18 December 2000 GST/HST Interpretation 5193 - Voluntary Registration For GST/HST Purposes

Dear XXXXX

Thank you for your fax of June 8, 1999, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your taxi franchise operations.

Our understanding of the facts is as follows:

1. You and your husband own three taxi franchises (two belonging to your husband and one to yourself) and are not involved in any other commercial activity;

2. Each taxi franchise includes:

•   a city of XXXXX taxi licence in your or your husband's name;

•   a two way radio;

•   a meter;

•   a computer; and

•   a top sign.

Also, each franchise owner is required to pay:

•   annual fees for the taxi licence to the City of XXXXX;

•   annual fees for a two-way radio licence to the City of XXXXX;

•   an annual taxi vehicle registration fee to the government of XXXXX; and

•   an annual taxi insurance fee to the government of XXXXX.

3. The taxi franchise includes items whose ownership cannot be transferred for re-supply i.e. the taxi licence;

4. XXXXX of XXXXX, XXXXX acts on your behalf to find franchise customers;

5. XXXXX rents out the taxi franchises (by verbal agreement) on a weekly basis to drivers, with their own vehicles, who operate taxi businesses;

6. XXXXX receives a 5% commission on the franchise rental revenue;

7. XXXXX determines the weekly rental rate based on economic, seasonal and industry conditions;

8. XXXXX is not liable for rental revenue to the franchise owners if no taxi cab drivers are found for a particular time period;

9. XXXXX pays the franchise owners once a month for the rental revenue less the 5% commission;

10. Each taxi franchise earns about $6000 per year in rental revenue net of XXXXX commissions; and

11. To date, XXXXX has not paid you or your husband GST on the franchise rental revenue or charged you GST on their commissions.

Interpretation Requested

What is the effect of you or your husband registering for the GST/HST?

Interpretation Given

Persons have to register for the GST/HST if they are providing taxable goods or services in Canada in the course of commercial activities, and their total (gross) worldwide taxable revenue, including the taxable revenues of all their associates, in the immediate preceding four consecutive calendar quarters, is more than $30,000 (this includes revenue from most zero-rated goods and services), or exceeds $30,000 in one calendar quarter. While persons do not have to register if their taxable revenue is $30,000 or less, they may be eligible to do so voluntarily.

Persons (e.g., businesses, partnerships, organizations, and individual entrepreneurs) that have to or decide to voluntarily register for GST/HST are called registrants. A registrant must charge 7% GST (or 15% HST in the participating provinces) on the taxable, other than zero-rated, goods and services they provide in Canada.

Registrants can claim a credit (called an input tax credit) to recover the GST/HST paid or owed on purchases and expenses consumed, used or supplied in their commercial activities. Usually, commercial activities are those activities undertaken to provide taxable goods and services. Taxable goods and services include items taxable at 7%, ( 15% in participating provinces) and at 0% but do not include exempt supplies found in Schedule V of the ETA.

As a registrant with sales of less than $500,000, you would be required to file your returns on an annual basis but also would have the option of filing monthly or quarterly. For each reporting period, you would prepare and send us your GST/HST return showing the amount of GST/HST you charged your customers. This includes GST/HST you charged on all taxable goods and services you sold or provided during the reporting period, whether or not you have actually collected GST/HST and it also includes GST/HST amounts that you collected but are not due.

When you complete your return, you may deduct your input tax credits from the GST/HST you charged your customers. If the GST/HST you charged your customers is more than the GST/HST you paid or owe on your purchases, the difference is remitted to us. If the GST/HST you charged is less than the GST/HST you paid or owe, a refund can be claimed.

New registrants can claim an input tax credit for GST/HST paid or owed on certain goods, such as capital property, real property, and inventory on hand for use in commercial activities on becoming a registrant. The input tax credit is equal the basic tax content of the goods at the time you became a registrant.

For most registrants, the basic tax content of property generally equals the total of all tax payable when the property was last acquired, plus any tax payable on improvements (both goods and services) acquired after acquiring the property, minus any amounts (other than ITCs) that the person was entitled to recover by rebate or remission, after taking into account any depreciation in value of the property. The depreciation factor is generally calculated by dividing the fair market value of the property at the time the basic tax content is determined by the value on which the tax was originally calculated.

You can also claim an input tax credit for any GST/HST you prepaid for rent, royalties, or similar payments that relate to the period after you became a registrant. You cannot claim an input tax credit for the GST/HST paid or payable by you on services or accommodation you consumed, used, or supplied, during a period before you became a registrant, regardless of whether you paid that GST/HST before or after registration.

In regards to your business transactions, XXXXX acts as an agent on your behalf for the supply of taxi franchises through rental agreements. The agency status of this relationship is supported by the fact that the taxi franchise includes items, such as the taxi licence, whose ownership can not be transferred to XXXXX for re-supply and the franchise owners are recognized as having the obligation to provide the supply of the taxi franchise to the cab owners.

Section 177 of the ETA deals with agents who supply tangible personal property on behalf of non-registrant principals. This section does not apply to your situation since the taxi franchise supply is not tangible personal property. The GST treatment of the taxi franchise supply therefore falls under the common law rules of agency i.e., you and your husband are considered to be making a taxable supply to the cab owner and XXXXX is considered to be making a taxable supply of agent services to you and your husband. As a registrant, XXXXX must collect and remit GST on their agent services provided to you and your husband.

If you and your husband remain non-registrants, you do not have to charge GST on the supply of the taxi franchise to the cab owners. Consequently, you will not be able to claim input tax credits for the GST paid or payable on XXXXX 's agent services.

If you and your husband do become registrants, you will be obliged to collect and remit GST on the total supply amount of the taxi franchise (your fee plus XXXXX Cabs' commission) provided to the cab owners. In which case you will be able to claim input tax credits related to the GST paid or payable on XXXXX 's agent services.

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 Canada Customs and Revenue Agency with respect to a particular situation.

I have enclosed a copy of the guide "General Information for GST/HST Registrants" for your information and use. It contains more detailed information on the effect of registering for GST/HST purposes.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-9700.

Yours truly,

Donato Licursi
Services and Intangible Property Unit
General Operationsand Border Issues Division
Excise and GST/HST Rulings Directorate