GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Road
Vanier, Ontario
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Case: HQR0000992
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Subject:
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GST/HST INTERPRETATION
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Dear XXXXX
Thank you for your letter of May 29, 1997 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to jackets or blazers sold to independent sales contractors.
Background
Pursuant to sections 178.1 to 178.5 of the Excise Tax Act (the Act) a special GST/HST collection method called the Alternate Collection Method (ACM) has been designed to simplify the operation of the tax for direct sellers and their independent sales contractors.
Your client is a direct seller who has been approved by the Minister to use the ACM.
You described in your letter the following situation:
Some articles of clothing, such as jackets or blazers, are sold by the direct seller to their independent sales contractors. These articles are worn by independent sales contractors for promotional purposes and it is recommended that they be worn at company functions. You also stated that their use at other times is purely at the discretion of the independent sales contractor.
Interpretation Requested
You are requesting an interpretation of the definition of "sales aid" in section 178.1 of the Act. You want to know if distinctive articles of clothing such as a jacket or a blazer that incorporates a company logo and sold to independent sales contractors qualify under section 178.1 as "sales aid". You are aware that subsection 178.5(5) of the Act provides that a supply of a sales aid made by a direct seller, or by an independent sales contractor, to another independent sales contractor is deemed not to be a supply for purposes of Part IX of the Act.
Interpretation Given
"Sales aid", under section 178.1 of the Act, refers to personal property that is acquired, manufactured or provided by the direct seller or independent sales contractor to assist in the promotion, sale and distribution of exclusive products. Sales aids include customized business forms, samples, demonstration kits, catalogues and promotional items. Exclusive products are specifically excluded from the definition of sales aid as is property acquired by an independent sales contractor for use as capital property.
We consider that a jacket or a blazer that incorporates a company logo that independent sales contractors wear during sales time is a promotional item that independent sales contractors use to assist them in the promotion, sale and distribution of exclusive products. Consequently, those items are included in the definition of "sales aid". A supply made by a direct seller, or independent sales contractor, to an independent sales contractor of the said jacket or blazer is therefore, by way of subsection 178.5(5) of the Act, deemed not to be a supply.
On April 1, 1997, the harmonized sales tax (HST) replaced the goods and services tax (GST) and the provincial sales tax (PST) in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%. If you supply goods that are delivered or made available in a participating province, to the extent that they are taxable supplies (which are not zero-rated), tax must be collected at the harmonized rate.
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) 952-8812.
Yours truly,
Isabelle Breault
Industries Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate
Legislative References: s. 178.1 and 178.5(5) of the Excise Tax Act
NCS Subject Code(s): 1783-02
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