Words and Phrases - "gratuity"

The taxpayer was a banquet hall which held such events as weddings and other large celebrations. Each patron signed a contract with specified the food, beverage and event packages to be purchased for a specific date. The contract in question stated that “All Pricing is Subject to 13% HST and 15% Gratuities.” Before agreeing with the position of the Minister that the “gratuity” was part of the consideration for the supply under the contract, Bocock J referred inter alia to the finding in NDP Co Ltd v Customs and Excise Commissioner, [1988] VATTR 40 that:

[V]oluntary gratuities are not subject to VAT because voluntary gratuities are: ‘[N]o part of the contract that the customer should pay a charge for service … .’

Before dismissing the taxpayer’s appeal, he stated (at paras. 21, 27-28):

[T]he inclusion of an obligation as part of the bargain, cannot be viewed as a gift but part of the consideration. …

Subsection 133(b) combined with subsection 138(a) … suggests that tips included in an agreement are part of the overall supply of prepared meals, which is subject to HST. …

The ETA defines “consideration” as “any amount that is payable for a supply by operation of law.” The almost mandatory tip is enforceable by operation of contract law whereas a voluntary tip is not “consideration” because it is not payable by operation of law… .