3 January 1996 GST/HST Interpretation 11725-8[2] - Agency Relationship

We have reviewed the draft letters to the XXXXX that were prepared by your office. We apologise for the delay in responding to your request.

From the outset of the GST, the department has taken the position that references to a person acting as agent included in the Excise Tax Act would be interpreted as referring to a person acting as "agent at law" (that is, authorised to affect the legal position of the principal, etc.). On December 14, 1994, the policy proposal concerning the meaning of agency was approved by the Policy Review Committee in the GST Rulings and Interpretations Directorate of the Policy and Legislation Branch. This policy, in part, addresses the question of when an expense is incurred as agent on behalf of another person and reaffirmed the department's position that "agent" means "agent at law." The determination of whether a person acts in that capacity for another person for a particular transaction remains a question of fact. The policy statement dealing with the meaning of agency is available on the electronic database.

You are correct in your comments that it is a question of fact and law whether an agency relationship exists. However, it may be more helpful to identify those factors that the department would consider when evaluating the existence of agency. The policy statement refers to these as the Essential Qualities of Agency and the Indicators of Agency. By applying the Essential Qualities of Agency, we first determine whether the relationship of agency exists between the parties. If we accept the likelihood that this relationship exists, then we apply the Indicators of Agency to each expense in order to determine whether a particular expense was incurred as agent.

We would suggest that the three criteria referred to in your drafts XXXXX be replaced with a discussion of the Essential Qualities of Agency. Only after accepting the likelihood of an agency relationship are the Indicators of Agency applied to a specific expense.

Both drafts include the statement that 'The Department will not provide an advance ruling on the question of whether or not an agency relationship exists between two parties.' We would point out that the department will not rule on whether an agency relationship exists where the relationship in question is already established or ongoing. Where a GST ruling turns on the question of agency in such circumstances, there must be a representation of fact as to whether an agency relationship exists. The department will rely on such representation when providing the ruling as to the application of GST. Should this representation not be correct, the ruling may not be binding. However, the department may rule on whether an agency relationship exists where all the relevant documentation and facts are available prior to the establishment of the relevant relationship and it is reasonable to assume that the relevant conditions will continue to apply. When referring to ruling requests, whether advance or application, it is important to point out the guidelines for ruling requests as set out in GST Memoranda Series 1.4 (previously Memorandum 100-3).

Paragraph 4 of page 5 of the draft response to XXXXX notes that coroner services are generally taxable supplies as they are not considered exempt health care services under Part II of Schedule V to the Act. It is not clear what the term "coroner services" encompasses and therefore, the application of tax to the supply cannot be determined.

XXXXX. The recipient of the supply of the service provided by XXXXX reimbursed XXXXX for certain expenses. All or a portion of the assessment relates to whether XXXXX was acting as agent of the recipient when it incurred these certain expenses.

We have reviewed the XXXXX Clause XXXXX of the contract states 'The parties acknowledge that the funeral home will be acting as agent for the purchaser(s) in connection with any actual disbursements made pursuant to the provisions of this contract.' The existence of this clause is not in itself a definitive indicator of an agency relationship between the funeral home and the recipient.

We must examine the relationship of the parties by applying the Essential Qualities of Agency:

•   Consent of both the Principal and the Agent

•   Authority of the Agent to Affect the Principal's Legal Position

•   The Principal's Control of the Agent's Actions

On the basis of the information available to us, we would question whether the purchaser who signs the agreement understands the legal concept of agent at law; that is, that he, the purchaser, has agreed that the funeral home has the authority to act on his behalf and to affect his legal position. In addition, we have seen little evidence that the purchaser controlled the funeral home's actions.

If there is no likelihood of the existence of agency between the parties, there is no need to apply the Indicators of Agency to each expense. If it is determined that there is a likelihood of agency between the parties then each the Indicators of Agency must be applied to each expense. On the basis of the limited information available, we do provide the following comments.

Although some of the expenses in the column headed 'Estimate of Disbursements' are self explanatory, we do not have much information concerning the 'regulatory fee' and why this amount could be incurred as agent. Is the fee an amount charged by the funeral association to the funeral home or to the purchaser? Is the funeral home simply covering their own cost of operation?

We have also reviewed an invoice issued by XXXXX dated October 21, 1992. We note that GST was applied to the cost of XXXXX for an Additional Limousine. This does not agree with the funeral home's position that 'actual disbursements' are incurred as agent.

We have also reviewed a submission by XXXXX[.] We do not disagree with his comments concerning the agency relationship between XXXXX and the recipient but we do suggest that the relationship between the parties and the specific expenses be examined with reference to the policy statement dealing with the meaning of agency.

If we can be of further assistance, please contact Ken Mathews at (613) 952-9585 or Sara Nixon at (613) 954-4397.

H.L. Jones
Director
General Applications Division
GST Rulings and Interpretations

GTP#749REG