19 July 2007 GST/HST Interpretation 95494 - Application of the GST/HST to Cemetery Products and Services - Supply of Interment rights

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 gratuities.

This letter does not make any references to the HST, unless otherwise noted, since the supply takes place in XXXXX.

You have recently received an invoice from a local hotel for your daughter's wedding and have been charged GST on food, beverages and gratuities. You understand that tax is payable on food and beverages but you were taken aback by the tax charged on gratuities. After all, when you go to a restaurant for a meal, you pay the gratuity after the GST has been added to the meal cost (i.e., the GST is not payable on the gratuity).

Interpretation Requested

You would like to know if GST applies on gratuities.

Interpretation Given

While we understand your concerns, we must confirm that the legislative provisions require that the GST be applied to gratuities when they are included as part of the total invoice to be paid. On the other hand, gratuities are not subject to the GST when given freely by a customer to an employee of an establishment. In your case, as the gratuity was automatically charged by the hotel in respect of a taxable supply of food and beverages, the GST is payable on the total amount including the gratuity.

The above position is confirmed in GST/HST guide RC4036, Information for the Travel and Convention Industry, under the title "Gratuities". This guide is available on our Web site at: www.cra.gc.ca/gsthstpub.

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, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the Excise Tax Act (ETA), regulations, or our interpretative policy could affect this interpretation.

You have also asked that this letter be forwarded to the appropriate government department for review and reassessment of this tax matter. The CRA is responsible for administering and enforcing the legislation as enacted by Parliament. Matters relating to tax policy and amendments to the ETA, which governs the GST, are the responsibility of the Department of Finance. We will ensure that officials at the Department of Finance are made aware of your concerns.

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

Yours truly,

Michèle Routhier
GST/HST Rulings Officer
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2007/07/27 — RITS 95606 — Eligibility for Accommodation Rebate