29 November 2007 GST/HST Ruling 95098 - XXXXX – Eligibility of the XXXXX to claim the 83% public service body rebate

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 bus charters and tour packages.

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

Effective January 1, 2008, the rate of the GST will be reduced from 6% to 5% and the rate of the HST from 14% to 13%. The new rates will apply to supplies for which the GST/HST is paid on or after January 1, 2008, without having become payable before that date. Specific transitional rules will apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to GST/HST Notice 226, Proposed GST/HST Rate Reduction in 2008 on the Canada Revenue Agency (CRA) Web site at www.craarc.gc.ca/E/pub/gi/notice226/README.html.

We understand that you are seeking answers to several questions that XXXXX have with respect to GST/HST.

Interpretation Requested

To avoid duplication in our responses, we have grouped together similar and related questions from your request.

1. You have presented various scenarios involving bus charters. Do these scenarios qualify as continuous journeys? Can a trip with a stopover of more than 24 hours be considered two continuous journeys?

2. Will a trip with a stopover of more than 24 hours qualify as a continuous journey if only one ticket is issued? If no tickets are issued, can the continuous journey rules still be applied?

3. What proof is required in order to verify that a trip qualifies as a continuous journey and should it be obtained prior to zero-rating a domestic passenger transportation service provided as part of the trip?

4. Is an optional day trip where the fee is collected by the tour guide separate from a continuous journey?

5. Where continuous journey rules are met, are "incidentals" such as road tolls, ferry fees, airport fees, fuel surcharges and driver accommodations subject to GST/HST?

6. Can a Canadian tour operator credit a GST/HST rebate for an eligible tour package to a nonresident and if so, how is this reported? Are the rules different for non-residents from the United States as the U.S. is in the "taxation area"?

7. Will a credit card payment accepted over the phone or on the internet qualify under the rebate condition "payment for the tour package must be made at a place outside Canada where the registrant or its agent is conducting business"?

Interpretation Given

Zero-rated passenger transportation services and continuous journey (Question 1)

The term "passenger transportation service" is not defined in the ETA. It is the CRA's view that passenger transportation services are services provided by a generally accepted mode of transportation, such as bus, train, aircraft, or boat. There are three administrative criteria that must be met in order for a service supplied to a passenger to be a passenger transportation service. There must be:

•   a mode of conveyance;

•   an operator of the conveyance independent of the traveller; and

•   an itinerary.

A supply of a passenger transportation service made in Canada is generally taxable at 6% or 14% (in the participating provinces) unless it is zero-rated (taxable at 0%) or exempt. A listing of exempt passenger transportation services can be found in GST/HST Memorandum 28.3, Passenger Transportation Services. The following is a discussion of the zero-rating provisions.

Section 2 of Part VII of Schedule VI zero-rates:

A supply of a passenger transportation service that is provided to an individual or a group of individuals and that is part of a continuous journey of the individual or group, other than a continuous journey that includes transportation by air, where

(a) the origin or termination of the continuous journey is outside Canada, or

Ib) there is a stopover outside Canada,

but not including a passenger transportation service that is part of a continuous journey if both the origin and the termination of the journey are in Canada and, at the time the journey begins, the individual or group is not scheduled to be outside Canada for an uninterrupted period of at least 24 hours during the course of the journey.

Section 3 of Part VII of Schedule VI zero-rates:

A supply of a passenger transportation service that is provided to an individual or a group of individuals and that is part of a continuous journey of the individual or group that includes transportation by air, where

(a) the origin or termination of the continuous journey, or any stopover in respect thereof, is outside the taxation area;

(b) the origin and termination of the continuous journey, and all stopovers in respect thereof, are outside Canada;

(c) the origin of the continuous journey is within the taxation area, but outside Canada; or

(d) all places at which the individual or group embarks or disembarks an aircraft are outside Canada and the origin or termination of the continuous journey, or any stopover in respect thereof, is outside Canada.

The above zero-rating provisions are not dependent on whether the supply is provided to a registrant or non-registrant; nor does it matter whether the supply is provided to a resident or nonresident.

Some key terms from the above legislation are defined in the ETA. Specifically, a continuous journey of an individual or a group of individuals means the set of all passenger transportation services provided to the individual or group

(a) and for which a single ticket or voucher in respect of all the services is issued, or

(b) where 2 or more tickets or vouchers are issued in respect of 2 or more legs of a single journey of the individual or group on which there is no stopover between any of the legs of the journey for which separate tickets or vouchers are issued, and all the tickets or vouchers are issued by the same supplier or by 2 or more suppliers through one agent acting on behalf of all the suppliers where

(i) all such tickets are supplied at the same time and evidence satisfactory to the Minister is maintained by the supplier or agent that there is no stopover between any of the legs of the journey for which separate tickets or vouchers are issued, or

(ii) the tickets or vouchers are issued at different times and evidence satisfactory to the Minister is submitted by the supplier or agent that there is no stopover between any of the legs of the journey for which separate tickets or vouchers are issued.

Note that in the case of a round trip to or from Canada, we consider that the trip is a continuous journey and the supply of the passenger transportation services is zero-rated if there is no more than one stopover. More than one stopover where two tickets meet would create a break in a continuous journey; however, this may result in two separate continuous journeys. In that case, each continuous journey would be evaluated individually to determine whether the zero-rating provisions are met and therefore, whether each supply of a passenger transportation service under that journey can be zero-rated.

The origin means, in respect of a continuous journey, the place where the passenger transportation service that is included in the continuous journey and that is first provided begins.

A stopover, in respect of a continuous journey of an individual or a group of individuals, means any place at which the individual or group embarks or disembarks a conveyance used in the provision of a passenger transportation service included in the continuous journey, for any reason other than transferring to another conveyance or to allow for servicing or refuelling of the conveyance.

The CRA does not consider any stop of 24 hours or less between two legs of a journey for which separate tickets or vouchers are issued to be a stopover. If a stop of more than 24 hours is required, the supplier or travel agent must be able to prove that the stop was for the purposes of transferring to another conveyance or for servicing or refuelling the conveyance.

Taxation area means Canada, the United States (except Hawaii) and the islands of St. Pierre and Miquelon.

The termination of a continuous journey means the place where the passenger transportation service that is included in the continuous journey and that is last provided ends.

Domestic passenger transportation service as part of a continuous journey (Question 2)

The term "continuous journey" is important in determining whether a domestic passenger transportation service that would otherwise be taxable at 6% or 14% qualifies for zero-rating.

Where multiple transportation services are provided on a single ticket or voucher, each of the services is part of a continuous journey and each supply of a passenger transportation service in that continuous journey has the same tax status.

A single ticket includes a ticket stock, which could list one or more legs of a journey over a period of time. Where an itinerary is the only travel document issued to the traveller, we consider an itinerary to be a ticket or voucher so that all of the items included on the itinerary would be on a single ticket or voucher.

Where multiple transportation services are provided and separate tickets or vouchers are issued in respect of different legs of a journey, all the legs of the journey form part of a continuous journey if the following conditions are met:

•   all the tickets are issued to the traveller by the same supplier or by a travel agent acting on behalf of two or more suppliers;

•   all tickets are for the same traveller or group of travellers; and

•   there is no stopover between any of the legs of the journey for which separate tickets or vouchers are issued.

The supplier of the passenger transportation service or agent of the supplier must demonstrate to the CRA that the conditions for a continuous journey have been met.

Proof of continuous journey (Question 3)

For information on what is acceptable proof that the conditions for a continuous journey have been met and what to do if the sale of the transportation service happens before proof is available, see the guide RC4036, GST/HST Information for the Travel and Convention Industry under the heading Sales of domestic transportation services to non-residents.

Optional trip (Question 4)

An optional day trip within Canada would be subject to GST/HST unless it formed part of a continuous journey and met the criteria to be zero-rated. To form part of a continuous journey, the day trip would need to meet the conditions outlined previously in the definition of a continuous journey.

Where a day trip is acquired by a passenger on a separate ticket or voucher provided by a different supplier, the conditions of a continuous journey would not be met.

Other fees (Question 5)

To determine the tax to be charged on charges such as road tolls, ferry fees, airport fees and fuel charges, and driver accommodations, we need to examine whether the charges are for items that form part of, or are inputs into, a supply (e.g., a passenger transportation service) or whether they are separate, multiple supplies.

This is important because where items form part of, or are inputs into, a supply, even if there is a separate charge the item will have the same tax status as the rest of the supply. For example, in the transportation industry a fuel surcharge may be added to invoices for the supply of transportation services to recover some or all of the increased cost of fuel instead of adjusting the price for the transportation service. However, the fuel surcharge, even though it is charged separately, is still part of the price of the transportation service. The fuel surcharge amount is subject to tax at the same rate as the rest of that transportation service.

Therefore, where the supply of a transportation service is taxable at 6% or 14%, the entire charge for that service, including the fuel surcharge, is subject to GST/HST at the same rate. Similarly, where the supply of a transportation service is zero-rated, the entire charge for that supply of a transportation service, including the fuel surcharge, is zero-rated.

Driver accommodation is generally an input into a supply of a passenger transportation service.

GST/HST Policy Statement P-077R, Single and Multiple Supplies provides factors and guidelines to consider in determining whether a supply is a single supply or multiple supplies.

GST/HST Memorandum 28.1, Ferry, Road and Bridge Tolls explains the tax status of ferry, road and bridge charges where these items are separate supplies.

Commonly, airport improvement fees are fees charged by airports to the passengers embarking at a given airport. These fees charged by Canadian airports are generally subject to GST/HST.

Foreign Convention and Tour Incentive Program (Questions 6 and 7)

The Foreign Convention and Tour Incentive Program (FCTIP) is a new rebate program that came into effect April 1, 2007 and replaces the old Visitor Rebate Program. We have recently published GST/HST Notice No. 221, Questions and Answers on the Cancellation of the Visitor Rebate Program and the Implementation of the New Foreign Convention and Tour Incentive Program (the Notice), which is a comprehensive series of questions and answers on the elimination of the VRP and the introduction of the new FCTIP.

Particularly, Questions 7.1 to 7.12 of the Notice deal with paying or crediting an amount of the GST/HST rebate under the FCTIP. Note that the FCTIP rules are the same for U.S. residents as for other non-residents; there is no difference on the basis of "taxation area".

The conditions, as outlined in the answer to Question 7.3 of the Notice, that must be met for a registrant to pay or credit an amount of the tour package rebate under the FCTIP to non-resident consumers or non-resident non-registered businesses that are not tour operators are:

•   the non-resident must have been charged a minimum of $12 GST or $28 HST; and

•   either

–   payment for the eligible tour package must be made at a place outside Canada where the registrant or its agent is conducting business; or

–   a deposit of at least 20% of the total price for the eligible tour package is paid by the non-resident. The deposit must be paid at least 14 days before the first day of eligible accommodation included in the tour package is made available to the nonresident individual.

The deposit must be by credit or charge card, cheque, bank draft, or other bill of exchange, drawn on an account from an institution, such as a bank or credit union, outside Canada. A deposit made by credit or charge card is not considered to have been paid to the registrant until the issuer of the card credits the registrant's account. Deposits paid by debit card are also acceptable.

With respect to the condition that "payment for the tour package must be made at a place outside Canada where the registrant or its agent is conducting business", each situation would need to be examined on a case-by-case basis. Two factors we would consider when determining if this condition is met are:

•   where the payment is processed, and

•   where the payment is deposited.

For more information on the conditions that must be met in order for a non-resident to qualify for a rebate under the FCTIP, see Questions 4.2 and 4.3 of the Notice.

All publications referenced in this letter can be found on CRA's website at www.craarc.gc.ca/formspubs/type/menu-e.html.

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 me directly at XXXXX. XXXXX

Yours truly,

XXXXX
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2007/12/05 — RITS 93795 — Foreign Convention and Tour Incentive Program