16 January 2002 GST/HST Interpretation 37916 - GST/HST on Commissions

Dear XXXXX:

This is further to your written request to Patrick McKinnon of October 5, 2001, in which you forwarded a question from XXXXX concerning the tax treatment of commissions paid to a travel agent. More specifically, the XXXXX understands that commissions relating to the supply of international air passenger transportation service are zero-rated, but has asked whether this is also the case for agent commissions relating to the supply of transborder air transportation.

Generally, the services supplied in Canada by a travel agent of acting as an agent are subject to GST at a rate of 7% or HST at a rate of 15%, unless they are zero-rated (i.e. taxed at a rate of 0%). The HST applies to taxable (other than zero-rated) supplies that are made in a participating province (Newfoundland, New Brunswick or Nova Scotia) at a rate of 15%.

A travel agent's service will generally be considered to have been supplied where it is performed (Section 142 of the ETA for whether a supply is made in Canada and section 144.1 of the ETA and section 2 of Part V of Schedule IX to the ETA for whether a supply is made in a participating province). If the travel agent's service is, or is to be, performed in whole or in part in Canada, the service will be considered to have been supplied in Canada. Generally, if all or substantially all (90% or more) of the Canadian element (Under section 1 of Part V of Schedule IX to the ETA, "Canadian element" means the portion of the service that is performed in Canada.) of a travel agent's service is performed in a participating province, that service is considered to have been supplied in that province.

Effective January 1, 2000, the supply of a service made by a travel agent of acting as an agent in making a supply of a zero-rated passenger transportation service (be it zero-rated international or transborder passenger transportation) on behalf of the supplier of that passenger transportation service is zero-rated (Section 5.1 of Part VII of Schedule VI to the ETA).

Therefore, with respect to the specific question posed, a travel agent's commission relating to the supply of transborder air passenger transportation is zero-rated provided that passenger transportation is zero-rated. For example, the commission paid to a travel agent for the service of acting as an agent in making a zero-rated supply of a flight from Boston to Toronto is zero-rated because the flight is zero-rated (Paragraph 3(c) of Part VII of Schedule VI to the ETA).

On the other hand, if the commission paid to the travel agent relates to transborder air passenger transportation that is not zero-rated, the zero-rated treatment under the rule described above will not apply to that commission. For example, the commission paid to a travel agent for the service of acting as an agent in making a supply of a Toronto to Boston return flight would not be zero-rated since the flight is not zero-rated. In this case, the agent's service would be subject to GST at 7% or HST at 15% based on where that service is supplied, which in turn is based on where the service is performed, as previously explained.

It should be noted that if a travel agent for whatever reason, be it due to systems error, incorrect coding or otherwise, collects an amount as GST/HST in respect of a zero-rated commission, the travel agent is deemed to hold that amount in trust for the Crown and is required to include it in its net tax to be remitted for the reporting period in which it was collected (Subsections 222(1), 225(1) and 228(2) of the ETA).

Also, we note that the previously explained zero-rating treatment of a travel agent's service does not apply to the commission paid to a travel agent for supplying as an agent a tour package that includes zero-rated passenger transportation. The commission for the agent's service in this case would generally be subject to 7% GST or 15% HST depending on where the agent's service is supplied.

Finally, as you know, in some cases a travel agent may purchase a taxable (other than zero-rated) passenger transportation service and resupply it on its own behalf rather than as an agent. If this is the case, the travel agent, as the supplier of the passenger transportation service to the passenger, must collect the tax, if any, on the value of the consideration for that supply to the passenger and account for it in the agent's net tax. Of course, the travel agent would not be required to collect tax on a zero-rated supply of a passenger transportation service that it makes on its own behalf.

We have enclosed for your further information, the guide GST/HST information for the Travel and Convention Industry which is also available on our website at http://www.ccra-adrc.gc.ca/E/pub/tg/rc4036eq/rc4036eq-01.html

The foregoing comments represent our general views with respect to the subject matter of your written request. 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.

We trust that this information will be useful and should you require clarification of the issues addressed in this letter or any further information, please do not hesitate to contact me at (613) 952-8815.

Yours truly,

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

att.