2 February 2006 GST/HST Ruling 63256 - Application of GST to a Game of Chance

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.

Dear XXXXX:

Thank you for your fax XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of tickets to an event.

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

We understand that:

1. XXXXX (the Promoter) is the Promoter of an event called the XXXXX (the event) and is registered for GST/HST.

2. The Promoter entered into an agreement with XXXXX (Ticket Seller) wherein the Promoter appointed the Ticket Seller as its exclusive agent to sell tickets to the public through the Ticket Seller's computerized ticketing system. The Ticket Seller is also registered for GST/HST.

3. The Promoter sets ticket prices, approves ticket text, confirms seating capacity and provides the Ticket Seller with any other relevant information regarding the event. Any additional costs incurred because of errors or omissions in such information are the responsibility of the Promoter.

4. The Promoter pays a fee for service to the Ticket Seller. The Ticket Seller's services under the agreement are limited to serving as the Promoter's agent for the sale and distribution of tickets.

5. In addition to the ticket price, the Ticket Seller charges purchasers a convenience charge. Tickets purchased by telephone or via the Internet are also subject to an order-processing fee charged to purchasers. The Ticket Seller charges any credit card chargebacks to the Promoter.

6. The Promoter is responsible for marketing, promotion and the success of the event.

7. The Promoter honours all tickets sold by the Ticket Seller and is responsible for all taxes, fees and commissions associated with the event and must include all such taxes in the ticket price.

8. Should the event be cancelled, the Promoter is required to refund monies paid by ticket purchasers and to pay an amount equal to the commissions, convenience charges charge/debit card commissions and other applicable fees to the Ticket Seller.

9. On the third business day after the event, the Ticket Seller pays to the Promoter the net proceeds of the event less any amounts owing to the Ticket Seller.

10. The Promoter is responsible for the costs of providing telephone lines and power supplies for ticket sales equipment at the gate and for use of the Ticket Seller's staff in the building where the event takes place, physical security repair or replacement of the Ticket Seller's equipment if it is destroyed, lost or stolen while on the Promoter's premises.

11. The Promoter is also responsible for the costs of point of sale (POS) terminals for debit card purchases of tickets, adequate insurance to safeguard the Ticket Seller and other costs.

Ruling Requested

You would like to know when supplies of tickets for the right to admission to the event take place and when the GST liability in respect of such supplies arises.

Ruling Given

In our view XXXXX is an agent of the Promoter in making the supply.

Therefore, based on the facts set out above, we rule that supplies of admissions to the event are made at the time the supplier i.e., the Promoter, sells the tickets, either itself or through its agent, and that the tax is collectible at that same time.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

In the circumstances at hand, supplies of admissions to the event are considered, under the provisions of section 133 of the ETA, to be made at the time the tickets are sold. Where there is an agreement to make a supply, section 133 of the ETA considers a supply to exist and the further provision of property or services under the agreement is considered part of the original supply. Pursuant to subsection 123(1) of the ETA, a ticket for admission to the event is considered to be an invoice. By virtue of subsection 152(1) of the ETA, the consideration for the supply is due on the day the supplier issued the ticket.

Consideration is "paid" when the supplier receives the money, property or service, which is consideration for the supply. Subsection 152(1) of the ETA provides that consideration (or a part thereof) for a taxable supply becomes due on the earliest of the day the supplier first issues an invoice in respect of the supply, the date of the invoice, the day when, but for an undue delay, the supplier would have issued an invoice in respect of the supply, and the day that consideration is due pursuant to an agreement in writing.

The word "invoice" is defined in subsection 123(1) and includes, but is not limited to, a statement of account, a bill and any other similar record, regardless of its form or characteristics, and a cash register slip or receipt. Under this broad definition, any record of a supply, along with the consideration due or paid for the supply, will be considered to be an invoice. Generally, an invoice is issued after, or as a record of, an agreement to make a supply or when the supply is made.

Supplies of tickets for admission to the event in the province of XXXXX are subject to the GST at the rate of 7% of the value of the consideration for the supplies. Under the provisions of subsection 168(1) of the ETA, the tax is payable by the recipient of a taxable supply on the earlier of the day that consideration for the supply is paid and the day that the consideration becomes due.

