19 April 2006 GST/HST Ruling XXXXX - Bulk Dried Cranberries

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 a convention that was to be held XXXXX by your client, XXXXX (the Association). XXXXX. We apologize for the delay in responding to your enquiry.

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

Statement of Facts

We understand the following:

1) The Association is a non-resident that is registered for GST/HST purposes. XXXXX.

2) The Association holds an annual meeting.

3) For its annual meeting, the Association has two departments coordinating different aspects of the annual meeting - one department deals with the organization and registration for the annual meeting and the other (Accommodation) reserves blocks of hotel accommodation for members of the Association and other delegates. These two departments are separate from each other.

4) The Association convened its annual meeting XXXXX (the Convention).

5) At the time of convening the Convention, it was anticipated that XXXXX% or more of the delegates would be non-residents.

6) During the organizational phase of the Convention, the Accommodation department entered into agreements to reserve blocks of hotel rooms XXXXX (collectively referred to as the Hotels). Under the agreements, the Association was able to obtain favourable rates for its members and other delegates with the Hotels (the Hotel Agreements).

7) You have advised that the Association also entered into additional agreements with other hotels XXXXX and that these additional agreements were similar to the Hotel Agreements.

8) Delegates reserved rooms with the Accommodation department.

9) The cancellation policies in the Hotel Agreements were similar in that if a block of rooms was cancelled, the Hotel would charge the Association a cancellation fee based on a percentage of anticipated revenue.

10) During the organizational phase of the Convention, the Association and the XXXXX (Centre) entered into XXXXX (the Convention Facility Agreement) XXXXX.

11) Under the Convention Facility Agreement, the Association was to be entitled to use the Centre's facilities during the "Occupancy Period" for the fees stipulated XXXXX (Fees). The Fees were related to the Association's right to use the Centre's facilities.

12) XXXXX prior to the first day of the Occupancy Period, the Association was required to provide the Centre with an estimate for food, beverages and additional services required (collectively referred to as the "Costs").

13) Under the Convention Facility Agreement, the Association acknowledged that reductions or deletions of space or failure to take possession of any part of the Centre's facilities, as detailed in the Convention Facility Agreement, would be considered to be a cancellation of the Convention Facility Agreement.

14) In the event that the Convention or part of the Convention was cancelled by the Association, the Fee and any Costs were to remain due and payable by the Association as liquidated damages and not as a penalty to compensate the Centre for loss of revenue in connection with all or part of the Centre's facilities, subject to a payment schedule depending upon when the Convention was cancelled.

15) In addition, in the event of a cancellation by the Association of all or any part of the Convention Facility Agreement, the Centre was allowed to, but was not under any obligation to, make alternative arrangements for the use of the space. If the Centre was able to make such arrangements, and provided that the Association had complied with the provisions under the Convention Facility Agreement, the Centre agreed to take the new licence agreement into account when calculating the damage payments for the cancellation of the Convention.

16) The Association registered some delegates for the Convention.

17) The Convention was not held on the scheduled dates.

18) The Association, the Hotels and the Centre attempted to reschedule the Convention, but after extensive negotiations, the Association decided that it was not able to re-schedule the Convention.

19) The Association breached the Hotel Agreements and the Convention Facility Agreement.

20) XXXXX.

21) XXXXX.

22) XXXXX:

a) The Association agreed to pay the Hotels, the additional hotels and the Centre an amount XXXXX, inclusive of interest (the Settlement); and,

b) The Association agreed to pay to the Hotels, the additional hotels and the Centre XXXXX GST payable on the Settlement, on the undertaking that the Hotels, the additional hotels and the Centre provides any additional documentation that may be required to permit the Association to claim an input tax credit (ITC).

23) The Settlement included an amount related to the amount paid to the Hotels (the Hotel Settlement) and an amount that was related to the amount paid to the Centre (the Centre Settlement).

24) XXXXX the Association paid a total amount XXXXX to the Hotels, the additional hotels and the Centre for the release of all actions related to the cancellation of the Convention.

25) XXXXX the Hotels, the additional hotels and the Centre released and forever discharged the Association of and from all manner of actions, causes of action, suits, debts, duties, accounts, bonds, covenants, contracts, claims, demands, damages, losses and expenses of whatever kind or nature which the Hotels, the additional hotels and the Centre had that related to the supplies under the Hotel Agreements, the additional hotel agreements that were not submitted and the Convention Facility Agreement, or that were related to the cancellation of the Convention by the Association.

XXXXX.

Rulings Requested

You would like to know if the Association is entitled to claim ITCs on the GST paid through the Settlement to the Hotels and the Centre. In addition, if it is not entitled to ITCs on this tax, is it entitled to a rebate under subsection 261(1) or any other rebate?

Rulings Given

Based on the facts set out above, we rule as follows:

1) The Association is entitled to claim an ITC for the portion of the Settlement that is the GST deemed paid, pursuant to section 182, in respect of the deemed consideration paid under the Hotel Settlement, provided that all of the legislative requirements for claiming an ITC are met.

2) The Association is not entitled to claim an ITC, nor is it entitled to a rebate under Part IX of the ETA, for any tax deemed paid pursuant to section 182 on the deemed consideration paid for the Centre Settlement.

These rulings are subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by these rulings provided that none of the above issues is currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

The Convention falls within the definition of "foreign convention" and the Association meets the definition of "sponsor", as these terms are defined in subsection 123(1). Furthermore, the Association is deemed to have supplied admission to the Convention under section 133 and, pursuant to section 189.2, the Association's supply of admission to the Convention is deemed to have been otherwise than in the course of a commercial activity of the Association.

As the sponsor of a foreign convention, the Association would have been entitled to claim a rebate under section 252.4 (the Convention Rebate) of any GST/HST paid on the space in the Centre. The Association had one year after the day the convention ended to file for the Convention Rebate.

Based on the information provided, we determined that, since the Convention was not rescheduled and the Convention Facility Agreement was not amended, the day the Convention ended was the day the Convention Facility Agreement was breached XXXXX. However, as the Association had not paid any tax until after the one-year deadline, it is not entitled to the Convention Rebate.

There are no other rebates available to the Association and it is not entitled to an ITC on the GST deemed paid on that part of the Settlement that is the Centre Settlement.

If you require clarification with respect to any of the issues discussed in this letter, please call Michèle Routhier at 613-954-9700.

Yours truly,

Marjorie Stevens
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/04/18 — RITS 60676 — Ice Cream Products