Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 242630
Business Number: […]
[Dear Client]:
Subject: GST/HST interpretation
Trans-border air charters to the United States of America with a stop of 24 hours or less
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to trans-border air charters to the United States of America (USA) with a stop of 24 hours or less. We apologize for the delay in this response.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We understand the following:
1. […] (the Company) is a Transport Canada registered air operator based in […][Province X], registered for GST/HST purposes with Business Number […].
2. The Company operates commercially registered aircraft for […] passenger […] transportation. […][They] operate into and out of the USA and other Canadian provinces.
3. In the course of the Company’s business passenger services are quoted and contracted on a continuous journey basis in two scenarios of concern as follows:
Scenario A – Charter flight into the USA from [Province X]
- A charter […][trip] originates in [Province X] and goes to […][USA].
- A passenger embarks in [Province X] and disembarks in [USA] for their own purposes.
- The aircraft returns later in the day from [USA] to [Province X] with the same passenger on board.
- The charter is invoiced by […][the Company] for the entirety of the round trip.
Scenario B – Charter flight into the USA with repositioning component
- A charter trip originates in […][Province Y] and goes to [USA].
- A passenger embarks in [Province Y] and disembarks in [USA] for their own purposes.
- The aircraft returns later in the day from [USA] to [Province Y] with the same passenger on board.
- In order to provide this service the Company must reposition the aircraft from [Province X] to [Province Y] and from [Province Y] to [Province X].
INTERPRETATION REQUESTED
You would like to confirm that in both scenario A and B there is a stopover in the USA and the supply in each scenario is taxable at the GST rate of 5%.
INTERPRETATION GIVEN
Passenger Transportation Service
It must first be determined whether the Company is supplying a passenger transportation service to a charterer, a supply of tangible personal property (TPP) by way of lease, licence or similar arrangement or a service other than a passenger transportation service. How the supply is characterized for GST/HST purposes is important as it will determine the appropriate place of supply rule that should be used.
Passenger transportation service is not defined in the ETA. There is an administrative guideline that the CRA follows to determine what is a passenger transportation service, as stated below:
A passenger transportation service is any mode of transportation available to the public, such as transportation by bus, taxi, train, aircraft, or boat, as long as there is:
- a mode of conveyance;
- an operator of the conveyance independent of the traveller; and
- an itinerary
An itinerary, generally, describes all elements of a journey, including origin, termination, stopovers, dates and times of arrivals and departures, and all modes of conveyance throughout the journey.
For the purposes of this interpretation it will be assumed that the supplies in scenario A and B are passenger transportation services.
As defined in subsection 1(1) of part VII of Schedule VI, 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 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 legs of the journey for which separate tickets or vouchers are issued.
If the Company does not issue tickets or vouchers, the CRA will accept an itinerary for the purposes of the definition of “continuous journey”, where the itinerary reflects accurately the details of the contract between the recipient and the Company.
The term “stopover” is defined differently for zero-rating and place of supply rules. For zero-rating purposes, the term “stopover” is defined in subsection 1(1) of Part VII of Schedule VI, along with the terms “origin”, “taxation area” and “termination”.
“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 other reason than transferring to another conveyance or to allow for servicing or refuelling of the conveyance.
“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.
“Taxation area” means Canada, the United States (except Hawaii) and the islands of St. Pierre and Miquelon.
“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.
For section 3 of Part VII of Schedule VI to apply to zero-rate a supply of a passenger transportation service the origin, stopover, or termination must be outside the taxation area. If a flight originates in Canada and has a stopover or terminates in the taxation area, then the flight will not be a zero-rated supply for GST/HST purposes.
There are no other zero-rating or exempting provisions for passenger transportation service that includes transportation by air in the ETA. Therefore, this type of passenger transportation service would be subject to the GST/HST at the applicable rate.
GST/HST Rate for Passenger Transportation Service
A supply of a passenger transportation service that is part of a continuous journey is generally made in the province in which the continuous journey originates, as long as the termination and all stopovers in respect of the continuous journey are in Canada. If there is a termination or stopover outside Canada in respect of the continuous journey, the supply of the passenger transportation service is considered to be made in a non-participating province.
Section 1 of Part VI of Schedule IX and section 20 of the New Harmonized Value-Added Tax System Regulations define the terms “origin” and “termination” to have the same meaning as subsection 1(1) of Part VII of Schedule VI. However, in both sections, the term “stopover” has the same meaning as in subsection 1(1) of Part VII of Schedule VI except that it does not include, in the case of a continuous journey of an individual or group of individuals that does not include transportation by air and the origin and termination of which are in Canada, any place outside Canada where, at the time of 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.
As well, both section 1 of Part VI of Schedule IX and section 20 of the New Harmonized Value-Added Tax Systems Regulations define “leg” of journey, as follows:
“leg” of a journey on a conveyance means a part of the journey that begins where passengers embark or disembark the conveyance or where it is stopped to allow for its servicing or refuelling and ends where it is next stopped for any of those purposes.
For HST to apply, the origin must be in a participating province and both the stopover and termination must be in Canada in accordance with paragraph 21(a) of the New Harmonized Value-Added Tax System Regulations.
Stopover
If the Company is providing a passenger transportation service we would consider the stop that is made in the USA in both scenario A and B to be a stopover as it is not made for the purpose of transferring to another conveyance or to allow for servicing or refuelling of the conveyance.
The legislation states in section 2 of Part VII of Schedule VI that a passenger transportation service, other than a continuous journey with transportation by air, that is provided to an individual or group of individuals will not be zero-rated if both the origin and the termination are in Canada and at the time of the journey the individual or group is not scheduled to be outside of Canada for an uninterrupted period for at least 24 hours during the course of the journey. This is also confirmed in the definition of “stopover” in section 1 of Part VI of Schedule IX and section 20 of the New Harmonized Value-Added Tax System Regulations for purposes of determining the place of supply. The ETA does not impose HST on air travel that originates in a participating province with a stopover outside of Canada, even if that stopover is less than 24 hours.
The CRA has an administrative policy concerning stopovers that was adopted in 1991 that continues to apply. Under this policy, an interruption between two legs of a journey to transfer between conveyances is not considered a stopover, regardless of whether air travel is involved, when the interruption is 24 hours or less or ends with the next available scheduled transportation for the next leg of the journey. This policy is reflected in various CRA publications, including GST/HST Info Sheet GI-170, Charter Flights Supplied to Third-Party Charterers (GI-170).
The application of this administrative policy was intended as a relieving measure for suppliers and/or passengers in certain circumstances where a traveler is not faced with a tax disadvantage if they arrive at a city early in the evening after an eight-hour flight and spends the night at a hotel before taking a second ten-hour flight first thing the next morning. The 24-hour rule allows no tax disadvantage to resting for a night compared to taking the second flight later in the same evening.
This means that when a flight originates in a participating province, has a stopover outside Canada and terminates in Canada, the GST/HST rate will be 5%, regardless of how long the stopover is, which would be compliant with the ETA.
Ferry Flights
In order to supply a charter flight to a third-party charterer, a carrier may be required to move an aircraft to a specific location. Such movements are known as ferry flights.
When determining the origin, termination and any stopovers in respect of a continuous journey, only flights with passengers onboard are considered. As there are no passengers on ferry flights, ferry flights are not relevant in applying the continuous journey rules.
A ferry flight is generally considered to be an input to a passenger transportation service. For more information, refer to GI-170.
DISCLAIMER
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 343-553-3972.
Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287 or by fax to 1-418-566-0319.
Sincerely,
David Phoenix, CPA, CGA
Industry Sector Specialist
Services and Intangibles
General Operations and Border Issues Division
GST/HST Rulings Directorate
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