Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
XXXXX
Attention:XXXXX
Case Number: 97516
January 7, 2009
Dear XXXXX:
Subject:
GST/HST INTERPRETATION
Shipping and handling of exclusive products
Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to fees for shipping and handling charged by a direct seller. We apologize for the delay in responding to your enquiry.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We understand that:
• A GST/HST-registered direct seller, authorized to use the Alternate Collection Method (ACM), sells exclusive products to independent sales contractors (ISCs) who sell the products to individual customers.
• The ISCs have entered into agreements with the direct seller to obtain the right to sell the exclusive products.
• The ISCs solicit, negotiate and enter into contracts for the sale of the exclusive products at their homes or through events held at the private residences of individuals; the ISCs do not solicit, negotiate nor enter into contracts for the sale of the products at a fixed place of business other than at private residences.
• The direct seller and its ISCs understand the terms of delivery for the sale of exclusive products by the direct seller to an ISC or by an ISC to a customer to be that title to the products passes when the recipient (i.e., the ISC or customer) receives them. The delivery terms are not set out on the customer order form or any other physical document.
• The direct seller charges a $XXXXX shipping and handling fee per customer order to the ISC that the ISC, in turn, charges the end customer. The $XXXXX shipping and handling fee is pre-printed on the customer order form for exclusive products and appears on the customer's invoice. The product catalogue contains a statement that shipping and handling will be applied to each customer order of products.
• When accounting for the sale of exclusive products, the direct seller includes the GST/HST collectible on both the suggested retail price of the products, as set out in the catalogues, and the $XXXXX shipping and handling fee, and reports such amounts as GST/HST collected on its GST/HST returns. When billing its customer, the ISC recovers an amount for GST/HST on both the suggested retail price and the $XXXXX shipping and handling fee.
• In addition, when selling exclusive products to an ISC, the direct seller charges the ISC a shipping fee equal to XXXXX% of the retail selling price of the products. The XXXXX% shipping fee appears on the direct seller's invoice to the ISC, it is not printed in the product catalogue or in any other printed material.
• The direct seller does not charge and account for tax on the XXXXX% shipping fee because it considers the fee to be a sales aid that is not subject to tax. The XXXXX% shipping fee is not passed on to the end customer by the ISC.
Interpretation Requested
Is the direct seller required to account for tax on the $XXXXX shipping and handling fee and the XXXXX% shipping fee that it charges in connection with its supplies of exclusive products to ISCs who, in turn, supply the products to purchasers? Are these two shipping charges considered to be sales aids on which the direct seller would not be required to charge and account for GST/HST pursuant to subsection 178.5(5)?
Interpretation Given
In our view, the $XXXXX shipping and handling fee is subject to GST/HST provided that the supply of the exclusive product to which it relates is not a zero-rated supply. Conversely, the XXXXX% shipping fee is not subject to GST/HST under the ACM. Also, the XXXXX shipping and handling fee and the XXXXX% shipping fee are not sales aids as defined in section 178.1 and therefore, subsection 178.5(5) does not apply.
Generally, it is the Canada Revenue Agency's (CRA's) position that, where tangible personal property (TPP) is supplied on a delivered to destination basis, such as FOB (recipient's address), any additional fees attributed to shipping and handling form part of the consideration for a single supply of the TPP. In this case, the title to the exclusive products passes when the recipient (i.e., an ISC or a customer) receives the products, the shipping forms part of the single supply of the delivered exclusive products.
As you know, under the ACM, when a direct seller makes a taxable supply of an exclusive product to an ISC, the supply is deemed to have been made for consideration that is equal to the suggested retail price of the product at the time the supply is made.
According to the definitions in section 178.1, "suggested retail price" at any time of an exclusive product of a direct seller means the lowest price published by the direct seller applicable to supplies of the product made at that time to purchasers, but does not include any amount on account of tax. A "purchaser" of an exclusive product of a direct seller means a person who is the recipient of a supply of the product and who is not acquiring the product for the purpose of supplying it for consideration.
The $XXXXX shipping and handling fee is, in our opinion, part of the suggested retail price of the direct seller's exclusive products and consequently forms part of the consideration for the supply of the products under the ACM. Therefore, provided that the supply of the exclusive product is not a zero-rated supply, the direct seller charges the ISC GST/HST on the suggested retail price which includes the $XXXXX shipping and handling. The ISC recovers from the purchaser an amount for the GST/HST on the suggested retail price including the $XXXXX shipping and handling fee.
The XXXXX% shipping fee is, in our opinion, part of the consideration on which the direct seller would otherwise calculate tax for the supply (other than a zero-rated supply) of the exclusive product to the ISC if the direct seller were not approved to use the ACM. The XXXXX% shipping fee is not part of the suggested retail price, and therefore, is not part of the consideration for the supply of the exclusive products under the ACM. Consequently, the direct seller does not charge the ISC GST/HST on the XXXXX% shipping fee.
The definition of "sales aid" in section 178.1 refers, in part, to the service of shipping or handling, or processing an order for an exclusive product of the direct seller. Given that the shipping in this case forms part of the single supply of the delivered exclusive products, and is not a separate supply of a service of shipping or handling, the relieving provision in subsection 178.5(5) with respect to supplies of sales aids does not apply.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call Michèle Routhier at 613-954-9700. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Michèle Routhier
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
Email this Content