and remitting GST/HST on the $XXXXX charged to persons attending the XXXXX conference.

We have not been provided with any details regarding the legal status of the XXXXX or a third party authorization of the XXXXX; therefore we are unable to provide any ruling on the transaction.

It must be determined who is making the supply of the admission to the conference. Although the XXXXX may be collecting the fees relating to the conference, this is not fully indicative that it is making the supply of the admissions to the conference. The XXXXX may be acting as an agent of the Chapter for the making of the supply of the admissions. If that were the case, one would have to look at the tax status of the supply of the admission made by the Chapter. Generally, the supply of an admission to a conference by an NPO is a taxable supply.

Please note that subsection 177(1.1) of the ETA provides that a registrant principal and a registrant agent may make a joint election to have the agent account for tax that would otherwise have been accountable for by the principal. The registration status of the XXXXX and the Chapter would have to be determined in order for an election to be made under this subsection.

5. GST/HST should not be charged by the XXXXX on the pro-rated $XXXXX membership dues paid by new members of the Association who also wish to attend the XXXXX conference.

It was not evident from the proposal submitted if membership in the Chapter was in addition to, or part of the conference admission fee for non-members. It is a question of fact if the full amount paid by the participant is for the admission to the conference or if the membership fee is over and above the full cost of the conference fee.

In addition, it must also be determined if more than one price of admission to the conference exists, one for members and one for non-members. Where a member receives a $XXXXX discount on the price of admission, this discount is a benefit of the membership.

6. The distribution of net receipts from the XXXXX to the Chapter, pursuant to the formula set out in the XXXXX Proposal, is an exempt distribution of money. Alternatively, the Chapter would not be required to charge GST/HST on net receipts received from the XXXXX, if determined to be consideration for a taxable supply, due to its status as a small supplier.

As we have previously mentioned, it is not clear who is making the supply of the conference admission. If the supply of the admission is determined to have been made by the Chapter, then the registration status of the Chapter will determine if GST/HST applies to the consideration for that supply.

Where the supply of the admission is made by the Chapter, the portion kept by the XXXXX may represent the consideration for a supply made by the XXXXX to the Chapter in relation to the conference (i.e., program administration; marketing, etc.). Although the XXXXX may be collecting the fees relating to the conference, this is not fully indicative that it is making the supply of the admissions to the conference. GST/HST may be required to be charged by the XXXXX on the portion of the receipts that are kept by the XXXXX where this amount represents the consideration for the supply made by the XXXXX to the Chapter.

Generally, the supply of organizing a conference supplied in Canada by a GST/HST registrant is a taxable supply. In addition, the supply of an admission to a conference supplied in Canada by a GST/HST registrant that is not a public service body is also subject to GST/HST.

7. The sponsorship charges by the Chapter for the dinner seminar, billiards event and the Christmas reception would be deemed not to be a supply under section 135 of the ETA and therefore, not subject to GST/HST.

We have not been provided any information relating to the sponsorship charges by the Chapter for the dinner seminar, billiards event and Christmas reception. As a result, we are unable to provide any reply to your enquiry.

Generally, pursuant to section 135 of the ETA, where a public sector body, (which includes a public service body), receives a sponsorship from a business in return for which the body undertakes to provide a promotional service or the right to use its logo or similar property, the provision of the service or right is deemed not to be a supply and is not subject to GST/HST. However, where a payment by a sponsor may reasonably be regarded as being primarily (greater than 50%) for advertising on a radio or television or in a newspaper, magazine or periodical, the supply of that advertising service by the public service body is treated as a taxable supply.

The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-954-4206.

Yours truly,

Carol A. Gaudet
Charities, Non-Profit Organizations and Educational Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

2005/07/14 — RITS 45299 — Fair Market Value for GST/HST Self-supply Purposes