3 October 2001 GST/HST Interpretation 37477 - Agency Provisions

This is further to your request of September 26, 2001, that we provide you with confirmation of the manner in which the agency rules under section 177 of the Excise Tax Act (ETA) would apply in a given situation from 1991 to the present as a result of amendments made to those rules. The situation involves a registrant who, we understand, acts as an agent in the course of its commercial activity, for an undisclosed principal, who is also a registrant, in making (otherwise than by auction) zero-rated supplies of tangible personal property (the "goods").

Interpretation Given

January 1991 to April 23, 1996

With respect to supplies of the goods made from January 1991 to April 23, 1996, the principal would be deemed under previous subsection 177(1) of the ETA not to have supplied the goods to the recipient, but rather to have supplied the goods to the agent. Generally, the consideration for the supply deemed to have been made by the principal to the agent was equal to the consideration for the supply of the goods to the recipient less the consideration for the supply that would have otherwise been made by the agent to the principal of services relating to the supply of goods. The agent would in turn be deemed to have supplied the goods to the recipient and not to have made a supply to the principal of services relating to the supply of the goods.

The effect of these rules with respect to the given situation is that the agent would not have been required to account for any tax in respect of its services supplied to the principal relating to the supply of the goods to the recipient. Furthermore, given that the goods were zero-rated, neither the principal nor the agent would be required to account for tax in respect of the deemed supplies of the goods made by each of them.

For the above treatment to have applied with respect to supplies made during the period of January 1991 to December 1992, the agent must not have entered into a written agreement with the recipient, nor issued an invoice or receipt for the supply of the goods, in the name of the principal. With respect to supplies made during the period of 1993 to April 23, 1996, the above treatment would apply provided the agent did not disclose to the recipient in writing the name and registration number of the principal.

April 24, 1996, to the present

With respect to supplies of the goods made after April 23, 1996, the treatment under the ETA of the supplies in the given situation is different than as previously explained. The specific agency rules under section 177 of the ETA that have been in effect since that time do not apply to the supplies in the given situation as the goods supplied are zero-rated. Rather, with respect to the supplies being made, the parties are regarded for GST/HST purposes as they would be under common law or the Quebec Civil Code.

Specifically, where the agent is making supplies of the goods as an agent on behalf of the principal, it is the principal who is considered to be supplying the goods to the recipient and the agent is considered to be supplying its agent services to the principal. In other words, there is no longer any deemed resupply of the goods between the parties as was previously the case and services supplied by the agent in relation to the supply of the goods are no longer ignored. Of course, this results in the agent being required to account for tax on taxable (other than zero-rated) supplies of those services made in Canada to the principal, a result that did not previously occur to the extent that the agent's supply of services relating to the supply of the goods was deemed not to have been supplied.

Conclusion

In conclusion, based on the previous rules under subsection 177(1) of the ETA, the agent was not required to account for tax on supplies of services to the principal relating to the supply of the goods but was rather deemed to have supplied the zero-rated goods to the recipient with no tax to be accounted for on those goods. However, for supplies of the goods made after April 23, 1996, this deemed treatment no longer applies and the agent would consequently be required to account for tax on any taxable (other than zero-rated) supplies made in Canada to the principal.

The change in the agency rules as previously described would generally not have a significant impact on the accounting of tax by the parties if the agent and principal were involved in the supply of taxable (other than zero-rated) goods. However, as you can see, the change to the rules does have an impact where the goods supplied by the principal and the services supplied by the agent are subject to a different rate of tax.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 952-8815 or Patrick McKinnon at 952-8813.

Yours truly,

Raymond Labelle
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate