14 February 2008 GST/HST Ruling 100110 - XXXXX cereal

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 received XXXXX at the Summerside Tax Centre concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the activities of your client. Your letter was forwarded to our office for reply.

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

Effective January 1, 2008, the rate of the GST has been reduced from 6% to 5% and the rate of HST from 14% to 13%. The new rates apply to supplies for which the GST/HST is paid on or after January 1, 2008, without having become payable before that date. Specific transitional rules will 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 GST/HST Notice 226, GST/HST Rate Reduction in 2008 on the Canada Revenue Agency (CRA) Web site at www.cra-arc.gc.ca/E/pub/gi/notice226/README.html.

We understand that your client is a Canadian registrant inbound tour operator that conducts business with foreign tour operators. You are enquiring on your client's behalf about the Foreign Convention and Tour Incentive Program (FCTIP) and how it will apply to your client's operations.

Your client classifies the packages it supplies as follows:

•   Routes

These are pre-established packages that are sold for an all-inclusive price. They include short-term accommodation, transportation within Canada, tour guides and meals.

•   FIT

These are customized packages where the travellers choose the individual elements. These packages usually always include short-term accommodation, transportation within Canada and another element, such as a tour guide or sightseeing. Occasionally hotel accommodation only will be sold. FIT packages are normally for use by a small number of travellers (e.g., one to six).

The packages are sold for an all-inclusive price; however, depending on the package, the price of the hotel accommodation and sometimes the transportation will be listed on the invoice.

•   Group

These packages are customized packages similar to FIT, but for larger groups of travellers.

Your client is not acting as an agent for other parties in the supply of the packages or the individual elements.

Interpretation Requested

How will the FCTIP apply to your client's supplies of packages? What information should your client be providing on its invoices for the purposes of the GST/HST rebate for tour packages under the FCTIP?

Is the transportation in Canada provided in the packages zero-rated as part of a continuous journey?

Interpretation Given

FCTIP

The FCTIP, a new rebate program that replaced the Visitor Rebate Program (VRP), came into effect April 1, 2007. The FCTIP continues to provide GST/HST relief to non-residents for:

•   all of the GST/HST paid on accommodation sold to non-resident tour operators that are not registered for the GST/HST and that include the accommodation in eligible tour packages sold to non-residents, and

•   generally 50% of the GST/HST paid on eligible tour packages that are sold to non-resident consumers and non-resident organizations or businesses that are not registered for the GST/HST, including tour operators.

It also continues to provide relief for certain properties and/or services used in the course of conventions held in Canada.

We have recently published a series of GST/HST Info Sheets on the FCTIP. Reference to the relevant GST/HST Info Sheets will be made where applicable in this interpretation. Copies have been enclosed for your convenience.

Tour package rebate

Under the FCTIP, non-resident non-registered tour operators are able to get a GST/HST rebate on eligible tour packages that they purchase. An eligible tour package for the purposes of the FCTIP is a tour package that includes short-term and/or camping accommodation in Canada and at least one service, and it must be sold for an all-inclusive price.

An all-inclusive price means a single price for all property and services sold together in a package. However, in the tourism industry prices for certain property or services are sometimes listed on an invoice for information purposes. The CRA accepts that such packages are sold for an all-inclusive price. For example, tour operators in some provinces are required by provincial legislation to list the price of the short-term accommodation included in a tour package separately on the invoice to inform the purchaser of the amount on which the applicable provincial sales tax was calculated. The CRA accepts that these packages are sold for an all-inclusive price, even though the price of the accommodation is listed separately, because it is only listed separately for information purposes.

A package, such as a Route package that your client supplies, that includes hotel accommodation in Canada, transportation, the services of a tour guide and meals, and is sold for an all-inclusive price, is likely an eligible tour package for the purposes of the FCTIP. For examples of eligible and not eligible tour packages, refer to GST/HST Info Sheet GI-044, Foreign Convention and Tour Incentive Program – Tour Packages: What is an Eligible Tour Package.

A Fully Independent Travel (FIT) or other customized tour, such as those your client offers under the names FIT and Group, will qualify as an eligible tour package as long as it meets the definition. Additional information on FIT tours is also available in GST/HST Info Sheet GI-044, Foreign Convention and Tour Incentive Program – Tour Packages: What is an Eligible Tour Package.

Paying or crediting the rebate amount

Under the FCTIP, a GST/HST registrant, such as a Canadian tour operator, can pay or credit a non-resident non-registered tour operator the amount of the tour package rebate that the non-resident would be entitled to receive from the CRA if the non-resident had paid the tax and met the eligibility conditions. Additional information on paying or crediting the rebate amount can be found in GST/HST Info Sheet GI-032, FCTIP - Non-Residents Purchasing Tour Packages: Rebate for Eligible Tour Packages.

Calculating the rebate amount

Generally, the amount of the rebate available to non-resident non-registered tour operators that purchase eligible tour packages is 50% of the GST/HST paid on the tour package. The rebate calculation is based on the number of nights of short-term and/or camping accommodation in Canada included in the eligible tour package. However, the amount of the rebate is reduced if there is ineligible accommodation included in the eligible tour package such as accommodation on a boat or train. The definitions of "short-term accommodation" and "camping accommodation" can be found in all of the enclosed GST/HST Info Sheets.

Information on calculating the rebate amount with examples can be found in GST/HST Info Sheet GI-032, FCTIP - Non-Residents Purchasing Tour Packages: Rebate for Eligible Tour Packages. Note that when paying or crediting a rebate amount, registrants must use the general calculation method to calculate the amount.

Invoice information

When paying or crediting the tour package rebate amount, a registrant must show the full amount of GST/HST payable on the invoice to the non-resident and the amount it has paid or credited the non-resident for the rebate under the FCTIP.

In addition, whether a registrant is paying or crediting the amount of the tour package rebate to a non-resident or the non-resident is applying for the rebate, documentation, including invoices, should be sufficient to establish the non-resident's entitlement to the rebate. For instance, the documentation should confirm that the package was an eligible tour package (i.e., it is a tour package that includes short-term and/or camping accommodation in Canada and at least one service and is sold for an all-inclusive price) and the number of nights of short-term and/or camping accommodation in Canada included in the package.

In the case of a sale to a non-resident non-registered tour operator, the documentation must indicate that the eligible tour package was resold to non-residents for use by non-resident individuals and that payment for the resale of the tour package was made at a place outside Canada at which the tour operator or its agent is conducting business.

Accommodation rebate

Under the FCTIP, non-resident non-registered tour operators will be eligible for a rebate of the GST/HST paid on short-term and/or camping accommodation purchased in Canada if:

•   the tour operator bought the short-term and/or camping accommodation in Canada in the ordinary course of its business and resold it as part of an eligible tour package;

•   the tour operator sold the eligible tour package to another non-resident and payment for the sale of that tour package was made at a place outside Canada where the tour operator or its agent is conducting business; and

•   the short-term and/or camping accommodation included in the eligible tour package was made available to a non-resident individual.

Under the FCTIP, the non-resident non-registered tour operator applies for the rebate; a registrant cannot pay or credit the amount of this rebate. Additional information on this rebate can be found in GST/HST Info Sheet GI-033, FCTIP – Non-Resident Tour Operators: Rebate for Accommodation Sold in Eligible Tour Packages.

Calculating GST/HST on Tour Packages

A tour package is a single supply of a service for GST/HST. However a tour package may include property and services that would be taxable at different rates (i.e., 0%, 5%, or 13%) if supplied separately, and not as part of a tour package. It may also include property and services that, if supplied separately, would be exempt or provided outside Canada and not subject to tax.

To determine the amount of GST/HST to charge, suppliers of tour packages that include a combination of taxable and non-taxable property and services must pro-rate their selling prices based on the value of taxable and non-taxable property and services in the package.

Section 163 sets out the rules for dividing a single supply of a tour package into the taxable portion and the non-taxable portion, and further subdividing the taxable portion into:

•   the non-provincially taxable portion, which is subject to the 5% GST, and

•   the provincially taxable portion, which is subject to the 13% HST.

The non-taxable portion of a tour package is a zero-rated supply pursuant to section 1 of Part VI of Schedule VI.

More information on calculating the GST/HST on tour packages can be found in GST/HST Memorandum 27.1, Tour Packages.

To follow is information on passenger transportation services, particularly with respect to the continuous journey rules, for use in determining the tax status of a transportation service if it were supplied separately and not as part of a tour package, and consequently, whether it is included in the taxable or non-taxable portion of a tour package.

Continuous Journey

Zero-rated passenger transportation services and continuous journey

A supply of a passenger transportation service made in Canada is generally taxable at 5% or 13% (in the participating provinces) unless it is zero-rated (taxable at 0%) or exempt. A listing of exempt passenger transportation services can be found in GST/HST Memorandum 28.3, Passenger Transportation Services. The following is a discussion of the zero-rating provisions.

Section 2 of Part VII of Schedule VI zero-rates:

A supply of a passenger transportation service that is provided to an individual or a group of individuals and that is part of a continuous journey of the individual or group, other than a continuous journey that includes transportation by air, where

a) the origin or termination of the continuous journey is outside Canada, or

b) there is a stopover outside Canada,

but not including a passenger transportation service that is part of a continuous journey if both the origin and the termination of the journey are in Canada and, at the time the journey begins, the individual or group is not scheduled to be outside Canada for an uninterrupted period of at least 24 hours during the course of the journey.

