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.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
Attention: XXXXX
President
Case Number: 44960r
Business Number: XXXXX
August 18, 2008
Subject:
GST/HST INTERPRETATION
Application of GST/HST to an independent sales contractor of a direct seller
Dear XXXXX:
We have XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to various transactions involving XXXXX and have taken into account new information and facts that you have provided to us. Consequently, we provide the following interpretation XXXXX.
All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.
We understand that:
• XXXXX is a GST/HST registrant that is an independent sales contractor (ISC) for XXXXX, a direct seller that is approved to use the Alternate Collection Method (ACM) for GST/HST. XXXXX.
• XXXXX.
• XXXXX.
• XXXXX revenue comes from both XXXXX and XXXXX within XXXXX.
• XXXXX is a non-resident organization that is not registered for GST/HST.
• Through XXXXX, you purchase XXXXX exclusive products for your own use, sell products to customers and XXXXX.
• XXXXX sells various XXXXX materials to XXXXX ISCs. XXXXX receives payments from XXXXX with respect to the XXXXX materials that its XXXXX purchase.
• The XXXXX materials include:
- Books
- CDs
- XXXXXXXXX
- XXXXXX
- Web site subscriptions
- Clothing with the XXXXX logo
- Business cards
• You have provided a sample book entitled XXXXX which is on the topic of XXXXX.
• You have also provided XXXXX sample CDs, which are primarily recordings of speeches made by various speakers at different XXXXX conferences and events. The speakers are normally ISCs and the focus is primarily on XXXXX and XXXXX. The CDs you provided are:
XXXXX.
• XXXXX.
• XXXXX is a voice, fax and e-mail messaging system used by some XXXXX pay a monthly fee for the service.
• ISCs can subscribe to the XXXXX Web site for a monthly fee. There are XXXXX different fee levels and at certain levels, as part of their subscription, XXXXX receive some initial standard CDs and a different book sent XXXXX to them. The XXXXX can also purchase other CDs and books for a separate fee, and subscribe to XXXXX through the Web site. There is XXXXX video for the ISCs to view on the site and listings of XXXXX and conferences.
• XXXXX sponsors XXXXX conferences per year in Canada called XXXXX that are for XXXXX of ISCs. Speakers at the conferences speak and teach about XXXXXX.
• XXXXX.
• The conferences are attended by XXXXX and a representative from XXXXX.
• XXXXX collects the conference admissions fees and after deducting expenses, forwards the remainder to XXXXX to be distributed in the same manner as payments for XXXXX materials.
• XXXXX sponsors conferences annually in XXXXX. XXXXX sells admissions on behalf of XXXXX for these conferences. XXXXX collects the admission fees from XXXXX ISCs that will attend these conferences and passes them on to XXXXX. XXXXX receives a payment for the admissions that it has collected, calculated in the same manner as payments for XXXXX materials.
• XXXXX receives payments from XXXXX with respect to the XXXXX materials that XXXXX purchases. The payments are calculated as follows:
XXXXX.
×
XXXXX.
• XXXXX.
• XXXXX holds XXXXX meetings in hotel conference rooms for the purpose of showing the XXXXX to new prospects that its XXXXX ISCs bring to the meetings. The ISCs are charged a small fee to cover the cost of the room.
Interpretation Requested
You would like to know if XXXXX is required to account for GST/HST on the various payments it receives.
Interpretation Given
The ACM provides special rules for collecting GST/HST for direct selling organizations that are authorized to use it. Under the ACM, GST/HST on a direct seller's exclusive products is accounted for entirely at the direct seller or if applicable, distributor level, based on the suggested retail price of the products.
An exclusive product of a direct seller is personal property that a direct seller acquires, manufactures or produces for sale to an ISC with the expectation that an ISC will ultimately sell the property, other than as used property, to a person other than another ISC of the direct seller.
Bonus payments
Under the ACM, bonus payments that direct sellers and their ISCs sometimes give to other ISCs receive special treatment. An amount paid or payable by a direct seller or an ISC of the direct seller to an ISC of the direct seller because of the volume of purchases or sales of exclusive products of the direct seller or of sales aids and not as consideration for a supply of such a product or sales aid, is deemed not to be consideration for a supply.
To determine if this special treatment for bonus payments applies to the various payments XXXXX receives from XXXXX, we will need to consider how the payments are calculated (i.e., the "because of volume" aspect) and furthermore, whether the XXXXX materials that the payments are in respect of, are sales aids.
In our view, the volume of purchases or sales of exclusive products of the direct seller and of XXXXX materials are factors in the calculation that XXXXX uses to calculate bonus payments to its XXXXX ISCs. Therefore, XXXXX is not required to account for tax on payments it receives with respect to exclusive products of the direct seller. XXXXX also does not have to account for tax on payments that it receives with respect to those XXXXX materials that are sales aids. The remainder of this letter sets out which of the different XXXXX materials are sales aids and not subject to tax, and which are not sales aids. For those XXXXX materials that are not sales aids, XXXXX is required to account for tax on the payments it receives.
Sales aids
Sales aids are also defined in the GST/HST legislation. A sales aid is property that is not an exclusive product of a direct seller or property that is acquired by an ISC as capital property. Sales aids are customized business forms, samples, demonstration kits, promotional or instructional items, catalogues or other property acquired, manufactured or produced for sale to assist in the promotion, sale or distribution of the direct seller's exclusive products.
Some additional information on sales aids and examples are available in GST/HST Info Sheet GI-023, Direct Sellers' Sales Aids, XXXXX.
Books and CDs
It is our opinion that the sample book and sample CDs that you have provided are sales aids. Given the nature of the XXXXX organization, that ISCs facilitate the sale of exclusive products not only through their own sales, but also through that of the ISCs that they sponsor, developing leadership skills and motivation would assist in the sales process.
Books and CDs on similar topics would likely also be sales aids; however, it is a question of fact whether a particular property is a sales aid. A direct seller or ISC must be able to demonstrate that the property was acquired, manufactured or produced for sale to assist in the promotion, sale or distribution of the direct seller's exclusive products.
XXXXX does not need to account for GST/HST on the payments it receives from XXXXX with respect to books and CDs that are sales aids.
XXXXX.
Based on the information provided, it is likely that the XXXXX is capital property of the ISCs purchasing it. Generally, property is capital property if a person cannot deduct its full purchase price for income tax purposes for the year in which the person bought it. Only a part of the total cost can be deducted each year for a number of years.
Property that is capital property of the person purchasing it is excluded from the definition of a sales aid. XXXXX must account for GST/HST on the payments it receives from XXXXX with respect to the XXXXX.
XXXXX.
For GST/HST purposes, a "telecommunication service" is defined as:
a) the service of emitting, transmitting or receiving signs, signals, writing, images or sounds or intelligence of any nature by wire, cable, radio, optical or other electromagnetic system, or by any similar technical system, or
b) making available for such emission, transmission or reception telecommunications facilities of a person who carries on the business of supplying services referred to in paragraph (a).
Given the description of XXXXX and the definition of a telecommunication service, we are of the opinion that XXXXX is a telecommunication service. Services are not included in the definition of a sales aid. XXXXX must account for GST/HST on the payments it receives from XXXXX with respect to XXXXX.
Web site subscriptions
In our view the Web site subscriptions assist in the promotion, sale or distribution of XXXXX exclusive products and are sales aids. XXXXX does not need to account for GST/HST on the payments it receives with respect to the Web site subscriptions.
Clothing
Monogrammed items, such as clothing and towels with a direct seller's logo, are generally considered to be sales aids. However, in this case, the clothing is described as having XXXXX logo and not that of XXXXX. Clothing with the XXXXX logo is not a sales aid. GST/HST needs to be accounted for on payments XXXXX receives from XXXXX with respect to such clothing.
Business cards
Business cards are a standard way to provide one's contact information to others, particularly in the sales industry. Business cards are sales aids. GST/HST does not need to be accounted for on payments that XXXXX receives from XXXXX with respect to business cards.
Admissions to XXXXX
It is our view that the XXXXX assist in the promotion, sale or distribution of XXXXX exclusive products and consequently the admissions would be sales aids. GST/HST does not need to be accounted for on payments that XXXXX receives from XXXXX with respect to admissions to the XXXXX.
Selling admissions on behalf of XXXXX
XXXXX also receives payments with respect to admissions it sells on behalf of XXXXX for conferences hosted by XXXXX in XXXXX. It appears that XXXXX is acting as an agent of XXXXX in selling the admissions and that the payments are in respect of those agent services and not sales aids. For more information on agency, please refer to GST/HST Info Sheet GI-012, Agents.
A supply made to a non-resident person of a service of acting as an agent of the person, where the service is in respect of a supply made outside Canada by the person is zero-rated (i.e., taxable at 0%). Where XXXXX is selling admissions as agent of XXXXX, a non-resident, to conferences held outside of Canada, the payments that XXXXX receives with respect to these agent services would be zero-rated.
Admissions to XXXXX meetings
The XXXXX meetings are held to introduce prospective ISCs to XXXXX. Increasing the number of ISCs should ultimately assist in the promotion, sale or distribution of XXXXX exclusive products; therefore, the admissions to the meetings are sales aids.
XXXXX does not receive a bonus payment from XXXXX with respect to the XXXXX meetings. XXXXX supplies the admissions to other ISCs. Under the ACM, a supply of a sales aid by an ISC to another ISC is deemed not to be a supply for GST/HST purposes; therefore GST/HST would not apply to the admissions to the XXXXX meetings that XXXXX charges other ISCs.
All publications referenced in this letter can be found at the Canada Revenue Agency (CRA) Web site at www.cra-arc.gc.ca/formspubs/type/menu-e.html.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call Chris Lewis at 613-957-8224. 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,
Carla Schur-Ellison
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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