31 March 2006 GST/HST Ruling 63440 - Supplies of tickets to an event

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 royalty payments.

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

Facts

A corporation proposes to sell all of its assets, as opposed to its shares, to a prospective purchaser. In general, the assets are to comprise of: leasehold improvements; fixtures and furnishings; computer equipment; inventory; intellectual property, patents, trademarks, etc.; accounts receivable and goodwill. The parties propose to make an election pursuant to subsection 167(1) of the Excise Tax Act to treat the transaction free of GST.

The vendor and purchaser propose to also enter into a Royalty Agreement whereby a XXXXX% or XXXXX% royalty rate will be paid on the future sales of certain products.

Interpretation Requested

You would like to know the GST treatment for the various payments (both royalties at XXXXX% and XXXXX%) pursuant to the proposed Royalty Agreement that you have submitted with your request. You do not request an opinion and we will make no comments in relation to the applicability of the section 167 election to the sale of the assets.

Interpretation Given

As you indicated, since we do not have all the relevant information we can only provide a general interpretation of the legislation.

Where the conditions of subsection 167(1) are met and where the purchaser and vendor make a joint election under section 167(1) in respect of a supply of a business, and the recipient files the election as required under subsection 167(1.1), no tax is payable in respect of the supply of any property or service made under the agreement other than those supplies of property or services listed in subsection 167(1.1). The exclusions listed in section 167(1.1) include a taxable supply of a service that is to be rendered by the supplier, and a taxable supply of property by way of lease, licence or similar arrangement.

If under the agreement for the supply of a business, the consideration for the sale of all the assets (including intangible personal property) of the business includes payments based on future sales of certain products, and if the section 167 election applies to the supply, that consideration may not be subject to GST under section 167.

Alternatively, if the payments are for a taxable supply of property (including intangible personal property) by way of lease, license or similar arrangement, they would be excluded from the section 167 election and subject to GST.

In addition, the definition of "service" in section 123, "means anything other than property, money, and anything that is supplied to an employer by a person who is or agrees to become an employee ...". If a taxable supply by the vendor to the purchaser meets that definition of service, then it would be excluded from the section 167 election and subject to GST.

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 Canada Revenue Agency 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 directly at 952-9220.

Yours truly,

Larry Springstead
Corporate Reorganizations Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2006/03/24 — RITS 63749 — GST Exemption Certificate