25 May 2006 GST/HST Interpretation 80289 - Tax Treatment - Independent Travel Agents

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 XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to short-term accommodation rebates paid by a registrant hotel operator.

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

The Minister of Finance announced in the Federal Budget of May 2, 2006, a proposal to reduce the rate of the GST and the federal portion of the HST by 1%, effective July 1, 2006. The general rule is that the rate of GST will be reduced from 7% to 6% and the rate of the HST from 15% to 14% on supplies for which the GST/HST is paid on or after July 1, 2006, without having become payable before that date. Specific transitional rules apply to certain supplies. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to Reduction in the Rate of the GST/HST - Questions and Answers on the CRA Web site.

Generally, subsection 252.1(3) provides that a non-resident travel service provider (TSP), who is not registered for GST/HST purposes, can claim a rebate in respect of the GST/HST paid on short-term accommodation purchased in Canada. There are a number of conditions attached to the rebate, one being that the TSP must supply the short-term accommodation to another non-resident person, and payment of the consideration for that supply must be made at a place outside Canada at which the non-resident travel service provider is conducting business.

In addition, subsection 252.1(8) allows a registrant hotel operator to pay or credit an amount on account of the rebate under subsection 252.1(3) that the TSP would be entitled to under subsection 252.1(3) if it had paid tax in respect of the supply of the short-term accommodation. The amount paid or credited to the TSP is equal to the tax paid in respect of the supply.

As we understand it, you have a situation where a TSP has a contract to purchase short-term accommodation from a registrant hotel operator for resale to non-resident visitors. Some of the non-resident visitors pay the consideration to the TSP after the accommodation has been made available. The hotel operator is concerned that it may not be eligible to pay or credit an amount on account of the rebate under subsection 252.1(3) where the non-resident visitors pays the TSP on these terms.

The Canada Revenue Agency's position with respect to the rebate under section 252.1(3) is set out in GST/HST Memorandum 27.3, Accommodation Rebates for Unregistered Non-Resident Suppliers. Paragraph 8 of Memorandum 27.3 states:

Unregistered non-resident suppliers will be charged the GST/HST on supplies of short-term accommodation, camping accommodation, or tour packages that include such accommodation purchased from suppliers who are registrants. However, unregistered non-resident suppliers may recover the tax paid on the short-term or camping accommodation if they meet the following criteria:

•     the accommodation is acquired for supply in the ordinary course of a business of making such supplies;

•     the accommodation is for resale to a non-resident person;

•     payment by the non-resident person is made at a place outside Canada where the unregistered non-resident supplier or its agent conducts business; and

•     the accommodation is made available to a non-resident individual.

The tax can be recovered by:

•     applying for the rebate; or

•     having the rebate credited by the registrant.

In our view, the registrant hotel operator can only pay or credit an amount on account of the rebate under subsection 252.1(8) where the TSP would be entitled to a rebate under subsection 252.1(3). For example, if the non-resident visitor did not pay the TSP before the trip, then the TSP would not be entitled to the rebate under subsection 252.1(3) until the amount is paid. Therefore, the hotel operator would not be able to pay or credit the amount on account of the rebate to the TSP under subsection 252.1(8).

That being said, the TSP would be entitled to the rebate in the situation where the non-resident visitors paid the consideration to the TSP after the accommodation has been made available, and at that time, the hotel operator could pay or credit the amount to the TSP. Alternatively, the TSP would pay the applicable GST/HST to the hotel operator and file a rebate application with the Canada Revenue Agency.

Please note, the ETA does not require a registrant hotel operator to pay or credit an amount on account of the rebate under subsection 252.1(3) to the TSP. Paying or crediting such an amount is at the discretion of the hotel operator. In other words, if a hotel operator does not feel that the conditions under subsection 252.1(3) have been satisfied (meaning that the hotel operator is not satisfied that the TSP would be entitled to a rebate) then the hotel operator does not have to pay or credit an amount on account of the rebate to the TSP.

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 have any questions, please do not hesitate to contact me at (613) 957-8224.

Sincerely,

Chris Lewis
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/07/31 — RITS 80513 — Amending a Ticket for Passenger Transportation Service