20 February 1997 GST/HST Interpretation HQR0000012 - Application of GST to Coupon Booklets to be Redeemed for Air Transportation

                                                                        GST Rulings and Interpretations
9th Floor, Tower C
25 McArthur Road
Vanier, Ontario
XXXXX                                                                                 K1A 0L5

                                                                                    February 20, 1997

Dear XXXXX

Thank you for your letter of May 7, 1996 to Keith Hudson which was copied to Adrien Venne concerning, among other things, the timing of GST liability when coupon booklets are purchased from an airline and then the coupons from those booklets are later used to acquire air transportation services from the same airline. I apologize for the delay in issuing this letter.

Interpretation Requested

In paragraph 2 of your letter you expressed a concern that if GST were exigible at the time that the coupon booklets are sold as opposed to the time that they are redeemed for tickets, the amount of GST on the air transportation tax (ATT) on those tickets would be lost. This is because ATT can only be calculated and thus imposed at the time that the coupons are redeemed. In this interpretation I will set out the Department's position as to when the liability for GST arises where coupons for air transportation are purchased from an airline and are later redeemed for air transportation services. I will also set out the rules concerning the place of supply of these coupon booklets for the purposes of the Harmonized Sales Tax.

XXXXX of the Excise Taxes and Special Levies Division in our Branch has provided me with a copy of the terms and conditions attached to a coupon booklet issued by XXXXX, a copy of which is attached. For the purposes of this letter I will assume that these terms and conditions are typical of the terms and conditions issued with such coupon booklets. The relevant terms and conditions may be summarized as follows:

•   each coupon may be redeemed for a one way coach class ticket on the issuing airline XXXXX[;]

•   coupons may only be redeemed at the issuing airline's ticket offices;

•   the coupons have no cash value and are not redeemable for cash;

•   the coupons are non-transferable; and

•   the coupons will only be issued to XXXXX[.]

It is also my understanding that no dollar amount appears on the face of the coupons. Currently no such coupons are offered for sale in Canada. Some airlines, however, have indicated that they intend to start selling similar products within Canada in the near future. For the purposes of this letter I will assume that coupons with terms and conditions similar to the above were purchased in Canada and are to be used for flights within Canada, or between Canada and the United States (except Hawaii) or the islands of St. Pierre and Miquelon.

Interpretation Given

It is the Department's position that pursuant to section 133 and subsection 168(1) of the Excise Tax Act, GST is exigible when the passenger purchases a coupon booklet from the airline. When and if these coupons are later redeemed for passenger airline tickets no GST is collected. Any additional further consideration, such as Air Transportation Tax collected at the time that the coupons are redeemed, would also be subject to the GST.

Section 133 states that at the time an agreement is entered into to provide a property or service, the entering into of the agreement is deemed to be a supply of the property or service and the subsequent provision of the property or service under the agreement is deemed to be a part of this supply. This agreement need not be a written agreement. Subsection 168(1) states that GST is payable in respect of a taxable supply on the earlier of the day that consideration for the supply is paid and the day consideration for the supply becomes due.

As stated in GST Memorandum 300[-]4, Time of Liability - Agreements in Writing, an agreement is a coming together of minds or a common understanding or intent with respect to the relative rights and duties of the parties to the agreement. I am unable to determine generally whether a contract or agreement exists between the airline and the passenger with respect to the above coupon booklets because this would require a determination of law in any particular case. It would appear, however, that the terms and conditions provided to me set out the rights and duties of the airline and the purchaser concerning the use of the coupons for the future provision of air transportation services. If we assume that there exists a common understanding or intent between the purchaser and the airline that matches these terms and conditions then clearly an agreement exists between the two parties. As well, based on the provided terms and conditions, such an agreement at the time that the coupons are bought is for the future supply of air transportation services. Thus section 133 and subsection 168(1) would apply to make the GST on the sale of the coupon book collectible at the time that the coupon booklet is paid for. No GST would be collectible at the time that the air transportation services are received in exchange for the coupons.

However, any additional future consideration for the air transportation services would be subject to the GST. Thus if ATT is collected from the passenger at the time that the coupons are redeemed, GST would be collectible on the amount of the ATT collected at that time.

With respect to the place of supply rules for the purposes of the Harmonized Sales Tax (HST), proposed section 2 of Part VI of Schedule IX of the ETA states that where a ticket or voucher is issued for a passenger transportation service that is part of a continuous journey and the origin of the first passenger transportation service of the continuous journey is specified on the ticket or voucher, the place of supply is that particular province. Section 2 only applies where the termination and all stopovers of the continuous journey are in Canada. In cases where the origin is not specified on the ticket or voucher, the place of supply of a passenger transportation service is the place of negotiation of the supply. In the case of a coupon booklet, the coupons issued are not tickets or vouchers which specify the place of origin of the air transportation service. Thus the place of supply would be the province where the coupons are purchased. HST would therefore only apply to coupon books which are purchased in one of the participating provinces.

Yours truly,

H.L. Jones
Director
General Operations and Border Issues
GST Rulings and Interpretations

Attachment

Legal References:                   133, 168(1), 181.2

Authority:

Reference:

b.c.c.:   NCS Subject Code(s) - I