24 July 2006 GST/HST Ruling 79613 - GST/HST Status of XXXXX Herbal Teas

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

Dear XXXXX:

Thank you for your fax XXXXX to Michèle Routhier concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the commissions earned by self-employed travel agents.

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

Effective July 1, 2006, the rate of the GST has been reduced from 7% to 6% and the rate of the HST from 15% to 14%. The new rates apply to supplies for which the GST/HST is paid on or after July 1, 2006, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to Reduction in the Rate of the GST/HST - Questions and Answers http://www.cra-arc.gc.ca/agency/budget/2006/gstrateqa-e.html on the CRA Web site.

We understand the facts as follows:

1. Air transportation carriers and suppliers of accommodation pay commissions to a travel agency for the agency's supplies of its services with respect to air transportation and/or hotel accommodations.

2. The travel agency in turn pays commissions to its self-employed sub-agents who supply services to the travel agency.

3. The self-employed sub-agents may be small suppliers for GST/HST purposes.

Interpretation Requested

You would like to know if a travel agency is required to pay tax on commissions paid to its self-employed sub-agents.

Interpretation Given

The ETA generally provides that every recipient of a taxable supply made in Canada shall pay GST/HST in respect of the supply. A GST/HST registrant who makes a taxable supply in Canada is required to collect the GST or HST as applicable on the supply. The ETA also provides that if a person makes a taxable supply and the consideration for the supply becomes due, or is paid before it becomes due, at a time when the person is a small supplier who is not a GST/HST registrant, that consideration is not subject to tax, with certain limited exceptions.

A registrant is a person who is registered, or who is required to be registered, for GST/HST.

Therefore, supplies made by self-employed sub-agents who are GST/HST registrants to the travel agency are taxable either at the GST rate of 6% or the HST rate of 14%, depending on where in Canada the services of the self-employed sub-agent were performed. Conversely, supplies made by self-employed sub-agents who are not GST/HST registrants are not subject to tax. Accordingly, no tax is payable on the commissions paid by the travel agency to its self-employed sub-agents who are not GST/HST registrants.

The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-8223.

Yours truly,

Daniel Chamaillard
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/05/25 — RITS 80289 — Whether a Hotel Can Pay or Credit an Amount on Account of an Accommodation Rebate