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Subject:
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GST APPLICATION RULING
XXXXX
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Dear XXXXX
Thank you for your facsimile of January 28, 1997, concerning the application of the Goods and Services Tax (GST) to the supply of trade units by a member of an organized trade exchange and the additional documentation and information provided on February 11 and March 4, 1997 respectively. We apologize for the delay in responding to your enquiry.
Statement of Facts
• You, as a sole proprietor, operate a business under the trade name XXXXX[.] You are not currently registered for the GST as you are a small supplier for purposes of the GST.
• XXXXX[.]
• You are a member of the trade exchange system administered by XXXXX
• XXXXX administers a trade exchange system through which member businesses agree to exchange goods and services among members through the use of a "trade card" and "trade dollars".
• XXXXX charges an initial set-up fee of XXXXX (cash) to all of its members. Members receive an automatic XXXXX trade dollar credit line upon the payment of the initial set-up fee.
• Members must pay XXXXX an annual renewal fee of XXXXX (cash), a cash commission of XXXXX on all sales and XXXXX on all purchases and must also pay a XXXXX (trade) statement processing fee each month. The cash commission applies to the gross value of each sale or purchase with other XXXXX members or other trade exchange affiliates. All fees charged by XXXXX are for services rendered in processing members into the exchange system, maintaining records and facilitating the members' use of the exchange.
• The Application and Agreement (Agreement) states that XXXXX is functioning in a brokerage capacity and that the member indemnifies and holds XXXXX harmless with respect to any claim, debt, or liability whatsoever, arising out of any trade exchange transaction wherein the member is the purchaser or supplier.
• XXXXX the Agreement states that trade transactions are entered into on a voluntary basis between members; XXXXX assumes no responsibility for the quality, timely delivery, warranty or dispute of any nature between members with regard to any good or service being traded.
• The declaration and reporting of all applicable local, provincial and federal taxes resulting from trade transactions rests solely with the member.
• Increases in a member's account balance occur when the member supplies goods and/or services within the exchange system. Specifically, the equivalent value of the good or service supplied is credited to the member's account. The member's account is debited when the member purchases a good or service within the exchange system.
• To receive credit for transactions the supplier must:
i) obtain an authorization number from XXXXX on each transaction over XXXXX prior to making the supply; (If the transaction occurs outside business hours, the supplier should obtain the purchaser's Visa, Mastercard, or American Express credit card number and the expiry date of the particular card as a back-up form of payment and call for authorization during business hours.)
ii) check the expiration date on the purchaser's trade card to make sure it is still valid; and
iii) obtain the purchaser's signature on a XXXXX trade slip or other written document and mail all white copies to the XXXXX head office within XXXXX. (If a signed trade slip is not submitted to the XXXXX head office within XXXXX, XXXXX has the right to reverse authorization, in which event, it will be the responsibility of the supplier to collect another form of consideration from the purchaser.)
For telephone order transactions, the supplier must put the abbreviation XXXXX in the signature area with the printed name of the purchaser. In the event that the purchaser disputes the purchase within XXXXX, it will be reversed by XXXXX unless a signed trade slip has been received. Telephone orders are not reversible after XXXXX
• The trade slip which the purchaser signs authorizes XXXXX to debit the purchaser's account by the amount of the total shown. Taxes, tips and gratuities are not include in that total.
• Purchases by members must be limited to the amount of XXXXX trade dollars in the purchaser's account plus the purchaser's available credit amount. Any time a member's trade account is in a deficit position, XXXXX has the right to demand immediate payment in cash for the total trade deficit due and may take any action necessary to secure such payment.
• A member or XXXXX may cancel the Agreement after XXXXX written notice. Upon cancellation, all trade dollars due the member must be spent within XXXXX on goods and services available through XXXXX Any outstanding cash or trade dollar balance due must be paid to XXXXX in full within XXXXX in cash.
• The Agreement clearly states that the trade dollars are not to be considered legal tender, securities, or commodities by either XXXXX or its members, and may not be redeemed for cash.
Ruling Requested
Is the GST charged on the trade dollars which are given as payment for a good and/or service by a member?
Ruling Given
Trade dollars are not subject to the GST when used by a member as consideration for a supply of property and/or service irrespective of whether or not the member is a registrant for purposes of the GST.
The amount of GST payable on the supply of a particular property or service is not affected when a member uses trade dollars as consideration for that particular supply. For example, where an office supply company, which is a member of the exchange system and is registered for purposes of the GST, sells a chair from its store in XXXXX to another member, the office supply company must charge the member purchasing the chair GST equal to 7% of the value of the consideration for the supply of the chair whether the member pays for the chair with cash or trade dollars.
This ruling is subject to the general limitations and qualifications outlined in GST Memoranda Series (1.4). We are bound by this ruling provided that none of the above issues is currently under audit, 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.
Yours truly,
M. Dawn Weisberg
Senior Policy Officer
Financial Institutions and Real Property Division
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