1 December 1995 GST/HST Interpretation 11725-9[1] - Application of Tax in the Context of a Disclosed Agency Relationship

                                                                        11725-9(sl)

Thank you for your letter of October 13, 1994, concerning the application of tax in the context of a disclosed agency relationship. We apologise for the delay in responding to your request.

We confirm your understanding of the responsibilities of both the principal and agent in the context of a disclosed agency relationship, i.e., the principal must account for tax on the supplies to the third party whereas the agent must account for tax on the supply of services to the principal. Also, we agree that, in general, while the agent may make remittances on the principal's GST account, the liability for the tax remains with the principal. Only in certain approved circumstances has one party been permitted to remit tax owing by another party, i.e., P-131 Remittance of tax by a third party.

We have reviewed the letters you refer to, XXXXX dated June 1, 1992 and July 21, 1992 issued by Special Sectors. The remittance of tax in those situations referred to as 'interline settlements' is an issue that is currently under review by Special Sectors. Further communication concerning this issue should be directed to Adrien Venne, Director, Special Sectors Division.

In addition, the information provided in the letters as to what constitutes a disclosed agency relationship for purposes of section 177 is not correct. Therefore, if an agency relationship does exist between the parties, we do not agree with the conclusion that it is a disclosed agency for purposes of section 177.

For supplies before 1993, subsection 177(1) required that for subsection 177(1) not to apply, the agent who makes a taxable supply on behalf of the principal must enter into a written agreement with the recipient, or issue an invoice for the supply, in the name of the principal. Note that for supplies before April 1991, the agent simply had to be acting on behalf of a vendor (i.e., not necessarily as agent) and an additional form of disclosure was acceptable, i.e., the agent issues a receipt in the name of the vendor.

For supplies after 1993, subsection 177(1) was amended so that in order for subsection 177(1) not to apply, the agent who makes a taxable supply on behalf of the principal must disclose, in writing, to the recipient of the supply, both the name of the principal and the registration number assigned to the principal. More specifically with respect to the meaning of "disclose, in writing," it is not sufficient to simply state the name and the registration number of the principal; rather, there must be sufficient information to identify the principal as the supplier of the taxable supply.

Therefore, we do not agree that the disclosure requirements for purposes of subsection 177(1) are fulfilled because a passenger checks in at a particular airline's gates. What a passenger may or may not know is not sufficient to absolve the agent of the responsibility to disclose, in writing, information as required by the legislation. On the basis of the limited information available, it appears that an entry in a flight schedule does not constitute "entering into a written agreement" for the purposes of subsection 177(1).

We will provide XXXXX with the correct information. If we can be of further assistance in this matter, please contact Ken Mathews at (613) 952-9585 or Sara Nixon at (613) 954-4397.

H.L. Jones
Director
General Applications Division

894REG

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c.c.:      Adrien Venne, Director, Special Sectors Division
v.:        Adam Belyea, Policy Officer, Special Sectors Division