26 October 1998 GST/HST Interpretation HQR0000814 - Continuous Journey and Accommodation Rebate

Dear XXXXX

Thank you for your letter of August 19, 1997 (with attachments) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your operations. In particular, you are concerned that the continuous journey rules for zero-rating certain transportation services and the rules for calculating the non-resident short-term accommodation rebate (the "accommodation rebate") are placing your business at a disadvantage vis-à-vis tour operators in x the United States. You received an interpretation from the XXXXX Tax Services Office on these two issues and have asked us to review the matter further.

Our understanding of the facts is that, generally, XXXXX offers XXXXX tour packages to Canadian ski resorts that can typically be described as follows:

•   air transfer from departure city to ski resort airport; XXXXX bus transfer from airport to XXXXX [s]ki resort;

•   XXXXX nights hotel accommodation; XXXXX days lift pass;

•   XXXXX return bus transfer; and

•   return air transfer XXXXX

Some of XXXXX tour packages are marketed to United State XXXXX residents living near the Canadian border. In such cases, the departure city for purposes of the tour package is a Canadian airport. XXXXX American residents arrive at the Canadian airport as described in the following two scenarios:

Scenario 1

In this scenario, the part of the trip from the United States to Canada occurs in the following manner. American residents traveling from American cross-border communities depart from Canadian-based airports that service these communities. In this case, they travel by ground to the nearest Canadian airport, travel by air to a Canadian airport nearest the XXXXX, and then take a bus transfer from the airport to the ski resort.

Where American XXXXX residents are traveling by their own means to Canada, they are issued a voucher, which allows for reduced parking for the duration of their trip. This voucher is for XXXXX customers only and is issued only to customers traveling to Canada by automobile. Customers departing directly from XXXXX American XXXXX airports would not be issued a voucher.

Scenario 2

Ski groups (generally travelers of XXXXX or more passengers) arrange for charter bus transportation from a central location in an American cross-border community to the departure airport in Canada, travel by air to a Canadian airport nearest the ski resort, and then take a bus transfer from the airport to the ski resort.

Market Competition

XXXXX competes with XXXXX American tour operators who provide tour packages to Canadian ski resorts to American residents. Where an American tour operator provides a similar tour package as that provided by XXXXX but with the departure from an XXXXX American XXXXX airport, the transportation services are zero-rated. If XXXXX cannot zero-rate the transportation services provided in its tour packages, it is at a disadvantage.

With respect to the accommodation rebate, XXXXX calculates the rebate as 50 per cent of the tax paid on the tour package. Where a non-registered non-resident purchases a tour package in Canada for re-sale outside Canada, the supplier of the tour package can credit the accommodation rebate to the non-registered non-resident, calculated in the same manner. However, where the non-registered non-resident purchases the accommodation separately and assembles its own tour packages for re-sale, the supplier of the accommodation can credit the accommodation rebate to the non-registered non-resident calculated as 100 per cent of the tax paid on the accommodation, because the accommodation is not supplied to the non-registered non-resident as part of a tour package. Depending on the relative value of the various elements of the tour package, this second method can result in a larger accommodation rebate than the one for which XXXXX is eligible.

Interpretation Requested

1. Under either scenario, the portion of the transportation services not supplied by XXXXX are part of a "continuous journey". The origin of the continuous journey supplied by XXXXX is outside Canada and therefore the transportation services are zero-rated.

2. The accommodation rebate can be calculated based on 100 x per cent of the tax paid for the accommodation.

Interpretation Given

Based on the information provided, it is the Department's position that:

1. Under either scenario, the portion of the transportation services not supplied by XXXXX are not part of a "continuous journey". The origin of the continuous journey supplied by XXXXX is in Canada and therefore the transportation services are not zero-rated.

2. The accommodation rebate can only be calculated based on 50 per cent of the tax paid for the entire tour package.

Continuous Journey Rules

The first issue concerns whether the origin of a "continuous journey" for the purposes of section 3 of Part VII of Schedule VI to the Excise Tax Act (the "Act") is the departure point from the United States of an individual or group of individuals as described in the two scenarios.

A transportation service provided in Canada can be zero-rated pursuant to section 3 of Part VII of Schedule VI to the Act. Paragraph (c) of that provision zero-rates the service if:

(c) the origin of the continuous journey is within the taxation area, but outside Canada, and the recipient of the supply tenders the consideration for the supply at a place outside Canada;

"Origin" of a continuous journey has a legislative definition. Subsection 1(1) of Part VII of Schedule VI to the Act states that:

"origin" means ...

(b) in respect of a continuous journey, the place where the passenger transportation service that is included in the continuous journey and that is first provided begins;

Thus, for the transportation services provided by XXXXX to be zero-rated, the continuous journey would have to begin outside Canada, meaning that it would have to include the portion of the journey from XXXXX resident's residence to the Canadian airport.

The definition of "continuous journey" in subsection 1(1) of Part VII of Schedule VI takes into account situations where a single ticket is issued or where two or more tickets are issued. Where two or more tickets are issued (which we understand to be the case here), the provision states, in part, that:

"continuous journey" of an individual or a group of individuals means the set of all passenger transportation services provided to the individual or group ...

(b) where 2 or more tickets or vouchers are issued ... all the tickets or vouchers are issued by the same supplier or by 2 or more suppliers through one agent acting on behalf of all the suppliers ...

Thus, for the portion of the travel from x the American origin to the Canadian airport to be included as part of the continuous journey, any tickets or vouchers issued for that portion would have to be either issued by XXXXX or through XXXXX as agent. Where a group of American residents arrange their own bus transportation to the Canadian airport, it is our understanding that XXXXX does not issue the bus tickets nor act as agent of the bus company. Accordingly, this portion of the journey is not part of the continuous journey supplied by XXXXX which therefore begins in Canada and is taxable.

However, if XXXXX supplied the charter bus trip and if the other legs of the journey were included in the tour package supplied by XXXXX the departure point of the continuous journey would be considered to be XXXXX departure point. Consequently, provided the other conditions for the journey to be zero-rated were met, the transportation services supplied by XXXXX would be zero-rated.

Where XXXXX drive their own vehicles to XXXXX issues vouchers which provide for reduced parking fees. We cannot consider these vouchers to be provided as part of "the set of all passenger transportation services" provided by XXXXX[.] Although the Act does not contain a definition of "passenger transportation services", a parking service is not a transportation service. Even if it was considered as part of the transportation services provided by XXXXX this service begins in Canada and therefore the origin of the continuous journey would still be in Canada and taxable.

Non-Resident Short-Term Accommodation Rebate

The rules for calculating the accommodation rebate are found in section 252.1 of the Act. Without repeating them here, they allow for a 100 per cent rebate of the tax paid on the accommodation or a 50 per cent rebate of the tax paid on the tour package. The Department previously examined the question of whether either calculation could be used, or whether the 100 per cent rule applied to accommodation only and the 50 per cent rule applied to tour packages only. The Department's position on this issue is reflected in Policy Statement P-089, Short-Term Accommodations Rebate, which states that:

... registered suppliers may only credit to their non-resident clients 50% of GST payable on a tour package regardless of the actual value of the accommodation in the tour package.

Finally, you are concerned that the current rules put XXXXX at a disadvantage compared to non-resident non-registered tour operators in the fact situations described above. To accommodate your concerns would require changes to the Act. We note that you sent a copy of your letter to the Department of Finance, which is the department responsible for legislative amendments.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Department with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-7909.

Yours truly,

Gunar Ozols
Services and Intangibles Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate