Doc: 66
File: 11950-1(DRM)
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Subject:
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Tax Treatment Applicable to Supplies of Services Made by a Person Who is Both a Freight Forwarder and a Customs Broker.
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I refer to your letter of March 31, 1994, wherein you raised some concerns regarding Revenue Canada's interpretation of supplies made by a person who is both a freight forwarder and a customs broker. In particular you are concerned that our interpretation implies that where a person supplies freight transportation services and also acts as a customs broker for the same principal the service of acting as customs broker will be treated as part of or incidental to a particular freight transportation service.
Where a supplier, who is acting as a freight forwarder, acquires freight transportation services for supply to a recipient the supplier will be considered a carrier. Pursuant to the definition of "freight transportation service" in subsection 1(1) of Part VII of Schedule VI to Excise Tax Act (the Act), any property or service supplied by the freight forwarder that is part of or incidental to the supply of the freight transportation service will have the same tax status as the particular freight transportation service.
However, custom brokerage services provided by a freight forwarder do not qualify as incidental to the supply of the freight transportation service. A person may contract with a freight forwarder for the provision of freight transportation services or freight transportation services and brokerage services. A freight forwarder who provides both services is in effect performing two different functions; first, as agent of the person and second, as principal in the transport of freight.
I therefore agree with your conclusion that brokerage services and freight transportation services performed by a freight forwarder should be treated as separate supplies and that brokerage services are not incidental to the supply of freight transportation services. Please note that the question and answer database will be updated to reflect this view.
With respect to expenses incurred by a supplier in the provision of services to a recipient, section 178 of the Act deems any reimbursement of these expenses to be part of the consideration for the supply of the service, except where the expenses are incurred as an agent of the recipient. For example a supplier (who is not an agent) incurs a miscellaneous expense of $100 plus GST. The supplier claims an input tax credit on the GST charged. The amount of $100 will be added to the consideration payable by the recipient. GST will be charged on the total consideration depending on the tax status of the supply.
If you have any questions or comments, please do not hesitate to contact Dwayne Moore, Tax Policy Officer at (613) 954-4206 or Tom Alley, Tax Policy Officer at 952-9218.
J.A. Venne
Director
Tax Policy - Special Sectors
GST Policy & Legislation
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