10 June 2002 GST/HST Interpretation 35594 - Hotel Cancellation Fees

Dear XXXXX:

This is in response to XXXXX letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to no show charges and cancellation fees charged at the XXXXX and the XXXXX.

Please note that all legislative references are to the Excise Tax Act and regulations thereunder, unless otherwise specified.

Statement of Facts

Pursuant to our conversations of XXXXX, our understanding of the facts is as follows:

•   A 30 day notice is required for canceling any group reservations for hotel accommodations otherwise a cancellation fee is charged by the hotels.

•   Reservations for hotel accommodations made by individuals may be cancelled without incurring any charges prior to a specified time that varies from providing 48 hours notice to providing notice before 4 o'clock on the same day of the reservation, depending on the hotel.

•   An individual or group is made aware of the hotel's cancellation policy at the time that the reservation is made.

•   When an individual makes a reservation, the individual's credit card number is taken by the hotels to hold the room reservation, however, no amount is charged to the credit card account at that time. A room is available for that person regardless of their time of arrival on the first day of the reservation period.

•   After the specified time, one night's accommodation is charged to the individual's credit card account, whether or not the individual has contacted the hotel and whether or not the individual actually uses the hotel room.

Interpretation Requested

You would like to know if the HST applies to the cancellation fees charged for group reservations and to the amounts charged to individual customers who never arrive at the hotels or cancel their reservations after the time specified under the reservation policy.

Interpretation Given

Subsection 136(1), in part, deems a supply by way of lease, licence or similar arrangement, of the use or right to use real property to be a supply of real property. A supply of real property situated in Canada is deemed to be made in Canada and is generally subject to the GST at the rate of 7% when made in a non-participating province, and to the HST at the rate of 15% when made in a participating province (Nova Scotia, New Brunswick, or Newfoundland and Labrador).

When an individual makes a reservation for short-term accommodation at the XXXXX or the XXXXX, they are entering into an agreement for a taxable supply of real property. In the case at hand, the supply would be the supply of a right to use a hotel room by way of licence. Once the reservation is made, the recipient has acquired the right to use a hotel room for a specified period at a specified date. The recipient receives the right to use the room at the time the agreement is entered into.

Under the legislation, the tax in respect of the supply becomes payable on the earlier of the day the consideration for the supply is paid or becomes due. The one night's accommodation charged to the individual's credit card account is the consideration payable for the supply of real property made to the individual by the hotel. As the XXXXX and the XXXXX are located in XXXXX XXXXX, the HST is, therefore, applicable on the consideration payable for the supply (i.e., one night's accommodation).

With respect to the cancellation fees for group reservations, subsection 182(1) may apply depending on the facts of the particular situation, such as the wording of the reservation agreement. Subsection 182(1) is a deeming provision where the amount paid or forfeited is treated as consideration and the GST/HST in respect of the supply to be made under the agreement by the registrant (i.e. the supplier), so that the supplier is deemed to have collected tax that is equal to 7/107ths or 15/115ths of the amount paid or forfeited as a result of the breach, modification or termination of the agreement. The person to whom the supply under the agreement is to be made (i.e. the recipient) is deemed to have paid that tax and, if a registrant, may be eligible to claim an input tax credit with respect to the tax that is deemed to have been paid.

Whether the cancellation fees for group reservations fall under subsection 182(1) is a question of fact. If subsection 182(1) applies, the hotels would be deemed to have collected the HST in respect of any amounts paid or forfeited by the recipient. Therefore, the hotels would be required to account for 15/115 of the amount paid or forfeited by the recipient in their net tax calculation. If you would like us to determine the applicability of section 182, please contact us with the details of the situation and provide a copy of the agreement in question. Please refer to the guidelines in the enclosed section 1.4 of Chapter 1 of the GST/HST Memorandum Series to determine the conditions under which the Canada Customs and Revenue Agency (CCRA) issues a ruling or an interpretation.

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 CCRA 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) 952-9588.

Yours truly,

Doris Rist
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate