7 March 2005 GST/HST Ruling 54859 - Supplies of Cannabis

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.

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 reimbursements of salaries and benefits. We apologize for the delay in responding to your request.

Statement of Facts

•   XXXXX (the Corporation) is a corporation XXXXX. The Corporation has entered into a Master Secondment Agreement, XXXXX with XXXXX, XXXXX and a third party, XXXXX, XXXXX), a corporation incorporated under the laws of XXXXX.

•   The Corporation is registered for GST/HST XXXXX. XXXXX and XXXXX are both registered for GST/HST. XXXXX is not registered for GST/HST.

•   The Corporation wishes to obtain the benefit of services to be provided by selected employees of XXXXX, XXXXX, XXXXX. Each seconded employee (Employee) enters into an Employee Secondment Agreement between the Corporation and such an Employee.

•   Each of the Employees will be performing services on a full-time basis for the Corporation for XXXXX to XXXXX months at a place in Canada as selected by the Corporation from time to time. In the case of Employees of XXXXX, the Employees are required to physically relocate to Canada in order to carry out their duties for the Corporation. The Employees have permanent workstations at the Corporation's place of business.

•   The Employees will observe the Corporation's procedures for governing its employees and will obey the Corporation's reasonable instructions in respect of the provision of the services during the term of their agreements. The Employees are given business cards to represent themselves as employees of the Corporation. Nothing in the Employees' Secondment Agreements limits the ability of the Corporation to authorize the Employees to execute contracts on behalf of the Corporation.

•   The Employee's Secondment Agreement may be terminated by the Corporation in the event of a material breach of this Agreement by the Employee, immediately; or otherwise, as determined by the Board of Directors of the Corporation.

•   The Employee will promptly disclose and assign to the Corporation the Employee's entire right, title and interest in any invention, industrial design, idea, discovery, intellectual property, including software or improvement thereon, made or conceived solely or jointly with others, which arises from any task assigned to the Employee or work performed by the Employee for or on behalf of the Corporation.

•   In no event will any employee of XXXXX, XXXXX or the Corporation be considered the agent or employee of any other party.

•   The Employee's compensation (i.e., salary and benefits) will be paid directly by XXXXX, XXXXX, XXXXX, as the case may be. The Corporation is not responsible for paying the salary for any Employee or, with respect to such an Employee, for withholding any amounts for any taxes, employment insurance or other amounts that are required to be deducted by statute, from payments made to employees of the Corporation in XXXXX or Canada.

•   During the term of the agreements, the Corporation will pay XXXXX, XXXXX, XXXXX or XXXXX, as the case may be, an amount to reimburse the employees' salaries and benefits within 30 days of the end of each month. The reimbursement is at cost and there is no profit motive.

•   XXXXX, XXXXX, XXXXX agree to pay or reimburse and indemnify the Corporation for any Canadian withholding taxes that may be exigible pursuant to the Income Tax Act. XXXXX, XXXXX, XXXXX agree that all payments made to any of them from the Corporation will be net of any applicable withholding tax.

Ruling Requested

You would like to know how the GST/HST applies to the reimbursement of salaries and benefits paid by the Corporation.

The Canada Revenue Agency's (CRA) policy is that the determination criteria of an employee/employer relationship are the same for income tax and GST/HST purposes. The responsibility for such determinations/rulings is given to one area of the CRA (i.e., the CPP/EI Rulings Unit) to facilitate consistency. Therefore, we cannot provide you with a ruling. However, we are pleased to provide you with the following interpretation.

Interpretation Given

Section 165 of the Excise Tax Act (ETA) requires that every recipient of a taxable supply (other than zero-rated) made in Canada shall pay GST at 7% or HST at 15% on the value of the consideration for that supply. Pursuant to subsection 123(1) of the ETA, a "supply" means, in part, the provision of property or a service in any manner and a "service" means anything other than property, money, and anything that is supplied to an employer by a person who is or agrees to become an employee of the employer in the course of or in relation to the office or employment of that person.

Therefore, for GST/HST purposes, any work performed by an employee for his/her employer is not subject to tax. Thus, as a general rule, the employer will not have to pay GST/HST on the salary and benefits (i.e. the consideration for the work performed by the employee) paid to his/her employee.

As previously stated, the decision of whether or not a seconded individual is held in law to be an employee of the host organization (i.e., the Corporation) during the period of the individual's assignment to that organization is a question of fact that may be ruled on by our CPP/EI Rulings Unit, on a case-by-case basis.

If a seconded employee is held to be the employee of the host organization during the period of the individual's assignment to that organization, then the host organization will not have to pay GST/HST on the reimbursement it makes to the sponsoring organization XXXXX.

If, on the other hand, the seconded individual is held not to be the employee of the host organization during the period of the individual's assignment to that organization, then the reimbursement will be treated as consideration for a taxable supply of services made by the sponsoring organization to the host organization. Consequently, the host organization will have to pay GST/HST on the amount it pays to the sponsoring organization for the employees' services.

If the sponsoring organization is a non-resident person, and an employee of the non-resident person enters Canada to perform services in Canada for a significant period of time pursuant to an agreement (e.g., the Master Secondment Agreement for the period of time contemplated in that agreement), the CRA would likely consider that non-resident person to be carrying on business in Canada for GST/HST purposes. Where it is determined that the employee seconded from the non-resident person is held in law not to be an employee of the host organization during the period of the individual's assignment to that organization, the non-resident person would be required to register (except if it is a small supplier under subsection 148(1) of the ETA) by virtue of the fact that it is making a taxable supply of services in Canada in the course of carrying on a business in Canada. The non-resident person would therefore be required to collect and remit GST/HST at 7%/15% on the taxable supply of the services it performs in Canada.

Additional information concerning whether an individual is an employee of an organization or not, is provided in the enclosed pamphlet RC4110, Employee or Self-Employed? To request a ruling, you may complete the enclosed form CPT1, Request for a Ruling as to the Status of a Worker under the Canada Pension Plan and/or the Employment Insurance Act, and send it to:

XXXXX TSO
CPP/EI Rulings Unit
XXXXX
XXXXX

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the CRA with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-9700.

Yours truly,

Michèle Routhier, CMA
Technical Analyst
Services and Intangibles Unit
General Operations & Border Issues Division
Excise and GST/HST Rulings Directorate

2005/04/01 — RITS 55068 — Tax Status of Lease Agreements Entered Into Before March 10, 2004