29 January 2010 GST/HST Interpretation 119713 - Application of the Transitional Rules for the HST in B.C. to Tour Packages

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
Case Number: 119713

Business Number: XXXXX
Attention: XXXXX
XXXXX
January 29, 2010

Dear XXXXX:

Subject:

GST/HST INTERPRETATION
PROPOSED LAW/REGULATION
Application of the transitional rules for the HST in B.C. to tour packages

Thank you for your XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies made by XXXXX (the Company). XXXXX.

The Government of Canada and the Government of British Columbia have signed a Comprehensive Integrated Tax Coordination Agreement for the implementation of HST in British Columbia. The HST is proposed to come into effect in British Columbia (B.C.) on July 1, 2010, at a rate of 12%, consisting of a 5% federal part (equivalent to the existing GST) and a 7% provincial part.

Legislation required to implement the HST in B.C. has received Royal Assent by the Parliament of Canada. Required provincial legislation has been introduced but is still under consideration by the Legislative Assembly of British Columbia. However, many of the rules which would apply to transactions will be contained in regulations made under the Excise Tax Act (ETA). Although the Government of British Columbia has announced details of the rules which may eventually apply, the required regulations have not yet been made by the Government of Canada.

The following interpretation is based on the transitional rules as announced in HST Notice #1, General Transitional Rules for British Columbia HST (the Notice), released by the British Columbia Ministry of Finance on October 14, 2009. This interpretation should not be taken as a statement by the Canada Revenue Agency (CRA) that the transitional rules for the HST in B.C. will be enacted in their current form.

XXXXX.

The Company also sells XXXXX Canadian vacation packages XXXXX. These packages include hotels, tourist attractions and transportation services XXXXX.

The Company sells through a number of sales channels including: direct to consumer, travel agents, wholesalers and resellers and tour operators. XXXXX.

Interpretation Requested

You would like to know how the implementation of the HST in B.C. will affect the following:

1. Timing Issues

The Company sells XXXXX packages that could last up to several weeks in duration. The sales cycle for these products is very long as guests travel from all over the world and plan these vacations well in advance. The Company also has various payment terms, XXXXX. Accordingly, there are a number of booking situations where it is not clear to the Company how or where the HST would apply.

Upon receipt of a booking, the Company immediately sends a confirmation to the guest that describes the service that has been ordered and provides the full price of the trip, including applicable taxes. A deposit of approximately XXXXX% of the value of the trip is billed and collected XXXXX. XXXXX.

2. Trips Originating in Participating and Non Participating Provinces and/or International Locations

XXXXX. In addition, the Company offers packages that could originate in an international location XXXXX and cross-Canada tours that could begin in any Canadian province. You have a number of questions related to where a trip originates.

3. Foreign Convention and Tour Incentive Program (FCTIP)

You would also like to confirm that the 50% rebate of the GST/HST paid on eligible tour packages remains essentially unchanged and that there are no further requirements to be performed by the Company or its customers.

4. Sales of Domestic Transportation Services to Travel Providers

You would also like to confirm that a domestic passenger transportation service supplied to a travel provider, such as a non-resident tour operator, remains zero-rated if the travel provider resells the service as a continuous journey and an individual guest uses the transportation as part of a continuous journey. The Company has certificates of zero-rated entitlement in place and wants to confirm that the certificates are still considered to be adequate documentation by the CRA to support the zero-rating of services provided to these suppliers.

In addition, when the Company evaluated the rules associated with the zero-rated entitlement, it identified customers that the Company previously did not consider to have met the criteria for zero-rating that may indeed meet it.

Interpretation Given
Based on the information provided,
1. Timing Issues

These questions relate to the Company's XXXXX packages. XXXXX. As the passenger transportation service and accommodation are sold together for an all-inclusive price, the XXXXX would be a tour package for GST/HST purposes.

The rules that determine the amount of GST/HST that a supplier must charge on a tour package would remain the same under the proposed HST in B.C. The supplier must prorate the selling price of a tour package into the non-taxable portion, the provincially taxable portion, and the non-provincially taxable portion to determine the amount of the GST/HST that must be charged. The non-taxable portion would be zero-rated, the provincially taxable portion would be subject to HST, and the non-provincially taxable portion would be subject to GST. For more information on calculating the GST/HST on tour packages, please see GST/HST Memorandum 27.1, Calculating the GST/HST on Tour Packages.

The transitional rules would be applied to each property and service included in the tour package, as if it were supplied separately, to determine whether the property or service would be included in the provincially taxable portion and subject to HST.

Under the transitional rules, the HST would not apply to consideration for the part of a passenger transportation service that is performed on or after July 1, 2010 if the passenger transportation service is part of a continuous journey that begins before July 2010.

However, the HST would apply to any consideration for a passenger transportation service that is part of a continuous journey that begins on or after July 1, 2010.

The HST would generally apply to a supply of property by way of lease, licence or similar arrangement for the part of a lease interval that occurs on or after July 1, 2010. The HST would not, however, apply to a supply of property by way of lease, licence or similar arrangement if the lease interval begins before July 2010 and ends before July 31, 2010.

The answers to the scenarios below are based on the following assumptions:

• the Company is making a supply of a tour package XXXXX;
• the XXXXX journey is the only passenger transportation service in the tour package;
• the passenger transportation service in the tour package is the entire continuous journey; and
• the passenger transportation service and the accommodation in B.C., if they were supplied separately, would be made in B.C.

You provided the following examples of situations where there may be timing issues:

(a) Domestic or international guest books a trip before October 14, 2009 that begins after July 1, 2010. Full payment is due and paid after May 1, 2010.

In this scenario, the passenger transportation service included in the tour package would be part of a continuous journey that begins on or after July 1, 2010. Since the consideration for the supply becomes due on or after May 1, 2010, the HST would apply if the passenger transportation service were supplied separately.

The accommodation included in the tour package would be a supply of property by way of lease, licence or similar arrangement for a lease interval that occurs on or after July 1, 2010. Since the consideration for the supply becomes due on or after May 1, 2010, the HST would apply if the accommodation were supplied separately.

Therefore, the passenger transportation service and the accommodation would be included in the provincially taxable portion of the tour package and would be subject to HST.

(b) Domestic or international guest books a trip before October 14, 2009 that begins after July 1, 2010. Full payment is due and paid before May 2010.

In this scenario, the passenger transportation service included in the tour package would be part of a continuous journey that begins on or after July 1, 2010. Since the consideration for the supply becomes due before May 2010, the HST would not apply if the passenger transportation service were supplied separately.

The accommodation included in the tour package would be a supply of property by way of lease, licence or similar arrangement for a lease interval that occurs on or after July 1, 2010. Since the consideration for the supply becomes due before May 2010, the HST would not apply if the accommodation were supplied separately.

Therefore, the passenger transportation service and the accommodation would be included in the non-provincially taxable portion of the tour package and would be subject to GST.

(c) Domestic or international guest books a trip before October 14, 2009 that begins after July 1, 2010. Full payment is due before May 2010 but not received until after May 1, 2010.

This scenario is the same as that in b, except that the guest does not pay the consideration for the supply when it becomes due. The transitional rules depend, in part, on when the consideration becomes due, or when it is paid without having become due. Since the consideration becomes due before May 2010, and is not paid before it becomes due, both the passenger transportation service and the accommodation would be included in the non-provincially taxable portion of the tour package and would be subject to GST.

(d) Domestic or international guest books and pays in full for a trip prior to May 2010. The trip begins after July 1, 2010.

This scenario is the same as that in b, except that the guest pays for the trip at the time of booking. Since the consideration becomes due, or is paid before it becomes due, before May 2010, both the passenger transportation service and the accommodation would be included in the non-provincially taxable portion of the tour package and would be subject to GST.

(e) Domestic or international guest books and pays for a package trip after May 1, 2010. The trip begins with the guest's arrival in B.C. on June 29, 2010, where the guest's stay in a hotel is part of the package. The trip continues XXXXX from June 30, 2010 to July 1, 2010 and concludes with a three-night hotel stay in XXXXX.

In this scenario, the supply is of a tour package that includes XXXXX.

The accommodation for the night of June 29, 2010 would be a supply of property by way of lease, licence or similar arrangement for a lease interval before July 2010. The HST would not apply if the accommodation were supplied separately.

