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
[Client Address]
Case Number: 246391
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
Income from a Sales Performance Incentive Funding Formula (SPIFF)
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to income from a Sales performance incentive funding formula (SPIFF). We apologize for the delay in responding to your request.
The HST applies in the participating provinces at the following rates: 13% in Ontario; 14% in Nova Scotia; and 15% in New Brunswick, Newfoundland and Labrador, 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.
STATEMENT OF FACTS
1. […]
2. […][The Employee] is employed as a sales representative of […][Company X]. […][The Employee’s] main duty is to sell […][goods] at […] [a] store. […][The Employee is paid a] regular salary plus commissions.
3. When […][the Employee was hired], a representative from the manufacturers registered […][the Employee] for the “Sales performance incentive funding formula” (SPIFF) program. […]. Afterward, […][the Employee] submits […][their] qualifying sales online to the manufacturers to claim [the Employee’s] bonuses, which are paid directly to [the Employee] by the manufacturers. No additional investment was required to participate in that program.
4. [The Employee] also receives SPIFF payments which are meant to incentivize retailers’ employees to sell specific brands […][of the goods].
5. [The Employee] has no contract with the manufacturers, and […] does not work for any of them. [The Employee’s] sole livelihood is working as a salesperson for […][Company X].
6. […][The Employee] registered for GST/HST purposes after […][the Employee’s] income reported on T4A slips (from SPIFF payments) exceeded $30,000 in [yyyy].
7. When [the Employee]’s employment terminates, [the Employee’s] participation in the SPIFF program will terminate as well because the eligibility to that program is totally dependant upon [the Employee’s] employment status.
8. Each year, […][Company X issues] a T4 slip, Statement of Remuneration Paid, to [the Employee].
9. At the beginning of each year, [the Employee] also receives numerous T4A slips, Statement of Pension, Retirement, Annuity, and Other Income, issued by each manufacturer for the SPIFF payments paid to [the Employee] in the prior calendar year.
RULING REQUESTED
You would like to know:
1. If [the Employee]’s income earned through SPIFF programs in the course of [the Employee’s] employment is consideration for a taxable supply and therefore, subject to GST/HST.
2. If [the Employee] is required to register for GST/HST due to the income earned from SPIFF programs.
RULING GIVEN
Based on the facts set out above, we rule that:
1. [The Employee]’s income earned through SPIFF programs is not consideration for a taxable supply and is therefore not subject to GST/HST.
2. [The Employee] is not required to register for the GST/HST due to income earned from SPIFF programs.
EXPLANATION
Subsection 221(1) states that every person who makes a taxable supply must collect the tax payable by the recipient in respect of the supply. Subsection 240(1) states that every person who makes a taxable supply in Canada in the course of a commercial activity must be registered for GST/HST purposes, with some exceptions. Therefore, whether the bonuses paid to [the Employee] by manufacturers are subject to GST/HST depends on whether the bonuses are consideration for a taxable supply made by [the Employee] in the course of a commercial activity.
For there to be a taxable supply, there must be a supply in the first place. Under subsection 123(1), a “supply” is either the “provision of property or a service”. In […][this] case, [the Employee] is not supplying property because [the Employee] is selling […] property [of Company X] or the property of manufacturers. Now we must determine if [the Employee] is providing a service. The definition of “service” in subsection 123(1), means anything other than property, money, and anything supplied by a person in the course of or in relation to the office or employment of that person. [The Employee] is not supplying a service since that definition specifically excludes anything that is supplied to an employer by an employee in the course of employment. Furthermore, for a supply to qualify as a “taxable supply”, it must be made in the course of a “commercial activity” which requires that [the Employee] carries on a “business”. The definition of a “business” specifically excludes employment. The SPIFF payments are bonuses received for selling [goods] in the course of [the Employee’s] employment with [Company X], and therefore, they do not qualify as a “taxable supply”, nor as a “supply”. Therefore, the amounts [the Employee] receives as bonuses is not consideration for a taxable supply in the course of a commercial activity. For these reasons, [the Employee] is not required to be registered for GST/HST purposes, and […] does not have to collect GST/HST on those payments.
Request for cancellation by registrant under subsection 242(2)
Given that [the Employee] is not required to be registered for GST/HST purposes, and that [the Employee] has been registered for at least a year, [the Employee] may request the Minister to cancel [the Employee’s] registration which the Minister will do upon receiving [the Employee’s] request. The effective date of the cancellation would generally be after the last day of [the Employee’s] fiscal year. However, administratively, that effective date may be any other date agreed upon with the Minister as long as the above conditions are met. [The Employee] may file Form RC145, Request to Close Business Number Program Accounts, available on our website, containing the prescribed information:
a. the reason for the cancellation request;
b. the effective dates of registration and cancellation;
c. a statement that all commercial activity has ceased; and
d. [The Employee’s] signature or that of a person authorized by [the Employee].
For more information, please refer to GST/HST Memoranda Series, section 2.7 Cancellation of Registration, especially paragraphs 6 to 9.
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 Canada Revenue Agency (CRA) is bound by the rulings given in this letter provided that: none of the issues discussed in the rulings are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 353-553-0164. 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.
Sincerely,
Cynthia Lynch
Senior Rulings Officer
General Operations Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate
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