Section 177 - Agents

Election under s. 177(1)

[A] principal may elect to charge and account for the tax, instead of the agent, when the principal would otherwise not have to charge the tax. This election can be made where the principal last used or acquired the goods for consumption or use in a business or an adventure or concern in the nature of trade.

Essential qualities of agency

The three essential qualities are:

• consent of both the principal and the agent;
• authority of the agent to affect the principal's legal position; and
• the principal's control of the agent's actions. …

Authority of agent to bind principal

When a person is acting as agent in making a transaction on behalf of a principal, the principal will generally authorize the agent to do something on the principal's behalf. …

When a person is acting as agent in making a transaction on behalf of a principal, the agent will have the ability to affect the principal's legal position. The most common example of this is where the agent is authorized to enter into contracts with third parties on the principal's behalf. …

[G]iving authority to a person to bind another person in a contract could indicate that a person is acting as agent in making a transaction on behalf of a principal. If the authority to bind another person is not mentioned, this authority may be implied from the presence of the two other essential qualities.

Application of GST on general principles or under s. 177(1) whenever there is a consignment sale

A consignment is an arrangement in which an owner delivers their goods to another person (the "consignee") on the understanding that the consignee will sell the goods. ...

There are two common types of consignment arrangements:

• a sale by agent arrangement where title to the goods is transferred directly from the owner to the purchaser through the consignee as agent; or
• a purchase and resale arrangement where title to the goods passes from the original owner to the consignee and then to the final purchaser.

Regardless of the type of consignment arrangement, the final purchaser must pay the GST/HST when buying taxable goods sold on a consignment basis.

Example of application of s. 177(1)(e)

Mr. and Mrs. Patel, who are non-registrants, are owners of a boat that they used for recreational purposes. They deliver the boat to the Marina By the Sea in order to have the marina sell it and agree to pay the marina a 10% commission for carrying out the sale. The marina is a registrant and acts as agent in making the sale on behalf of the Mr. and Mrs. Patel.

In this case, the marina must charge and account for the GST/HST on the sale of the boat to the purchaser because Mr. and Mrs. Patel are not required to collect the tax (they are not registrants and the boat was not used in commercial activities). In turn, the marina does not charge or account for the GST/HST on the commission charged to Mr. and Mrs. Patel for carrying out the sale.

General synopsis.

CRA commented on the use of a prepaid concurrent lease structure to finance equipment leases. The Lessor leases equipment to consumers. The Trust, which has raised money from third parties, is then leased the Lessor’s reversion, so that the Trust is interposed as lessee and sublessor between the Lessor and the consumers. The Trust uses its financing to prepay most of the rent (plus HST thereon) under the concurrent lease between it and the Lessor. An ETA s. 177(1.1) election also is made for the Lessor to collect the HST on the rents from the consumers owing under what now are subleases, as agent for the Trust.

CRA gave interpretations that it would respect the ETA s. 177(1.1) election and the efficacy of the concurrent lease, so that it considers there to be a supply of the equipment by the Lessor to the Trust pursuant to ETA s. 136(1).

BCo purchases tangible personal property from ACo. They enter into a billing agent election under s. 177(1.1) such that BCo issues the invoice, and collects and remits GST/HST on behalf of ACo in respect of the transaction, i.e., BCo would "collect" payment from itself (as agent for ACo) and report the tax on its own GST/HST return, so that it can claim an offsetting ITC on the same GST/HST return. Does this work?

In responding negatively, CRA stated:

[I]t is unclear how BCo could be considered to have charged and collected the consideration and tax payable from itself in respect of a supply made by ACo as required under subsection 177(1.11). As such, the conditions required for a billing agent election to be made under subsection 177(1.1) do not appear to be met.

After noting that "where a nominee corporation is a...registrant that makes taxable supplies as agent on behalf of the participants in a joint venture, the nominee corporation and the participants may jointly elect under subsection 177(1.1)," CRA stated:

[T]he election under subsection 177(1.1) does not result in the agent assuming any rights with respect to input tax credits to which the principal may be entitled to claim. Consequently, even where a nominee corporation acts as agent in acquiring supplies on behalf of the participants in a joint venture, the nominee corporation is not entitled to claim any input tax credits that the participants may be eligible to claim with respect to such supplies.

CRA noted that a nominee corporation for beneficial owners engaged in a condominium development could make the s. 177(1.1) election. CRA stated:

[I]f the parties make an election under section177(1.1), the Nominee would account for the tax collectible for supplies of trust property but would be precluded from claiming any ITCs accruing to the Beneficial Owner.

Under a written agreement between a nominee corporation that is an agent of the beneficial owners ("Nominee" and “Beneficial Owners,” respectively), the Nominee, at the direction of the Beneficial Owner, enters into arrangements to maintain, develop, improve, lease, manage, or sell each particular real estate “Project” or any part thereof. The Nominee would further maintain all relevant corporate and accounting records in connection with such activities. After finding that the arrangement is one of bare trust, CRA stated:

[I]f the parties make an election under section 177(1.1), the Nominee would account for the tax collectible for supplies of trust property but would be precluded from claiming any ITCs accruing to the Beneficial Owner.