30 September 1998 GST/HST Ruling HQR0001197 - Application of the GST/HST to Levies Used to Fund the Activities of a Non-profit Organization

GST/HST Rulings and Interpretations
 Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Avenue
Vanier, ON K1A 0L5

                                                                        September 30, 1998

Dear Mr. XXXXX

This is in response to your request for a review of a GST Application Ruling issued by XXXXX Tax Services Office (TSO) on January 24, 1997, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to levies used to fund the activities of the above noted organizations. The ruling advised that the member's deductions and buyer charges for XXXXX and the auction receipts and other contributions XXXXX for XXXXX are not subject to GST as there is no direct benefit of a supply to a recipient. Furthermore, the ruling advised that XXXXX is not required to register for GST purposes. XXXXX TSO asked that we respond to your request.

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX is incorporated as a non-profit organization and is registered for GST/HST purposes. The primary activity of XXXXX is to maintain XXXXX through advertising, government liaison, finance, research and education. Its membership consists of XXXXX[.] The primary source of funding for XXXXX is levies on auction receipts of its members based on a percentage of total receipts from the sale of XXXXX and identified in the financial statements as "members deductions." Another source of funding for XXXXX is a "buyer charge."

2. XXXXX is a non-incorporated non-profit association of XXXXX. It is not registered for GST/HST purposes. The primary activity of XXXXX is the global XXXXX produced in Canada and XXXXX through advertising and promotion. The primary source of funding for XXXXX (as identified in its financial statements) is from levies on the auction receipts of members based on a percentage of the total receipts from the sale of XXXXX. "Other contributions" refers to a one-time levy to promote a specific type XXXXX[.]

3. The levies are based on total receipts and charged on revenues from the sale of XXXXX, which is controlled by XXXXX[.]

4. XXXXX arrangement with XXXXX at the time of XXXXX TSO response was pursuant to XXXXX. The current agreement was entered into by the same parties on XXXXX and is in effect until XXXXX. It is substantively the same as the previous agreement. Although there is no formal agreement between XXXXX the arrangement is the same as that between XXXXX and could be formalized through an agreement if necessary.

5. Pursuant to the current XXXXX including its wholly owned subsidiary hereinafter called the Corporation ...:

"Corporation's Services and Obligations

2. The Corporation agrees to discharge the following obligations and to render the following services to the Association and to its members ...

(u) The Corporation shall deduct a XXXXX membership levy and a XXXXX research levy from the total sale proceeds on all XXXXX sold under the terms of this agreement. The Association may from time to time direct the Corporation in writing, as to the amount or amounts of such levies, as determined or confirmed by vote or an annual or special general meeting of the Association. All said deductions shall be for the exclusive account of the Association and shall be remitted to the Association ...

Minimum Price and Buyer's Charge

4. ... (b) The Corporation shall collect from the purchaser, the levy of  XXXXX based on a percentage of all proceeds from all XXXXX on behalf of the Association members. Such percent shall be determined annually by written agreement between the XXXXX Notice of XXXXX Charge shall appear in the Corporation's legal conditions of sale. The annual distribution of XXXXX charge collected from buyers as between XXXXX and the Association will be agreed in writing amon XXXXX the Association and the Corporation by XXXXX[.]

6. Pursuant to a sample Consignment Agreement XXXXX Association Deduction" of XXXXX[.]

7. There is no Act of Parliament or legislative authority that imposes the levies charged by the associations.

Ruling Requested

Are the:

(a) members' deductions and buyer charges paid to XXXXX

(b) the auction receipts and other contributions paid to XXXXX

subject to GST/HST?

Ruling Given

Based on the facts set out above, we rule that

(a) members' deductions and buyer charge paid to XXXXX and

(b) the auction receipts and other contributions paid to XXXXX

are consideration for taxable supplies and thus are subject to GST/HST where the supplier is a GST/HST registrant.

On April 1, 1997, the harmonized sales tax (HST) replaced the goods and services tax (GST) and the provincial sales tax (PST) in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%. If you supply goods that are delivered or made available in a participating province, services to be performed in a participating province or intangible personal property that may be used in a participating province, please contact the local Tax Services Office for further information regarding the application of HST to your particular situation.

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

Explanation

The definition of supply in subsection 123(1) of the ETA includes the provision of property or a service in any manner.

The primary activity of XXXXX A is to maintain the XXXXX advertising, government liaison, finance, research and education. The primary activity of XXXXX is the global promotion of XXXXX through advertising and promotion.

It is the Department's view that these activities consist of making supplies. Furthermore, the activities are funded by consignees XXXXX members and other XXXXX who, pursuant to XXXXX are required to make payments to fund these activities when they sell their XXXXX through XXXXX. Notwithstanding that the XXXXX undertake their activities in relation to the interests of the consignees as a group, each consignee is making the payment for the purpose of funding supplies made by the XXXXX. On this basis the levies are viewed as consideration for these supplies, even though there may be no discernable benefit for any particular consignee. Since the consignees have a vested commercial interest in the services provided by the XXXXX we would not view the levy as a "gift" or "grant". Since XXXXX supplies do not fall within any exemptions set out in the ETA, they are taxable and the levies are subject to GST/HST.

Whether the purchasers' levy is collected by XXXXX on behalf of the XXXXX or is consideration for a supply provided to XXXXX the amount received by XXXXX is subject to GST/HST.

A non-profit organization (and its associates) does not have to register for GST/HST purposes if the total consideration for taxable supplies other than sales of capital property in the preceding year (or in a particular calendar quarter) does not exceed $50,000. If XXXXX exceeds this threshold, it is required to register for GST/HST purposes and account for GST/HST on its taxable supplies.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-0420.

Yours truly,

Lorrie Grannary
Charities and Non-profit Organizations Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate

Legislative References: