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.
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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5XXXXX
XXXXX
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June 9, 2006XXXXXCase Number: 61357XXXXX
XXXXXJune 12, 2006
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Subject:
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GST/HST INTERPRETATION
Paying or crediting an amount on account of the short-term accommodation rebate
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Dear XXXXX:
Thank you for your facsimile XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the short-term accommodation rebate (the Rebate) under section 252.1 of the Excise Tax Act (ETA). We apologize for the delay in responding to your enquiry.
The Minister of Finance announced in the Federal Budget of May 2, 2006, a proposal to reduce the rate of the GST and the federal portion of the HST by 1%, effective July 1, 2006. The general rule is that the rate of GST will be reduced from 7% to 6% and the rate of the HST from 15% to 14% on supplies for which the GST/HST is paid on or after July 1, 2006, without having become payable before that date. Specific transitional rules apply to certain supplies, for example real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to Reduction in the Rate of the GST/HST - Questions and Answers http://www.cra-arc.gc.ca/agency/budget/2006/gstrateqa-e.html on the CRA Web site.
The information in this letter is pursuant to the following provisions of the ETA: subsections 123(1), 163(3), 252.1(1), 252.1(2), 252.1(3), 252.1(8) and 252.1(9), paragraph 252.1(5)(b) and section 252.5. All legislative references are to the ETA and the regulations therein, unless otherwise specified and all of the publications referenced in this response are available on our Web site at www.cra-arc.gc.ca.
Facts
XXXXX.
XXXXX.
XXXXX.
Interpretation Requested
You have asked for information on how a registrant supplier, such as a hotel, may pay or credit an amount on account of the Rebate.
In addition, you have asked questions about different aspects of the Rebate. Our response to these questions follows the Interpretation, which deals with how and when a registrant supplier may pay or credit an amount on account of the Rebate and then deduct the amount paid or credited from its net tax calculation for the applicable reporting period.
Interpretation Given
Three ETA definitions are relevant to the Rebate - "short-term accommodation", "camping accommodation" and "tour package". Please refer to Appendix A for these definitions. For ease of reference, when the term "short-term accommodation" is used in our response, it refers collectively to eligible short-term accommodation and camping accommodation, and the term "tour package" in this response only refers to tour packages that include short-term accommodation and/or camping accommodation.
The Rebate is available to two types of persons. They are:
Group #1 - Non-resident travel service providers (TSPs) who are not registered for GST/HST purposes. These TSPs acquire short-term accommodation or a tour package for supply in the ordinary course of their businesses.
Group #2 - Non-residents who do not acquire short-term accommodation or a tour package for supply in the ordinary course of their businesses. It includes individuals and companies that pay for their non-resident employees' or clients' short-term accommodation or tour package.
The following text outlines what criteria must be met before a registrant supplier can pay or credit an amount on account of the Rebate and claim a deduction from its net tax calculation. Appendix B summarizes this information in flowchart form.
Essentially, a two-step process is followed. First, a supplier must determine if a non-resident would be eligible to apply for the Rebate. Second, the supplier must determine if the non-resident satisfies additional criteria before the supplier can pay or credit an amount on account of the Rebate. However, if the supplier is paying or crediting an amount on account of the Rebate the non-resident does not actually have to pay the tax on the accommodation before the amount can be paid or credited.
GENERAL CONDITIONS
Before they are eligible for the Rebate, non-residents must meet the following general conditions:
• The non-resident must be a recipient of short-term accommodation or a tour package,
• The short-term accommodation or tour package must be made available to a non-resident individual, and
• The person must have invoices or receipts totalling $200 for the cost of eligible accommodation for which tax at 7% or 15% was charged.
If these general conditions are met, the supplier must then determine if the non-resident meets the criteria that are specific to the particular group to which it belongs.
GROUP #1 - TSPS
If the person is a TSP, the following additional conditions must be met before it is entitled to the Rebate:
1) the TSP must not be registered for GST/HST,
2) the short-term accommodation or tour package is acquired for resale in the ordinary course of its business to another non-resident person such as an individual or a company,
3) payment for the supply of short-term accommodation or the tour package is made to the TSP at a place outside Canada at which it, or its agent, is conducting business. Two factors we would consider when determining if this criterion is met are:
• where the payment is processed, and
• where the payment is deposited.
If these additional conditions are met, a supplier can pay or credit an amount on account of the Rebate and deduct the amount paid or credited in its GST/HST net tax calculation for the applicable reporting period.
Documentation
In order to confirm that it can pay or credit an amount on account of the Rebate to a TSP, a supplier should obtain the following information:
• the name of the TSP,
• confirmation that the TSP is a non-resident,
• confirmation that the TSP is not registered for GST/HST purposes,
• confirmation that the TSP supplies the short-term accommodation or tour package in the ordinary course of its business to another non-resident person,
• confirmation that payment for the accommodation or tour package is made at its business address or at the address of its agent outside Canada,
• the name of the non-resident person who acquired the accommodation or tour package from the TSP if that person is not a non-resident individual, and
• the name(s), physical address(es) and arrival and departure dates of the non-resident individual(s) to whom the accommodation is made available.
To assist a supplier in obtaining the needed information from a TSP, Appendix C provides an example of a form that could be used to help determine if a non-resident TSP qualifies for the Rebate. This is not a CRA form. The CRA will determine at the time of audit whether a supplier could pay or credit an amount on account of the Rebate to a particular TSP and claim a deduction from the supplier's net tax.
A supplier's invoice to a TSP has to show that the supplier has paid or credited the TSP with the amount on account of the Rebate. This provides evidence to support the supplier's deduction of the amount from its net tax. It also ensures that no rebate or refund or remission of GST/HST will be paid to the TSP in respect of the same supply of short-term accommodation or tour package.
Liability for amounts paid or credited
When accepting the information provided by a TSP, a supplier must exercise due diligence. A person will be considered by the CRA to have exercised due diligence where it can be clearly demonstrated that, to the best of their ability, they have taken reasonable care in ensuring that the information obtained was correct.
If a TSP would not have been entitled to the Rebate if it had paid the tax and satisfied the filing criteria for a Rebate application, and the supplier pays or credits an amount on account of the Rebate and claims a deduction from its net tax, the supplier may be jointly and severally liability with the TSP to repay to the Receiver General the amount paid or credited to the TSP. Similarly, both parties may be liable to repay any excess amount paid or credited if the amount paid or credited exceeded the amount that would have been eligible for the Rebate. However, the supplier is only jointly and severally liable to pay these amounts if the supplier knew or should have known that the TSP did not satisfy the eligibility conditions for the Rebate.
GROUP #2 - OTHER NON-RESIDENT PERSONS
If a person in this Group has met the general conditions set out previously, additional criteria must be met before the supplier can pay or credit an amount on account of the Rebate and deduct the amount paid or credited from its net tax calculation for the applicable reporting period. These additional criteria depend on whether the person is acquiring short-term accommodation or a tour package.
Short-term Accommodation
When the person acquires short-term accommodation, the payment for the accommodation must be made at a place outside Canada at which the supplier, or its agent, conducts business.
Where the person uses a credit card to pay for short-term accommodation, the payment is made when the supplier's account is credited. If a person only provides a credit card number to reserve short-term accommodation, this is not considered a payment.
Tour Package
If the person is acquiring a tour package, the following two conditions must be met:
• a deposit of at least 20% of the total consideration for the tour package must be paid by the recipient [i.e., the individual or the business] to the supplier at least 14 days before the short-term accommodation included in the tour package is made available under the tour package agreement; and,
• payment for the tour package must be made by a credit or charge card issued by a non-resident institution or by a cheque, draft or other bill of exchange drawn from an account outside Canada. A non-resident institution can be a bank, cooperative credit society, trust company or similar institution.
As indicated above, providing a credit card number is not enough. Where the payment of the deposit is made by the recipient's credit card, the amount is considered paid only when the supplier's account is credited.
An exception to the above two conditions is where all of the property and/or services included in the tour package are provided or rendered by the person who provides the accommodation and all of the property or services are in connection with the accommodation (e.g., a hotel provides a tour package that includes short-term accommodation, meals and the hotel's golf course green fees). In this situation, the conditions that must be met are the same as those for short-term accommodation.
Documentation
In order to confirm that it can pay or credit an amount on account of the Rebate to a non-resident, a supplier should obtain the following information:
• the person's name,
• confirmation that the person is a non-resident,
• the person's mailing address (The address must be a physical address outside Canada, not a post office box.),
• if the short-term accommodation or tour package was acquired by a person other than a non-resident individual:
– the name(s) of the non-resident individual(s) to whom the accommodation is made available, and
– the physical address(es) of the individual(s), and
– the date of arrival in, and departure from, Canada for the individual(s) and his/her (their) final destination in Canada.
In addition, a supplier's invoice has to show that the supplier has paid or credited the person with the amount on account of the Rebate.
Lastly, a supplier must be able to demonstrate that the conditions set out in the section entitled "Tour Package" were met.
As previously indicated, if a supplier pays or credits an amount on account of the Rebate and claims a deduction from its net tax, the supplier may be jointly and severally liable with the person to repay to the Receiver General the amount, or any excess amount, paid or credited to the person.
AMOUNT TO BE PAID OR CREDITED
Where an eligible non-resident acquires short-term accommodation, the amount on account of the Rebate that may be paid or credited is equal to the GST/HST payable on the short-term accommodation. Where the person acquires a tour package, the amount on account of the Rebate is generally equal to 50% of the GST/HST payable on the tour package [xx]footnote 1.
QUESTIONS AND ANSWERS
The following are our responses to the specific questions you asked in your letter.
Question #1
If a transaction from a non-resident non-registered Internet TSP is processed over the Internet, is it "reselling the short-term accommodation at a place outside Canada"? Is it sufficient for the non-resident non-registered Internet TSP to reside outside Canada and target non-residents in its marketing?
Answer #1
We understand that the question deals with how one determines if this transaction meets the conditions for Group #1, which requires that the payment for the supply of short-term accommodation or the tour package must be made at a place outside Canada at which the non-resident non-registered TSP, or its agent, is conducting business.
To establish when this condition is met, each situation would have to be examined on a case-by-case basis. As previously noted, two factors we would take into consideration are:
• where the payment is processed, and,
• where the payment is deposited.
For example, if the payment is processed through an office of the TSP that is situated outside Canada and the credit card payment is processed through a non-resident bank, the facts would support that this condition has been met. However, if the payment is processed through an agent for the TSP, and the agent is situated in Canada, this condition may not be met.
In addition, it is not sufficient for the TSP to simply "target" its marketing at non-residents for the TSP to be entitled to the Rebate. All of the requirements for the Rebate must be met before a TSP is entitled to it.
For example, if 90% of the short-term accommodation or tour packages acquired by a non-resident non-registered TSP is provided to non-resident individuals and 10% is provided to resident individuals, the TSP would only be entitled to the Rebate on the GST/HST paid on the amount of consideration for the 90% provided to non-resident individuals.
Question #2
Some non-resident individuals book short-term accommodation or a tour package using a non-resident non-registered Internet TSP's Web site when they are already in Canada. This allows the non-resident individuals to benefit from an "Internet discount". Since the TSP cannot guarantee the individual's location at the time of the booking, would this impact on the TSP's entitlement to the Rebate?
Answer #2
The physical location of a non-resident individual when booking short-term accommodation or a tour package does not necessarily impact on the non-resident's entitlement to the Rebate. However, all those criteria that apply to Group #1 clients must all be met before a supplier is able to pay or credit an amount on account of the Rebate to the TSP and deduct the amount paid or credited from its net tax calculations for the relevant reporting period.
If all of the conditions are not met, the registrant supplier cannot pay or credit an amount on account of the Rebate and deduct this amount from its net tax calculation for the relevant reporting period. If it is entitled to the Rebate the TSP would have to submit a GST177 - Refund Application for Non-Resident Travel Organizers, to recover the GST/HST paid to the supplier.
Question #3
Are there simplified rules to determine if a non-resident is entitled to the Rebate and if a supplier (such as a hotel) can pay or credit an amount on account of the Rebate and deduct from its net tax calculation the amount it paid or credited? Will scanned ID documentation assist in making this process easier?
Answer #3
The two flowcharts in Appendix B may help determine if a non-resident is entitled to the Rebate and whether a supplier can pay or credit an amount on account of the Rebate and adjust its GST/HST Return accordingly. In addition, when a supplier scans documents into its system to support the paying or crediting of an amount on account of the Rebate, the scanned documents would have to demonstrate that the person is a non-resident by providing a physical address where the person resides outside Canada. A passport does not provide the required information, nor does a post office box number.
Question #4
During an audit, where a registrant supplier paid or credited an amount on account of the Rebate to a non-resident non-registered TSP, it was discovered that the accommodation was supplied to a Canadian resident. What guarantee does the supplier have that all of the amounts paid or credited on account of the Rebate to the TSP will not be disallowed?
What percentage of errors on these Rebates is considered acceptable? What percentage of error would be considered negligent?
Answer #4
Under the ETA, there is no provision relating to a "percentage of error".
Each audit case is examined on its own merits and it is the auditor who makes any determination of whether to accept or disallow an amount deducted in the supplier's net tax to reflect an amount paid or credited on account of the Rebate. In reaching his/her decision, an auditor will take any steps deemed necessary in the circumstances to determine the total amount improperly credited.
Question #5
Sometimes non-resident TSPs supply incomplete or erroneous address information for an individual. What evidence is reasonable evidence of non-residency? In Section 4.5.1 of the GST/HST Memoranda Series, Exports - Determining Residence Status, a copy of a certificate is included in the Appendix. Is this satisfactory evidence of non-resident status? Is this reasonably sufficient to protect a registrant supplier in the case of erroneous or incomplete addresses?
Answer #5
A certification by either an individual or by a representative of a business similar to the example found in Appendix A of Section 4.5.1 of the GST/HST Memoranda Series would generally be considered satisfactory evidence to establish non-residency. However, the information requested on such a certificate only addresses one of the criteria necessary to establish whether a supplier can pay or credit an amount on account of the Rebate and deduct this amount from its net tax calculation for the applicable reporting period.
To assist suppliers we have provided an example in Appendix C of a form that could be used to help determine if a non-resident non-registered TSP qualifies for the Rebate.
A supplier must still exercise due diligence in determining if any particular certification is reliable even if forms similar to those in Appendix A of Section 4.5.1 of the Memoranda Series or in Appendix C of this letter are used.
Question #6
There are cases where a non-resident non-registered TSP and a registrant supplier have entered into a contract where the TSP is billed after the non-resident individual has checked out. Under the contract, it is acknowledged that other expenses incurred by the individual during his/her hotel stay will be paid by the TSP on the individual's behalf. The TSP then passes these personal charges along to the individual.
You would like confirmation that this procedure will not make the short-term accommodation and the personal expenses a "tour package".
Answer #6
In this scenario, we assume that the TSP also pays the GST/HST to the supplier on the individual's personal expenses, and that the TSP recovers an amount equal to the tax paid from the individual, along with the consideration for the expenses, when it invoices the individual for these personal expenses.
A "tour package" is defined in the ETA to mean a combination of two or more services, or of property and services, that includes transportation services, accommodation, a right to use a campground or trailer park, or guide or interpreter services, where the property and services are supplied together for an all-inclusive price.
From the information provided, the additional expenses incurred by the individual are not supplied with the short-term accommodation for an all-inclusive price; rather, they are invoiced together. This procedure would not create a tour package.
Question #7
Some non-resident non-registered TSPs pay the entire amount for the short-term accommodation in advance, others pay a deposit in advance and the remaining amount after the hotel stay, and still others provide a promissory note and settle the entire bill after the hotel stay. Is a non-resident non-registered TSP that resells the short-term accommodation required to pay the registrant supplier a deposit in advance for the rooms, or is a contractual agreement for the rooms sufficient?
Answer #7
For purposes of paying or crediting an amount on account of the Rebate, where the supplier's client is a non-resident non-registered TSP, there is no requirement under the ETA for prepayments or deposits. However, that is not the case for Group #2 non-residents.
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, Goods and Services Tax Rulings, 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 at 613-954-9700.
Yours truly,
Michèle Routhier
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
APPENDIX A
Definitions
The following are defined terms in the ETA. In addition, the terms "floating home", "mobile home", "real property", "residential complex", "residential unit" as well as "convention facility" and "related convention supplies" used in those definitions also have specific definitions in the ETA.
Camping Accommodation
"Camping accommodation" means a campsite at a recreational trailer park or campground that is supplied by way of lease, license or similar arrangement. To be considered camping accommodation, an individual must be given continuous occupancy of the campsite for the purposes of using the campsite as a place of residency or lodging for a period of less than one month. Water, electricity and waste disposal services are included with camping accommodations if they are accessed by means of an outlet or hook-up at the campsite and are supplied with the campsite.
Excluded from this definition are campsites included in the definition of "short-term accommodation" and campsites that are part of a tour package but are in the part of the tour package not subject to the tax at 7% or 15%.
Short-term Accommodation
"Short-term accommodation" means a residential complex or a residential unit that is supplied to a person under a lease, license or similar arrangement for the purpose of its occupancy by an individual as a place of residence or lodging where the period of continuous occupancy of the complex or unit is for a period of less than one month.
In addition, for purposes of the Rebate, the definition of "short-term accommodation" includes any type of overnight shelter [other than shelter on a train, boat or other structure that has means of, or is capable of being readily adapted for, self-propulsion] when supplied as part of a tour package that also includes food and the services of a guide.
Excluded from the definition for purposes of the Rebate is a complex or unit supplied under a timeshare arrangement and a complex or unit where the accommodation is in the part of a tour package not subject to tax at 7% or 15%.
For example:
• Lodging provided in a hotel, motel or bed & breakfast meets the definition of "short-term accommodation" but lodging provided on a houseboat does not.
• A tour package includes hotel accommodation in White Horse, YT, and a bed & breakfast in Juno, Alaska. The hotel accommodation is short-term accommodation but the bed & breakfast is not because it is not provided in Canada and therefore is in the part of the tour package not subject to GST/HST at 7% or 15%. As a result, the bed & breakfast is excluded from the definition of short-term accommodation.
A residential complex generally includes a building, or that part of a building, in which one or more residential units are located, whether or not the units are separately owned, together with that part of any common areas, appurtenances to the building (such as a shed or a garage) and land adjoining the building that are reasonably necessary for the use and enjoyment of the building as a place of residence for individuals. Mobile or modular homes and floating homes are also included.
A residential unit includes a detached house, a condominium unit, a mobile home, a floating home, an apartment, a suite or room in a hotel, motel or inn, or in a residence for students or any similar premises and that is for use as a place of residence or lodging for individuals.
For more information on real property, please see Ch. 19, Special Sectors, Real Property in the GST/HST Memoranda Series.
Tour Package
"Tour package" means a combination of two or more services, or of property and services, that includes transportation services, accommodation, a right to use a campground or trailer park, or guide or interpreter services, when the property and services are supplied together for an all-inclusive price. For purposes of the Rebate, a tour package does not include a package that includes a convention facility or related convention supplies. A convention facility is real property acquired by way of lease, license or similar arrangement by the sponsor or organizer of a convention for use exclusively as the site of the convention. Related convention supplies are certain property or services acquired, imported or brought into a participating province exclusively for consumption, use or supply in connection with a convention.
Consider the following two packages that are each supplied for an all-inclusive price:
• a Ski Package consisting of ski lessons and ski rentals, and
• a City Weekend Package, consisting of short-term accommodation, meals and theatre tickets.
The Ski Package does not meet the definition of a tour package under the ETA, but the City Weekend Package does.
APPENDIX B
Flowchart #1
Whether a supplier can pay or credit amount on account of the Rebate
APPENDIX B
Flowchart #2
Whether a supplier can pay or credit amount on account of the Rebate
Continued from Flow Chart #1
APPENDIX C
The following is an example of a form that could be used to help determine if a non-resident non-registered TSP would qualify for the Rebate. It is not a CRA form. The CRA will determine at the time of audit whether a registrant supplier could pay or credit an amount on account of the Rebate to a TSP and claim a deduction from the supplier's net tax.
To ________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
(Name and address of accommodation supplier)
We hereby certify that we are ordering the following supply of short-term or camping accommodation or a tour package that includes short-term or camping accommodation from you:
(Detailed description of the accommodation to be provided by the supplier)
We confirm that we would be entitled to the short-term accommodation rebate under subsection 252.1(3) of the Excise Tax Act if we had paid the GST/HST. We have met all of the following requirements:
• We are not a resident of Canada.
• We are not registered for GST/HST.
• We supply the short-term accommodation, camping accommodation or tour package in the ordinary course of our business to another non-resident.
• Payment for the short-term accommodation, camping accommodation or tour package is made at:
• our business address (see below) outside Canada, or,
• the address(s) outside Canada of our agent(s) which is (are) attached,
• The short-term accommodation, camping accommodation or tour package being supplied to the other non-resident is made available to a non-resident individual.
We will provide any additional information required to verify the above. We acknowledge that at check-in you will require proof that the individual using the room is a non-resident.
We will pay any GST/HST for any accommodation purchased found not to be eligible for the short-term accommodation rebate.
Dated at: _________________ this _____________ day of _______________, 20____.
(Name and address of the travel service provider)
(Name of authorized officer of the travel service provider)
(Signature of authorized officer of the travel service provider)
2006/06/09 — RITS 62036 — [Application of the GST on the Supply of Admission Tickets by a Non-profit Organization]
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