15 July 2005 GST/HST Ruling 59548 - Application of GST/HST to Cranberry Juice

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 concerning the application of the Goods and Services Tax (GST)/ Harmonized Sales Tax (HST) to your operations, which was forwarded on XXXXX. You provided additional information in a conference call with myself and Robert Douthwright XXXXX and subsequent phone calls and e-mails XXXXX.

Since you have indicated that all of your supplies are made in XXXXX, this response will only discuss GST. You have also stated that all of your supplies are made to non-residents of Canada ("non-residents").

You have expressed concern with respect to how the GST applies to supplies of tour packages by GST-registered tour operators compared to supplies of tour packages by non-registered, non-resident tour operators. Your concern relates to the rebate of GST paid to non-residents for short-term accommodation ("Rebate"), when the Rebate is paid or credited directly to a non-resident, non-registered tour operator. The Rebate is paid on short-term accommodation and on tour packages that include short-term accommodation.

You have asked us the following questions:

1. For supplies of tour packages to non-residents, which have accommodation as the major component, is it more advantageous to operate as a non-registered supplier (i.e., a non-resident tour operator) or as a registered supplier (i.e., a Canadian tour operator)?

2. If there is an advantage to being a non-registered, non-resident tour operator compared to a registered tour operator, is there anything that can be done to remedy the situation?

3. Is a non-resident tour operator supplying packages to non-residents that include elements supplied or made available in Canada required to be registered for the GST?

4. Does GST apply on "US expenses"? Some examples of US expenses you incur are travel agents' commissions, marketing charges and credit card charges.

5. Is GST charged and collected on a tour package based on the selling price or the selling price after deducting the commission amount paid to a non-resident travel agent?

6. You have asked us to confirm your understanding that GST should have no effect on the revenues or expenses of a registrant. However, when you receive a refund of net tax (GST), you question why the amount received does not increase revenues or reduce expenses?

7. You have been assessed for unremitted GST. You have asked us to look into your situation with respect to the original assessment and your subsequent appeal.

8. Is it correct that the Canadian Government encourages less than 24 hours stays at included tourist destinations by offering a zero-rated option on transportation costs? If so, why?

9. Is it correct that Canadian vacationers pay 7% more for the cost of accommodation than a visitor from another country?

We provide the following in response to your questions:

1 & 2. Depending on the facts of a particular situation, it may appear that there is an advantage when a significant portion of a tour package is short-term accommodation. Appendix A illustrates how the Rebate impacts a tour operator's revenue (before other expenses) when the total amount charged to a customer for a tour package by either a registered tour operator or a non-registered, non-resident tour operator is the same.

The facts with respect to Appendix A are that:

(i) the total of the amounts including the GST but net of the Rebate charged by the registered tour operator equals what the non-registered, non-resident tour operator charges for its package, and

(ii) the registered tour operator calculates GST on the package taking into account the amount of the Rebate credited to the non-resident acquiring the tour package, i.e., 50 % of the tax on the package.

The scenario does not reflect any impact with respect to other taxes (such as state sales taxes) the non-registered, non-resident tour operator may have to charge in respect of the supply of the package to a non-resident.

Regarding your concerns with respect to the Rebate, by copy of this letter your views have been brought to the attention of the Department of Finance. The CRA is responsible for administering the GST legislation as enacted by Parliament and any legislative amendment that would address your concerns is a matter of tax policy, which falls within the scope of the Department of Finance.

3. Every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to be registered with some exceptions.

One exception is where the person is a non-resident person who does not carry on business in Canada. Whether a non-resident person is carrying on business in Canada is a question of fact.

The CRA is responsible for administering the GST legislation and it is a continuing goal to carry out this responsibility fairly and uniformly for all taxpayers. Consequently, any incidents of non-compliance are treated very seriously. Any information you wish to provide with respect to a person, who, in your view, is required to be registered and is not, can be forwarded to your local Tax Services Office.

4. Every recipient of a taxable supply made in Canada pays the GST, i.e., only taxable supplies made in Canada are subject to tax. A supply made wholly outside Canada is not subject to tax.

