Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 207052
Dear [Client]:
Subject: GST/HST ruling and GST/HST interpretation
Services provided through […][the Platform]
Thank you for your letter of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to services provided through […][the Platform] and service fees paid to [the Platform] […]
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
[…][we] understand the following:
1. The relevant provisions of the […][Consumer Terms] between […][a consumer] and […][the Platform] version last updated [mm/dd/yyyy], include:
[…]:
[…][Consumer Terms govern a consumer’s access and use of the Platform]
[…]:
[…][Consumer pays for goods or services they receive from a third party provider with the Platform acting as a collection agent for the third party]
[…][Platform will email the consumer a receipt]
2. The relevant provisions of the […][Agreement] between an individual and […][the Platform] version last update: [mm/dd/yyyy], include:
[…]:
[…][Legal agreement between a delivery driver and the Platform. The Platform provides a service to the delivery driver that allows the driver to receive and accept requests for delivery services].
[…][Definitions]:
[…]
[…]:
[…][The delivery driver has a direct business relationship with the recipient of its delivery services, to which the Platform is not a party. The Platform assumes no liability]
[…]:
[…][Information about payment of delivery fee to the delivery driver. The Platform acts as a collection agent for the delivery driver]
[…]:
[…][Information about the service fee the delivery driver pays the Platform]
[…]:
[…][The Platform prepares and sends the recipient of the delivery service a receipt on behalf of the delivery driver]
3. The relevant provisions of the […][Annex] version last update: [mm/dd/yyyy], include:
[…]:
[…][A delivery driver may receive multiple requests from a single merchant for delivery to multiple consumers]
[…][A delivery driver may receive requests from multiple merchants for delivery to one or more consumers].
[…][A delivery driver may receive additional requests after accepting a request].
4. The relevant [gratuity] provisions […] last updated: [mm/dd/yyyy] include:
[…][A Consumer may decide to provide a gratuity to the delivery driver]
5. […][Information on the Platform's webpage](Footnote 1):
[…][the merchant is required to remit the applicable GST/HST]
[…][Information on the merchant receiving the applicable GST/HST on the delivery fee]
[…][The Platform facilitates the payment from consumers and the payment to delivery drivers. The merchant provides the delivery service]
[…][The merchant charges the consumer for the goods, the delivery service, and the applicable GST/HST]
6. […][The Platform may pay delivery drivers referral/incentive bonuses and the delivery drivers pay the Platform a service fee].
RULING REQUESTED
You would like to know the following:
1. The tax status of each of the following earned by […][delivery drivers] in [Province X], [Province Y], and [Province Z] through [the Platform]:
a. delivery services
b. tips
c. referrals/incentives
2. Can [delivery drivers], who are GST/HST registrants, claim an ITC on the service fee paid to the Platform.
3. The application of GST/HST where a [delivery driver] provides both commercial ride-sharing and […] delivery services.
We acknowledge your request for rulings on the above matters. However, as noted in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, a ruling provides the Canada Revenue Agency's (CRA's) position on specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person. As the circumstances are such that all of the pertinent facts cannot be established at this time, we are unable to rule on some of these issues. Rather, we are providing general information which we trust will be of assistance.
RULING GIVEN
[…]
Based on the facts set out above, we rule that:
1.a. The [delivery driver] is making a taxable supply of a delivery service subject to GST/HST at the applicable rate based on the province in which the supply is made.
EXPLANATION
There are four participants in a supply of an electronically-arranged [good] delivery service on [the Platform]:
* [the Platform];
* a […][merchant];
* a [delivery driver]; and
* a consumer.
The […][Consumer Terms], between [a consumer] and [the Platform], is [an agreement] that applies to individuals who wish to use [the Platform] […]
[…][The Platform is not a merchant or a transportation carrier]
[…][The Platform does not assume liability for the delivery of the goods]
[...]
Apart from acting as a facilitator amongst the various parties to a transaction, the Platform is identified as […][a collection agent that is authorized] to collect payments on behalf of [delivery drivers] and [merchants]:
[…]
A […][delivery driver provides delivery services to a recipient]. Based on the [Annex] that you provided the [merchant] would generally be the person who obtains such services and be the […][recipient] for the purposes of the Agreement. The [merchant] pays the delivery driver for the delivery service through the Platform.
[...][The Platform's webpage] confirms that [the Platform] facilitates the collections of applicable taxes on [goods] sold and on delivery fees, as well as the payment to [delivery drivers]. […][The Platform’s webpage] states that it is the [merchants] that provide both the [good] and the delivery to consumers. This means it is the [merchant] that charges the consumer for the [good], the delivery fee, and any applicable taxes.
The [delivery driver] is making a supply of a delivery service to the [merchant], which the [merchant] uses as an input into the supply that it makes to the consumer.
Delivery Service
As defined in subsection 1(1) of Part VII of Schedule VI, “freight transportation service” means a particular service of transporting tangible personal property (TPP). A […] service of delivering a […][good] (TPP) is a taxable supply of a freight transportation service made in Canada as per paragraph 142(1)(g). The applicable GST/HST will depend on where the TPP is delivered. Section 5 of Part VI of Schedule IX states, subject to Part VII, that a supply of a freight transportation service is made in a province if the destination of the service is in the province. A [good] delivered in [Province X, Y, or Z] will be subject to […][GST/HST at the applicable rate].
A freight transportation service may be zero-rated (subject to GST/HST at the rate of 0%) under section 11 of Part VII of Schedule VI where interlining occurs between two or more carriers. Interlining occurs where a supply of a freight transportation service made by a carrier of the property being transported is made to a second carrier of the property being transported, where the service is part of a continuous freight movement and the second carrier is neither the shipper nor the consignee of the property being transported.
“Carrier” is defined under subsection 123(1) of the ETA to mean “a person who supplies a freight transportation service…” Various publications, including GST/HST Memorandum 28.2, Freight Transportation Services (Memo 28.2), elaborate that a person does not have to physically transport TPP in order to be a carrier, but only has to assume liability as a supplier of a freight transportation service; in other words, the person must commit to transporting TPP for another person.
Based on the facts, however, only the [delivery driver] is a carrier for GST/HST purposes. The only other party that could be a carrier would be a [merchant] from whom a [good] is ordered using the Platform. However, “shipper” is defined under subsection 1(1) of Part VII of Schedule VI to mean “…the person who, in respect of a continuous freight movement or a continuous outbound freight movement, transfers possession of the property being shipped to a carrier at the origin of the freight movement and, for greater certainty, does not include a person who is a carrier of the property to which the freight movement relates. As explained in Memo 28.2, where a carrier hires another carrier to transport the first carrier’s property, the first carrier is the shipper of the property. As a [merchant] would generally be the shipper of the [good] it cannot be a carrier.
INTERPRETATION GIVEN
Tips/Gratuities
Subsection 123(1) “consideration”, 153(1) and 165(1) require that the GST/HST be applied to gratuities when they are included as part of the total invoice to be paid. On the other hand, gratuities are not subject to the GST/HST when given freely by a customer.
[…][According to the gratuity provisions in the Agreement, the delivery fees do not include any gratuity which a consumer may provide to a delivery driver].
Gratuities will not be subject to GST/HST when given voluntarily by a customer. However, when a business that is registered for GST/HST includes a gratuity as part of the charge for a taxable supply, whether it is a mandatory or a suggested amount, GST/HST will be calculated on the total amount including the gratuity. Where it cannot be distinguished whether payment for a taxable supply includes a voluntary gratuity or not (e.g., taxi chit) the entire amount is subject to GST/HST.
Referral/Incentive Bonuses
The tax status of payments that are […] (Referral/Incentives) […] depends on who the recipient is. Generally, the person that is required to make payment under a legal agreement is the recipient.
In the case of an earnings guarantee or referral bonus the Platform may be the recipient if the [merchant] or consumer is not required to make the payment.
A person making a referral of another person to a platform to become a driver on the platform is making a supply of a service.
Under the Act a payment will constitute consideration if it has been made pursuant to a legal obligation and is linked closely enough to a supply that it may be regarded as having been made for that supply.(Footnote 2)
A referral bonus payment made under a contract may meet this requirement since the very existence of the obligation to pay is conditional on the co-contracting party and the third party referee fulfilling the corresponding obligations that rest on him or her.
The earnings guarantee may be an inducement that is paid by the Platform to the [delivery driver].
The term "supply" in subsection 123(1) of the ETA means "… subject to section 133 and 134, the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition".
The definition of a supply for GST/HST purposes is broad, as is the definition of a service. Therefore, a supply can include the service of agreeing to enter into an arrangement. An inducement is generally provided for a supply of agreeing to perform a specific action and the tax treatment to be applied depends upon the surrounding circumstances.
Where compensation, in this case an earnings guarantee, is an inducement for the [delivery driver] to agree to use the Platform for the purpose of providing delivery services, the inducement payment would be consideration for a taxable supply of a service provided by the [delivery driver] to the Platform.
Generally, a service that is, or is to be, performed in whole or in part in Canada is deemed to be made in Canada.
Different rules can apply for determining whether a supply of a service is made within a province. If specific place of supply rules for certain services, like freight transportation services, do not apply the general rule for services will apply. The general rule for determining the place of supply of a service hinges on whether, in the ordinary course of business of the supplier, the supplier obtains an address of the recipient of the supply. Section 13 of the New Harmonized Value-Added Tax System Regulations states the following:
13(1) General rule for services – address obtained
Subject to sections 14 to 17, a supply of a service is made in a province if, in the ordinary course of business of the supplier, the supplier obtains an address in the province that is
(a) if the supplier obtains only one address that is a home or a business address in Canada of the recipient, the home or business address in Canada obtained by the supplier,
(b) if the supplier obtains more than one address described in paragraph (a), the address described in that paragraph that is most closely connected with the supply, or
(c) in any other case, the address in Canada of the recipient that is most closely connected with the supply.
13(2) General rule for services – no address obtained
Subject to subsection (1) and sections 14 to 17, a supply of a service is made
(a) in a participating province if the Canadian element of the service is performed primarily in participating provinces and
(i) an equal or greater proportion of the Canadian element of the service is not performed in another participating province, or
(ii) if subparagraph (i) does not apply, the tax rate for the participating province is the highest among the participating provinces for which no greater proportion of the service is performed in another participating province; and
(b) in a non-participating province if the Canadian element of the service is not performed primarily in participating provinces.
For more information on place of supply rules please refer to GST/HST Technical Information Bulletin B-103, Harmonized Sales Tax – Place of supply rules for determining whether a supply is made in a province.
Generally, a supply of a service made in Canada is subject to GST/HST. However, in some exceptional circumstances such a supply may be zero-rated when supplied to a non-resident. Whether a supply is zero-rated depends on the specific facts, including who the agreement regarding referrals or incentives is with. Suppliers who are registrants are responsible for determining the residence or registration status of their customers. For the supply to be zero-rated, satisfactory evidence should be retained by suppliers, indicating that their customers are non-residents and, where applicable, not registered for GST/HST purposes. For additional information please refer to GST/HST Memoranda 4.5.1 Exports – Determining Residence Status and 4.5.3 Exports – Services and Intellectual Property.
Platform Service Fee
The Platform charges [delivery drivers] a service fee for use of its services of providing the platform app and acting as [a collection agent]. The service fee is calculated and charged on each delivery service transaction.
