10 May 1999 GST/HST Interpretation HQR0000851 - PROPOSED LAW [Application of the GST/HST to the Supply of Bookkeeping Services]

Dear XXXXX

This is in response to your letter of September 9, 1997, and a telephone conversation with your office on May 5, 1999, concerning the application of the Goods and Services Tax (GST) to XXXXX.

Interpretation Requested

It is understood that a XXXXX seeks members who join the network by paying a XXXXX initiation fee. GST is charged and collected on the amount of the fee. There is also an annual renewal fee of $XXXXX on which GST is charged and remitted. A member of the network has the right to exchange services with other members of the network. Where a member sells goods or provides services to another member, the member is credited on the books of the network for the amount of the sale of the good or the provision of the service. A service fee of XXXXX, which the network takes as its credit for providing the accounting services, is charged to the member supplying the goods or services.

GST is charged by the member supplying the goods or services, where applicable. The network provides a bookkeeping service to the members. You wish to know if the application of GST to the supply of goods or services by members of the network, as described above, is under review.

Interpretation Given

Pursuant to a Notice of Ways and Means Motion, dated December 10, 1998, amendments to the Excise Tax Act (the "Act") have been proposed that relate to the application of the GST and the Harmonized Sales Tax (HST) to XXXXX transactions.

New section 181.3 will be added to the Act. This section provides for the designation of XXXXX and the GST/HST treatment of transactions involving the provision of XXXXX. Please find attached a copy of the proposed amendment and relevant explanatory note.

Proposed new subsection 181.3(2) permits the administrator of a XXXXX to apply in prescribed form and manner to have the network designated for the purposes of applying the rule in subsection 181.3(5) to the network members' transactions involving XXXXX units.

Under the proposed amendment, where a registrant, who is a member of a designated XXXXX, sells goods or provides services to another registrant, who is also a member of the network, in exchange for units, the member supplying the goods or services would have to charge GST/HST calculated on the value of the consideration, where applicable. However, the member receiving the services would not have to charge tax on the provision of the units since subsection 181.3(5) deems the units to be supplied for nil consideration.

New section 181.3 comes into force on December 10, 1998. The amendment contemplates that the earliest effective date of any designation under new section 181.3 would be the date of Royal Assent.

Please note, this amendment applies the new section before the day of Royal Assent to XXXXX whose designations are given effect only as of the day of Royal Assent. In that case, the transitional rule permits a supply of a XXXXX unit at an earlier time (even before Announcement Date) to be treated as if the designation and section 181.3 had been in effect at that earlier time, provided that no amount as or on account of tax was actually collected on the supply of the XXXXX unit.

On April 1, 1997, the HST replaced the 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%., 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 proposed amendment to the Act as it relates to the subject matter of your letter. Any change to the wording of these proposed amendments or any future proposed amendments to the 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 957-8226.

Yours truly,

Kirk Moore
Corporate Reorganizations Unit
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate