27 November 2001 GST/HST Interpretation 37137 - GST Status of Supplies of Personnel Made by a Corporation Employer to Other Corporations

Dear XXXXX:

This is in reply to your facsimile of July 12, 2001, addressed to Raymond Labelle, senior officer and to your telephone conversation with Marcel Boivin, A/Manager of the Services and Intangibles Unit, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the recovery of salary and related costs paid by an employer to an employee for the employee's services provided to other corporations.

Interpretation Requested

You request clarification as to the treatment of recovery of salary and related costs paid to an employee where the employer provides the services of its employees to other corporations. In this situation, would each of the corporations be considered the employer of the individuals working for them making the recovery of salary and related costs not subject to tax under the Excise Tax Act (the ETA).

Interpretation Given

Based on the information provided, you are aware that anything supplied by employees to their employers in the course of or in relation to the employees' office or employment are not subject to GST/HST, and therefore, costs related to salaries will have no tax consequences under the GST/HST. This is because the definition of "business" and "service" under subsection 123(1) of the ETA, each exclude an office or employment.

However, if a person provides the services of its employees to a third party, the person is making a taxable supply of services to the third party. Therefore, in a supply of services situation, the recovery of salaries and related costs from the third party is consideration for those services and is subject to tax at 7% or 15%, depending on the province in which the services are supplied.

Our policy is that the employment status of a person is the same for income tax purposes as for GST/HST purposes. Whether an employer-employee relationship exists between two parties is a question of fact and can only be determined based on the actual facts of a given situation. If you are unsure if an employer-employee relationship exists between two parties, you can request a ruling from the CPP/EI Rulings, Revenue Collections Division of your local Tax Services Office using form CPT1, "Request for a Ruling as to the Status of a Worker under the Canada Pension Plan and/or Employment Insurance Act".

We understand that you have been in contact with CPP/EI Rulings. It appears that the scenarios presented in your letter will not be viewed as separate employer-employee relationships for each corporation. In this case, the corporation who is the employer will be making taxable supplies to the other corporations who are acquiring the services of its employees.

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 Canada Customs and Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8223.

Yours truly,

Carolle Mercier
Services and Intangibles Unit
General Operations & Border Issues Division
Excise and GST/HST Rulings Directorate