8 February 2001 GST/HST Interpretation 8326 - Liability for Remittance of Net Tax on Taxable Sales Made by Agent

Dear XXXXX:

Thank you for your letter of August 24, 1999, concerning the liability for remittance of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) on taxable sales made by an agent.

The following information was provided in your letter:

1. Under the terms of an agreement XXXXX between Co A and Co B, Co B appointed Co A as its sole and exclusive advertising sales representative for certain intangible personal property (IPP).

2. The agreement does not specifically use the term "agent" to characterize Co A's role. However, the agreement authorized Co A to enter into and administer sales contracts for the IPP for and on behalf of Co B.

3. Co B authorized Co A to carry out all duties related to the sale of the IPP including without limitation, production, sales, sales management, credit, traffic, invoicing and collections duties.

4. Co B specifically authorized Co A, for and in the name of Co B, to render invoices and take all steps and proceedings deemed necessary or desirable in order to collect all amounts owing under invoices in respect of the IPP sales contracts.

5. Co A was totally authorized and empowered by Co B in this regard, and was not required to consult with Co B or to pre-clear its actions with Co B on a case-by-case basis.

6. The agreement between Co B and Co A does not appear to address the collection and remittance of the GST/HST and you understand that no other agreement or election has been entered into in this regard.

7. Co B has indicated that any interest and/or penalty arising out of a failure to remit this GST/HST would also be the responsibility of Co A.

8. Co B and Co A are both resident in Canada and registered for GST/HST purposes. It is your understanding that the parties have not made the election under subsection 177(1.1) of the Excise Tax Act (the ETA) for Co A to remit the GST/HST collected on sales made on behalf of Co B.

9. Co A added GST/HST to the commission amounts that it periodically charged to Co B in respect of its services.

10. You have reviewed two sample invoices, which you understand were representative, that Co A issued for IPP sold to purchasers. Both invoices are on Co B's paper and bear the statement, "A division of Co A Limited", which you understand is not accurate from a legal entity standpoint; yet, this was done so that separate stationery did not have to be ordered.

11. The GST/HST registration number shown on the invoice varies; in one case, Co B's registration number appears while in the other case, it's Co A's registration number. The invoices show GST/HST as a separate line item.

12. Co A periodically remitted to Co B lump sum amounts in respect of revenues plus the GST/HST that it had collected in respect of sales of IPP. The GST/HST was not broken out and identified as such until a number of months into the arrangement, at which point Co A began specifying the portion of the payment that represented the GST/HST.

13. Co B was under the impression that the responsibility for remitting the tax on these sales rested with Co A. However, nothing that Co A sent to Co B indicated that Co A was holding back, or had deducted or retained the tax corresponding to the sales of IPP, or that Co A was otherwise assuming the responsibility for remitting the tax.

Interpretation Requested

Further to your discussion with Ken Matthews, you requested written confirmation concerning which party, the agent or the principal, would be liable under the ETA for the remittance of the GST/HST on the sales of IPP in the fact situation outlined above.

Interpretation Given

Subsection 177(1) of the ETA generally provides that where an agent makes a taxable (other than zero-rated) supply on behalf of a principal who is not required to collect tax in respect of the supply, the supply of the property to the recipient is deemed to be a taxable supply made by the agent and not the principal. The agent is also deemed not to have made a supply to the principal of its services relating to the sale of the property.

As you have indicated, subsection 177(1) would not apply in the scenario you described to the extent that the supply to the recipient is not a supply of tangible personal property and the principal is required to collect tax on the supply of IPP to the recipient. The GST/HST treatment of the supply of IPP therefore falls under the common law rules of agency. Specifically, to the extent that Co A acts as an agent in making a supply of the IPP on behalf of Co B, then it is Co B, as the principal, who is considered to be making a taxable supply to the recipient of the IPP and Co A, as the agent, who is considered to be making a taxable supply of agent services to Co B.

As the supplier of the IPP to the final purchaser, Co B is required to collect any tax payable in respect of the supply of IPP to the recipient which Co B makes through its agent. Co A has the obligation to collect the tax payable on its agent services supplied to Co B and to account for it in its net tax. As a registrant, Co B is entitled to claim input tax credit (ITC) for the tax payable on the commission paid to Co A for the agent services, provided that all the conditions for claiming the ITCs are met.

An exception to the above treatment can occur under subsection 177(1.1) of the ETA, which permits an agent who makes a supply (otherwise than by auction) on behalf of a principal who is required to collect tax in respect of the supply to elect jointly with the principal to account for the tax collectible on the supply as if the tax were collectible by the agent. Thus, the agent is responsible for collecting, reporting and remitting the tax on the supply.

However, the agent and the principal are jointly and severally liable for all obligations that arise upon or as a consequence of the tax becoming collectible or any failure to account for or remit the tax. The treatment of Co A's commission would still be subject to the general rules. The tax in respect of the supply of agent services is payable by Co B and is to be accounted for by Co A which is the supplier of this supply. Co B will be entitled to claim ITCs for the tax payable on Co A's commission of agent services, provided that all the conditions for claiming the ITCs are met. The election has to be made in the prescribed form, i.e., on form GST506 (Election and Revocation of an Election Between Agent and Principal).

On the other hand, to the extent that an election under 177(1.1) of the ETA has not been made between Co A and Co B, Co B remains solely liable for the tax collectible on the supply of IPP to the recipient and to account for that tax in its net tax. We would further add that if Co A collects tax on the supply of IPP it makes on behalf of Co B, it is Co B, as the principal on whose behalf Co A is acting that is considered to have collected that tax.

Finally, as set out in draft policy P-182, Determining the Meaning of "Agent" and "Agency", our position is that a person will be considered and treated for GST/HST purposes as an agent based on fact and the principles of law. We have enclosed the policy for your information.

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.

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

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8223.

Yours truly,

Carolle Mercier
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate