24 November 1999 GST/HST Interpretation HQR0002004 - Determining Who is the "Recipient" Where an Owner-Operator Uses a Freight Transportation Company's Credit Card to Obtain Supplies of Fuel and Truck Repair Services in Canada and the Tax Status of the "Chargebacks" to the Owner-Operator for these Supplies

TO:	XXXXX XXXXX XXXXX XXXXX
FROM:	Robert Bowman Technical Officer General Operations Unit GST/HST Rulings & Interpretations DirectorateFile HQR0002004
DATE:	November 24, 1999

Subject:

Determining Who is the "Recipient" Where an Owner-Operator Uses a Freight Transportation Company's Credit Card to Obtain Supplies of Fuel and Truck Repair Services in Canada and the Tax Status of the "Chargebacks" to the Owner-Operator for these Supplies

I am writing in response to your request in which you have asked for our assistance concerning the application of the GST/HST. At your request, we have provided a "hypothetical situation" using sample agreements representative of the freight transportation industry, research information submitted by you, and additional supporting information from XXXXX[.]

Statement of Facts:

1) CANCO, a freight transportation company XXXXX has agreements with various owner-operators (O/Os) where the O/Os provide CANCO with transportation services under contract.

2) The O/Os operate as their own companies (i.e., corporations, partnerships, or proprietorships), and contract to haul goods for CANCO.

3) Both CANCO and its O/Os are GST/HST registrants.

4) CANCO sets up an arrangement with a credit card issuer, CARDCO. Under the cardholder agreement with CARDCO, CANCO is solely responsible for all of the charges on the credit card.

5) In accordance with an agreement between CANCO and the O/O (CANCO-O/O agreement), the O/O uses CANCO's credit card to pay for fuel and truck repair services. The credit card is in the name of CANCO not the O/O.

6) In the agreement between CANCO and the O/O, it is clearly stipulated that the O/Os incur no obligations in the name of CANCO or in any manner act as agent for CANCO without the express written authority of CANCO.

7) The CANCO-O/O agreement states that purchases required to be made to operate and maintain the equipment are expenses of and paid by CANCO. The agreement provides that the O/Os may use the company credit card to facilitate the company's purchase of these supplies. Specifically, the agreement states that the "company's" expenses include:

(h) the purchase of fuel on CANCO's company credit card, for the sole use of the equipment, on the basis of CANCO's cost of the fuel plus applicable fuel taxes.

(i) truck repair services which include: truck washes, repairs, parts, tires, and lubricants to maintain the equipment in good working order, as authorized and approved by either purchase orders issued by CANCO or prior authorization from CANCO.

17) In a separate clause, the CANCO-O/O agreement states that the O/O will have these company expenses deducted from the O/O's remuneration.

18) The invoices for the supply of fuel and truck repair services on the company credit card are issued in the name of CANCO.

19) CARDCO issues a credit card statement to the cardholder, CANCO, listing all of the purchases made using CANCO's company credit card. On a monthly basis, CANCO pays the amount owing on the credit card statement to CARDCO.

20) CANCO issues a settlement summary to the O/O which includes the total of the "chargebacks" for the fuel and truck repair services purchased, the amount of tax paid on these purchases and an administrative fee. The settlement summary provides a separate itemized breakdown of those supplies of fuel and truck repair services made in participating provinces, non-participating provinces and for those supplies made outside of Canada.

21) CANCO pays the O/O a gross amount on a "fee-per mile" basis for the shipments delivered by the O/O. The agreement between CANCO and the O/O refers to the remuneration scheme as the fee less CANCO's expenses (which include those purchases of fuel and truck repair services originally charged on CANCO's credit card with the breakdown as stated previously). After deducting these chargeback amounts and fees, a net payment is made to the O/O by CANCO every two weeks.

22) CANCO does not include any of the chargeback amounts paid by the O/O in CANCO's net tax calculation.

This memorandum will deal exclusively with those amounts charged on the company credit card in respect of fuel and truck repair services purchased in Canada and the tax status of the chargebacks and administrative fees from CANCO to the O/O in respect of those amounts charged on CANCO's company credit card in Canada. The tax status of any other chargebacks from CANCO to the O/O for items such as insurance, permits or licenses or for any purchases outside of Canada will not be covered in this memorandum. Furthermore, as the situation above is a "hypothetical"one, it is important to note that any variation in the facts stated above may have a direct impact on our interpretation.

Issues:

Based on the above facts, you have requested a response to the following questions:

1) Who is the "recipient" when the O/O under contract with CANCO uses CANCO's company credit card to obtain fuel and truck repair services in Canada.

2) Are the amounts charged on CANCO's company credit card by the O/O for the fuel and truck repair services obtained in Canada, subject to the GST/HST when these amounts are charged back to the O/O by CANCO?

3) If the amounts identified in Question 2 are subject to the GST/HST, should CANCO be assessed by the CCRA on a tax-extra or tax-included basis?

4) Is the separate administrative fee charged by CANCO for administering the "chargebacks" to the O/O subject to tax? If so, at what rate is the fee subject to tax?

Response to Question 1:

Based on the facts at hand, CANCO is the "recipient" of the supply of fuel and truck repair services obtained by the O/O in Canada using CANCO's company credit card.

Rationale:

Subsection 123(1) of the ETA states, in part, that a "recipient" of a supply of property or a service means:

(a) where consideration for the supply is payable under an agreement for the supply, the person who is liable under the agreement to pay that consideration,

(b) where paragraph (a) does not apply and consideration is payable for the supply, the person who is liable to pay that consideration.

In the case at hand, the "recipient" of the supply of fuel and truck repair services is the freight transportation company, CANCO. According to Black's Law Dictionary, the word "liability" is defined, in part, as "all character of debts and obligations". In this situation, the credit card used to obtain the supplies is in CANCO's name. Through the operation of the contractual agreements, it is CANCO who assumes liability for all of the charges on the credit card which the O/O uses to pay for these supplies. As CANCO is the "person who is liable under the agreement to pay the consideration" for these supplies of fuel and truck repair services, CANCO is the recipient of these supplies when the O/O uses CANCO's company credit card to make CANCO's purchases.

In addition, it is CANCO's name that appears on the invoices issued by the vendor. It is clear from the facts presented that there is no indication that the O/O has incurred any liability to pay the vendor for the fuel or the truck repair services.

For example, in the case of a truck repair, CANCO has repairs invoiced in their name and requires a purchase order or prior authorization from CANCO for these repairs. Under the CANCO-O/O agreement, the O/O facilitates the payment of the repair services by using CANCO's company credit card. By virtue of the fact that it is CANCO who is liable to pay for the goods and services, it is CANCO who is the "recipient" of these truck repair services.

Further evidence that CANCO is the "recipient" in this situation may be found in the CANCO-O/O agreement which refers to the company credit card charges for fuel and truck repair services as "expenses of the company" and not those of the O/O. CANCO enters into an agreement with the vendor of the fuel or truck repair services and this is supported by the fact that CANCO's company credit card is used to finalize the transaction.

Response to Question 2:

Based on the situation at hand, it is our position that pursuant to the clauses in the underlying CANCO-O/O agreement for the supply of the fuel and truck repair services, there is a separate supply of fuel and truck repair services that occurs when CANCO charges back the amount specified to the O/O in respect of these supplies purchased in Canada. When this separate supply is made in Canada, it would be subject to tax at the rate of 7% (or 15% if the supply of fuel or truck repair services is obtained by the O/O in a participating province).

Rationale:

In order to determine the tax status of the chargebacks for the fuel and truck repair services, it is important to consider the impact of the two separate agreements (i.e., the agreement between CANCO and the vendor and the CANCO-O/O agreement) in place at the time the fuel and truck repair services are purchased with CANCO's company credit card. The determination has been made (as stated in the response to Question 1) that CANCO is the "recipient" of the supply of fuel and truck repair services when the O/O uses the company's credit card. The response to Question 1 identifies only one "recipient" of the fuel and truck repair services under the agreement for the supply, and that is CANCO.

In the case of the chargeback, for GST/HST purposes, CANCO is making a separate supply of the fuel and truck repair services pursuant to a separate contractual arrangement with the O/O. Although CANCO is clearly not in the business of supplying fuel or providing truck repair services, the relevant clauses within the CANCO-O/O agreement impose upon the O/O a separate liability to pay CANCO for the fuel and truck repair services. Pursuant to the CANCO-O/O agreement, whenever the O/O makes a company credit card purchase, the O/O assumes the liability to pay CANCO for the company expenses (i.e., fuel and truck repair services) charged on CANCO's credit card plus the administrative fees. The settlement summary makes it abundantly clear as to the specific items for which the O/O has assumed liability. The purchases made on the credit card are itemized on the settlement summary which includes a breakdown by category (e.g., fuel or truck repair services), amount of the purchase, the tax paid on the purchase and place of purchase.

The amounts charged in respect of these separate supplies relating to those purchases of fuel and truck repair services made in Canada are not zero-rated or exempt under the ETA. Subsection 221(1) of the ETA provides, in part, that every person who makes a taxable supply in Canada shall collect the tax payable by the recipient in respect of that supply. In the case at hand, CANCO is required to collect and account for the tax payable by the O/O in respect of these supplies in its net tax calculation.

The rate at which these supplies of fuel and truck repair services are taxable is dependent upon the place of supply. For example, where CANCO purchases fuel in XXXXX and makes a separate supply of the fuel to the O/O, CANCO would charge the O/O an amount for the fuel plus tax at the GST rate of 7% as the supply is made in XXXXX which is not a participating province.

Response to Question 3:

In accordance with Policy P-118R, Assessments on a Tax-Extra or Tax-Included Basis, the determination as to whether a tax-extra or tax-included assessment should be made is a question of fact to be resolved by the CCRA auditor based on the specific circumstances of the particular situation. Although the final determination is made by the auditor based upon a complete review of all supporting information, a review of the facts at hand would suggest that an assessment would be made on a tax included basis.

Rationale:

As stated in the response to Question 2, it has been determined that CANCO has made a separate taxable supply of fuel and truck repair services to the O/O for GST/HST purposes. Where a registrant makes a taxable supply and does not account for the GST/HST in its net tax calculation, GST/HST will be assessed based on the value of the consideration for the supply. Therefore, the determination must be made as to whether the amount charged by the registrant represents consideration only or consideration and tax. In general, unless there is evidence to indicate otherwise (e.g., a court judgement), the amount charged is determined to be the value of the consideration for the supply in which case the CCRA will assess the tax based on the amount charged (i.e., a tax-extra assessment).

In the case at hand, CANCO has provided a breakdown of the amounts charged back to the O/O in such a manner so as to distinguish the amount paid as consideration for the fuel and truck repair services, and the amount paid as tax. The rate of tax on the chargebacks can be determined in the settlement summary by the breakdown of those chargebacks relating to purchases made in participating provinces and non-participating provinces. The full amount of the chargeback is deducted from the O/O's remuneration but CANCO has not accounted for the GST/HST in its net tax calculation. The facts at hand would suggest that an assessment would be made on a tax-included basis.

For example, if CANCO purchased $100 of fuel in XXXXX for which there was an additional $7.00 in GST, CANCO would include the amount under fuel purchases made in a non-participating province on the O/O's settlement summary with a separate column indicating the amount of tax paid on the supply (i.e., $7.00) when CANCO makes a separate supply to the O/O using the chargeback mechanism. The O/O paid CANCO $107.00 out of the O/O's remuneration. As CANCO does not account for the $7.00 collected from the O/O in its net tax calculation, the CCRA would make an assessment on a tax-included basis (i.e., CANCO would be assessed for $7.00 plus applicable penalty and interest).

Response to Question 4:

In the case of the separate administrative fee charged by CANCO to the O/O, it is also subject to tax as it is in respect of a supply of a service made in Canada from CANCO to the O/O. The rate of tax is dependent upon where the service is performed. As the service is performed entirely in XXXXX which is a non-participating province, the administrative fee in respect of the supply of the service will be subject to tax at the GST rate of 7%.

Rationale:

By having CANCO deduct the amounts payable for fuel and truck repair services directly from the O/O's remuneration, the O/O has the benefit of avoiding any cash flow problems that may have otherwise occurred if the O/O had been required to pay for these supplies out of pocket. In exchange for administering this arrangement, CANCO charges an administrative fee (identified separately in the O/O's settlement summary). The administrative fee is subject to tax as it is consideration for a supply of a service made in Canada from CANCO to the O/O.

Section 2 of Part V of Schedule IX to the ETA provides that, subject to Parts IV and VI to VIII of the Schedule, if all or substantially all of the Canadian element of a service is performed in a particular province, the service is regarded as made in that province. In the case at hand, the administrative fee in respect of the supply of the service will be subject to tax at the GST rate of 7% as the service is performed entirely XXXXX which is a non-participating province.

I hope that I have addressed your concerns with respect to this issue. Should you require any further assistance, please do not hesitate to contact me at 952-8806 or the Manager of the General Operations Unit, Steve Suttie, at 952-0301.

c.c.:

Adrien Venne Steve Suttie Patrick McKinnon Alyson Trattner Ivan Bastasic XXXXX

Legislative References:	123(1) definition of "recipient" 165(1) 221(1)
Authority:	ETA
NCS Subject Code(s):	11650-1 - XXXXX

b.c.c.:          XXXXX