30 August 2005 GST/HST Interpretation 58143 - Supplies to Partnership

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:

This is in response to a letter from XXXXX which was forwarded to our office for response. You are requesting a confirmation of the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the following transactions.

Statement of Facts

Our understanding of the facts, the transactions, and the purpose of the transactions is as follows:

•   XXXXX (the Company) is registered for GST/HST XXXXX.

•   The Company is an independent sales contractor (ISC) XXXXX.

•   XXXXX has been approved by the Canada Revenue Agency (CRA) to use the Alternate Collection Method (ACM) for direct sellers.

•   The Company purchased training materials that included books, CDs, tapes and pamphlets (the Books) on improving business and sales skills.

•   We have a copy of the Company's purchase invoice XXXXX that lists Books that have been purchased. XXXXX.

•   The Company sold the Books to other ISCs XXXXX and to other persons in Canada.

•   Some Books may have been given away free of charge by the Company.

Ruling Requested

You would like to know the tax status of the Books that were sold by the Company.

Interpretation Given

In accordance with section 1.4 of the GST/HST Memoranda Series, an application ruling can only be issued with reference to a clearly defined fact situation of a particular person. Since all the relevant facts cannot be determined, I cannot provide you with a ruling. If at a later date, you provide us with a copy of the book, CD or pamphlet, we would be in a position to issue a ruling. However, I am pleased to provide you with the following interpretation.

Under subsection 178.5(5) of the Excise Tax Act (ETA), where at any time when an approval to use the ACM by a direct seller is in effect, the direct seller or an ISC of the direct seller makes in Canada a taxable supply by way of sale of a "sales aid" to another ISC, the supply does not attract tax. A "sales aid" is defined under section 178.1 of the ETA as personal property that is acquired, manufactured or produced by the direct seller or an ISC of the direct seller, to assist in the promotion, sale or distribution of exclusive products of the direct seller. Sales aids include customized business forms, samples, demonstration kits, catalogues, promotional items, instructional items or other property. The definition also includes shipping, handling and order processing services for the sales aids. Exclusive products of the direct seller are specifically excluded from the definition of sales aids as is property acquired by an ISC for use as capital property.

The definition of a sales aid under the ETA lists similar items or articles that are examples of sales aids. Not every sales aid is listed in the definition (i.e., the list is not exhaustive). In order to qualify as a sales aid, the property in question must be similar to the items listed in the definition (i.e., customized business form, sample, demonstration kit, catalogue, promotional item or instructional item). Also, the sales aid must be used to assist in the promotion, sale or distribution of exclusive products of the direct seller.

It is CRA's position that the Books acquired by the Company do not meet the definition of sales aids under the ETA. Therefore, the Books sold by the Company to other ISCs and to other persons are subject to the general rules under sections 165 and 221 of the ETA. Accordingly, the Company is required to collect GST at the rate of 7% of the value of these Books if the taxable supply (not including zero-rated supplies) is made in a non-participating province and 15% HST if made in a participating province.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the CRA with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-9700.

Yours truly,

Michèle Routhier, CMA
Technical Analyst
Services and Intangibles Unit
General Operations & Border Issues Division
Excise and GST/HST Rulings Directorate

2005/08/18 — RITS 58786 — [Application of the GST?HST on Memberships of a Non-profit Organization]