Since the passenger transportation service included in the tour package would be part of a continuous journey that begins before July 2010, the HST would not apply if the passenger transportation service were supplied separately.

XXXXX.

Therefore, the passenger transportation service and the accommodations in B.C. would be included in the non-provincially taxable portion of the tour package and would be subject to GST.

(f) Domestic or international guest books and pays a deposit prior to May 2010 for a trip that begins after July 1, 2010. The XXXXX and balance is due and paid for after May 1, 2010.

For GST/HST purposes, a deposit is an amount given by a recipient as security for the performance of an obligation by the recipient and is not treated as consideration until the supplier applies it against the consideration for the supply (e.g., at the time the balance is due). The tax on the amount of the deposit will be payable by the recipient at the time the Company applies the deposit against the consideration for the supply.

In this scenario, the passenger transportation service included in the tour package would be part of a continuous journey that begins on or after July 1, 2010. Since the consideration for the supply becomes due on or after May 1, 2010, the HST would apply if the passenger transportation service were supplied separately.

The accommodation included in the tour package would be a supply of property by way of lease, licence or similar arrangement for a lease interval that occurs on or after July 1, 2010. Since the consideration for the supply becomes due on or after May 1, 2010, the HST would apply if the accommodation were supplied separately.

The passenger transportation service and the accommodation would be included in the provincially taxable portion of the tour package and would be subject to HST.

2. Trips Originating in Participating and Non Participating Provinces and/or International Locations

The place of supply rules for the HST in B.C. have not yet been announced. Until further announcements are made by the Government of British Columbia or the appropriate regulations related to the HST in B.C. are released, we are unable to provide detailed information on how the HST will apply to the scenarios described in the second group of questions. We will respond to your questions once the information becomes available.

3. Foreign Convention and Tour Incentive Program (FCTIP)

Under the FCTIP, non-resident consumers and non-resident non-registered businesses, organizations and tour operators may be entitled to a rebate of up to 50% of the GST/HST paid on their acquisitions of eligible tour packages. A registrant supplier that supplies an eligible tour package may pay to, or credit in favour of, a non-resident an amount on account of a rebate to which the non-resident would be entitled in respect of the eligible tour package if the non-resident had paid the GST/HST in respect of the supply and satisfied the conditions for claiming the rebate.

The rebate and its requirements would remain unchanged under the proposed HST in B.C.

When a registrant supplier pays or credits an amount on account of the rebate, the supplier must maintain documentary evidence that the non-resident would be entitled to the rebate if the non-resident had paid the GST/HST and filed a rebate application with the CRA. Examples of forms that may be used to obtain this evidence are included in the Appendices to GST/HST Memorandum 27.3, Foreign Convention and Tour Incentive Program - Rebate for Eligible Tour Packages and Accommodation Supplied as Part of Eligible Tour Packages. We have enclosed a copy of GST/HST Memoranda 27.3 for your convenience.

When a registrant supplier pays to, or credits in favour of, a non-resident that is not a tour operator (e.g., a consumer) an amount on account of a rebate, one of the following conditions must be met:

• payment of the consideration for the supply is made at a place outside Canada at which the registrant supplier, or its agent, is conducting business; or
• a deposit of at least 20% of the total consideration for the tour package is paid by the non-resident to the registrant supplier at least 14 days before the first day on which any short-term or camping accommodation included in the package is made available under the agreement for the supply of the tour package.

Please note that when a registrant pays or credits an amount on account of a rebate and deducts the amount in determining its net tax, the registrant must file prescribed information in respect of the amount in prescribed form and in prescribed manner. This information must be filed using Form GST106, Schedule 2 - Information on Claims Paid or Credited for Foreign Conventions and Tour Packages, on or before the day on or before which its GST/HST return for the reporting period in which the amount is deducted is required to be filed.

There are consequences for not filing the Form GST106 by the due date; please see GST/HST Info Sheet GI-032, Foreign Convention and Tour Incentive Program - Non-Residents Purchasing Tour Packages: Rebate for Eligible Tour Packages, for more information.

4. Sales of Domestic Transportation Services to Travel Providers

The rules for zero-rating passenger transportation services provided to a travel provider would not change under the proposed HST in B.C. A domestic passenger transportation service supplied to a travel provider, such as a non-resident tour operator, is zero-rated if:

• the travel provider resells the domestic passenger transportation service to an individual as part of a continuous journey under which all passenger transportation services are zero-rated; and
• the individual uses the transportation as part of a continuous journey under which all the passenger transportation services are zero-rated.

