15 June 1998 GST/HST Interpretation HQR0000574 - Passenger Transportation Service - Place of Supply - S. 2/VI/IX

Dear XXXXX

This letter is in response to your letter sent to Robert Smith, February 18, 1997. I have been asked to respond. Your letter concerns whether a supply of a passenger transportation service (other than zero-rated) is taxable at 7% or 15%, depending on our interpretation of section 2 (paragraphs 2(a) and 2(b)) of Part VI of Schedule IX to the Excise Tax Act ("section 2, paragraph 2(a) and paragraph 2(b)"). You also express concerns on whether our auditors will be made aware of our position.

Provisions at Issue:

The provisions at issue read as follows:

"2. A supply of a passenger transportation service that is part of a continuous journey is made in a province if,

(a) where the ticket or voucher issued in respect of the passenger transportation service included in the continuous journey that is provided first specifies the origin of the continuous journey, the origin is a place in the province and the termination, and all stopovers, in respect of the continuous journey are in Canada; and

(b) in any other case, the place of negotiation of the supply is in the province." (bolding by author)

Issue:

Whether paragraph 2(b) applies where the supply of a passenger transportation service does not meet the conditions of the second part of paragraph 2(a) (bolded above). These conditions are that the supplies at issue are related to a continuous journey in respect of which the origin, the termination and all the stopovers are in Canada.

The Department's Position

Where a continuous journey does not occur in circumstances where the origin, the termination and all stopovers included in the continuous journey are in Canada, the supplies of passenger transportation services made in Canada related to the continuous journey will be either zero-rated or taxable at 7%. The zero-rated supplies related to a qualifying continuous journey remain zero-rated, even where made in a participating province.

Where the origin, the stopovers and the termination of a continuous journey are all in Canada, paragraph 2(a) will apply if "the ticket or voucher issued in respect of the passenger transportation service included in the continuous journey that is provided first specifies the origin of the continuous journey". Where the origin specified in paragraph 2(a) is in a participating province, the supplies of the transportation services related to the continuous journey will be taxable at 15%.

Where the origin, the stopovers and the termination of a continuous journey are all in Canada, and it is not the case that the "the ticket or voucher issued in respect of the passenger transportation service included in the continuous journey that is provided first specifies the origin of the continuous journey", then the Department will apply paragraph 2(b). As a result, the supplies of the transportation services related to the continuous journey are taxable at 15%, if the "place of negotiation" of the transportation services at issue is in a participating province. If the place of negotiation of these transportation services is not in a participating province, then the related supplies will be taxable at 7%.

For example, a person purchases in Nova Scotia a return air ticket with a routing Halifax to Boston. The person will be charged tax at the 7-per-cent GST rate because the flight is within the taxation area for GST purposes. However, HST will not apply because there is a stopover at a place outside Canada.

Please be assured that Revenue Canada Audit is aware of this interpretation.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, 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 Chapter 1 of the GST/HST Memoranda Series, do not bind the Department with respect to a particular situation.

Should you have any further questions or require clarification on the above or any other GST/HST matter, please do not hesitate to contact me at (613) 952-8815.

Yours truly,

Raymond Labelle
A/Rulings Officer
Services and Intangibles Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate

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