7 December 1998 GST/HST Interpretation HQR0001417 - Meal Vouchers & Input Tax Credits

Thank you for your memorandum of October 29, 1998, with respect to XXXXX and their request for a ruling regarding their entitlement to input tax credits and meal vouchers issued to their passengers.

Background

Based upon the information provided in your memorandum, it is our understanding that:

•   In the event of a flight delay (or for V.I.P. passengers), XXXXX issues meal vouchers to its passengers which are redeemable at food concession stands in Canadian airports. The meal vouchers are for a fixed dollar amount.

•   At the end of the month, an invoice is sent by the private corporation at the airport, understood to XXXXX together with the meal vouchers and purchase receipts to XXXXX[.]

•   The amount invoiced to XXXXX is equal to the actual amount of the purchase by the passenger where the amount of the food or beverages is less than the face value on the voucher.

•   The amount invoiced to XXXXX is equal to the dollar value of the voucher where the passenger's purchase equalled the value of the voucher, or was only slightly more than the value of the voucher.

•   In the latter event, unless the difference was significant, it is understood that neither the passenger, nor XXXXX would be charged more than the voucher value.

•   XXXXX has been claiming input tax credits equal to XXXXX of the tax paid on the value of the consideration for the meal vouchers.

Headquarters Interpretation

We concur that XXXXX would be entitled to claim input tax credits with respect to the GST/HST paid on the value of the consideration for the meal vouchers provided to their passengers, subject to the requirements and restrictions with respect to input tax credits. XXXXX would not be subject to the recapture provisions under subsection 236(1) of the Excise Tax Act (ETA) with respect to the meal vouchers provided to their passengers.

Analysis

The issue at hand with respect to the meal vouchers provided to XXXXX passengers hinges on whether or not subsection 67.1(1) of the Income Tax Act (ITA) applies. Subsection 67.1(1) of the ITA must apply for the recapture provisions under subsection 236(1) of the ETA to apply.

Paragraph 67.1(2)(a) of the ITA provides that subsection 67.1(1) does not apply to an amount paid or payable by a person in respect of the consumption of food or beverages or the enjoyment of entertainment where the amount is paid or payable for food, beverages or entertainment provided for, or in expectation of, compensation in the ordinary course of a business carried on by that person of providing the food, beverages or entertainment for compensation.

It could be argued that XXXXX responsibility for their passenger's care and well-being could begin as early as the point in time when the passenger is picked up at their hotel or at their home, if XXXXX provides that service. In any event, Income Tax Rulings and Interpretations has taken the view that a passenger's trip would be considered to have commenced prior to the airplane's actual take off. Once a passenger checks in at the airline counter, the airline has the responsibility for the well-being and comfort of that passenger. This includes the time prior to boarding a flight or waiting around the terminal when changing flights, and it is not until the passenger reaches their final destination that this responsibility ceases.

It is our understanding that for income tax purposes, food and beverages provided before boarding, and food and beverages provided during flight changes, are no less a part of the product paid for in the fare by the passenger than similar consumption in the air, or the actual transportation itself. Based upon the information provided, it is our view that XXXXX is in the business of providing food, beverages and entertainment for compensation in the ordinary course of their business, as well as providing air travel services. As such, we would be inclined to conclude that for income tax purposes, XXXXX would qualify for the exception provided under paragraph 67.1(2)(a) of the ITA with respect to the meal vouchers provided to their passengers, recognizing that such determinations are the responsibility of Income Tax Rulings and Interpretations.

Given our understanding of income tax's position with respect to subsections 67.1(1) and (2) of the ITA, it is our view that the recapture provisions under subsection 236(1) of the ETA would not apply to XXXXX with respect to meal vouchers provided to their passengers. Should you have any further questions, please contact me at (613) 954-9699.