25 June 1997 GST/HST Interpretation HQR0000466 - Application of the GST on the Supply of Advertising Services

                                                                        Ref: 123(1), 169

                                                                        XXXXX

I refer to the letter of February 26, 1996 to the XXXXX Tax Services Office to reconsider the GST application ruling on the XXXXX program of the XXXXX[.]

Statement of Facts

1. The XXXXX is a non-profit organization that is registered for purposes of the GST.

2. The XXXXX is one of several tourism associations that operate under the XXXXX program XXXXX[.]

3. Under the XXXXX program, the XXXXX receives funding from XXXXX XXXXX for advertising projects it undertakes in collaboration or partnership with private sector members of its association.

4. Prior to receiving approval and government funding for its advertising programs, the XXXXX receives project submissions from its members. Those submissions that are approved by the XXXXX are included in the marketing plan it submits to the provincial government. It is on the basis of the marketing plan that the XXXXX receives funding from the provincial government.

5. On commencing a print advertising campaign, the XXXXX elicits bids from suppliers of advertising (publishers). Based on these bids the XXXXX selects the appropriate supplier.

6. The XXXXX and the publisher sign a letter of agreement. This agreement outlines the responsibilities/ requirements of both parties with respect to the advertising project (a copy of a general letter of agreement, and two agreements for specified projects have been submitted for our review).

7. In the letter of agreement, it specifies that the publisher is responsible for selling the particular advertising project to the members of the XXXXX provides a list of its members to the publisher for this purpose.

8. Members wishing to participate in the advertising campaign are required to sign an insertion contract. The insertion contract is a confirmation of the member's participation in the XXXXX funded advertising project, and a confirmation of an advertising sale.

9. The insertion contains specific information including the name of the supplier of the advertising service, the participating member, the descriptions of the advertisement (size, colour, etc.), the publication date, and the amount payable by the member.

10. The insertion contract must be on file at XXXXX office before XXXXX will invoice members for their payment.

11. Members who participate in the advertising campaign but who have not signed an insertion contract which is on file with the XXXXX do so without the benefit of XXXXX funding; i.e., these members have to pay for the full cost of their printed advertisement.

12. XXXXX invoices its members for the members portion of the advertising service. The publisher is responsible to ensure that all participating members pay XXXXX XXXXX up to XXXXX prior to the printing deadline. Members who fail to provide the money to XXXXX prior to the deadline will have to pay the full cost of their advertisement; i.e., the cost of the advertising is not subsidized by XXXXX funding.

13. All monies received from the participating members are held in trust by XXXXX XXXXX prior to the publishing of the print ads. These amounts include the GST payable by the members for their portion of the advertising service.

14. The publisher invoices XXXXX for the total cost of the advertising project, but only for those members who have signed an insertion contract which is on file with XXXXX and who have provided the money to XXXXX prior to the deadline.

15. Funding received from the province under XXXXX program is not consideration for a supply but is a grant as described in GST Technical Interpretation Bulletin TIB-067 "Goods and Services Tax Treatment of Grants and Subsidies".

Ruling Request:

1. XXXXX and its members are recipients of a supply of advertising services provided by the publisher.

2. Members may use the invoices from XXXXX as documentary evidence of the tax paid on their acquisition of advertising services.

Ruling

1. Based on the contractual arrangement between XXXXX its members and the publisher, both the members and XXXXX are responsible to pay a specified amount of the consideration payable for the advertising services. Therefore, the members and XXXXX are "recipients" of the supply of the advertising services as that term is defined in subsection 123(1) of the ETA.

2. With respect to the documentary requirements necessary for the members to show that tax was paid on the acquisition of a service, we have determined that the members may use the invoice from XXXXX as evidence that they have paid the GST on the acquisition of the advertising service.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under objection or appeal, that there are no relevant changes in the future to the Excise Tax Act, and that you have fully described all necessary facts and transactions for which you requested a ruling.

Analysis

A "recipient" of a supply of a property or service for purposes of the GST, is defined in subsection 123(1) of the ETA to mean, where the consideration for a supply is payable under an agreement, the person who is liable to pay for the supply under the agreement. As each member is required to sign an insertion contract for the advertising project, each member is liable to the contractor for their portion of the consideration as set out in the insertion contract. Thus the members are recipients of the advertising services. XXXXX is also a recipient, based on the fact that it is liable to pay the advertiser for 50% of the cost of advertising services.

Whereas the publisher invoices XXXXX for the full cost of the advertising service, XXXXX is only liable for XXXXX of the cost of the advertising service and the remaining liability rests with its members. As a result, the GST payable by XXXXX is restricted to the amount of the consideration that XXXXX is liable to pay. Similarly, the GST payable by the members is restricted by the consideration the members are liable to pay. Note, this is important in that for purposes of claiming an input tax credit (ITC), or a GST rebate, the rebate or ITC is based to the amount of the tax that is payable or is actually paid without having become payable, by a person.

Example:

Pursuant to subsection 169(4) of the ETA, a registrant may not claim an input tax credit, unless there is sufficient evidence that will enable the amount of the input tax credit to be determined, including any prescribed information. The Input Tax Credit Information Regulations set out the prescribed information that must be included on any supporting documentation used to claim an input tax credit. In particular, the suppliers name or the name and registration number of the "intermediary" of the supplier and registration number must be included on any supporting document where the amount payable exceeds $30.

As defined in section 2 of the Input Tax Credit Information Regulations, "an intermediary of a person, in respect of a supply, means a registrant who causes or facilitates the making of the supply by the person". XXXXX may be considered an intermediary of the supplier as they set up the tender process, chooses the supplier, provide the member list to the supplier, invoice the members, and require payment from the members be made directly to them.

If you have any questions or comments concerning the above ruling, please contact me at (613) 954-4206.

Sincerely,

Dwayne Moore
Rulings Officer
Charities, NPOs, and
Educational Services
GST/HST Rulings & Interpretations

c.c.:      D. Moore