25 February 2005 GST/HST Interpretation 51031 - GST on the supply of a condominium unit

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	Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5
	Case Number: 51031
XXXXX	February 25, 2005

Subject:

GST/HST RULING Agency Relationship and Subsection 177(1)

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 transactions undertaken by your client XXXXX (the Company). Your request has been transferred from the XXXXX GST/HST Rulings Centre to the Services and Intangibles Unit of the Excise and GST/HST Rulings Directorate for response. We apologize for the delay in responding to your request.

Statement of Facts

1. The Company is registered for GST/HST XXXXX.

2. The Company's customers are not GST/HST registrants.

3. Depending on the arrangement, the Company may perform the following:

Sale/Disposal of Household Goods:

•   The Company contracts with executors or like representatives or home owners (Owners) to disperse the contents of estates/homes, including the sale of saleable household goods and disposal of others. The Owners can direct the Company as to which goods to sell, keep, give away or throw away. The Company does not own the goods it sells on behalf of the Owners.

•   The Owner authorizes the Company to represent him/her and the Company agrees to represent the Owner.

•   The Company has the ability to enter into binding agreements with purchasers (Purchasers) of furniture and other goods; the Company can negotiate the best price without having to ask for the Owner's agreement to that price.

•   The Company must account to the Owner for all proceeds collected.

Preparation of House for Sale:

•   The Company cleans and prepares the property for sale.

•   The Company purchases services and goods that are needed to prepare the home for sale such as carpet cleaning, casual labour, disposal fees and hardware from third parties. The third parties invoice the Company for these purchases. The Company seeks reimbursement from the Owner for the cost of acquiring these services and goods.

•   The Owner receives copies of purchase invoices for services and goods only if he/she requests them. The Owner assumes the risk/liability for the subcontractors supplies of services and goods.

•   The scope of the work to be performed is orally discussed with the Owner and is approved, as is the approval for expenses incurred by the Company.

•   A follow-up letter signed by both parties documents the agreed upon services and gives approval to the Company to hire service providers although specific providers are not identified in the letter.

4. Fees:

•   The Company pays to the Owner all proceeds from the sale of household goods less the Company's fees.

•   The Company charges its clients a XXXXX fee for its services. This fee is based on the Company's estimate of what work needs to be done, including, but not limited to the disposal of goods.

•   The Company also charges a commission XXXXX from the sale of household goods.

•   You have provided a sample price quotation and statement of account. The price quotation lists the services to be performed by the Company XXXXX. The statement of account is as follows:

Income from sale:		$ XXXXX
Expenses from Dispersal:
Estate Dispersal Services	XXXXX	$ XXXXX
Estate Fees	XXXXX	$ XXXXX
Disposal Fees		$ XXXXX
Carpet Cleaning		$ XXXXX
Casual Labour		$ XXXXX
Bank Fees on Credit Cards		$ XXXXX
Hardware Supplies		$ XXXXX
GST	XXXXX	$ XXXXX

•   You also provided a sample covering letter addressed to the Owner that refers to attachments to the letter: the statement of account, the cheque payable to the Owner, XXXXX and a letter of appreciation from a local charity.

•   A sample follow-up letter describing a job was not provided.

5. Books and Records:

•   The Company does not record the acquisition of goods and services in its books. Funds received are recorded in a "trust" account in the client records. Expenses related to the job are deducted from the account. When the statement of account is rendered to the Owner, the XXXXX fee and the commission are recorded as revenue and the balance is paid to the Owner.

Ruling Requested

You would like to know if the Company is acting as agent on behalf of the Owners for the transactions described above and how to account for GST/HST on these transactions.

Ruling Given

Based on the facts set out above, we rule that:

Sale/Disposal of Household Goods:

The Company is acting as agent of the Owners in making the supply of the household goods on behalf of the non-registrant Owners. As such, in accordance with subsection 177(1) of the Excise Tax Act (ETA), the Company must collect and account for the GST/HST on the supply of the household goods to the Purchasers. Also, under this subsection, the Company does not collect the GST/HST on supplies of services made to the Owners relating to the supply of the household goods to the Purchasers.

Preparation of House for Sale:

The Company is acting as an agent on behalf of the Owners when it purchases services and goods, for use in preparing the Owners' houses for sale. Therefore, the Company does not collect GST/HST on the subsequent reimbursements by the Owners nor does the Company take an Input Tax Credit (ITC) for any tax paid on the goods and services. It is as if the Owners had purchased the goods directly from third party suppliers.

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 ETA, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Explanation

The following illustrates the application of tax to those items listed in the statement of account that you provided:

Income from Sale: (taxable at 7% under subsection 177(1))

Sales of household goods to Purchasers are taxable at 7% and must be accounted for in the Company's net tax calculation.

Estate Fees XXXXX: (not taxable under subsection 177(1))

The Company's commission XXXXX is a fee that the Company is charging the Owners for the sale/disposal of the household goods that the Company is selling on behalf of the Owners.

Bank Fees on Credit Cards: (not taxable under subsection 177(1))

It is our view that the credit card fees were paid to obtain financial services that became part of the Company's services of acting as an agent of the Owners for the sale of household goods.

Disposal Fees/Carpet Cleaning/Casual Labour and Hardware: (not taxable)

Since the Company is acting as the Owners' agent, these expenses are the expenses of the Owners and not the Company. Therefore, the Company cannot take an ITC for the tax paid to acquire these items. Instead, the Company would be reimbursed by the Owner for its total expense (i.e., cost to acquire for example, carpet cleaning, plus the tax paid on the cost of the carpet cleaning).

Estate Dispersal Services XXXXX: (may be taxable)

There are three possibilities:

•   The entire fee is charged by the Company for acting as agent on the sale/disposal of household goods (not taxable under subsection 177(1)) or

•   The entire fee is charged by the Company for acting as agent on the purchase of services and goods to prepare houses for sale (taxable at 7%) or

•   Part of the fee is charged by the Company for acting as agent on the sale of household goods (not taxable under subsection 177(1)) and the other part of the fee is charged for acting as agent on the purchases to prepare the houses for sale (taxable at 7%).

Agency Relationship

It is the Canada Revenue Agency's (CRA's) position that, for GST/HST purposes, a person is an agent with respect to a particular transaction if that person is an agent based on a determination of fact and an application of principles of law, certain of which are described in Policy Paper P-182R (copy enclosed).

The essential qualities of agency are as follows:

1. Consent of both the principal and the agent.

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

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

All three of the essential qualities of agency must be present before an agency relationship can exist.

In this particular case, the facts indicate that each of the essential qualities exist and there is an agency relationship between the Company and the Owners for sales transactions of household goods to Purchasers and the Company acts as the Owners agent when it purchases goods and services (i.e., to prepare the Owners' houses for sale) from third parties.

Purchases/Supplies by Company on Behalf of Owners

Preparation of House for Sale:

As previously indicated, when the Company purchases goods and services (i.e., disposal fees, carpet cleaning, casual labour and hardware supplies) from third parties, for use in the preparation of the Owner's house for sale, the Company is acting on behalf of the Owner. It is as if the Owner had acquired these goods and services directly from the third parties. The Company passes on the total cost of these goods and services (including any GST paid) to the Owner and is reimbursed by the Owner. The Company cannot claim an ITC for the GST/HST paid or payable to third parties for taxable supplies of goods and services acquired on behalf of the Owner since it is really the Owner that is acquiring the goods and services.

If the Company charges an amount in excess of their cost on the acquisition of the goods and services needed to prepare a house for sale, this charge (i.e., that is in excess of cost) is a taxable supply to the Owner of a service of acting as agent. These services are taxable at 7% and must be accounted for in the Company's net tax calculation.

Sale/Disposal of Household Goods:

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 a principal 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 principal who is not required to collect tax, and provides that where:

•   a principal makes a supply (other than an exempt or zero-rated supply) of goods 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 an agent in making the supply on behalf of the principal,

the supply of the goods 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 goods to the recipient.

In this case, where the Company acts as agent in making a supply (other than an exempt or zero-rated supply) of household goods 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 Company will be required to collect and account for the GST/HST on the supply of the household goods to the Purchasers. However, the Company must not collect or account for the GST/HST on the supply of the service made to the Owner relating to the supply of the household goods to the Purchasers (i.e., the service of carrying out the sale of the household goods).

Services Relating to Supplies of Household Goods to Purchasers

As stated above, 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 goods to the recipient. The determination of whether a service is relating to the supply of goods 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 goods to the recipient. Consequently, where the Company is acting as agent of the Owner and is required to collect tax on the supply of the household goods to the Purchasers because of subsection 177(1) of the ETA, the Company must not collect the GST/HST on the commission XXXXX for the supply of the services made to the Owner of carrying out the sale of the household goods.

As previously noted, we consider the bank fees to be inputs into a supply. Even when the Company identifies the amounts separately to the Owners, it is simply part of the amount the Owner pays for the Company's services. In this case, the credit card fees were paid to obtain financial services that became part of the Company's services of acting as an agent of the Owners for the sale of household goods. Therefore, pursuant to subsection 177(1) of the ETA, no tax is charged by the Company on the amount of credit card fees ($XXXXX) identified separately on the statement of account. However, if the bank fees were part of a different service that was taxable at 7%, then the Company would charge and account for tax on the fees.

However, supplies of services not included in the agent's commission (i.e., XXXXX fee) must be examined on a case-by-case basis to determine whether the service is relating to the supply of the goods to the recipient. The CRA will consider the following factors in determining whether a service provided to the principal is relating to the supply of the goods to the recipient:

•   The object of the service must be with respect to the supply of the goods to the recipient, and not merely with respect to the goods themselves. For example, restoration or repair services would be considered to be relating to the goods and not to the supply of the goods to the recipient. However, minimal services required to prepare the goods, such as pre-sale cleaning, would be considered as related to the supply of the goods to the recipient.

•   The relationship between the supply of the service and the supply of the goods to the recipient must be direct. This relationship is a question of fact and is determined on a case-by-case basis.

The following services are typically considered as services provided to the principal relating to the supply of the goods to the recipient, and are generally not subject to the GST/HST:

•   agent's services for which the agent charges a commission;

•   appraisals;

•   illustration of items to be sold for advertising or display purposes (catalogue, on a screen, etc.);

•   advertising services; and

•   short-term storage services.

In the case at hand, the XXXXX fee charged by the Company to the Owner must be examined to determine what portion of the fee is deemed not to have been supplied to the Owner because it is a service relating to the supply of the household goods to the Purchasers under subsection 177(1) of the ETA i.e., the portion of the XXXXX fee that does not attract tax. The Company must collect and account for the GST/HST on the portion of the XXXXX fee charged which does not fall under subsection 177(1) of the ETA.

For example, in this case, determine if:

1. all of the XXXXX fee of $XXXXX relates to the service of acting as an agent in the sale/disposal of household goods and no tax is charged or

2. all of the XXXXX fee of $XXXXX relates to a taxable supply of being an agent for preparing the house for sale for the Owners and tax at 7% must be charged or

3. a portion of the XXXXX fee (e.g., $XXXXX) relates to the agent's services in the sale/disposal of household goods (no tax is charged) and the remaining portion of the XXXXX fee (e.g., $XXXXX) relates to a taxable supply of agent's services for preparing the house for sale (tax is charged at 7%).

For further details and examples of agency relationships, we are enclosing GST/HST Info Sheet GI-009 entitled "Consigned Goods". We direct your attention to the section on "Sale by agent arrangements".

Please note that we will reply, under separate cover, to your question concerning the application of GST/HST to the Company's services of listing their customers' goods for sale on its Web site.

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

2005/02/08 — RITS 52141 — Stock Options for Independent Contractors