The Platform service fee paid by [delivery drivers] is consideration for a taxable supply of a service. Subsection 143(1) of the ETA may deem this supply to be made outside of Canada if the Platform is a non-resident that does not make the supply in the course of a business carried on in Canada or has not registered voluntarily for the GST/HST.
If the supply is deemed to be made in Canada the Platform would be required to collect the GST/HST based on the place of supply, if not a small supplier. The place of supply rules for services, as discussed earlier, would apply.
Whether a registrant [delivery driver] can claim an ITC on the Platform service fee would depend on if the supply has been made in Canada, GST/HST was paid or payable, and all documentary requirements for claiming the ITC have been met. For additional information please refer to GST/HST Memoranda 8.1 General Eligibility Rules and 8.4 Documentary Requirements for Claiming Input Tax Credits.
Commercial Ride-Sharing and Other Commercial Activity
Some drivers involved in commercial ride-sharing services may also be engaged in other commercial activities, such as delivery services.
A taxi business is defined as follows: a business carried on in Canada of transporting passengers by taxi or other similar vehicle for fares that are regulated under the laws of Canada or a province, or a business carried on in Canada by a person transporting passenger by fares by motor vehicle – being a vehicle that would be an “automobile”, as defined in subsection 248(1) of the Income Tax Act, if that definition were read without reference to “a motor vehicle acquired primarily for use as a taxi,” in its paragraph (c) and without reference to its paragraph (e) – within a particular municipality and its environs if the transportation is arranged or coordinated through an electronic platform or system.
Pursuant to subsection 240(1.1), a self-employed driver making taxable supplies of a taxi business, including commercial ride-sharing services, is required to register for the GST/HST in respect of those services. This is regardless of whether or not they are a small supplier. Generally, a small supplier refers to a person whose total revenue (along with the revenue of all persons associated with that person) from worldwide taxable supplies is equal to or less than $30,000 ($50,000 for public service bodies) in a calendar quarter and over the four previous calendar quarters.
If a driver is a small supplier engaged in a taxi business in addition to making supplies of other taxable supplies their mandatory GST/HST registration will generally only apply in respect of their taxi business unless they request otherwise, pursuant to subsection 240(3.1). This means that they will not be required to charge the GST/HST in respect of their other taxable supplies.
Section 169 and the Input Tax Credit Information (GST/HST) Regulations set out the eligibility and documentary requirements necessary to claim input tax credits (ITCs). Where a person acquires or imports property or a service, or brings it into a participating province and, during a reporting period of the person in which the person is a registrant, the GST/HST in respect of the property or service becomes payable by the person or is paid by the person without having become payable, that person may be eligible to claim an ITC in respect of the tax to the extent (expressed as a percentage) it was acquired, imported or brought into a participating province for consumption, use or supply in the course of the person's commercial activities. In addition to meeting the conditions for claiming ITCs and before making any ITC claim, the registrant must also obtain sufficient documentary evidence to enable the amount of the ITC to be determined, including any such information that is prescribed in the Input Tax Credit Information (GST/HST) Regulations.
If a small supplier driver who makes supplies of delivery services is required to be registered because they are also engaged in a taxi business, but they have not requested that the registration apply to their other commercial activities they will not be entitled to claim ITCs in relation to those other supplies.
If a driver’s combined total annual revenue from taxable supplies of the taxi business and delivery services exceeds $30,000 (for example, $20,000 for commercial ride-sharing services and $15,000 for delivery services), they will not be considered a small supplier. The person will therefore be required to charge and collect tax on all of their revenues from their taxable supplies (the combined $35,000), pursuant to subsection 241(2).
DISCLAIMER
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.
CONTACT
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 343-553-3972.Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.Sincerely,
David Phoenix, CPA, CGA
Industry Sector Specialist
Services and Intangibles Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate
FOOTNOTES
1 [...]
2 Commission Scolaire des Chênes v Canada, 2001 FCA 264 paragraph 19
Email this Content