11 August 2004 GST/HST Interpretation 51963 - Taxable Benefits and the GST/HST

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.

Dear XXXXX:

Thank you for your letter XXXXX (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of recreational vehicles on behalf of other persons. We apologize for the delay in responding to you.

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX (the Dealer) is engaged in the business of buying, selling, trading, consigning and storing vehicles and recreational vehicles, and is a GST/HST registrant.

2. The Dealer enters into an XXXXX (the Contract) with private owners (the Owner) with respect to the sale of recreational vehicles (the Unit) to third-party recipients (the Purchaser). According to the Contract:

(a) The Owner agrees to have the Dealer display the Unit for sale and will pay a XXXXX fee, XXXXX, plus applicable GST and provincial sales tax (PST).

(b) The Owner agrees to provide insurance coverage on the Unit XXXXX while the Unit is on the Dealer's premises. The seller [sic] declares that the Unit is its own possession and that it has free title to the same. XXXXX.

(c) The Owner agrees that if it sells the Unit itself to anyone who has viewed it at the Dealer's after the Unit has been removed from the premises, it will pay the Dealer XXXXX% of the selling price or fair market value, as a XXXXX fee.

(d) The Owner understands that the Contract does not guarantee the sale of the Unit, and if requested, it will remove the Unit from the Dealer's premises. XXXXX.

(e) The Contract is made for a minimum period of XXXXX days from the date indicated on the Contract, and is in effect after that time until it is cancelled in writing by the Owner or by the Dealer. If the Contract is cancelled, the Owner shall pay a storage fee of $XXXXX per day that the Unit was on display at the Dealer's.

(f) The Dealer agrees not to sell the Unit for less than the agreed price, as set out in the Contract, unless authorized by the Owner by telephone or in writing. XXXXX. Any and all amounts collected in excess of the agreed upon price are retained as additional XXXXX fees by the Dealer.

(g) XXXXX.

3. Upon the sale of a Unit, the Dealer prepares XXXXX (the Agreement) between the seller [sic] and the Purchaser which provides that:

(a) The seller [sic] accepts this price and the Dealer signs the Agreement as per the seller [sic].

(b) Payment is to be made to the Dealer for the convenience of the Purchaser and the seller [sic].

(c) XXXXX.

(d) XXXXX.

(e) XXXXX.

4. Once the sale is completed, the Owner authorizes the Dealer to deduct its XXXXX fee from the proceeds collected. The balance due must be paid to the Owner.

5. The Dealer collects and remits the GST in respect of the supply of the service of displaying the Owner's Unit for sale. It also collects and remits the GST in respect of storage fees that it charges if the Contract is cancelled.

6. Where the Owner is a registrant and the supply of the Unit is made in the course of a commercial activity, the Owner collects GST from the Purchaser on the supply of the Unit. However, where the Owner is not a registrant there is no GST collected on the supply of the Unit to the Purchaser.

Ruling Requested

Is the Dealer responsible for collecting and remitting the GST/HST (if any) in respect of the supply of the Unit to the Purchaser?

Ruling Given

The facts of this particular case and the terms of the Contract and the Agreement indicate that the Dealer is acting as agent in making the supply of the Unit on behalf of the Owner. Accordingly, we rule that:

1. Where the Owner is a registrant and it would have been required to account for tax had it made the supply of the Unit in its own right, the Owner (and not the Dealer) is required to collect and remit the GST/HST payable by the Purchaser on the supply of the Unit. The Dealer is required to collect and remit the GST/HST on supplies of services made to the Owner relating to the supply of the Unit to the Purchaser.

2. Where the Owner is not a registrant, it is not required to collect and remit the GST/HST on the supply of the Unit to the Purchaser. However, as the Dealer acts as agent in making the supply of the Unit on behalf of the non-registrant Owner, the Dealer (and not the Owner) is required to collect and remit the GST/HST on the supply of the Unit. The Dealer is not required to collect or remit the GST/HST on supplies of services made to the Owner relating to the supply of the Unit to the Purchaser.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

Supplies by agents on behalf of principals

Subsection 221(1) of the Excise Tax Act (ETA) requires every person who makes a taxable supply in Canada to collect the GST/HST payable by the recipient in respect of the supply. Generally, where a person makes a taxable supply through another person acting as its agent, the person, if a registrant, is liable to account for GST/HST on the taxable supply. In turn, the other person acting as agent, if a registrant, is liable to account for GST/HST on any taxable supplies made to the person. Consequently, where the Owner is a registrant and it makes a taxable supply of a Unit through the Dealer acting as its agent, the Owner is required to collect and remit the GST/HST on the supply of the Unit. The Dealer, as agent and a registrant, is required to collect and remit the GST/HST on the supply of the service made to the Owner (i.e., tax is payable on the service of carrying out the sale of the Unit, which in this instance is described as a XXXXX fee).

However, subsection 177(1) of the ETA provides special rules for collecting tax in situations where a registrant acts as agent in making a supply on behalf of another person not required to collect tax on that supply. Specifically, subsection 177(1) of the ETA relates to supplies (other than supplies by auction) made on behalf of a person who is not required to collect tax, and provides that where

•   a person (i.e., the principal) makes a supply (other than an exempt or zero-rated supply) of tangible personal property to a recipient,

•   the principal is not required to collect tax in respect of the supply, and

•   a registrant (i.e., the agent), in the course of a commercial activity of the agent, acts as agent in making the supply on behalf of the principal, the supply of the property to the recipient is deemed, for GST/HST purposes, to be a taxable supply made by the agent and not by the principal. The agent is deemed, for GST/HST purposes (other than for input tax credit entitlements for certain supplies made by non-residents), not to have made a supply to the principal of services relating to the supply of the property to the recipient.

In other words, where the Dealer acts as agent in making a supply (other than an exempt or zero-rated supply) of a Unit on behalf of the Owner, and the Owner is not required to collect tax on the supply, then the rules set out above will apply. Consequently, the Dealer will be required to account for the GST/HST on the supply of the Unit. However, the Dealer is not required to account for the GST/HST on the supply of the service made to the Owner relating to the supply of the Unit to the Purchaser (i.e., the service of carrying out the sale of the Unit).

Please note that paragraph 177(1)(d) of the ETA provides that, in certain situations, a registrant principal and a registrant agent may make a joint election to treat an otherwise non-taxable supply of tangible personal property as a taxable supply so that the principal, and not the agent, can account for tax. Similarly, subsection 177(1.1) of the ETA provides that a registrant principal and a registrant agent may make a joint election to have the agent account for tax that would otherwise have been accountable for by the principal. Please contact your local Tax Services Office if you are interested in more details about these elections.

Services relating to the supply of the Unit to the recipient

As mentioned previously, in certain situations, subsection 177(1) of the ETA deems an agent not to have made a supply of services to the principal relating to the supply of the tangible personal property to the recipient. The determination of whether a service is relating to the supply of the tangible personal property to the recipient is a question of fact and must be determined on a case by case basis.

Generally, supplies of services for which an agent charges a commission are considered to be relating to the supply of tangible personal property to the recipient. Consequently, where the Dealer is acting as agent of the Owner and is required to collect tax on the supply of the Unit because of subsection 177(1) of the ETA, the Dealer is not required to collect the GST/HST on the XXXXX fee for the supply of the service made to the Owner of carrying out the sale of the Unit.

However, supplies of services not included in the agent's commission must be examined on a case by case basis to determine whether the service is relating to the supply of the tangible personal property to the recipient. Generally, the CRA does not consider supplies of repair and restoration services to be relating to the supply of the tangible personal property to the recipient.

Agency relationships

Whether there is an agency relationship between two parties with respect to a particular transaction is a question of fact; however, the following are considered to be essential qualities of an agency relationship:

1. Consent of both the principal and the agent - The intention of the parties is an important factor when deciding the nature of the relationship. Generally, in an agency relationship, the principal will authorize the agent to do something on the principal's behalf. Consequently, in considering whether a relationship is an agency relationship, it should be evident that the person who is supposedly an agent is arranging transactions for the principal and not for itself. Agency is generally evident from the conduct of the parties.

2. Authority of the agent to affect the principal's legal position.

3. The principal's control of the agent's actions.

In this particular case, the facts and the terms of the agreement indicate that each of the essential qualities exist and that there is an agency relationship between the Dealer and the Owner.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8224.

Yours truly,

Christopher Lewis
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

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