1996 GST/HST Interpretation 1996[2] - Refunds of the Goods and Services Tax

Dear Mr. XXXXX

I refer to your letter of May 23, 1995, addressed to XXXXX XXXXX, regarding the refund mechanism for the Air Transportation Tax (ATT) and the Goods and Services Tax (GST) where a passenger purchases a seat on a charter flight, subsequently cancels their reservation, and is not provided air transportation service.

I understand that you have already received a response with respect to the ATT by the Excise Duties and Taxes Directorate. Given that my Division is responsible for the administration of the GST as it relates to air transportation issues, I have been asked to respond to the GST aspect of your enquiry. I understand that XXXXX (hereinafter referred to as XXXXX[)] purchases blocks of seats from XXXXX and resells the seats to passengers. Passengers may cancel their reservations and no air transportation service is provided to them. The three airlines mentioned above do not refund the GST to you for such cancelled reservations.

Unlike the ATT which depends on a person actually providing a service of transporting passengers by air, the GST depends on a supply being made. For example, in the supply by one of the airlines to you of a block of seats, where there is no adjustment made for passengers who do not board the plane, whether a passenger cancels and does not board is irrelevant to the application of the GST.

It is important to note that there are two separate supplies in the situation you have described. The first supply is of the block of seats by one of the three airlines to you and the second supply is of a tour package or air transportation by you to your customers. A refund on the supply to your customer does not necessarily require or imply that a refund will or should occur on the airlines' supply of your inputs that are used in making the supply of the tour package to your customer.

If you refund all or part of the consideration that relates to your supply of a tour package or air only transportation to your customer who has cancelled their trip, then you may provide a refund or adjustment of the GST to your customers, provided you issue a credit note. The credit note, required under section 232 of the Excise Tax Act (hereinafter referred to as the Act) must meet specific requirements as outlined in the Credit Note Information Regulations (copy enclosed).

If your customer has purchased trip cancellation insurance, and it is through that insurance that your customer obtains a "refund", then no adjustment or refund of GST is permitted since no adjustment was made to the consideration for the tour package or air transportation.

Note that if you are selling a tour package and make an adjustment (as opposed to a total refund), you may have to recalculate the amount of the GST using the formula based on the tax status of each of the elements of the package as outlined under section 163 of the Act.

If the contract for the supply of the block of seats to you by the airlines allows for adjustments to consideration if a passenger (to whom XXXXX has sold a tour package or only air transportation) cancels, then the airline may make an adjustment to the GST corresponding to 7% of the adjustment to the consideration. In order for those airlines to make such an adjustment to GST (which you refer to as a "refund"), they must issue a credit note for the adjustment to the supply.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed or future amendments to the legislation may result in changes to our interpretation. These comments are not rulings and, in accordance with the guidelines set our in GST Memoranda Series (1.4), do not bind the Department with respect to a particular situation.

If you have any comments or questions about this letter, please do not hesitate to contact Tom Alley, Tax Policy Officer at (613) 952-9218. If you have questions on the GST in the future, I suggest you contact your local Tax Services office for all your GST requirements. Your nearest office is the XXXXX[.]

J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations

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ETA References                      165(1) Imposition of GST
221(1) Collection of tax
169(1) ITCs
228(1) Calculation of net tax
232(1) Refund or adjustment of tax