27 March 1998 GST/HST Interpretation HQR0000529 - Refunding of GST/HST on Non-Refundable Airline Tickets

                                                                        GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 9th Floor
25 McArthur Avenue
Vanier, Ontario
XXXXX                                                                                 K1A 0L5

Dear XXXXX

Thank you for your letter of January 27, 1997 (with attachments) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) where a travel agency refunds to a purchaser the GST/HST portion of a non-refundable airfare.

In your letter, you describe the following situation:

A travel agent refunded to a purchaser, the GST portion of a non-refundable airline ticket for unused air transportation on XXXXX without refunding the fare portion of the ticket. Subsequently, XXXXX issued a debit memo to the travel agency for the amount of the GST. It was the opinion of the XXXXX, from information that they claim to have received from Revenue Canada, that GST should not have been refunded to the purchaser in this situation. The representative from the travel agency involved in this particular transaction has written to XXXXX obtain the correct course of action for a transaction such as the one described.

Interpretation Requested

XXXXX has requested confirmation that in a situation such as this one, where no service was performed (i.e., no air travel occurred ), no GST/HST is payable, and therefore the GST/HST paid may be refunded to the purchaser.

In your request, there is no mention of the Air Transportation Tax (ATT). Consequently, the interpretation will pertain strictly to the issue of GST/HST refunds. XXXXX reference will also be made to the HST which is generally applicable at the rate of 15% to taxable supplies made in the participating provinces.

Interpretation Given

In the situation you have outlined in your letter, the purchaser entered into an agreement for a travel service and paid the non-refundable airfare in full including GST/HST through the travel agency.

Under section 133 of the Excise Tax Act (ETA), the entering into of an agreement to supply any service is treated as a supply of the service, at the time the agreement is made. Under paragraph 133(b) of the ETA, the actual provision of the service, if any, under the agreement is treated as being part of the supply of the service made at the time the agreement is entered into and not as a separate supply. Although the airline has not actually rendered the service (i.e., the consumer has not exchanged the ticket in order to board an aircraft), the airline is, nevertheless, deemed to have supplied the service when the agreement was entered into (i.e., at the time the ticket was purchased).

GST/HST becomes payable on the consideration for the travel service on the earlier of the day on which the consideration was paid or became due whether or not the service is actually rendered. In the case at hand, the full price of the travel service was paid at the time the agreement was made, therefore the GST/HST is payable in respect of a taxable supply made at that time.

In this case, the terms of the ticket provided that the ticket was not to be refunded and the airline maintained that in accordance with the terms of the agreement, the fare was non-refundable (i.e., neither a refund nor a credit of the airfare would be permissible). There are specific provisions dealing with the refund or adjustment of the GST/HST under section 232 of the ETA. Paragraph 232(2)(b) of the ETA states that where the tax calculated on the consideration for a supply or part thereof was collected for any reason, and that consideration is subsequently reduced, the supplier may refund or credit to the purchaser the portion of the GST/HST that was calculated on the amount by which the consideration was so reduced.

Since there has been no reduction in consideration (i.e., the airfare has not been refunded), the supplier may not refund or credit under paragraph 232(2)(b) of the ETA the amount of the GST/HST calculated on the consideration for the travel service. Whether or not consideration for the supply is refunded is a matter to be resolved between the purchaser and the supplier. In this particular case, the legislation does not provide any mechanism for the supplier or the Department to refund or rebate the tax.

The foregoing comments represent our general views with respect to the subject matter of your letter. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST Memoranda Series, do not bind the Department with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-8806.

Yours truly,

Robert Bowman
A/Rulings Officer
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate