|
XXXXX
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12005-3(rs)
Section 163
Schedule IX, Parts IV-VI
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January 30, 1997
Dear XXXXX
This is in reply to your facsimile transmission dated January 23, 1997, in which you requested information with respect to the proposed amendments to the Excise Tax Act (the "ETA") as contained in Bill C-70. Part II of Bill C-70 proposes amendments to the ETA with respect to the application of the Harmonized Sales Tax ("HST") on certain supplies. You have presented six different scenarios and would like information on the application of the existing Goods and Services Tax ("GST") and the proposed HST on these examples. All legislative references are to the ETA unless otherwise specified.
The GST applies at a rate of 7%. The HST applies at a rate of 15%. The HST is made up of two components -- the federal component which is equal to 7% and the provincial component which is equal to 8%. The "participating provinces" means the provinces of New Brunswick, Nova Scotia and Newfoundland and "non-participating provinces" means the remaining provinces and territories of Canada.
We have assumed that the cost of the air fare is an Air Transportation Tax ("ATT") included amount and that the cost of the hotel includes all charges. We have limited our comments to the GST and HST implications of your questions and have assumed that the XXXXX current accounting software properly accounts for any other taxes, duties or fees that may be applicable on the supplies being discussed. Further, the registrant's GST/HST return assumes that no other transactions for that particular registrant took place in the reporting period.
SCENARIO 1:
Halifax to Vancouver round-trip ticket sold by travel agency in Halifax for $500 for which the agency earns a 10% commission, Vancouver hotel accommodation for $200 booked and prepaid by the travel agency for which the agency earns a 15% commission.
The supply of the air transportation service is made in Nova Scotia pursuant to section 2 of Part VI of Schedule IX and, therefore, attracts the HST. The supply of the hotel accommodation is made in British Columbia pursuant to section 1 of Part IV of Schedule IX and, therefore, attracts the GST. The services supplied by the travel agency in earning their commissions are made in Nova Scotia pursuant to section 2 of Part V of Schedule IX and, therefore, attract the HST.
Travel Agency's books and records:
Invoice to customer
| Air fare |
$500.00 |
| HST |
75.00 |
| Total Air fare |
575.00 |
| Hotel Accommodation |
200.00 |
| GST |
14.00 |
| Total Hotel Accommodation |
214.00 |
| Total Payable by customer |
$789.00 |
Invoice to air carrier
| Commission earned |
$50.00 |
| HST |
7.50 |
| Total Payable by air carrier |
$57.50 |
Invoice to hotel
| Commission earned |
$30.00 |
| HST |
4.50 |
| Total Payable by hotel |
$34.50 |
Travel agency's GST/HST return:
| GST/HST collectible |
$12.00 |
| Input tax credits (GST/HST paid out) |
0.00 |
| Total GST/HST remittance |
$12.00 |
Travel agency's statement of account:
| Total collected from customer on behalf of air carrier and hotel |
789.00 |
| Less commissions earned and applicable HST |
92.00 |
| Amount to be forwarded |
$697.00 |
Air Carrier's books and records:
Revenues:
| Air fare |
$500.00 |
| HST |
75.00 |
| Total Air fare |
$575.00 |
Expenses:
| Travel agency's commission on air fare |
$50.00 |
| HST |
7.50 |
| Total Payable to travel agency |
$57.50 |
Air carrier's GST/HST return:
| GST/HST collectible |
$75.00 |
| Input tax credits (GST/HST paid out) |
7.50 |
| Total GST/HST remittance |
$67.50 |
Hotel's books and records:
Revenues:
| Hotel accommodation |
$200.00 |
| GST |
14.00 |
| Total Payable by travel agency |
$214.00 |
Expenses:
| Travel agency's commission on hotel accommodation |
$30.00 |
| HST |
4.50 |
| Total Payable to travel agency |
$34.50 |
Hotel's GST/HST return:
| GST/HST collectible |
$14.00 |
| Input tax credits (GST/HST paid out) |
4.50 |
| Total GST/HST remittance |
$ 9.50 |
The latter portion of each response will provide general statements on each scenario.
Note that these general comments may not apply to the specific fact situation that exists between the parties.
General comments on Scenario 1:
The customer is required to pay the HST and the GST. The air carrier has made the supply of the air transportation service and therefore must charge, collect and account for the HST on the supply. In other words, the amount collected by the travel agency from the customer as air fare and HST is passed along to the air carrier. The hotel has made the supply of the hotel room and therefore must charge, collect and account for the GST on the supply. In other words, the amount collected by the travel agency from the customer as hotel accommodation and the GST is passed along to the hotel. The travel agency has made supplies of its services to the air carrier and the hotel and therefore must charge, collect and account for the HST on these supplies. The air carrier is eligible for an input tax credit equal to the HST that the travel agency charged it. The hotel is eligible for an input tax credit equal to the HST that the travel agency charged it.
SCENARIO 2:
Toronto to Halifax round-trip ticket sold by travel agency in Toronto for $500 for which the agency earns a 10% commission, Halifax hotel accommodation for $200 booked and prepaid by the travel agency for which the agency earns a 15% commission.
The supply of the air transportation service is made in Ontario pursuant to section 2 of Part VI of Schedule IX and, therefore, attracts the GST only. The supply of the hotel accommodation is made in Nova Scotia pursuant to section 1 of Part IV of Schedule IX and, therefore, attracts the HST. The services supplied by the travel agency in earning their commissions are made in Ontario pursuant to section 2 of Part V of Schedule IX and, therefore, attract the GST.
Travel Agency's books and records:
Invoice to customer
| Air fare |
$500.00 |
| GST |
35.00 |
| Total Air fare |
535.00 |
| Hotel Accommodation |
200.00 |
| HST |
30.00 |
| Total Hotel Accommodation |
230.00 |
| Total Payable by customer |
$765.00 |
Invoice to air carrier
| Commission earned |
$50.00 |
| GST |
3.50 |
| Total Payable by air carrier |
$53.50 |
Invoice to hotel
| Commission earned |
$30.00 |
| GST |
2.10 |
| Total Payable by hotel |
$32.10 |
Travel agency's GST/HST return:
| GST/HST collectible |
$5.60 |
| Input tax credits (GST/HST paid out) |
0.00 |
| Total GST/HST remittance |
$5.60 |
Travel agency's statement of account:
| Total collected from customer on behalf of air carrier and hotel |
$765.00 |
| Less commissions earned and applicable GST |
85.60 |
| Amount to be forwarded |
$679.40 |
Air Carrier's books and records:
Revenues:
| Air fare |
$500.00 |
| GST |
35.00 |
| Total Air fare |
$535.00 |
Expenses:
| Travel agency's commission on air fare |
$50.00 |
| GST |
3.50 |
| Total Payable to travel agency |
$53.50 |
Air carrier's GST/HST return:
| GST/HST collectible |
$35.00 |
| Input tax credits (GST/HST paid out) |
3.50 |
| Total GST/HST remittance |
$31.50 |
Hotel's books and records:
Revenues:
| Hotel accommodation |
$200.00 |
| HST |
30.00 |
| Total Payable by travel agency |
$230.00 |
Expenses:
| Travel agency's commission on hotel accommodation |
$30.00 |
| GST |
2.10 |
| Total Payable to travel agency |
$32.10 |
Hotel's GST/HST return:
| GST/HST collectible |
$30.00 |
| Input tax credits (GST/HST paid out) |
2.10 |
| Total GST/HST remittance |
$ 27.90 |
General comments on Scenario 2:
The customer is required to pay the HST and the GST. The air carrier has made the supply of the air transportation service and therefore must charge, collect and account for the GST on the supply. In other words, the amount collected by the travel agency from the customer as air fare and GST is passed along to the air carrier. The hotel has made the supply of the hotel room and therefore must charge, collect and account for the HST on the supply. In other words, the amount collected by the travel agency from the customer as hotel accommodation and the HST is passed along to the hotel. The travel agency has made supplies of its services to the air carrier and the hotel and therefore must charge, collect and account for the GST on these supplies. The air carrier is eligible for an input tax credit equal to the GST that the travel agency charged it. The hotel is eligible for an input tax credit equal to the GST that the travel agency charged it.
SCENARIO 3:
Halifax to Vancouver round-trip ticket sold by travel agency in Halifax for $500 for which the agency earns a 10% commission, Vancouver hotel accommodation for $300 booked (but not prepaid) by the travel agency for which the agency earns a 10% commission.
The supply of the air transportation service is made in Nova Scotia pursuant to section 2 of Part VI of Schedule IX and, therefore, attracts the HST. The supply of the hotel accommodation is made in British Columbia pursuant to section 1 of Part IV of Schedule IX and, therefore, attracts the GST only. The services supplied by the travel agency in earning their commissions are made in Nova Scotia pursuant to section 2 of Part V of Schedule IX and, therefore, attract the HST.
Travel Agency's books and records:
Invoice to customer
| Air fare |
$500.00 |
| HST |
75.00 |
| Total Payable by customer |
$575.00 |
Invoice to air carrier
| Commission earned |
$50.00 |
| HST |
7.50 |
| Total Payable by air carrier |
$57.50 |
Invoice to hotel
| Commission earned |
$30.00 |
| HST |
4.50 |
| Total Payable by hotel |
$34.50 |
Travel agency's GST/HST return:
| GST/HST collectible |
$12.00 |
| Input tax credits (GST/HST paid out) |
0.00 |
| Total GST/HST remittance |
$12.00 |
Travel agency's statement of account:
| Total collected from customer on behalf of air carrier |
$575.00 |
| Less commission earned on sale of air fare and applicable HST |
57.50 |
| Amount to be forwarded |
$517.50 |
Air Carrier's books and records:
Revenues:
| Air fare |
$500.00 |
| HST |
75.00 |
| Total Air fare |
$575.00 |
Expenses:
| Travel agency's commission on air fare |
$50.00 |
| HST |
7.50 |
| Total Payable to travel agency |
$57.50 |
Air carrier's GST/HST return:
| GST/HST collectible |
$75.00 |
| Input tax credits (GST/HST paid out) |
7.50 |
| Total GST/HST remittance |
$67.50 |
Hotel's books and records:
Revenues:
| Hotel accommodation |
$300.00 |
| GST |
21.00 |
| Total Payable by travel agency |
$321.00 |
Expenses:
| Travel agency's commission on hotel accommodation |
$30.00 |
| HST |
4.50 |
| Total Payable to travel agency |
$34.50 |
Hotel's GST/HST return:
| GST/HST collectible |
$21.00 |
| Input tax credits (GST/HST paid out) |
4.50 |
| Total GST/HST remittance |
$ 16.50 |
General comments on Scenario 3:
The customer is required to pay the HST and the GST. The customer pays the air fare and the HST to the travel agency and pays the hotel accommodation and the GST directly to the hotel. The air carrier has made the supply of the air transportation service and therefore must charge, collect and account for the HST on the supply. In other words, the amount collected by the travel agency from the customer as air fare and HST is passed along to the air carrier. The hotel has made the supply of the hotel room and therefore must charge, collect and account for the GST on the supply. The travel agency has made supplies of its services to the air carrier and the hotel and therefore must charge, collect and account for the HST on these supplies. The air carrier is eligible for an input tax credit equal to the HST that the travel agency charged it. The hotel is eligible for an input tax credit equal to the HST that the travel agency charged it.
SCENARIO 4:
Toronto to Halifax round-trip ticket sold by travel agency in Toronto for $500 for which the agency earns a 10% commission, Halifax hotel accommodation for $300 booked (but not prepaid) by the travel agency for which the agency earns a 10% commission.
The supply of the air transportation service is made in Ontario pursuant to section 2 of Part VI of Schedule IX and, therefore, attracts the GST. The supply of the hotel accommodation is made in Nova Scotia pursuant to section 1 of Part IV of Schedule IX and, therefore, attracts the HST. The services supplied by the travel agency in earning their commissions are made in Ontario pursuant to section 2 of Part V of Schedule IX and, therefore, attract the GST.
Travel Agency's books and records:
Invoice to customer
| Air fare |
$500.00 |
| GST |
35.00 |
| Total Payable by customer |
$535.00 |
Invoice to air carrier
| Commission earned |
$50.00 |
| GST |
3.50 |
| Total Payable by air carrier |
$53.50 |
Invoice to hotel
| Commission earned |
$30.00 |
| GST |
2.10 |
| Total Payable by hotel |
$32.10 |
Travel agency's GST/HST return:
| GST/HST collectible |
$5.60 |
| Input tax credits (GST/HST paid out) |
0.00 |
| Total GST/HST remittance |
$5.60 |
Travel agency's statement of account:
| Total collected from customer on behalf of air carrier |
$535.00 |
| Less commission earned on sale of air fare and applicable GST |
53.50 |
| Amount to be forwarded |
$481.50 |
Air Carrier's books and records:
Revenues:
| Air fare |
$500.00 |
| GST |
35.00 |
| Total Air fare |
$535.00 |
Expenses:
| Travel agency's commission on air fare |
$50.00 |
| GST |
3.50 |
| Total Payable to travel agency |
$53.50 |
Air carrier's GST/HST return:
| GST/HST collectible |
$35.00 |
| Input tax credits (GST/HST paid out) |
3.50 |
| Total GST/HST remittance |
$31.50 |
Hotel's books and records:
Revenues:
| Hotel accommodation |
$300.00 |
| HST |
45.00 |
| Total Payable by customer |
$345.00 |
Expenses:
| Travel agency's commission on hotel accommodation |
$30.00 |
| GST |
2.10 |
| Total Payable to travel agency |
$32.10 |
Hotel's GST/HST return:
| GST/HST collectible |
$45.00 |
| Input tax credits (GST/HST paid out) |
2.10 |
| Total GST/HST remittance |
$ 42.90 |
General comments on Scenario 4:
The customer is required to pay the HST and the GST. The customer pays the air fare and the GST to the travel agency and pays the hotel accommodation and the HST directly to the hotel. The air carrier has made the supply of the air transportation service and therefore must charge, collect and account for the GST on the supply. In other words, the amount collected by the travel agency from the customer as air fare and GST is passed along to the air carrier. The hotel has made the supply of the hotel room and therefore must charge, collect and account for the HST on the supply. The travel agency has made supplies of its services to the air carrier and the hotel and therefore must charge, collect and account for the GST on these supplies. The air carrier is eligible for an input tax credit equal to the GST that the travel agency charged it. The hotel is eligible for an input tax credit equal to the GST that the travel agency charged it.
SCENARIO 5:
Travel agency in Halifax sells a continuous journey package (all-inclusive package) for $1,000. The package is bought from a tour operator in Halifax and includes round-trip air, hotel in Vancouver, car rental in Vancouver and meals in Vancouver. The agency earns a 10% commission. We assume that the travel agency is selling the package on the tour operator's behalf. Therefore, the travel agency does not mark-up the cost of the tour (i.e., the customer pays $1,000 before tax). The services supplied by the travel agency in earning their commissions are made in Nova Scotia pursuant to section 2 of Part V of Schedule IX and, therefore, attract the HST.
The first step when calculating the amount of tax payable on a tour package is to determine the place of supply of each element of the tour package as if each element was being supplied separately. The supply of the air transportation service is made in Nova Scotia pursuant to section 2 of Part VI of Schedule IX. The supply of the hotel accommodation is made in British Columbia pursuant to section 1 of Part IV of Schedule IX. The supply of the rented automobile is made in British Columbia pursuant to section 2 of Part II of Schedule IX. The supply of the meals is made in British Columbia pursuant to section 2 of Part V of Schedule IX.
Section 163 provides rules for determining the amount of tax on a tour package where some or all of the elements included in the tour package are supplied in a participating province. Generally, it is the original tour operator that establishes which portion of the tour package attracts GST and which portion attracts HST. Section 163 requires the tour operator to apply a formula to determine which portion of the consideration for the supply of the entire tour package is attributable to supplies made in the participating provinces and which portion of the consideration for the supply of the entire package is attributable to supplies made in the non-participating provinces. The tour operator begins by determining the place of supply of each element of the tour package as if it were being supplied on its own. As noted in the previous paragraph, all elements of the tour package, other than the air fare, are made in British Columbia (i.e., a non-participating province). The air transportation service is made in Nova Scotia (i.e., a participating province). We assume that the value of the flight is $500 and the value of the remaining services (hotel, car and meals in Vancouver) is $500. Therefore, the tour operator would apply the HST on the $500 attributable to the flight and the GST on the $500 attributable to the remaining services.
Travel Agency's books and records:
Invoice to customer
Tour package to Vancouver (includes round-trip flight, hotel accommodation in Vancouver, car rental in Vancouver and meals in Vancouver). All-inclusive price before tax $1,000.00.
| Portion of the price that is attributable to the air fare (supply made in Nova Scotia) |
$500.00 |
| HST |
75.00 |
| Sub-total |
$575.00 |
| Portion of the price that is attributable to the hotel accommodation, car rental and meals (supplies made in British Columbia): |
$ 500.00 |
| GST |
35.00 |
| Sub-total |
$ 535.00 |
| Total payable by customer |
$1,110.00 |
Invoice to tour operator
| Commission earned |
$100.00 |
| HST |
15.00 |
| Total Payable by tour operator |
$115.00 |
Travel agency's GST/HST return:
| GST/HST collectible |
$15.00 |
| Input tax credits (GST/HST paid out) |
0.00 |
| Total GST/HST remittance |
$15.00 |
Travel agency's statement of account:
| Total collected from customer on behalf of tour operator |
$1,110.00 |
| Less commission earned and applicable HST |
115.00 |
| Amount to be forwarded to tour operator |
$ 995.00 |
Tour Operator's books and records:
Revenues:
| Tour package sold for |
$1,000.00 |
| Portion of tour package where HST applies: ($1,000 x 50%) |
$ 500.00 |
| HST |
75.00 |
| Sub-total |
$ 575.00 |
Portion of tour package where GST applies:
| ($1,000 x 50%) |
$ 500.00 |
| GST |
35.00 |
| Sub-total |
$ 535.00 |
| Total |
$1,110.00 |
Expenses:
| Travel agency's commission on tour package |
$100.00 |
| HST |
15.00 |
| Total Payable to travel agency |
$115.00 |
Tour operator's GST/HST return:
| GST/HST collectible |
$110.00 |
| Input tax credits (GST/HST paid out) |
15.00 |
| Total GST/HST remittance |
$ 95.00 |
General comments on Scenario 5:
The customer is required to pay the HST and the GST. The tour operator has made the supply of the tour package and therefore must charge, collect and account for the GST and the HST on the supply. In other words, the amount collected by the travel agency from the customer as payment for the tour package and the applicable GST and HST is passed along to the tour operator. The travel agency has made a supply of its services to the tour operator and therefore must charge, collect and account for the HST on this supply. The tour operator is eligible for an input tax credit equal to the HST that the travel agency charged it.
SCENARIO 6:
Travel agency in Vancouver sells a continuous journey package (all-inclusive package) for $1,000. The package is bought from a tour operator in Vancouver and includes air, hotel in Halifax, car rental in Halifax and meals in Halifax. The agency earns a 10% commission. We assume that the travel agency is selling the package on the tour operator's behalf. Therefore, the travel agency does not mark-up the cost of the tour (i.e., the customer pays $1,000 before tax). The services supplied by the travel agency in earning their commissions are made in British Columbia pursuant to section 2 of Part V of Schedule IX and, therefore, attract the GST.
The first step when calculating the amount of tax payable on a tour package is to determine the place of supply of each element of the tour package as if each element was being supplied separately. The supply of the air transportation service is made in British Columbia pursuant to section 2 of Part VI of Schedule IX. The supply of the hotel accommodation is made in Nova Scotia pursuant to section 1 of Part IV of Schedule IX. The supply of the rented automobile is made in Nova Scotia pursuant to section 2 of Part II of Schedule IX. The supply of the meals is made in Nova Scotia pursuant to section 2 of Part V of Schedule IX.
The comments made with respect to section 163 in Scenario 5 also apply to Scenario 6.
As noted in the previous paragraph, all elements of the tour package, other than the air fare, are made in Nova Scotia (i.e., a participating province). The air transportation service is made in British Columbia (i.e., a non-participating province). We assume that it is fair to say that the value of the flight is $500 and the value of the remaining services (hotel, car and meals in Halifax) is $500. Therefore, the tour operator would apply the GST on the $500 attributable to the flight and the HST on the $500 attributable to the remaining services.
Travel Agency's books and records:
Invoice to customer
Tour package to Halifax (includes round-trip flight, hotel accommodation in Halifax, car rental in Halifax and meals in Halifax). All-inclusive price before tax $1,000.00.
| Portion of the price that is attributable to the air fare (supply made in British Columbia): |
$500.00 |
| GST |
35.00 |
| Sub-total |
$535.00 |
| Portion of the price that is attributable to the hotel accommodation, car rental and meals (supplies made in Nova Scotia): |
$ 500.00 |
| HST |
75.00 |
| Sub-total |
$ 575.00 |
| Total payable by customer |
$1,110.00 |
Invoice to tour operator
| Commission earned |
$100.00 |
| GST |
7.00 |
| Total Payable by tour operator |
$107.00 |
Travel agency's GST/HST return:
| GST/HST collectible |
$7.00 |
| Input tax credits (GST/HST paid out) |
0.00 |
| Total GST/HST remittance |
$7.00 |
Travel agency's statement of account:
| Total collected from customer on behalf of tour operator |
$1,110.00 |
| Less commission earned and applicable GST |
107.00 |
| Amount to be forwarded to tour operator |
$1,003.00 |
Tour Operator's books and records:
Revenues:
| Tour package sold for |
$1,000.00. |
Portion of tour package where HST applies:
| ($1,000 x 50%) |
$500.00 |
| HST |
75.00 |
| Sub-total |
$575.00 |
Portion of tour package where GST applies:
| ($1,000 x 50%) |
$ 500.00 |
| GST |
35.00 |
| Sub-total |
$ 535.00 |
| Total |
$1,110.00 |
Expenses:
| Travel agency's commission on tour package |
$100.00 |
| HST |
7.00 |
| Total Payable to travel agency |
$107.00 |
Tour operator's GST/HST return:
| GST/HST collectible |
$110.00 |
| Input tax credits (GST/HST paid out) |
7.00 |
| Total GST/HST remittance |
$103.00 |
General comments on Scenario 6:
The customer is required to pay the HST and the GST. The tour operator has made the supply of the tour package and therefore must charge, collect and account for the GST and the HST on the supply. In other words, the amount collected by the travel agency from the customer as payment for the tour package and the applicable GST and HST is passed along to the tour operator. The travel agency has made a supply of its services to the tour operator and therefore must charge, collect and account for the GST on this supply. The tour operator is eligible for an input tax credit equal to the GST that the travel agency charged it.
Additional comments:
You have also asked for the exact date that your software will need to comply with the HST. Transitional measures within Bill C-70 provide that, in general, supplies of passenger transportation services made in a participating province for services not performed before April 1, 1997, will attract the HST where the amount becomes due after January 31, 1997. As a result, your software will need to be in place by February 1, 1997 in order to properly account for the HST.
We understand that XXXXX has been in ongoing contact with Department of Finance officials throughout this transitional phase. As such he may be able to address your concerns from an internal perspective. He can be reached at XXXXX.
This interpretation is based upon our current understanding of the proposed amendments to the ETA and Regulations thereunder in their present form and does not take into account the effects of any future amendments thereto or future changes on interpretation.
Further, while we trust our comments are of assistance to you, we would advise that they do not constitute a GST ruling and are, therefore, not binding upon the Department in respect of any particular fact situation.
If you require further information, please contact me at (613) 941-3971.
Yours truly,
Robert Smith
Rulings Officer
Industries Unit
General Operations and Border Issues Division
GST Rulings and Interpretations Directorate
RITS CASE # HQR0000521
| c.c.: |
S. Mailer (for signature only)
D. Gagnon
R. Smith
A. Belyea (Dept. of Finance) |
11735-15, 11585-8
11783-2/Ss. 149(1)(3), 167(1)(1.1)
HQR0000537
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