Section 3 of Part VII of Schedule VI zero-rates:

A supply of a passenger transportation service that is provided to an individual or a group of individuals and that is part of a continuous journey of the individual or group that includes transportation by air, where

a) the origin or termination of the continuous journey, or any stopover in respect thereof, is outside the taxation area;

b) the origin and termination of the continuous journey, and all stopovers in respect thereof, are outside Canada;

c) the origin of the continuous journey is within the taxation area, but outside Canada; or

d) all places at which the individual or group embarks or disembarks an aircraft are outside Canada and the origin or termination of the continuous journey, or any stopover in respect thereof, is outside Canada.

Some key terms from the above legislation are defined in the ETA. Specifically, a continuous journey of an individual or a group of individuals means the set of all passenger transportation services provided to the individual or group

a) and for which a single ticket or voucher in respect of all the services is issued, or

b) where 2 or more tickets or vouchers are issued in respect of 2 or more legs of a single journey of the individual or group on which there is no stopover between any of the legs of the journey for which separate tickets or vouchers are issued, and all the tickets or vouchers are issued by the same supplier or by 2 or more suppliers through one agent acting on behalf of all the suppliers where

(i) all such tickets are supplied at the same time and evidence satisfactory to the Minister is maintained by the supplier or agent that there is no stopover between any of the legs of the journey for which separate tickets or vouchers are issued, or

(ii) the tickets or vouchers are issued at different times and evidence satisfactory to the Minister is submitted by the supplier or agent that there is no stopover between any of the legs of the journey for which separate tickets or vouchers are issued.

Note that in the case of a round trip to or from Canada, we consider that the trip is a continuous journey and the supply of the passenger transportation services is zero-rated if there is no more than one stopover. More than one stopover where two tickets meet would create a break in a continuous journey; however, this may result in two separate continuous journeys. In that case, each continuous journey would be evaluated individually to determine whether the zero-rating provisions are met and therefore, whether each supply of a passenger transportation service under that journey can be zero-rated.

The origin means, in respect of a continuous journey, the place where the passenger transportation service that is included in the continuous journey and that is first provided begins.

A stopover, in respect of a continuous journey of an individual or a group of individuals, means any place at which the individual or group embarks or disembarks a conveyance used in the provision of a passenger transportation service included in the continuous journey, for any reason other than transferring to another conveyance or to allow for servicing or refuelling of the conveyance.

The CRA does not consider any stop of 24 hours or less between two legs of a journey for which separate tickets or vouchers are issued to be a stopover. If a stop of more than 24 hours is required, the supplier or travel agent must be able to prove that the stop was for the purposes of transferring to another conveyance or for servicing or refuelling the conveyance.

Taxation area means Canada, the United States (except Hawaii) and the islands of St. Pierre and Miquelon.

The termination of a continuous journey means the place where the passenger transportation service that is included in the continuous journey and that is last provided ends.

Domestic passenger transportation service as part of a continuous journey

The term "continuous journey" is important in determining whether a domestic passenger transportation service that would otherwise be taxable at 5% or 13% qualifies for zero-rating.

Where multiple transportation services are provided on a single ticket or voucher, each of the services is part of a continuous journey and each supply of a passenger transportation service in that continuous journey has the same tax status.

A single ticket includes a ticket stock, which could list one or more legs of a journey over a period of time. Where an itinerary is the only travel document issued to the traveller, we consider an itinerary to be a ticket or voucher so that all of the items included on the itinerary would be on a single ticket or voucher.

Where multiple transportation services are provided and separate tickets or vouchers are issued in respect of different legs of a journey, all the legs of the journey form part of a continuous journey if the following conditions are met:

•   all the tickets are issued to the traveller by the same supplier or by a travel agent acting on behalf of two or more suppliers;

•   all tickets are for the same traveller or group of travellers; and

•   there is no stopover between any of the legs of the journey for which separate tickets or vouchers are issued.

The supplier of the passenger transportation service or agent of the supplier must demonstrate to the CRA that the conditions for a continuous journey have been met.

Proof of continuous journey

For information on what is acceptable proof that the conditions for a continuous journey have been met and what to do if the sale of the transportation service happens before proof is available, see the guide RC4036, GST/HST Information for the Travel and Convention Industry under the heading Sales of domestic transportation services to 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, Excise and GST/HST Rulings and Interpretations Service, 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 directly at 613-954-2488. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

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

2008/02/19 — RITS 100369 — GST111, Schedule 1 - Financial Institution GST/HST Annual Information Schedule