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
XXXXX
Case Number: 122269
Business Number: XXXXX
Attention: XXXXX XXXXX
April 1, 2010
Dear XXXXX:
Subject:
GST/HST INTERPRETATION
Application of the HST in Ontario and British Columbia to airport improvement fees and travel agency service charges
Thank you for your XXXXX of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to airport improvement fees and passenger facility fees and to travel agency service charges.
The Government of Canada and the Government of Ontario have signed a Comprehensive Integrated Tax Coordination Agreement for the implementation of HST in Ontario. The HST will come into effect in Ontario on July 1, 2010, at a rate of 13%, consisting of a 5% federal part (equivalent to the existing GST) and an 8% provincial part.
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 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 Ontario has received Royal Assent by the Parliament of Canada and the Legislative Assembly of Ontario. Legislation required to implement the HST in British Columbia 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 Canada and the Governments of Ontario and British Columbia have 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 Information Notice No. 3, General Transitional Rules for Ontario HST, released by the Government of Ontario on October 14, 2009, and in Tax Information Notice HST Notice No. 1, General Transitional Rules for British Columbia HST, released by the Government of British Columbia on October 14, 2009. This interpretation is also based on the place of supply rules as announced in the Backgrounder entitled Place of Supply, Self-Assessment and Rebate Rules for the Harmonized Sales Tax (HST) released by the Minister of Finance on February 25, 2010. This interpretation should not be taken as a statement by the Canada Revenue Agency (CRA) that the place of supply rules or the transitional rules for the HST in Ontario and British Columbia will be made in their current form.
Interpretation Requested
You have forwarded a letter written by XXXXX requesting confirmation of its understanding of how the transitional rules for the HST in Ontario and British Columbia will apply to airport improvement fees and passenger facility fees and to travel agency service charges.
Interpretation Given
Based on the information provided,
Airport Improvement Fees and Passenger Facility Fees
We understand that several airports in Canada charge airport improvement fees or passenger facility fees to passengers boarding a plane at that airport, and that the airport authorities have authorized air carriers to act as agents on their behalf for purposes of collecting both the airport improvement fee payable by the passenger and the applicable taxes payable by the passenger in respect of the fee, and for passing the fee and applicable taxes back to the applicable airport authority. For GST/HST purposes, such a fee is viewed as consideration for a supply of a right to use real property (airport facilities) made to the passenger. A supply of a right to use real property is considered to be a supply of real property made by way of lease, licence or similar arrangement.
XXXXX is correct in stating that the airport improvement fees and passenger facility fees are consideration for supplies separate from the passenger transportation services. The fees are consideration for taxable supplies of real property made by way of lease, licence or similar arrangement that are made to passengers departing from the airport.
No changes are proposed to the current place of supply rule for supplies of real property. A supply of real property is deemed to be made in a province if the property is situated in the province. Therefore, where an airport is situated in a participating province, the corresponding airport improvement fee would be subject to the HST, and where an airport is situated in a non-participating province, the corresponding airport improvement fee would be subject to the GST.
To determine when the HST will begin to apply to the airport improvement fees in respect of airports in Ontario and British Columbia, the transitional rules for the supply of real property made by way of lease, licence or similar arrangement will apply.
Under the transitional rules, the HST would generally apply to any consideration that becomes due, or is paid without having become due, on or after May 1, 2010, for a supply of real property made by way of lease, licence or similar arrangement to the extent that the consideration is attributable to a lease interval, or any part of a lease interval, that begins on or after July 1, 2010. The HST would not, however, apply to a supply of real property made by way of lease, licence or similar arrangement if the lease interval begins before July 2010 and ends before July 31, 2010.
Therefore, the HST would apply to an airport improvement fee or passenger facility fee in respect of airports in Ontario and British Columbia, that becomes due, or is paid without having become due, after April 2010 to the extent that the fee is in respect of a flight that departs from the airport on or after July 1, 2010.
Travel Agency's Service Charge
The second question concerns the application of the HST on a travel agency's service charge. This is a charge that the travel agency charges to the customer purchasing a ticket through the travel agency. XXXXX is correct in stating that, when the travel agency is selling the passenger transportation service on behalf of the air carrier, the travel agency's service to the customer is a supply separate from the passenger transportation service.
In our previous interpretation to you (Case Number 121991 dated March 10, 2010), we indicated that the travel agency's service charge is consideration for a service provided by the travel agency to the customer that would be subject to the place of supply rules for services.
The proposed general place of supply rules for services would apply to the travel agency's service charge; these rules are generally based on the relevant address of the recipient of the supply of the service that is obtained by the supplier in the normal course of business. We indicated in the previous interpretation that Rule 1 below would likely apply in most cases to a travel agency's service provided the relevant address of the recipient under the rule is in Canada. The application of the relevant part of Rule 1 is a question of fact.
Rule 1
If a supply of a service is made and, in the normal course of business, the supplier obtains a particular address of the recipient that is (a) a home or business address in Canada of the recipient, (b) where the supplier obtains more than one home or business address in Canada of the recipient, the home or business address that is most closely connected with the supply, or (c) where the supplier does not obtain a home or business address in Canada of the recipient, another Canadian address of the recipient that is most closely connected with the supply, the supply will be regarded as made in the province in which the particular address is situated.
If the relevant address of the recipient obtained by the supplier in the normal course of business is in Ontario or British Columbia, the travel agency must then consider the transitional rules for the HST.
Rule 2
If Rule 1 does not deem the supply of the service to be made in a province and the Canadian element of the service is performed primarily (more than 50%) in the participating provinces, the supply is proposed to be deemed made in the participating province in which the greatest proportion of the Canadian element of the service that is performed in the participating provinces is performed.
Rule 3
If Rule 2 does not deem the supply of a service to be made in a participating province because the service is performed equally in two or more participating provinces, the service is proposed to be deemed to be supplied in the participating province among those provinces that has the highest rate for the provincial component of the HST. If two or more of the participating provinces in this case have the same rate for the provincial component, HST will be required to be charged by the supplier using that particular rate.
Rule 4
If Rule 1 does not deem the supply of the service to be made in a province and the Canadian element of the service is performed otherwise than primarily (50% or less) in the participating provinces, the supply is proposed to be made in a non-participating province.
If the supply is made in Ontario or British Columbia based on these rules, the travel agency must then consider the transitional rules for the HST.
Under the transitional rules, the HST would generally apply to any consideration that becomes due, or is paid without having become due, on or after May 1, 2010, for a supply of a service to the extent that the consideration relates to the portion of the service performed on or after July 1, 2010. However, if 90% or more of the service is performed before July 2010, HST would not apply to the consideration for the service.
Generally, a travel agency's services to a customer would be considered to be provided at the time that the customer purchases the passenger transportation service. Therefore, the HST would apply to a travel agency's service charge that becomes due, or is paid without having become due, on or after July 1, 2010.
The foregoing comments represent our general views with respect to the transitional rules as announced in the Notices released by the Governments of Ontario and British Columbia on October 14, 2009, and the place of supply rules released by the Department of Finance on February 25, 2010, as they relate to the subject matter of your request. Any change to the wording of the transitional rules or the place of supply rules or any regulations regarding the HST in Ontario and British Columbia, if made, 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 CRA 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
UNCLASSIFIED
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