20 February 2004 GST/HST Interpretation 47498 - GST/HST Rebate on Destination Management Company Fees

Please note that the following documents, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ces documents, bien qu'exacts au moment émis, peuvent ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your letter XXXXX (with attachments) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the question of the GST/HST rebate available to sponsors of a foreign convention (the Convention Rebate) and a GST/HST-registered company's service fees. Your letter was sent to the XXXXX GST/HST Rulings Centre and has been forwarded to us for a response.

Our understanding of the facts is as follows:

•   XXXXX is a destination management company that also provides services as a convention organizer. It is registered for GST/HST.

•   XXXXX has provided a number of examples of supplies they have been asked to provide for a meeting that qualifies as a foreign convention under subsection 123(1) of the Excise Tax Act:

Example 1

A group is coming to XXXXX for a meeting over five days. On days 2 and 4, there are meetings. On day 3, however, XXXXX provides a tour for the group to XXXXX. The cost per person of the tour is $85.00 + GST ($5.95) = $90.95. XXXXX charges an additional 40% of the cost of the tour (i.e., $85.00 x 40% = $34.00) for their services in coordinating this tour. The convention sponsor pays for the tour that is required to be attended by all convention attendees.

Example 2

As with Example 1, there are meetings on days 2 and 4. On day 3, XXXXX has arranged to provide a tour for the group to XXXXX. However, in this case the tour is one of a number of optional activities convention attendees may choose to participate in. The convention sponsor pays for the tour.

Example 3

Same as Example 2, except convention attendees are required to pay for the tour themselves, should they wish to attend.

Example 4

As with previous examples, there are meetings on days 2 and 4, however, in the evening of day 3, XXXXX provides a band to play at a dinner function. The dinner is a related convention supply (As defined in subsection 123(1) of the ETA and is defined and discussed in the Interpretation Given portion of this letter.) (i.e., the sponsor of the foreign convention is able to claim 50% of the GST charged on the dinner as a rebate of a related convention supply), even though the dinner is not a meeting. The supply of the band is excluded from the definition of a related convention supply, so that the sponsor is not entitled to a rebate of the GST paid on the cost of the band. The cost of the band is $2,000 + GST ($140.00) = $2,140.00. XXXXX charges 20% of the cost of the band ($2,000 x 20% = $400.00) as a fee for coordinating the entertainment. The contract for the band is between XXXXX and the band.

Interpretation Requested

In Examples 1, 2 and 3 is the $2.38 GST ($34.00 x 7% = $2.38 GST) charged by XXXXX on the fee for coordinating the tour to XXXXX rebatable as a related convention supply?

In Example 4, is the $28.00 GST ($400.00 x 7% = $28.00 GST) charged by XXXXX on the fee for booking the band for the dinner rebatable as a related convention supply, or is excluded because the band itself is not a related convention supply?

Interpretation Given

Under subsection 123(1) of the ETA, property or services (with certain exclusions, discussed on page 3) acquired, imported or brought into a participating province by a person (i.e., the sponsor) is a related convention supply if the property or services are exclusively for consumption, use or supply by the person in connection with the convention. If the property or service is not exclusively for consumption, use or supply by the person in connection with the convention, it is not a related convention supply.

There are some exclusions to the definition of a related convention supply. These exclusions are:

1. transportation services, other than a chartered service acquired by the person solely for the purpose of transporting attendees of the convention between any of the convention facilities, places of lodging of the attendees, or transportation terminals;

2. entertainment;

3. property or services that are food or beverages or are supplied to the sponsor under a contract for catering, except for certain purposes such as the Convention Rebate to the sponsor; or

4. anything sold separately from the admission fee, unless it is sold to an exhibitor. The exhibitor must be acquiring the property exclusively for consumption or use in the course of promoting, at the convention, the exhibitor's business or property or services supplied by the exhibitor.

As stated previously, in order to be a related convention supply, the supply must be for consumption, use or supply exclusively in connection with the convention. It is the Canada Revenue Agency's (CRA) view that any service that is in connection with an optional item is not exclusively for consumption, use or supply in connection with the convention.

Each supply must be looked at on a case-by-case basis to determine whether it is exclusively for consumption, use or supply in connection with a convention. Furthermore, it must be determined whether a supply that would otherwise be a related convention supply is specifically excluded from the definition. There are a number of factors that can influence whether a supply would be viewed as being included or excluded from the definition. For example, events that are organized during the daytime and are required to be attended by all convention attendees are more likely to be viewed as being supplied exclusively in connection with the convention. However, in order for the event to be considered a related convention supply, the client would be required to provide detailed information justifying the nature of the supply as one that is not excluded from the definition.

On the other hand, events that are optional for convention attendees, are likely not supplies that are exclusively for consumption, use or supply in connection with the convention. Similarly, events held in the evening are less likely to fall within the definition of related convention supplies.

In our view, in the examples provided, XXXXX activity of organizing is an input into the supply of the services. The mark-up charged by XXXXX (i.e., 20% and 40%) forms part of the consideration for the supply.

In Example 1, XXXXX is providing a tour to XXXXX for all the attendees of a convention. The 40% mark-up charged by XXXXX forms part of the consideration for this supply. Provided that XXXXX justifies that the tour is not transportation, nor is it entertainment, the tour would be a related convention supply. If all the other eligibility criteria were met, the sponsor is entitled to claim the Convention Rebate on the total consideration for the supply of the tour. In this example, the amount of GST eligible for the rebate would be $8.33 [($85 + $34) x 7%)].

In Examples 2 and 3, XXXXX is providing an optional tour to XXXXX. In this case, it is our view that the tour is entertainment and would not qualify as a related convention supply. Since the 40% mark-up charged by XXXXX forms part of the consideration for the supply of the tour, the sponsor is not entitled to claim the Convention Rebate on the GST/HST incurred on the consideration (which includes the mark-up) charged by XXXXX for the supply of the tour.

In Example 4, XXXXX is providing a band to play at a dinner function. The supply of the band is excluded from the definition of a related convention supply since it is entertainment, so that the sponsor is not entitled to a rebate of the GST paid on the cost of the band (which includes the mark-up).

However, if the 20% and 40% amounts represent a fee charged by XXXXX for local planning management and co-ordination services in organizing elements of the convention for the incoming organization, and the activity is not an optional activity, then it is likely that the sponsor would be entitled to claim the Convention Rebate on the GST/HST incurred in acquiring the property or service and on the fee charged by the destination management company.

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 Revenue Agency with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-2826.

Yours truly,

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