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.
XXXXX
XXXXX
XXXXX
XXXXX
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 122539
Attention: XXXXX
June 16,2010
Dear XXXXX:
Subject:
GST/HST INTERPRETATION - Application of the HST in Ontario and British Columbia to the Air Transportation Industry
This is in response to the XXXXX sent by XXXXX on XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies made in the air transportation industry, particularly the application of the HST in Ontario and British Columbia. XXXXX has provided XXXXX in response to the comments we provided to you in our previous interpretation, Case Number 121991, issued on March 10, 2010 and information discussed in a conference call on XXXXX between XXXXX and staff of the General Operations and Border Issues Division. XXXXX.
HST currently applies at the rate of 13% in Nova Scotia, New Brunswick, and Newfoundland and Labrador. Effective July 1, 2010, HST will apply at the rate of 15% in Nova Scotia, 13% in New Brunswick, Newfoundland and Labrador, and Ontario, and 12% in British Columbia. GST will continue to apply at the rate of 5% in the remaining provinces and territories.
The New Harmonized Value-Added Tax System Regulations (the Regulations) were published in Part II of the Canada Gazette on June 9, 2010. Part 1 of the Regulations outlines the place of supply rules. Part 3 of the Regulations outlines the Ontario and British Columbia general HST transitional rules.
An updated version of the GST/HST Technical Information Bulletin B-103, Harmonized Sales Tax - Place of Supply Rules for Determining Whether a Supply is Made in a Province, is available on the CRA's Web site at http://www.cra-arc.gc.ca/E/pub/gm/b-103/README.html.
XXXXX.
Interpretation Requested
You would like us to provide comments on XXXXX.
Interpretation Given
Based on the information provided, we have the following overall comments:
• XXXXX;
• XXXXX; and
• XXXXX.XXXXX. When HST applies to an amount that becomes due, or is paid without having become due, on or after May 1, 2010 and before July 2010, the supplier accounts for:
• the 5% federal part of the HST in its GST/HST return according to the normal rules; and
• the provincial part of HST in its GST/HST return for the reporting period that includes July 1, 2010. The purchaser, if a registrant, will be able to claim any eligible input tax credit in its GST/HST return for the reporting period that includes July 1, 2010.XXXXX:
XXXXX
XXXXX.
As indicated in the March 10, 2010 interpretation, the place of supply rules for passenger transportation services have changed with respect to passenger transportation services that are part of a continuous journey where the origin of the continuous journey is not specified on the ticket or voucher for the first passenger transportation service in the continuous journey, and for passenger transportation services that are not part of a continuous journey.
XXXXX
XXXXX
As indicated in the March 10, 2010 interpretation, XXXXX the transitional rules for passenger transportation services are based on when the continuous journey begins. As well, in general, the application of the transitional rules is based on when consideration for a supply becomes due, or when it is paid without having become due. XXXXX it is the earlier of the date the consideration for a supply becomes due, or is paid without having become due, that is used when applying the transitional rules, XXXXX.
XXXXX.
XXXXX.
XXXXX zero-rated supplies are subject to GST/HST at a rate of 0%.
As indicated in the March 10, 2010 interpretation XXXXX, a supplier would have to determine whether the supply is made in Ontario or British Columbia before determining whether the transitional rules for the HST apply; XXXXX.
XXXXX.
XXXXX.
XXXXX. The HST would apply to the airport improvement fee for airports in Nova Scotia, New Brunswick, and Newfoundland and Labrador as well.
Also, as indicated in the March 10, 2010 interpretation, XXXXX, the HST would not apply to air travel to the United States or to the islands of St. Pierre and Miquelon if the origin of the continuous journey is in Ontario or British Columbia.
XXXXX.
Please note that the fare components and the Air Travellers Security Charge are part of the consideration for the supply of the passenger transportation service and are subject to GST/HST at the same rate.
XXXXX.
XXXXX.
As indicated in the March 10, 2010 interpretation, flight passes are generally considered supplies of intangible personal property for GST/HST purposes. The Regulations include specific rules for passenger transportation passes in section 22:
(1) If, at the time when a supply of intangible personal property that is, or is similar to, a passenger transportation pass entitling an individual to one or more passenger transportation services is made, the supplier can determine that each passenger transportation service could not begin otherwise than in the same participating province and would terminate in Canada, the supply of the intangible personal property is made in that participating province.
(2) If, at the time when a supply of intangible personal property that is, or is similar to, a passenger transportation pass entitling an individual to one or more passenger transportation services is made, the supplier can determine that each passenger transportation service could not begin otherwise than in a non-participating province or would terminate outside Canada, the supply of the intangible personal property is made in a non-participating province.
XXXXX.
As previously indicated, the place of supply of all other flight passes that are not determined to be made in a province under section 22 of the Regulations would be subject to the general place of supply rules for intangible personal property.
XXXXX.
XXXXX. Where no home or business address or other address of the recipient is obtained by the supplier in the ordinary course of business, the supplier does not have the option of using their own address. The supply in this scenario would be deemed to be made in Ontario because it is the province with the highest provincial component rate in which the intangible personal property can be used.
As indicated in the March 10, 2010 interpretation, XXXXX. The application of the transitional rules is based on when the consideration, or part of the consideration, for a supply becomes due or is paid without having become due. XXXXX.
XXXXX As indicated in the March 10, 2010 interpretation, the treatment of partial payments is different from the treatment of deposits. If a part of the consideration becomes due or is paid without having become due, the supplier must determine how the transitional rules apply to that part. If a partial payment becomes due or is paid without having become due before May 2010, that payment is subject to GST under the transitional rules, but a subsequent partial payment made on or after May 1, 2010 for the same supply may be subject to HST under the transitional rules.
XXXXX.
Further to our discussion with XXXXX during the conference call, it is the CRA's position that the transitional rules do not allow for exchanges of services.
Where an exchange is initiated by an air carrier (e.g., customers are moved from a cancelled flight to a different flight), the air carrier is considered to be fulfilling its obligation to provide the passenger transportation service to the customer. In this situation, we do not consider the air carrier to be supplying a new passenger transportation service, and the tax status of the supply does not change.
Where an exchange is initiated by the customer (i.e., the customer chooses to exchange a ticket for a passenger transportation service that has been purchased, but not yet provided, for a ticket for another passenger transportation service), the customer is considered to be purchasing a new passenger transportation service. The amount paid for the original passenger transportation service is used to offset the consideration for the supply of the new passenger transportation service, and the consideration for the supply of the new passenger transportation service becomes due on the date that the exchange is performed. For example, if a ticket is exchanged on or after May 1, 2010 for a non.zero.rated passenger transportation service made in Ontario or British Columbia that is part of a continuous journey that begins on or after July 1, 2010, then the HST would apply to the consideration for the supply of the new passenger transportation service.
XXXXX.
As indicated XXXXX, it is the CRA's position that the transitional rules do not allow for exchanges of services.
It is our understanding, based on our discussion with XXXXX during the conference call, that additional collection exchanges only occur when an exchange is initiated by the customer. When a customer chooses to exchange a ticket for a passenger transportation service that has been purchased, but not yet provided, for a ticket for a different or additional passenger transportation service, the customer is considered to be purchasing a new passenger transportation service. The amount paid for the original passenger transportation service is used to offset the consideration for the supply of the new passenger transportation service, and the consideration for the supply of the new passenger transportation service becomes due on the date that the exchange is performed. For example, if a ticket is exchanged on or after May 1, 2010 for a non.zero.rated passenger transportation service made in Ontario or British Columbia that is part of a continuous journey that begins on or after July 1, 2010, then the HST would apply to the consideration for the supply of the new passenger transportation service.
Please note that as indicated in the March 10, 2010 interpretation, all of the passenger transportation services that are included on the new ticket, not just the different or additional ones, will be treated as a new supply of the passenger transportation services made on the date that the exchange is performed.
XXXXX.
XXXXX.
As indicated in the March 10, 2010 interpretation, where a refund exchange occurs, the tax status of the new passenger transportation service is not automatically the same as that of the original passenger transportation service. When a customer exchanges a ticket for a passenger transportation service that has been purchased, but not yet provided, for a ticket for a different passenger transportation service, the customer is considered to be purchasing a new passenger transportation service. The amount paid for the original passenger transportation service is used to offset the consideration for the supply of the new passenger transportation service, and the difference is refunded to the customer. The consideration for the supply of the new passenger transportation service becomes due on the date that the refund exchange is performed, and the transitional rules are applied based on that date.
XXXXX.
As indicated in the March 10, 2010 interpretation, XXXXX. The place of supply of the cancellation service is determined based on the province in which the passenger transportation service would have been deemed supplied. Once the place of supply is determined to be in Ontario or British Columbia, the transitional rules are applied to the cancellation service based on when that service is provided and when the consideration for that supply becomes due or is paid without having become due. XXXXX.
However, a cancellation service provided by an air carrier may be zero-rated if it is in respect of a zero.rated passenger transportation service provided by that air carrier. A supply by a person of a service of issuing, delivering, amending, replacing or cancelling a ticket, voucher or reservation for a zero.rated passenger transportation service is also zero-rated if the person that is providing this service is also the person supplying the passenger transportation service.
XXXXX.
A supply of a service in relation to real property that is situated in Canada that is situated primarily (more than 50%) in the participating provinces is made in the participating province in which the greatest proportion of the real property that is situated in the participating provinces is situated. If this rule does not result in the determination of a single participating province because the real property is equally situated in two or more participating provinces, the supply of the service is made 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 of the HST, HST will be required to be charged by the supplier using that particular rate.
A supply of a service in relation to real property that is situated in Canada and otherwise than primarily (50% or less) in participating provinces is made in a non.participating province.
XXXXX.
As discussed with XXXXX in the conference call, where a travel agency is purchasing and reselling supplies, generally any amount charged to the customer by the travel agency would be part of the consideration for that supply. XXXXX.
XXXXX.
The March 10, 2010 interpretation outlined how the GST/HST would apply when the travel agency is acting as agent of the supplier of the tour package, and provided general guidelines on how the first supplier of a tour package prorates the tour package into the non-taxable portion, the non.provincially taxable portion, and the provincially taxable portions. Please note the following correction to the previous interpretation (in the last paragraph on page 10):
Furthermore, generally if the consideration for the tour package becomes due, or is paid without having become due, on or after May 1, 2010, the property and services included in the tour package that would be considered to be supplied in Ontario or British Columbia on or after July 1, 2010 if supplied separately, would be part of the provincially taxable portion of the tour package and would be subject to HST.
Where the travel agency is acting as agent of the supplier of the tour package, the supplier determines how the tax applies to the tour package based on these rules, and provides this information to the travel agency. As indicated in the previous interpretation, the travel agency would be making a separate supply of a service to the customer, and the place of supply rules for services would apply to determine whether the agency service charge would be subject to HST.
XXXXX indicated in the conference call that the travel agency is not acting as agent, but purchasing and reselling the tour packages. If so, there is an additional requirement for the travel agency under the transitional rules, since the travel agency will be considered the first supplier of the tour packages during the transitional period for the HST in Ontario and British Columbia.
Generally, if the elements included in the tour package have not changed, a subsequent supplier of a tour package can use the same taxable percentages in respect of the non.provincially taxable portion and the provincially taxable portions as the first supplier to determine how the tax applies to the tour package. However, if the travel agency purchased a tour package that includes elements that were previously subject to GST and that would be subject to HST at the time they are sold to the customer because of the transitional rules, the travel agency is considered the first supplier of the tour package and is required to prorate the costs to determine the non-taxable portion, the non.provincially taxable portion, and the provincially taxable portions of the tour package.
Therefore, if a travel agency purchases a tour package before May 2010 that includes elements to be supplied in Ontario or British Columbia on or after July 1, 2010, the travel agency will have to perform this calculation if it sells that tour package on or after May 1, 2010. The steps for completing this calculation were outlined in the March 10, 2010 interpretation.
XXXXX.
As indicated in the March 10, 2010 interpretation, a supply to a person of a service of acting as an agent is zero-rated when the supplier is acting as agent on behalf of that person in making a supply of a zero-rated passenger transportation service or in making a supply of a service on behalf of that person of issuing, delivering, amending, replacing, or cancelling a ticket or reservation for a zero-rated passenger transportation service. XXXXX.
XXXXX.
This rule is set out in section 23 of the Regulations:
If a supply of property or a service (other than a passenger transportation service) is made to an individual on board a conveyance in the course of a business of supplying passenger transportation services and the property or service is delivered, performed or made available on board the conveyance during any leg of the journey that begins in any province and ends in any province, the supply is made in the province in which that leg of the journey begins.
XXXXX.
XXXXX.
We indicated in the March 10, 2010 interpretation that there were no changes to the place of supply rules regarding the supervision of an unaccompanied minor or the transportation of a passenger's baggage XXXXX, but that in order to be within the zero-rating or place of supply rules, the supply has to be made by the same person supplying the passenger transportation service. XXXXX.
With respect to the other supplies XXXXX (seat assignments, on-board meals, passenger assistance, other amenities, extra frequent flyer mileage), the prepaid fee may be consideration for a supply separate from the supply of the passenger transportation service; however, this is a question of fact. The characterization of the supply for GST/HST purposes would also depend on the facts of a particular situation rather than the tax status of the passenger transportation service.
Supplies of property or a service (other than a passenger transportation service) that are made to an individual on board a conveyance in the course of a business of supplying passenger transportation services where the property or service is delivered, performed or made available on board the conveyance would be within the place of supply rule outlined in the comments on section 17.
The tax status of supplies that do not fall under this place of supply rule would be determined based on the appropriate place of supply rule depending on how the supply is characterized for GST/HST purposes.
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 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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