Subsection 221(1) of the ETA provides that where a supplier makes a taxable supply in Canada, it shall collect the tax payable in respect of the supply. Subsection 225(1) requires, in part, that the supplier include all tax amounts that were collected or were collectible in a reporting period in its net tax calculation for that period.

General Comments

Generally, a registrant who makes a taxable supply of property or services will be required, pursuant to subsection 221(1) of the ETA, to collect tax on that supply. Pursuant to subsection 225(1) of the ETA, the amount of tax collected as well as tax collectible is included in determining the net tax of the registrant for the reporting period in which the amount became collectible.

We offer the following general information as it pertains to agents.

Agents Making a Taxable Supply on behalf of a Principal:

In the event that a registrant hires an agent and the agent makes a taxable supply (otherwise than by auction) on behalf of a registrant principal, the GST/HST rules outlined above apply as if the principal had made the supply directly to the recipient. Consequently, the principal is required to account for the tax collected or collectible on the supply made to the recipient. The agent does not account for the tax collected on the supply of admissions in its net tax calculation and cannot claim an ITC for the GST/HST it passes back to the principal.

The Canada Revenue Agency's (CRA's) position with regard to agency relationships is set out in CRA's Info Sheet, GI-012 Agents, a copy of which is attached. For further details you may wish to refer to the CRA policy statement P-182R Agency. The policy indicates that a person will be considered and treated for GST/HST purposes as an agent based on fact and the principles of law. The policy can be found at http://www.cra-arc.gc.ca/menu/GTPP-e.html.

Current subsection 177(1.1) of the ETA provides an alternative to the aforementioned procedure. This subsection permits a GST/HST registrant who, in the course of its commercial activity, acts as an agent in making a supply (otherwise than by auction) on behalf of a principal who is required to collect tax in respect of the supply (other than certain supplies of tangible personal property), to elect jointly with the principal to account for the tax collectible in respect of the supply as if the tax were collectible by the agent. Where an election under this subsection is made, the agent, and not the principal, has to account for any tax collectible on the supply in its net tax. However both the agent and the principal are jointly and severally liable for the obligations resulting from the tax becoming collectible.

Also, under proposed amendments to subsection 177(1.1), the following rules apply to agents and principals who make this election with respect to the particular supply for which the election is in effect:

•   Any amount charged or collected by the agent on behalf of the principal as or on account of tax is deemed for certain purposes, including the net tax calculation, to be charged and collected by the agent.

•   The rules pertaining to refunds, credits or adjustments of tax to the recipient apply to the agent and not the principal.

•   If a price reduction is offered to the recipient and a refund, credit or adjustment is provided to the recipient, the agent can claim a deduction from net tax equal to the amount of tax refunded, credited or adjusted.

•   The agent and principal are jointly and severally and solidarily liable for all tax obligations for the supply (including net tax remittance, bad debt adjustments, recovery of bad debts, and penalty and interest charged for over payment of net tax refund or under payment of net tax).

•   The agent, and not the principal, has to include the consideration for the supply in the calculation of the threshold amounts that determine their respective reporting periods.

Generally these amendments will apply to supplies made after December 20, 2002.

Therefore, where the Ticket Seller acts as agent of the Promoter with respect to the admission supplies, an election can be filed under subsection 177(1.1) of the ETA, by the Ticket Seller and the Promoter, to have the Ticket Seller account for any amount charged or collected as or on account of tax on the admission supply. The election has to be made in prescribed form, i.e., on form GST 506 Election and Revocation of an Election Between Agent and Principal (copy enclosed).

To the extent that an election under subsection 177(1.1) of the ETA is not made, the principal is solely liable for all GST/HST obligations on the admission supplies.

Whether or not an election under subsection 177(1.1) of the ETA is made, usually tax is payable by the principal on the consideration for a registrant agent's services. The principal may be entitled to input tax credits (ITCs) on the tax paid or payable on the consideration for the agent's services, subject to the ITC requirements and restrictions.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-7931.

Yours truly,

Anne Kratz
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/02/02 — RITS 63274 — Review of GST/HST Ruling XXXXX - Application of GST/HST to Hotel Accommodations