File: 11995-3
Doc: 1311
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Subject:
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Interlining of Flyer Delivery and Driver Services
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I refer to your electronic mail transmission dated November 23, 1994, and further discussions you had with members of my staff, namely, Adam Belyea, Senior Tax Policy Officer, and Tom Alley, Tax Policy Officer, and the information provided in the seminar in your office on December 16, 1994, regarding interline settlements.
Your enquiry concerned whether the service of delivery of un-addressed flyers by contractors and subcontractors of Canada Post could be zero-rated under the interlining provisions of Part VII of Schedule VI to the Excise Tax Act (ETA). You also enquired whether a person who delivers the property by foot can qualify as a carrier and whether there is a difference for GST between cases where a driver and truck are hired versus a driver only.
In the memorandum to XXXXX dated November 28, 1994 (see attached), the facts were that XXXXX uses a contractor, XXXXX to deliver mail to various locations across the country. I understand that XXXXX subcontracts with XXXXX to deliver mail on its behalf. It was further explained that XXXXX or one of his employees delivers the mail by foot.
Subsection 1(1) of Part VII of Schedule VI to the ETA defines a freight transportation service to mean "a particular service of transporting tangible personal property and, for greater certainty, includes (a) a service of delivering mail ...".
Subsection 123(1) defines a carrier as "a person who supplies a freight transportation service within the meaning assigned by subsection 1(1) of Part VII of Schedule VI". The policy of the Department is that a person may be a carrier even if that person does not physically transport the tangible personal property. A person only needs to assume liability as a supplier of the freight transportation service in order to be a carrier.
The definition of carrier does not impose any requirement on the mode of conveyance. Therefore, a person who provides a freight transportation service by delivering tangible personal property by foot can be considered a carrier. For example, bicycle couriers do not use a motorized mode of conveyance but may still qualify as carriers due to the fact that they are transporting tangible personal property.
Section 11 of Part VII of Schedule VI to the ETA describes a zero-rated supply as:
A supply of a freight transportation service made by a carrier of the property being transported to a second carrier of the property being transported, where the service is part of a continuous freight movement and the second carrier is neither the shipper nor the consignee of the property being transported.
Therefore, the supply of freight transportation services by XXXXX to XXXXX would qualify as an interline settlement between carriers if XXXXX is not the shipper. Consequently, the freight transportation would be zero-rated.
However, if XXXXX were the shipper (e.g., it was mailing its own promotional literature) then the supply of the freight transportation service by XXXXX would not qualify as an interline settlement under section 11 of Part VII of Schedule VI. Consequently, the freight transportation would be subject to GST at a rate of 7 percent.
Persons on contract to make the deliveries, such as XXXXX, who do not invoice the customer directly, are entitled to zero-rate their billing to a courier company XXXXX as part of an interline freight settlement. XXXXX is providing a freight transportation service and is, therefore, a carrier.
The application of GST varies between cases where a driver and truck are hired by a shipper or carrier versus where a driver only is hired. In the case where a driver and truck are hired the person providing a freight transportation service can be considered a carrier.
However, in the case where only a driver is hired the person providing the freight transportation provides the vehicle and hires the driver for his or her driver services. Driver services are a business input of the shipper or carrier. Driver services cannot be zero-rated as part of an interline settlement because the driver is not the carrier. Consequently, GST applies at 7% to the supply of driver services.
It was stated in the memorandum to XXXXX that "postal services are generally considered to comprise the collection and delivery of postal matter by a public corporation." Although this may be a general understanding outside of the context of GST, there is no reference in the definition of freight transportation service in subsection 1(1) of Part VII of Schedule VI to the ETA which limits the scope of delivering mail to a public corporation.
I hope the seminar held at your office was helpful. If you have any questions or comments, please do not hesitate to contact Tom Alley, Tax Policy Officer, at (613) 952-9218.
Tony D'Abramo
Manager, Services Unit
Tax Policy - Special Sectors
GST Policy and Legislation
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