Assuming that the travel agents' commissions are in respect of services the travel agents provided to you outside Canada, you would not have to pay tax on the services since they are supplied outside Canada. With respect to other "US expenses", they may or may not be subject to tax depending on the facts of the situation.

5. GST is charged on the value of the consideration for a supply made in Canada. The supply you are making is the tour package to the non-resident. Accordingly, tax would be charged on the full amount of the consideration received. For example, in Appendix A, the value of the consideration for the package is $2,510.15 and GST is $175.71. The total after crediting the Rebate of $87.86 is $2,598.00.

The commission you pay to a travel agent is consideration for a supply made to you. Your obligation is to pay the GST as the recipient of a supply if the supply is taxable. However, this does not affect your obligation to collect tax on the consideration for your supply of your tour package.

6. You are correct in your understanding that GST has no effect on the revenues or expenses of a registrant.

The GST is a consumption tax where the end user or consumer of goods and services pays the tax. You may be the end user of goods and services but as a registrant, you recover the tax paid on those goods and services used in the course of operating your business. In other words, the tax is not an added cost or expense of doing business. This is unlike the case of the non-resident, non-registered tour operator who absorbs the amount of GST not rebated as a cost of doing business.

As a registrant, your obligation is to charge and collect GST on the taxable supplies you make in Canada. The GST you collect is as agent of Her Majesty in right of Canada and the amounts collected as or on account of GST are considered to be held in trust. Consequently, the amounts are not your revenue.

A refund of net tax (GST) means that the GST you charged is less than the tax you must pay on the goods and services used in the course of operating your business. Therefore, when you receive a refund of net tax (GST) there is no impact on your revenues or expenses.

7. We cannot comment on assessments. However, we reviewed the letter you received from the Appeals Office XXXXX and agree with the information you were provided.

We cannot provide any remedy with respect to the assessment. However, Appeals had provided you with information with respect to pursuing the matter with the Tax Court of Canada.

8. Most passenger transportation services supplied in Canada, which may or may not be part of a tour package, are subject to tax. However, when certain conditions are met, a supply of a passenger transportation service may be zero-rated for GST.

You have identified one condition that may determine if a supply of a passenger transportation service can be zero-rated. There are other legislative provisions that impact this determination. Zero-rating a supply of a passenger transportation service depends on the facts of the situation. For example, the passenger transportation services included in the set of passenger transportation services provided on a single ticket/voucher may be zero-rated.

9. A recipient of a taxable supply of accommodation in Canada is required to pay GST on that supply. Therefore, a Canadian resident and a non-resident will pay the same amount of tax for a supply of accommodation. However, a non-resident is entitled to a rebate of the GST paid on the supply of short-term accommodation where certain conditions are met.

If you have any further questions please contact XXXXX the XXXXX GST/HST Rulings CentreXXXXX.

Yours truly,

Alyson Trattner
Manager,
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

APPENDIX A - Tour Package elements:

Supply made by a non-registered, non-resident tour operator (NR/NR) to a non-resident

Operator's selling price $ 2,598.00 20% mark-up on cost ($930 + $1,200)

GST not applicable - plus GST not rebated ($42)

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Operator's revenue $ 2,598.00

Operator's revenue $ 2,598.00

less: Short-term accommodation 930.00

less: Tour package 1,242.00 includes GST paid and not rebated ($42)

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Net amount $ 426.00 (before other expenses)

Registered tour operator's amount charged to customer

Operator's revenue (consideration) $ 2,510.15

GST 175.71

less: Rebate 87.86

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$ 2,598.00 amount the same as the NR/NR's selling price

Supply made by a registered tour operator to a non-resident Operator's revenue (consideration) $ 2,510.15

less: Short-term accommodation 930.00 registered tour operator entitled to claim ITC for GST

less: Tour package 1,200.00 registered tour operator entitled to claim ITC for GST

 ------------

Net amount $ 380.15 (before other expenses)

2005/07/25 — RITS 60361 — Monitoring Services