To zero-rate the supply, the supplier of the passenger transportation service must obtain sufficient documentation from the travel provider. A certificate of zero-rated entitlement would only be part of the necessary documentation. The travel provider must also provide a tour itinerary and a passenger list.

With respect to this documentation:

• the tour itinerary must describe all elements of the passenger transportation services (including those provided by the supplier of the passenger transportation service) that form the international continuous journey, including the origin, destination, stopovers, arrival and departure dates, and all modes of conveyance; and
• the passenger list must contain the names and addresses of the travellers. However, if the supplier of the passenger transportation service agrees, the travel provider can keep the passenger list and provide it on request.

For more information on passenger transportation services and continuous journeys, please see GST/HST Guide RC4036, GST/HST Information for the Travel and Convention Industry. You questioned whether the travel provider in the description below could purchase the Company's XXXXX and/or the packages on a zero-rated basis:

A XXXXX-based wholesaler develops a brochure to sell packages for travel to Western Canada. The package includes, for an all inclusive price, return flights to Canada, the Company's XXXXX, accommodation for all nights in Canada, meals and all other transportation services required for the trip. A typical itinerary could include:

(i) Day XXXXX - arrive from XXXXX into XXXXX, take a sightseeing tour and stay overnight in XXXXX;
(ii) Days XXXXX - take XXXXX to XXXXX and spend XXXXX days touring the Rockies with overnight stays in XXXXX hotels;
(iii) Days XXXXX - travel from XXXXX to XXXXX and stay overnight in a XXXXX hotel;
(iv) Day XXXXX - tour XXXXX, stay overnight in XXXXX hotel;

(v) Day XXXXX - fly back to XXXXX.

The wholesaler may sell this package to groups or to individuals. XXXXX. The wholesaler could purchase the XXXXX from the Company or the wholesaler could purchase, at an all-inclusive price, all elements with the exception of the air portion from the Company.

As we noted in the response to question 1, the XXXXX supplied by the Company consists of a passenger transportation service and accommodation sold together for an all-inclusive price, and would be a tour package for GST/HST purposes. Thus, the wholesaler is purchasing tour packages that include one or more passenger transportation services from the Company, and is making supplies of new tour packages.

The domestic passenger transportation service included in the Company's tour package may be included in the non-taxable portion of a tour package to the wholesaler, and therefore zero-rated, if the passenger transportation service would be part of a zero-rated continuous journey if it were supplied separately and not as part of a tour package. The Company would have to acquire sufficient documentation, as outlined above, to ensure that the domestic passenger transportation service would be part of an international continuous journey.

For your information, a continuous journey of an individual means the set of all passenger transportation services provided to the individual as part of the same journey. However, certain conditions must be met for a journey to be considered a continuous journey. These conditions depend on whether all of the passenger transportation services in the journey are provided on a single ticket or voucher, or on two or more tickets or vouchers.

If the wholesaler issues a single ticket or voucher for all of the passenger transportation service in the new tour package, then all of the passenger transportation services on that ticket or voucher would be treated as part of one continuous journey.

If the wholesaler issues separate tickets or vouchers for each passenger transportation service in the new tour package, the entire trip may be a continuous journey if there is no stopover between any legs of the journey for which separate tickets or vouchers are issued.

A stop between two legs of a journey that is 24 hours or less is not considered to be a stopover and will not affect whether the legs are part of a continuous journey. A stop of more than 24 hours between two legs of a journey will generally be considered a stopover where two or more tickets or vouchers are issued for the legs of the journey. However, if the supplier can prove that a stop of more than 24 hours is for servicing or refuelling the conveyance, or for the individual to transfer to another conveyance, the stop will not be considered a stopover and the continuous journey status will be unaffected.

The foregoing comments represent our general views with respect to the proposed amendment(s) to the Excise Tax Act as it (they) relate(s) to the subject matter of your request. Any change to the wording of these proposed amendments or any future 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 GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-7909. 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,
Jacqueline Russell, CGA
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
XXXXX

UNCLASSIFIED