Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 197397
Dear [Client]:
Subject: GST/HST RULING and INTERPRETATION
GST/HST on supplies related to a game
Thank you for your letter of February 19, 2019, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to a game that […](the Corporation) is planning on staging. We apologize for the delay in providing this response.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
We understand the facts as follows based on your fax and a conversation between […] and our field officer:
1. [The Corporation] is a corporation situated in […][Province X]. It was incorporated in [mm/yy]. The Corporation is not a charity for purposes of the GST/HST. It is assumed it is not any other type of public sector body.
2. The Corporation is planning a marketing project where it would give away [#] […][prizes] […]. Each [prize] would have a value of approximately $[…].
3. […][Additional information about the prizes.]
4. Persons wishing to participate (participants) in a competition would be required to pay an entry fee (approximately $[…]) and participate in a “skill-testing question”. The entry fees would be paid via credit card or PayPal on a website set up by the Corporation for that purpose. Participants would be required to enter their personal details in order to participate (name, address, etc.) and to accept the terms and conditions of the competition. The competition is to be open to participants from anywhere in the world.
5. The Corporation’s representative explained that the skill portion of the competition may consist of determining the number of a given object in a container (the counting game). The container would be filled with items associated to charities to whom [the Corporation] plans to donate a portion of the proceeds.
6. An independent third party would be contracted to oversee the skill portion of the competition. The participants entering the competition would receive photos, videos, and dimensions of the container to complete the skill portion. The entries would be date-stamped as there may be multiple persons who have the correct response. The winner would be the person with the correct response who responded first.
7. The winner has the option of choosing […][the prize] or a cash payment [the cash]. […] […][The cash] option is expected to be about $[…]. Where a participant chooses [the cash], [the prize] would be sold by the Corporation.
8. The monies received from the entry fees would be held in a lawyer’s trust account pending […]. Once […][the prize] has transferred to the owner, the funds would be released from the trust account.
9. The Corporation has a received a ruling from […][the provincial gaming authority] indicating that the skill portion does not require a licence.
10. The Corporation does not currently have a business number. It is not currently registered for GST/HST purposes.
RULING REQUESTED
You would like to know the following:
1. Confirmation […][that the Corporation is] required to charge and remit [GST/HST] on the entry fees.
2. What [GST/HST] is required to be collected from people […][residing] outside Canada?
3. What [GST/HST] is required to be collected from people outside […][Province X]?
4. The specific rates of [GST/HST] […][the Corporation is] required to collect [on purchases] from each region.
5. What specific support documents are required when [GST/HST] is collected at a rate ([…]%) different than [Province X]? Or [when GST/HST is] not collected?
6. What are the requirements for [GST/HST] remittance […]?
7. What are acceptable ITC credits to apply against the [GST/HST] collected?
8. A ruling on the [GST/HST] due/owing when a winner selects a cash value rather than accept the [prize].
9. Acknowledgement that [GST/HST] due cannot be remitted until they are released from Trust and are not due for remittance until that time.
We acknowledge your request for rulings on the above matters. However, as noted in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, a ruling provides the Canada Revenue Agency’s (CRA’s) position on specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person. As the circumstances are such that all of the pertinent facts cannot be established at this time (the Corporation’s registration status, place of supply, eligibility for input tax credits (ITCs), etc.), we are unable to rule on some of these issues. Rather, we are providing general information which we trust will be of assistance.
RULING GIVEN
Based on the facts set out above, we rule that:
1. If the Corporation is a registrant, it must charge and collect the GST/HST on the entry fee. The entry fee is consideration for a right to participate in the competition (as described in the Facts). As no exempting provision applies, the supply is taxable.
4. The rates of GST or HST throughout Canada are as follows:
* for New Brunswick, Nova Scotia, Prince Edward Island, or Newfoundland and Labrador, HST at 15%;
* for Ontario, HST at 13%;
* for all other provinces and territories, GST at 5%.
6. Any tax that was collected or became collectible on the supplies of the right to participate in the competition must be included in the Corporation’s calculation of net tax for the return of the reporting period in which the tax was collected or became collectible. If the result of the calculation of net tax is positive, it must be remitted by the due date for the return of the reporting period in which the tax was collected or became collectible. If the result of the calculation of net tax is negative, the Corporation can claim a refund.
8. The prize option that the winner chooses does not affect the GST/HST that should be charged on the entry fee.
9. Any tax that was collected or became collectible on the supplies of the right to participate in the competition must be included in the Corporation’s calculation of net tax for the return of the reporting period in which the tax was collected or became collectible. If the result of the calculation of net tax is positive, it must be remitted by the due date for the return of the reporting period in which the tax was collected or became collectible. If the result of the calculation of net tax is negative, the Corporation can claim a refund.
EXPLANATION
Ruling #1:
The entry fee is consideration for the right to compete or participate in the competition that the Corporation intends to stage. In this case, the entry fee is consideration for a supply of intangible personal property (IPP).
Under the GST/HST, there are special rules that apply to games of chance. A game of chance for purposes of the GST/HST is a “scheme under which prizes or winnings are awarded by way of chance or by way of a mixture of chance and other factors where the result depends more on chance than on the other factors”.
