8 December 1998 GST/HST Interpretation 11645-3 - Request for Clarification

This refers to your request for an interpretation of the tax status of certain amounts appearing on invoices for airline tickets.

My understanding of the facts are as follows:

1. XXXXX is a resident of Canada, who is registered for the GST/HST XXXXX[.]

2. XXXXX a travel agency, who is also resident in Canada and is registered for the GST/HST XXXXX obtains XXXXX airline tickets from XXXXX[.]

3. XXXXX provides XXXXX return tickets for travel XXXXX the value for consideration being $890.42. XXXXX[.] The invoice to XXXXX indicates that the tickets are for travellers, XXXXX[.]

4. XXXXX in turn provided two return tickets to travellers, XXXXX[.] The value for consideration of the supply of the tickets to the travellers was $988.42.

5. The difference between the value of consideration for the supply of the tickets was $98.42.

It is not clear, from the information submitted, as to the nature of the relationship between XXXXX and the travellers. Furthermore, based on the fact that the Department does not know the nature of the relationship, it is difficult to determine whether, in fact, a commission is being charged by either XXXXX or XXXXX or whether XXXXX has included a markup in the value for consideration for the supply of the tickets to the travellers. Therefore, one must first determine whether XXXXX is acting as an agent of XXXXX and, as such, is receiving a commission for the service to XXXXX with respect to the sale of airline tickets, or whether XXXXX is purchasing tickets from XXXXX for resale to its own customers.

Note should be taken of the fact that the tickets are considered to be "net tickets" meaning that a commission is not paid when the tickets are obtained. In view of the fact that the travel agent does not receive a commission, the travel agent normally includes a markup, in the sale price, to its customers. In an agency relationship, GST is collected and remitted on the value of the markup and in a buy and sell situation, the value of the markup is included in the value of the consideration for the supply of the airline tickets and GST is charged on the total value for consideration, inclusive of the markup.

Scenario #1 - Buy and Sell

In a buy and sell transaction, XXXXX sells the tickets to XXXXX pays the value for consideration for the supply of the tickets plus the GST applicable. XXXXX who is known as the principal, subsequently sells the tickets to its customers, XXXXX[.] In effect, XXXXX has assumed risk for the ticket meaning that XXXXX is responsible for the tickets should they not be resold to any customers. XXXXX claims an ITC on the amount of tax paid to XXXXX and when the tickets are resold, XXXXX charges tax on the total value for consideration of the supply of the tickets inclusive of any markup. A markup is included in the value for consideration for the supply of the tickets because the tickets were sold without a commission. The tax collected on the sale of the tickets is subsequently submitted to the Department.

Scenario #2 - Agency

In an agency relationship, XXXXX would sell the airline tickets to the travellers plus collect and remit the GST applicable. XXXXX would act as agent for XXXXX and would receive a commission from XXXXX on which tax would be charged by XXXXX[.] In this case, XXXXX is considered to be the principal and, as such, is responsible for collecting and remitting the GST on the taxable supply of the airline tickets and XXXXX the agent, is responsible for collecting and remitting the GST on its services to the principal.

Conclusion

From the documentation submitted, it is possible that there is an agency relationship between XXXXX[.] The names of the travellers, XXXXX appear on the invoice from XXXXX indicating that XXXXX is possibly the supplier of the tickets to XXXXX customers. If there is an agency relationship and due to the fact that these are "net tickets", XXXXX determines the amount of the commission ($98.42) for which it collects and remits GST.

If you have any questions, please do not hesitate to contact me at (613) 954-5124.

Cheryl R. Leyton
Services and Intangibles Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate

1. All statutory references contained herein are to the Excise Tax Act, unless otherwise noted.