GST/HST Rulings and
Interpretations Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Road
Vanier, Ontario
XXXXX K1A 0L5
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XXXXX
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Case: HQR0000237
XXXXX 11735-1
XXXXX November 5, 1997
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Subject:
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GST/HST INTERPRETATION
Agency and Contractor Purchases on Behalf of Owners
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Dear XXXXX
Thank you for your letter of August 11, 1994 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) where a contractor acts as an agent on behalf of the owner. My apologies for the delay in responding to you.
Interpretation Requested
What are the GST/HST implications where direct expenses that are either GST/HST exempt or zero-rated, such as medical equipment, are incurred by a contractor on the owner's behalf?
Interpretation Given
It is a question of fact whether a particular expense is incurred by a contractor as an agent on behalf of an owner. The onus remains on the parties involved to determine whether, in fact, an agency relationship is in existence for purposes of the GST/HST. The enclosed draft Policy Paper P-182 discusses the factors one would consider in determining whether or not a person is acting as an agent for a particular matter and includes various indicators to assist in the identification of an agency situation.
Agents and other suppliers often incur out-of-pocket expenses in the course of rendering a service for which they are reimbursed by their clients. These disbursements form part of the fee for the supply of the services rendered unless they are incurred as agent for the client. Where an agency relationship does not exist, the reimbursement of expenses incurred in the provision of the service will constitute part of that service and will be subject to GST/HST based on the tax status of the service.
Where a contractor incurs a disbursement as agent for an owner, the disbursement is not treated as an expense of the contractor nor part of the contractor's fee for services. The disbursement is however, treated as having been incurred by the owner through the agency of the contractor.
Where tax has been paid by the contractor as agent of the principal, the contractor cannot recover it as an input tax credit ("ITC"). Instead, to recover the expense, the amount paid including the tax, may be billed separately to the principal without charging additional GST/HST. The principal may claim an ITC for the GST/HST paid by the agent, as if the principal had paid the GST/HST directly.
On the other hand, when a contractor who is not acting as agent invoices an owner for reimbursement of an amount, the reimbursement is treated as being part of the consideration for the service supplied by the contractor to the owner. If this service is determined to be a supply of a service that is taxable at seven percent or fifteen percent, as part of the consideration for the service, the reimbursement will also be taxable at seven percent or fifteen percent, as the case may be. Similarly, a service determined to be exempt or zero-rated will dictate that the reimbursement will also take on exempt or zero-rated status.
As such, where a contractor acquires zero-rated medical equipment as agent of the principal, the contractor will not charge GST/HST to the principal when seeking reimbursement. However, where the contractor is not acting as agent, the consideration for the medical equipment will form part of the consideration for the services provided by the contractor and will be subject to GST/HST in the same manner as the contractor's services.
The enclosed draft of Policy Paper P-209 "Lawyers' Disbursements" addresses common expenses for which lawyers are reimbursed and identifies those which are generally recognized by the Department to have been incurred as agent. You may find this paper useful in determining whether expenses incurred by contractors are incurred as agent.
The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST Memoranda Series, do not bind the Department with respect to a particular situation.
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact Marcel Boivin at (613) 954-2488.
Yours truly,
KerriAnne Boyd
A/Rulings Officer
General Operations Unit
General Operations & Border Issues Division
GST/HST Rulings and Interpretations Directorate
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