The skill portion of the competition, that is the counting game, that the Corporation is proposing does not depend more on chance as a participant’s math skills are used to determine the correct response. Therefore, the competition is not a game of chance as defined above.
There are no exempting provisions that would apply to the supply of the right to participate in the Corporation’s competitions. Therefore, the supply is taxable and, if the Corporation is a registrant, GST/HST should be charged on the entry fee.
Rulings #6 and #9:
Every person who makes a taxable supply in Canada must collect the tax payable from the recipient. Amounts that are collected as or on account of tax are deemed to be held in trust separate and apart from other funds until remitted to the Receiver General.
Net tax includes all amounts collected and collectible by a person in the reporting period as or on account of tax. If the Corporation has collected an amount as or on account of tax, the Corporation must calculate its net tax and remit any positive amount by the due date of its return for the reporting period in which it was collected or became collectible.
There is no provision in the ETA that would allow the Corporation to retain an amount collected as or on account of tax in a lawyer’s trust account pending the outcome of the competitions.
INTERPRETATIONS GIVEN
Small suppliers and registration
Every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to register for GST/HST purposes except where the person is a small supplier.
A “commercial activity” of a person includes a business carried on by the person, or an adventure or concern of the person in the nature of trade, except to the extent it involves the making of exempt supplies by the person. It also includes making a supply (other than an exempt supply) of real property, including anything done by the person in the course of or in connection with the making of the supply.
In general, a person is a “small supplier” if the total amount of revenues from their worldwide taxable supplies and any associates is $30,000 or less in any single calendar quarter and in the last four consecutive calendar quarters. In determining the total amount of revenues from taxable supplies (including zero-rated supplies) of property and services made inside and outside Canada, revenues from supplies of financial services, sales of capital property, and goodwill from the sale of a business are not included.
A person must make a determination at the end of each calendar quarter as to whether they continue to qualify as a small supplier. A person who no longer qualifies as a small supplier is required to register and must apply for registration before the thirtieth day after the day the person first makes a taxable supply in the course of the commercial activity in Canada otherwise than as a small supplier.
A GST/HST registrant (that is, a person who is registered or required to be registered for GST/HST purposes) is responsible for collecting the GST/HST on all taxable supplies (other than zero-rated supplies) of property and services in Canada.
Place of supply
Specific rules apply to determine whether a supply that is made in Canada is made in or outside of a participating province. The province of supply then determines whether suppliers must charge the HST, and if so, at which rate.
We are unable to provide additional information on the place of supply as we do not have enough information. Also, we have not addressed supplies to non-resident customers. If you have specific information related to these questions as they relate to your activities, please write in to request a ruling.
For more information on the place of supply rules, see Guide RC4022, General Information for GST/HST Registrants, and Draft GST/HST Technical Information Bulletin B-103, Harmonized Sales Tax – Place of supply rules for determining whether a supply is made in a province.
ITCs
Generally, a GST/HST registrant may recover its tax paid or payable on purchases and expenses that relate to its commercial activities.
If the Corporation is a registrant, it may be able to claim ITCs of the GST/HST paid or payable on purchases and expenses related to staging the competitions, like the GST/HST on the costs of filling the container or developing the website.
However, only limited ITCs are available on the prizes given in the course of the competitions. Where a prize is given during a competition, the following rules apply for GST/HST purposes:
* the giving of the prize is deemed not to be a supply by the Corporation;
* the prize is deemed not to be consideration for a supply by the participant to the Corporation; and
* tax payable by the Corporation in respect of any property given as the prize shall not be included in determining any ITC for any reporting period.
Both [the prize option] […] and the cash option are considered prizes for purposes of determining what ITCs are available.
Where a winner chooses [the prize], the Corporation cannot claim as an ITC any tax in respect of any property given as the prize. For example, where the winner chooses [the prize], the Corporation cannot claim any ITCs related to any property ([…]) or services that were acquired, consumed or used to […] and transfer [the prize] to the winner.
[…]
Where a winner chooses the cash option, the general rules relating to ITCs apply. The Corporation could claim ITCs in respect of taxes paid or payable for services that were acquired, consumed or used assuming all the requirements to claim ITCs are met. For example, if a lawyer’s services are used to fulfill the Corporation’s obligations to the winner, ITCs on the tax paid or payable on these services can be claimed as an ITC assuming all the requirements to claim ITCs are met.
Where the winner chooses the cash option and […][the prize] is sold by the Corporation as a regular sale […], the general rules […] would apply to the sale of [the prize].
Books and records
There is no specific list of documentation that must be maintained for a person to meet their GST/HST obligations. You asked what specific support documents are required when the tax is collected at a different rate other than that in [Province X]. Generally, documents showing the complete address of the person purchasing an entry in the competition would be required to show the proper rate of tax that was required to be charged on the transaction.
For general information the rights and obligations of GST/HST registrants, please refer to Guide RC4022.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the CRA is bound by the rulings given in this letter provided that: none of the issues discussed in the rulings are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretations given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretations or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 343-573-0977. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Desneiges Arbour
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
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