Dear XXXXX
This is in reply to your letter of March 9, 1994, in which you were inquiring as to whether the provision of a ship and a crew under a charter party agreement constitutes a supply of tangible personal property or the supply of a service.
Facts
We understand that the facts are the following.
1. In December of 1990, XXXXX entered into a charter party with XXXXX in respect of the chartering of the vessel XXXXX (the vessel).
2. Clause 2(A) of the charter party agreement indicates that the vessel was to be delivered by XXXXX to XXXXX on or about July 5, 1991, at XXXXX a sea port located in Canada.
3. Clause 5(A) of the charter party agreement specifies that the charter rates are in Canadian dollars.
4. Pursuant to clause 4 of the charter party agreement, XXXXX is to provide the following elements:
a competent Master and crew, food and other provisions and all galley supplies during the initial term of hire, all lube oils, fresh water, deck and engine room stores during the term of hire, meals and accommodation aboard the vessel for one of XXXXX employees.
5. Pursuant to clause 5(A) of the charter party agreement XXXXX was to pay an amount per day for the chartering of the vessel, exclusive of fuel and any sales or use taxes.
6. Pursuant to clause 5(B) of the charter party agreement, XXXXX was to pay a retainer in two installments to be credited against hire if the vessel was employed for any period. The two installments amounted to the following:
XXXXX paid in 1990 and,
$ XXXXX due April 1, 1991.
7. Pursuant to clause 5(C) of the charter party agreement, XXXXX was to pay additional amounts for room and board ( XXXXX /person/day) and single meals (XXXXX/meal) provided by XXXXX to XXXXX employees other, than the one identified in clause 4.
8. Pursuant to clause 3(A) of the charter party agreement, the vessel was to be employed in the XXXXX or XXXXX and the XXXXX[.]
9. On April 30, 1991, XXXXX assigned the charter party agreement to XXXXX, a non-resident corporation who is not a GST registrant. XXXXX paid XXXXX $ XXXXX in consideration for the assignment of the charter party. According to clause 2 of the Assignment agreement, this amount represents the retainer referred in the charter party agreement.
Pursuant to clause 3 of the assignment agreement, XXXXX agrees that as and from the date hereof, XXXXX shall stand in place and stead of XXXXX under the said Charter party and shall fully comply with all of the terms and provisions thereof as if XXXXX had been the original signatory thereto with XXXXX[.]
10. Clause 32 of the charter party agreement states that the charterer XXXXX may assign the charter to its affiliates, provided that the charterer remain responsible to the owner of the vessel for due performance of charterer's obligations hereunder.
11. XXXXX issued two invoices to XXXXX[.] The first one was in respect of the charter of the vessel during a 88 day period from July 5, 1991 to September 30, 1991. XXXXX charged $ XXXXX plus $ XXXXX GST for this period. The second invoice was in respect of the charter of the vessel during a 19 day period from October 1, 1991 to October 20, 1991. XXXXX charged XXXXX plus XXXXX GST for this second period.
12. Two Revenue Canada "General Declaration" forms indicate that the vessel departed from Canada on July 21, 1991 and reentered Canada on October 15, 1991.
We have also been advised that XXXXX intended to use the XXXXX as a spill response vessel in U.S. waters off the coast of XXXXX[.]
Question
In your proposed answer, you indicate that the supply under the charter party agreement is a supply of tangible personal property and is zero-rated pursuant to section 1 of Part V of Schedule VI of the ETA. You further indicate that you agree with the statement that XXXXX may, pursuant to subsection 232(1) of the ETA, refund XXXXX the GST amount it charged and collected from XXXXX within four years of the reporting period in which the amount was charged or collected by the supplier.
I understand that you want confirmation that the above interpretations are correct.
Answer
Based on our understanding of the facts and on the provisions of the agreements between the parties, we believe that the following supplies were made by the parties involved in the above-mentioned agreements.
1. Firstly, pursuant to the charter party agreement, XXXXX made a supply of a vessel by way of lease to XXXXX[.] Clause 1(A)(i) of this agreement states that the Owner XXXXX charters a vessel to the Charterer XXXXX[.] Further, we believe that the elements identified in clause 4 and 5(c) of the charter party agreement are part of the supply of the vessel, for the following reasons (In this regard, please refer to the policy on single and multiple supplies).
XXXXX wants to obtain a vessel that is operational. The vessel would not have a separate use if the elements described in clause 4 and 5(c) were not provided. The crew, stores and food for the crew are essential to operate the vessel. To use the vessel, XXXXX needs to have its employees on board to fight pollution and these employees need food and accommodation. In addition, XXXXX does not know in detail what these elements are. However, it is uncertain as to whether the provision of the vessel is contingent on the provision of the other elements (more information would be needed in this respect). Nevertheless, on balance, we believe that the above-mentioned factors indicate that the elements described in clause 4 and 5(c) of the charter party agreement are part of the supply of the vessel.
Please note that the analysis provided above to determine whether various elements constitute a single supply or multiple supplies is for internal use only and is not to be provided to the registrant.
XXXXX paid XXXXX in 1990 and XXXXX due on April 1, 1991 in respect of this supply. According to the invoices attached to XXXXX request for an interpretation, XXXXX did not charge GST on the amount paid in 1990 and charged XXXXX GST on the retainer amount due by XXXXX on April l, 1991.
Pursuant to section 133 of the ETA, the entering into of an agreement for the provision of property is deemed to be a supply of the property at the time the agreement is entered into. Pursuant to subsection 136(1), a supply by way of lease, license or similar arrangement, of the use or right to use tangible personal property, is deemed to be a supply of tangible personal property. Therefore, XXXXX is deemed to have made a supply of the tangible personal property (i.e. the vessel) toXXXXX at the time the charter party agreement was entered into, even though XXXXX did not take possession of the vessel.
The retainer amounts by XXXXX to XXXXX were consideration paid in respect of that supply.
The retainer amount paid in 1990 was paid after August 1990 and before 1991 and was attributable to a period that occurred after 1990, given that XXXXX was to take possession of the vessel on or about July 5, 1991. Pursuant to subsection 340(1), that amount is deemed to have become due on January 1, 1991 and tax is payable in respect of that amount unless the supply is otherwise relieved of the tax.
Pursuant to subsection 168(2) of the ETA, where consideration for a taxable supply is paid or becomes due on more than one date, tax is payable on each day that is the earlier of the day part of the consideration is paid or becomes due, calculated on the value of that part of the consideration. Accordingly, given that the retainer amount payable by XXXXX on April 1, 1991 was part of the consideration in respect of the above-mentioned supply, tax was payable on this amount on the earlier of the day it was paid or became due, unless the supply is otherwise relieved from tax.
1. The taxable status of the supply of the vessel from XXXXX to XXXXX will be discussed more in-depth hereafter under point number 3.
2. Second, on April 30, 1991, XXXXX made a supply to XXXXX when it assigned to XXXXX its rights, title and interest in and to the charter party, in respect of which XXXXX charged XXXXX to XXXXX[.] This supply is a supply of an intangible personal property and is taxable at the rate of 7%.
The assignment of the charter party relates to tangible personal property that may be used in Canada and can not, therefore, be deemed to be made outside Canada under subparagraph 142(2)(c)(i) of the ETA.
3. Third, the consideration charged to XXXXX by XXXXX was in respect of the same supply made to XXXXX given that the supply from XXXXX to XXXXX was made under the same charter party agreement as the supply from XXXXX to XXXXX and that XXXXX stands in the place of XXXXX according to clause 3 of the assignment agreement.
Pursuant to this agreement, the vessel was to be used both in Canada and in the United States. However, the Department was advised that XXXXX intended to use the XXXXX as an oil spill response vessel in XXXXX waters off the coast of XXXXX[.] In addition, two "General Declaration" forms indicate that the vessel departed from Canada on July 21, 1991 and reentered Canada on October 15, 1991.
Notwithstanding the fact that the vessel could be used in Canada under the terms of the charter party agreement, the supply of the vessel to XXXXX and, subsequently, to XXXXX may be zero-rated, if the vessel was, in fact, not intended nor actually for use in Canada. For the supply to be zero-rated, the parties must be able to demonstrate that the vessel was used outside Canada by providing evidence such as the vessel's log, customs documentation, etc.
If it is determined that the supply of the vessel from XXXXX to XXXXX is zero-rated (based on the evidence to be provided indicating that the vessel was actually exported), XXXXX might refund, pursuant to subsection 232(1) of the ETA, the amount of tax collected from XXXXX in respect of this supply.
Should you wish to discuss this issue further, please do not hesitate to contact Serge Bernier at (613) 952-9580.
Yours sincerely,
H.L. Jones
Director
General Tax Policy
Excise/GST
XXXXX
| c.c.: |
H.L. Jones
R. Allwright
Imposition Team |
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