30 June 2003 GST/HST Interpretation 45275[1] - Inbound Tour Operators

Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5

XXXXX XXXXX XXXXX XXXXX

Case Number: 45275

XXXXX XXXXX

June 30, 2003

Subject:

GST/HST INTERPRETATION Inbound tour operators

Dear XXXXX:

Thank you for your e-mail XXXXX to Patrick McKinnon concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to resident and non-resident inbound tour operators and travel agents/travel agencies.

Interpretation Requested

You have requested clarification as to whether there is any difference in the GST/HST treatment for the supply of tour packages which include trips within Canada when the supply is made by a non-resident tour operator as compared with such a supply made by a resident tour operator. Your question also related to the GST/HST treatment in respect of the inputs [e.g., hotel accommodation, car rental, etc.] acquired by the tour operator to construct these tour packages.

Interpretation Given

There is no definition for the term "tour operator" in the Excise Tax Act (ETA), however, the Canada Customs and Revenue Agency (CCRA) understands it to mean a supplier of a tour package, and may include persons such as outfitters and resort/lodge owners. While there are also situations where a travel agent/travel agency operates like a tour operator in making a supply of a travel service as a principal, when it is acting as agent on behalf of a travel service provider [e.g., a tour operator], it is not considered to be a tour operator. Therefore, for purposes of our response, when we discuss the legislation as it relates to a tour operator, it includes a travel agent/travel agency only when it acts as a principal [i.e., not as agent].

Other terms used in this response ["tour package", "camping accommodation" and "short-term accommodation"] are defined in the enclosed section 27.3 - Accommodation Rebates for Unregistered Non-Resident Suppliers of the GST/HST Memoranda Series.

In addition, when examining the legislation as it impacts upon your questions, recall that when a person [e.g., a tour operator] is a registrant for purposes of the GST/HST, the person may be entitled to claim an input tax credit (ITC) that relates to the tax the person incurs in making its taxable supplies. The ITC entitlement applies equally to residents and non-residents who are GST/HST registrants. It is important to remember this ITC entitlement when we examine a rebate related to short-term accommodation or camping accommodation that is available for non-resident persons under section 252.1 of the ETA (the Rebate).

It should also be noted that a non-resident person may have the obligation to register for purposes of the GST/HST if the non-resident person is carrying on business in Canada. In such circumstances, that person is treated as a registrant. Generally speaking, a non-resident person [other than a small supplier] that makes taxable supplies in the course of a business carried on in Canada must register for the GST/HST. Further information on this issue is available in our publication Doing Business in Canada - GST/HST Information for Non-Residents (copy enclosed).

Note, however, that certain provisions apply to non-residents that are not registered. Therefore, to provide you with a complete response, we shall address the questions raised as they apply to a "registrant tour operator", which for purposes of this letter includes a resident tour operator which is registered or required to be registered for GST/HST and a non-resident tour operator that is registered for purposes of the GST/HST, and a "non-registered non-resident tour operator".

The Rebate

Provided all other requirements are met, as noted in the aforementioned section 27.3 of the GST/HST Memoranda Series, section 252.1 of the ETA allows for a Rebate where

•   a non-resident person is the recipient of a supply made by a registrant of short-term accommodation, camping accommodation or a tour package that includes short-term accommodation or camping accommodation, and

•   the accommodation is made available to a non-resident individual.

The Rebate may be paid to:

1. a non-resident person who has acquired the accommodation otherwise than in the ordinary course of a business of the person of making such supplies [e.g., the accommodation is acquired by a non-resident individual for his/her personal use or by a business for use by its employees]; or

2. a non-registered non-resident person who is in the business of making such supplies in the ordinary course of its business [e.g., the accommodation is acquired by an non-registered non-resident tour operator which is to sell it to a non-resident individual].

Where a non-resident person acquires only short-term accommodation or camping accommodation, the amount of the Rebate is equal to the GST/HST paid on the acquisition of the accommodation. (Subsection 252.1(4) of the ETA allows for a quick calculation option where a non-resident person, such as an individual or a business, applies for the Rebate; however, as this quick calculation option does not apply to non-registered non-resident tour operators, it will not be discussed in this response. For further information on this quick calculation, see the enclosed pamphlet, Tax Refund for Visitors to Canada (RC4031).)

Where a non-resident person acquires a tour package that includes short-term accommodation or camping accommodation, the amount of the Rebate generally equals 50% of the GST/HST paid on the tour package. (Subsection 252.1(5) of the ETA also provides for a similar quick calculation option available for tour packages. Again, as this quick calculation option does not apply to non-registered non-resident tour operators, it will not be discussed in this response. For further information, please see the aforementioned RC4031.)

An amount on account of the Rebate can either be paid or credited by a registrant supplier [such as a hotel or a tour operator], or the Rebate can be claimed by the non-resident person. For purposes of this response, we will only discuss where the supplier pays or credits the Rebate amount. However, it should be noted that the supplier does not have any obligation to pay or credit a rebatable amount.

The supplier's invoice to the non-resident person has to show that the registrant has paid or credited the non-resident person with the amount on account of the Rebate. This ensures that no other claim can be made for the same accommodation or other eligible expenses. Pursuant to section 252.5 of the ETA, if it is determined that the non-resident person was not entitled to a Rebate, or that the amount paid or credited was more than the non-resident person was entitled to, then subject to certain conditions, the supplier and the non-resident person are jointly liable to pay the CCRA any amount owing.

It should be noted that a registrant tour operator is also able to pay or credit an amount on account of the Rebate where the conditions for the Rebate are met, thus effectively reducing the amount of tax the recipient must pay. We have enclosed a copy of GST/HST Information for the Travel and Convention Industry (RC4036). Please refer to page 20 of this publication for further information on how to credit non-resident individuals who are the final consumers and how to credit non-registered non-resident travel service providers (i.e., tour operators).

Examples

The Appendix includes three examples of calculations comparing a registrant tour operator (Examples 1-1, 2-1 and 3-1) with a non-registered non-resident tour operator (Examples 1-2, 2-2, and 3-2). For purposes of our examples in the Appendix, we have made the following assumptions:

•   the non-registered non-resident tour operator does not include the amount it recovered through the Rebate in its charge to the final consumer;

•   the registrant tour operator does not include the amount it recovered through ITCs on inputs in its charge to the final consumer; and,

•   the registrant tour operator pays or credits the amount on account of the Rebate to the non-resident final consumer.

Example 1 illustrates where the tour operator acquires short-term accommodation from a supplier (a hotel); Example 2 shows a tour operator constructing a tour package consisting of short-term accommodation and a car rental from two registrant suppliers (a hotel and a car rental company); and, Example 3 demonstrates how a tour operator may purchase a tour package from another tour operator (e.g., a theatre package from a hotel) and add another element, in this case a car rental, to construct a new tour package.

As the examples in the Appendix illustrate, the impact of the availability of rebates and/or ITCs on the final purchase price of a tour package will vary depending on the elements in the tour package and the decisions regarding mark-ups.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, 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 the GST/HST Memoranda Series, do not bind the CCRA with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 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) 952-8814.

Yours truly,

Robert Douthwright, CGA
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

Encl.

Appendix

For purposes of these Examples, we have used only the GST in the calculations; however, it should be remembered that if the supply is made in an HST-participating province (The HST-participating provinces are Nova Scotia, New Brunswick and Newfoundland and Labrador.), it would be subject to the HST at a rate of 15%. In addition, while the registrant tour operator is making supplies to a non-resident individual in these three Examples, it could also be making such supplies to a non-registered non-resident tour operator or to a non-resident business.

Example 1 - A supply of short-term accommodation or camping accommodation

Example 1-1

A registrant tour operator [resident or non-resident] acquires a hotel room from a registrant hotel operator.

Amount hotel operator charges for a hotel room (In each of these examples, the hotel accommodation is for a period of 4 nights.)	$500.00
GST charged by hotel operator	$35.00
Total collected by the hotel operator	$535.00

The registrant tour operator is able to recover the GST it incurs by claiming an ITC of $35.00, leaving a net of $500.00.

The registrant tour operator marks up the price of the hotel room (e.g., $500.00 + 20% = $600) and supplies it to a non-resident individual.

Hotel room	$600.00
GST charged by tour operator	$42.00
Subtotal	$642.00
Less amount on account of Rebate credited (100% of GST)	-$42.00
Total collected by tour operator from non-resident person	$600.00

Example 1-2

A non-registered non-resident tour operator acquires a hotel room from a registrant hotel operator.

