19 December 2006 GST/HST Interpretation 85787 - Discounts

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:

We issued an interpretation to you XXXXX that dealt in part with sales aids. We are now writing to inform you of a recently published Info Sheet entitled Direct Sellers' Sales Aids (copy enclosed) that may be of interest to you.

The Info Sheet explains how the Goods and Services Tax/Harmonized Sales Tax (GST/HST) applies to the sale of sales aids of a direct seller or an independent sales contractor (contractor) of a direct seller when a direct seller has been approved to use the Alternate Collection Method (ACM).

Direct sellers sell their products to contractors. Contractors are persons who purchase products from a direct seller, or from a distributor of the direct seller, to sell to other contractors or to consumers. Some direct sellers sell products to distributors. Distributors are contractors who resell at least some of the products they purchase to other contractors who then sell to consumers.

Some direct sellers and distributors are approved to use the ACM. Under the ACM, when a contractor buys products from a direct seller or distributor to resell, the contractor pays the direct seller or distributor the wholesale price for the products and pays the GST/HST calculated on the suggested retail price of the products. Whether or not they are GST/HST registrants, the contractors collect tax on the retail price of the products they sell to consumers, but do not account for this tax. For GST/HST purposes, the contractors are not considered to have made any sales.

If a direct seller or a contractor sells property that is not a product to a contractor, then it will need to be determined whether the property is a sales aid. A contractor does not have to pay GST/HST on purchases of sales aids from a direct seller or from another contractor. If what is being sold is not a sales aid and the sale is a taxable sale, the direct seller or the selling contractor, if a registrant, will charge the purchasing contractor tax on the property's sale price.

Sales aids are customized business forms, samples, demonstration kits, promotional or instructional items, catalogues, or other property acquired, manufactured or produced by the direct seller or the contractor for sale to assist in the promotion, sale or distribution of the direct seller's products.

It is a question of fact whether a particular property is a sales aid. A direct seller or contractor must be able to demonstrate that the property was acquired, manufactured or produced for sale to assist in the promotion, sale or distribution of the direct seller's products.

Some common examples of sales aids and examples of property not considered sales aids are included in the Info Sheet. For instance, sample-sized goods in demonstration kits, property identified as not intended for resale, or a book, tape, video or CD on how to be a better salesperson is a sales aid. However, a book, tape, video or CD dealing with a general business topic is not considered to be a sales aid.

In addition, the service of shipping or handling, or processing an order for, a sales aid or a product is not subject to the GST/HST when it is made to a contractor.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-2488.

Yours truly,

Carla Schur-Ellison
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/10/18 — RITS 50291 — XXXXX Retirement Residence