HST Transitional Rules: Life-time Memberships

CMA British Columbia is pleased to welcome Edward Young, CMA as a guest blogger on www.cmabcblog.com. Edward specializes in commodity tax and is a Senior Manager with Lohn Caulder LLP.

A closer look at HST’s impact on life-time memberships

By Edward Young, CMA

The new HST transitional rules outlined how the HST would be applied if there were an amount paid or owing before July 1, 2010  but the goods or services were made available or provided after July 1, 2010.  Many of the rules are straight forward but one such rule had some significant consequences if applied incorrectly.

Life-time Memberships

GST and HST is applied to life-time memberships (fitness clubs, private clubs, and golf clubs) If you paid fully for a life-time membership on or after October 15th, 2009, the GST would only be applicable to 25% of the value of the membership fee and 75% would be attributed to the HST period.  At first glance, many fees paid up front are quite significant.  A 7% increase on that fee would be quite an increase to think twice about – especially when this fee is not deductible for tax purposes and there is no way to recover the GST or HST due to the nature of the restrictions found in the Excise and Income Tax Acts.  By examining the true nature of what was acquired a person may avoid paying extra sales taxes unnecessarily.  Simply put, did we actually buy a life-time membership or something else that would not be captured by this special transitional rule?  When you first apply to many private clubs the membership process sometimes works out that you pay a significant fee up front.  This fee in many cases is referred to as an initiation fee.  So this begs the question – Is that a membership fee or something else?

Generally a membership fee is a fee to access the services and amenities a club has to offer.  An initiation fee according to CRA is a fee for the right to acquire a membership.  CRA has echoed this interpretation of initiation fees in their Q&A Series and Technical Interpretation Bulletin B-077 which addressed this very issue when the Atlantic provinces moved to HST.  Initiation fees are treated as intangible personal property and do not follow the same special rules for life-time memberships – there is no 25/75 proration of GST/HST.

Prepayment of an Initiation Fee





For example a $20,000 initiation fee would normally attract 5% GST for a total cost for the right to acquire a membership of $21,000.  If your club erroneously applied 12% HST on 75% of the initiation fee, that same right to acquire a membership would cost $1,102 more.

The nature of the transaction is very important.  By properly applying the transitional rules you can avoid paying HST in error.  An initiation fee is one of many examples where a full understanding of what is actually being supplied in the transaction and how the transitional rules work will help ensure you charge the HST only when you have to and can save some money.


Edward Young, CMA is a senior manager at
Lohn Caulder LLP and has been with the firm for 13 years.  Edward is currently assisting many clients on how to prepare for HST, how the tax change can negatively impact cash flow and what strategies can be used to minimize that impact.  Edward is also a senior tax reviewer for corporate year ends and personal tax returns at Lohn Caulder. 

This is the first of a series of HST posts Edward is writing for CMA BC. In addition to guest blogging, he is also the Treasurer of CMA BC’s Vancouver Chapter.

Other articles of interest:
The ABCs of the HST – How B.C.’s new tax system affects you :: By Alladin Versi, CMA, FCMA

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