14 June 1999 GST/HST Interpretation HQR0001530 - Special Levy

This concerns a memo dated December 24, 1998, from XXXXX concerning the tax status of a special fee levied by a golf club to its members.

Facts

1. The XXXXX was originally organized as a recreational association named the XXXXX in order to provide, golf, tennis and social amenities to its members. The XXXXX was incorporated without share capital under the XXXXX, as a non-profit organization, with the main purpose of providing social, recreational, sports and banquet facilities for its members. The XXXXX[.]

2. The by-laws of the XXXXX require that any person wishing to become a member of the XXXXX do so by means of purchasing a membership in the XXXXX[.] Initially, the XXXXX had XXXXX equity members, but this was increased to XXXXX[.] The by-laws of the XXXXX describe memberships as simply "equity memberships", and not as shares. XXXXX memberships were sold by XXXXX[.]

3. XXXXX the XXXXX the corporation that owned the premises, which consisted mainly of a golf course and a banquet hall. The remaining XXXXX by XXXXX[.]

4. The XXXXX subsequently found itself to have a severe cash flow problem. A new Board of Directors of the XXXXX decided to levy XXXXX on each equity member, as allowed under the Club by-laws. Failure to pay the special levy would result in loss of membership.

5. XXXXX XXXXX sent a letter dated XXXXX to XXXXX suggesting that the supply at issue was a contribution to capital and not an additional membership payment, since the members do not receive more equity in the XXXXX Therefore, in XXXXX section 140 does not apply, and the special levy could be seen as a contribution to capital that would be exempt as a financial instrument.

6. XXXXX provided us with a memo dated December 16, 1998, sent to him from XXXXX requested a decision as to whether the $XXXXX fee should be subject to GST. Mr. XXXXX view was that the supply at issue was subject to GST as a supply of a right to play golf. XXXXX suggested that the supply may be a supply of an exempt financial service.

Request

Confirm the tax status of the XXXXX special levy.

Response

The $XXXXX special levy is consideration for a taxable supply of a membership.

Rationale

Whether a payment of an additional levy by members of a club constitutes an additional payment for the membership, or consideration for some other supply, or a gift to the organization, depends on the facts of the case. In the case at issue, the payment cannot be seen as a gift, as it is not being made voluntarily. Members must pay the special levy if they wish to maintain their membership in the club. The payment is also not consideration for some other supply, because members do not receive anything additional when they pay the special levy. They merely get to keep a supply that they had already received, i.e. their membership in the Club. Therefore, on the basis of the facts provided, we are of the opinion that in this particular instance the moneys at issue constitute an additional payment for a membership.

Like the original membership fee, the $XXXXX additional payment is consideration for a taxable supply of a membership in a club, the main purpose of which is to provide dining, recreational and sporting facilities. While the $XXXXX payment may be used to fund expenditures, it is our opinion that it is not a contribution to capital by the members. Section 140 does not affect the situation at issue, since the special levy is merely an additional payment for a membership, and not a financial service, such as a share, bond, debenture or other security.

Guidelines to help determine whether an assessment should be made on a tax extra or tax included basis may be found in Policy Statement #P-118R, which was revised on May 5, 1999. The policy statement is based partly on the disclosure requirements of section 223 of the ETA.

If you require any further information concerning this matter, please contact me at (613) 952-9211.

Don Dawson
Technical Analyst
Specialty Tax
Financial Institutions & Real Property
GST/HST Policy & Legislation

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