File 11585-1
Ref. s. 182 & ss. 232(2)
Document HQR0539
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XXXXX
XXXXX
XXXXX
XXXXX
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October 23, 1998
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Dear XXXXX
This concerns your previous letter to Mr. Les Jones, regarding the GST/HST treatment of claims filed against carriers for goods lost and/or damaged during shipment. We apologize for the delay in replying.
Facts
1. XXXXX is a GST/HST registrant and sells its goods FOB shipping point (warehouseplant) with the freight prepaid to its customers.
2. XXXXX arranges directly with the carriers for transportation of the goods from its own warehouse or plant to the premises of its customers, and pays the freight charges.
3. Whenever a customer reports a shortage, or reports that damage has occurred during shipment, XXXXX files a claim against the carrier. The carrier or its insurance company pays the damage claim to XXXXX then reimburses the customer.
5. On November 23, 1997, a letter from J.A. Venne of Revenue Canada to Ms. XXXXX stated that a damage payment would not be subject to GST because it is not consideration for a supply.
Interpretation Requested
XXXXX is requesting an interpretation that no HST would apply to damage payments made by carriers to XXXXX, or from XXXXX to their customers.
Interpretation Provided
Damage payments by a carrier to XXXXX and payments of the damage amounts by XXXXX to their customers are not consideration for supplies. Therefore, GST/HST does not apply to these payments.
Rationale
Where a person makes a damage payment without receiving a supply, the damage payment is not consideration for a supply, even if the person receiving the payment agrees to release the person making the payment from further liability.
When a carrier or its insurance company reimburses XXXXX for damages to the property of a customer of XXXXX the payment is not consideration for a supply. The fact that the payment is consideration for a loss suffered by a third party does not change the fact that the payment is not consideration for a supply, as XXXXX is not providing anything in exchange for the damage payment.
When XXXXX pays the customer for its loss, this is also not consideration for a supply, merely a forwarding of a damage payment without receiving anything in exchange for the moneys. Therefore the payment by XXXXX to the customer is also not subject to GST/HST.
If you require any further information concerning this matter, please contact the undersigned at (613) 952-9219 or Mr. Don Dawson at (613) 952-9211.
Yours sincerely,
P. Bertrand
Manager, Specialty Tax Unit
Financial Institutions & Real Property
GST/HST Rulings & Interpretations
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