Amount hotel operator charges for a hotel room	$500.00
GST charged by the hotel operator	$35.00
Subtotal	$535.00
Less amount on account of Rebate credited (100% of GST)	-$35.00
Total collected by hotel operator from tour operator	$500.00

After the non-registered non-resident tour operator marks up the price of the hotel room (e.g., $500.00 + 20% = $600.00), the tour operator supplies it to a non-resident individual and collects $600.00. It does not collect any GST/HST on its supply of the hotel accommodation.

Example 2 - A supply of a tour package that includes short-term accommodation or camping accommodation and another element

Example 2-1

A registrant tour operator acquires a hotel room and a car rental to construct a tour package. Both of the tour operator's suppliers are registrants.

Amount hotel operator charges for a hotel room	$500.00
GST charged by hotel operator	$35.00
Total collected by hotel operator	$535.00
Amount car rental company charges for a weekend rate	$150.00
GST charged by car rental company	$10.50
Total collected by car rental company	$160.50

The registrant tour operator recovers the GST incurred by claiming ITCs of $35.00 and $10.50, leaving a net of $650.00.

The registrant tour operator marks up the tour package ($650.00 + 20% = $780.00) and supplies it to a non-resident individual.

Tour Package	$780.00
GST charged by tour operator to non-resident person	$54.60
Subtotal	$834.60
Less on account of Rebate credited (50% of GST)	-$27.30
Total collected by tour operator from non-resident	$807.30

Example 2-2

A non-registered non-resident tour operator acquires a hotel room and a car rental to construct a tour package. Both of the tour operator's suppliers are registrants.

Amount hotel operator charges for a hotel room	$500.00
GST charged by hotel operator	$35.00
Subtotal	$535.00
Less on account of Rebate credited for hotel room (100% of GST)	-$35.00
Total collected by hotel operator	$500.00

[Example 2-2 (cont.)]

Amount car rental company charges for a weekend rate	$150.00
GST charged by car rental company	$10.50
Total collected by car rental company	$160.50
Total paid by tour operator to both suppliers	$660.50

The non-registered non-resident tour operator marks up the tour package ($660.50 + 20% = $792.60), the tour operator supplies it to a non-resident individual and collects $792.60. It does not collect any GST/HST on its supply of the tour package.

Example 3 - A supply of a tour package that includes short-term accommodation or camping accommodation that is already part of a tour package and another element

Example 3.1

A registrant tour operator acquires a "theatre package" from a hotel (e.g., room, meals and theatre tickets) and a car rental from a car rental company. Both of the tour operator's suppliers are registrants.

Amount hotel operator charges for a theatre package	$650.00
GST charged by hotel operator	$45.50
Total hotel operator collects	$695.50
Amount car rental company charges for a weekend rate	$150.00
GST charged by car rental company	$10.50
Total car rental company collects	$160.50
Total paid by the tour operator to both suppliers	$856.00

The registrant tour operator recovers the GST incurred by claiming ITCs of $45.50 and $10.50, leaving a net of $800.00.

The registrant tour operator marks up the tour package ($800.00 + 20% = $960.00) and supplies it to a non-resident individual.

Tour package	$960.00
GST	$67.20
Subtotal	$1027.20
Less on account of Rebate credited (50% of GST)	-$33.60
Total collected by tour operator from non-resident	$993.60

Example 3.2

The non-registered non-resident tour operator acquires a "theatre package" from a hotel (e.g., room, meals and theatre tickets) and a car rental from a car rental company. Both of the tour operator's suppliers are registrants.

Amount hotel operator charges for a theatre package	$650.00
GST charged by hotel operator	$45.50
Subtotal	$695.50
Less on account of Rebate credited (50% of GST)	-$22.75
Total collected by hotel operator	$672.75
Amount car rental company charges for a weekend rate	$150.00
GST charged by car rental company	$10.50
Total collected by car rental company	$160.50
Total paid by the tour operator to both suppliers	$833.25

After the non-registered non-resident tour operator marks up the tour package ($833.25 + 20% = $999.90), the tour operator collects $999.90 from a non-resident individual.

c.c.:

Alyson Trattner

Legislative References:	s 240, s 252.1, s 252.5
NCS Subject Code(s)	I-11725-6
Translation of original case 45275