12 January 2004 GST/HST Interpretation 48224 - Refund of GST [on a Purchase of an Airline Ticket Which Was Subsequently Cancelled]

Please note that the following documents, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ces documents, bien qu'exacts au moment émis, peuvent ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

This is further to your letter XXXXX, with attachments, to the XXXXX regarding the purchase of an airline ticket where the trip was subsequently cancelled. A copy of your letter and the response sent to you XXXXX was forwarded to us so that we may address the application of the Goods and Services Tax (GST) in your situation.

Interpretation Requested

It is our understanding that you purchased a non-refundable airline ticket from XXXXX for travel on XXXXX and cancelled the ticket on XXXXX. The taxes paid in respect of the purchase included the applicable GST. Although the fare is non-refundable, under certain conditions, the fare may be credited for future travel with XXXXX subject to a $XXXXX cancellation fee. The terms and conditions of the airline ticket indicate that the credit XXXXX. XXXXX has credited you the fare and the applicable taxes paid at the time of purchase. You are questioning whether XXXXX is required to refund you the taxes paid.

Interpretation Given

Our response will only address the application of the GST. It is our understanding that you have discussed the application of the Air Travellers Security Charge with Mr. Michael Moskovic. Should you require further information with respect to that particular tax, you may contact him at 957-9877. With respect to any other taxes or fees that you may have been charged such as an airport improvement fee, we suggest that you contact the appropriate authorities. XXXXX

For GST purposes, the entering into of an agreement to supply a service is treated as a supply of the service made at the time the parties entered into the agreement. The actual provision, if any, of the service is treated as being part of the supply made at the time the agreement is entered into and not as a separate supply.

The agreement for the supply of the air passenger transportation service in your situation was entered into when the ticket was purchased. Although the airline did not actually render the service, the airline is nevertheless considered for GST purposes to have supplied the service when the ticket was purchased. Since you paid the purchase price when you entered into the agreement, the GST was payable at that time. In this case, the airline was required to account for the GST collected in its net tax calculation for the reporting period that includes that time and required to remit any resulting positive amount of net tax.

A subsequent refund or adjustment of the GST you paid can be made in certain circumstances. For example, where a supplier has collected tax from a purchaser and, for any reason, the consideration for the supply is subsequently reduced (for instance, where an airline agrees to refund or credit all or part of the consideration paid), the supplier may refund or credit to the purchaser the GST that was calculated on the amount by which the consideration was so reduced. Where the amount is refunded or credited, the supplier must issue a credit note to the purchaser (unless the purchaser issues a debit note) containing prescribed information. In such cases, the supplier may claim a deduction of that amount in determining its net tax for the reporting period in which the note is issued provided the supplier has previously accounted for, and where required remitted, that tax. The attached appendix provides an extract from the guide entitled General Information for GST/HST Registrants that highlights the informatin that must be included on the credit/debit note.

It is important to keep in mind that the refunding or crediting of tax by the supplier is discretionary. Furthermore, where the supplier chooses to credit the tax as opposed to issuing a refund and the purchaser wishes to receive a refund, the matter rests with the parties to resolve. Where the supplier does not refund or credit the GST, the purchaser may be entitled to claim a rebate for the GST, subject to certain conditions including a two-year time limitation, by filing a rebate application with the Canada Revenue Agency (CRA).

In your case, an amount was credited to you in respect of the cancelled trip in accordance with the terms and conditions indicated on the ticket. It appears that the GST you paid has also been credited to you by the airline and is available to you to apply against future travel.

From the supporting documentation attached to your letter, it does not appear that you have been provided with a credit note that contains the required information. In addition, to our knowledge, you have not issued a debit note to the airline. As such, the airline is not entitled to make an adjustment to its net tax. Therefore, the airline does not benefit from crediting you the tax you paid. The airline was required to account for that tax at the time you paid the tax in its net tax calculation and remit any positive amount of net tax and since a proper credit or debit note was not issued, the airline is not entitled to recover that amount in its GST return. You may wish to approach the supplier and request that a proper credit note be issued, alternatively, you may issue a debit note containing the required information.

Where a proper credit or debit note has not been issued, you may be entitled to file a rebate application under section 261 of the Excise Tax Act (the "ETA") for the GST that relates to the consideration that was subsequently credited to you by the airline, subject to certain conditions such as the two-year time limitation. The restrictions under section 263 of the ETA do not prevent the CRA from paying the rebate in your circumstances as the airline has not refunded you the GST and no valid credit or debit note has been issued. It is important to note that should you apply for the rebate and where the rebate is paid, you will be required to repay the amount of the rebate to the Receiver General if you subsequently obtain a valid credit note or a refund from the airline, or use the credit of the GST for future air travel. In other words, the ETA prevents you from recovering the amount twice.

For your convenience, a rebate application is enclosed and, for your particular situation, the reason code is 1. Further information regarding the rebate is available in the guide entitled, General Application for GST/HST Rebates, which is available on our Web site at www.ccra.gc.ca.

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.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 954-2488.

Sincerely,

Marcel R. Boivin
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

Attachments (2)

APPENDIX

With respect to credit/debit notes, the following is an extract from the guide entitled General Information for GST/HST Registrants that highlights the specific information that must be included on the credit/debit note. The complete guide is available on our Web site at www.ccra.gc.ca.

Be sure the following information is included on the credit or debit note:

•   a statement or other indication that the document is a credit or debit note;

•   your business or trading name, or the name of your intermediary, and your Business Number (BN), or the number of the intermediary;

•   the customer's name or trading name, or the name of the customer's authorized agent or representative; and either

•   the amount of the adjustment, refund, or credit for tax; or

•   a statement that the total amount for which the note is issued includes the adjustment, refund or credit of tax, the tax rate (i.e., 7% GST or 15% HST) that applies to each taxable supply for which tax is reduced, and either the total amount and tax reduced for all the supplies to which the same tax rate applies or the total amount and tax reduced for each supply.