3 August 2004 GST/HST Interpretation 52333 - Clarification of section 261 of the Excise Tax Act with respect to Code 8 rebate claims made by Indian bands and band-empowered entities

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 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to delivery charges.

As we understand it, your inquiry relates to Canada Revenue Agency (CRA) published policy regarding goods sold at a price that includes delivery (i.e., the terms of sale are FOB destination) and a separately identified delivery charge is made on the invoice. This delivery charge forms part of the consideration for the good. As such, the delivery charge takes on the same GST/HST status as the supply of the goods. If the supply of the goods is taxable at 7% or 15%, the separately identified delivery charge is also taxable at 7% or 15%. Conversely, if the supply of the goods is zero-rated, the related delivery charge is also zero-rated.

At issue is when both taxable and zero-rated goods are provided on a delivered basis to the same customer and the goods are delivered in the same shipment. You presume that, under the CRA policy, the delivery charge represents part of the consideration for both the taxable and the zero-rated goods.

Interpretation Requested

You would like confirmation that the CRA would accept the supplier apportioning the delivery charge based on the relative consideration payable for the goods. Under this approach, the supplier would collect GST/HST on the delivery charges based on the percentage of the consideration payable for the taxable goods as compared to the total consideration payable for all the goods.

Interpretation Given

Where the delivery charges form part of the supply of the goods and are not considered to be a separate supply, a registrant can choose any method to apportion the delivery charge as long as it is fair and reasonable in the circumstances. Whether a particular method of allocating a delivery charge is fair and reasonable in a particular situation is a question of fact.

For example, as long as it is fair and reasonable in a particular situation, the supplier could allocate the delivery charge based on one of the following methods:

•   The weight of the good as compared to the total weight of all the goods

•   The consideration for the good as compared to the total consideration for all the goods

•   The volume of the good as compared to the total volume of all the goods

•   Any other method that is reasonable in the particular circumstances.

A consistent allocation method must be used from one accounting period to the next unless there is a change in circumstances justifying a corresponding change in the allocation method. Any method used must be supportable by the registrant, i.e., sufficient documentation to show that it is fair and reasonable in the registrant's particular circumstances. An examination of books and records of prior periods may be made to arrive at an allocation percentage.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, 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 section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the CRA with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-9700.

Yours truly,

Michèle Routhier, CMA
Technical Analyst
Services and Intangibles Unit
General Operations & Border Issues Division
Excise and GST/HST Rulings Directorate

2004/08/03 — RITS 52336 — Place of Supply of Goods Supplied by Way of Sale