ARTA Canada Raises Concerns About HST Policy
Disseminated by BSP Canada and ACTA
Some Tax Rules Stated by BSP Canada
and ACTA are Simply Incorrect
Toronto, 05 May 2010: Canada's Association of Retail Travel Agents (ARTA Canada) revealed today that it has spent the past three days fielding nearly 130 telephone calls and e-mails from travel agencies concerned about HST procedures recently attributed to ACTA and a BSP Canada memorandum issued last Friday afternoon, 30 April 2010. The agencies concerned were among the hundreds of participants who attended ARTA Canada's HST webinars or obtained ARTA Canada's Self-Paced HST Learning Program or HST Guide and which could not reconcile the discrepancies contained in the BSP Canada documentation and/or statements attributed to ACTA.
BSP Canada Memorandum 731
The memorandum states that the new place of supply rules regarding agency service charges and commissions take effect for applicable transactions on/after 01 July 2010. This is not correct. The new place of supply rules became effective on 01 May 2010.
Section 6.2 of the memorandum states that the location of the client becomes relevant on 01 July 2010. This is not correct. Beginning on 01 May 2010, applicable agency service charges became taxable based on the prevailing tax in effect at the location of the client (no longer the location of the travel agency).
Section 7.1 of the memorandum states that tax on commissions will be based on the type of itinerary and the location of the airline effective for tickets issued on/after 01 July 2010. This is also incorrect. The date of ticketing is irrelevant. The tax on commission will be based on the type of itinerary and the location of the airline (and no longer the location of the travel agency) for applicable commissions paid on/after 01 May 2010.
BSP Canada has been advised accordingly.
It must be emphasized that commissions (the selling service of the travel agent) are almost never "invoiced" by the agency to the airline or supplier; they are expected to be paid at some point either based on the date the air services are settled (at source - BSP settlement), or the date the services are actually consumed (retroactive commission payment) or in accordance with some formula for commission incentive which may be paid at various intervals (productivity programs). Accordingly, the best general attribution of tax on commission is the date the commission is actually paid.
The trade press has reported comments attributed to ACTA and allegedly made by ACTA COO David McCaig. As reported in the press, ACTA has stated that the tax on agency service charges is tied to the location of the client as of 01 July 2010. This is also incorrect. As is the case in the BSP Canada memorandum, the actual date of such tax treatment is 01 May 2010.
ACTA is reported to also have said that U.S. clients do not have to pay tax on agency service charges levied by a Canadian travel agency if the client has a U.S. address. This is not correct. The place of supply rules have provisions for services rendered by Canadian businesses to persons with no address in Canada. Generally speaking, for clients without an address in Canada, the tax shall be based on the tax regime of the province where the service is primarily performed. Also, if the agency service charge is related to primarily booking hotels or resorts, the real property place of supply rules dictate that the service charge will be subject to the tax regime of the location of the hotel or resort.
ACTA goes on to say that in other circumstances that a U.S. resident could also avoid paying certain taxes on service charges by using a U.S. credit card. Using a U.S. credit card has no bearing whatsoever on the taxability of a service charge.
"It is truly amazing to me that ACTA can't get these facts straight. These types of statements could result in the under-collection of tax, and travel agencies may bear significant repercussions and unfunded tax liabilities as a result. What's equally surprising is that McCaig told a CITC audience last month that 'except for the hike in taxes, the travel industry is not going to be hit by any dramatic or drastic change.' Clearly McCaig had no real understanding of just how complex these new rules were. He just didn't do his homework. Now, ACTA is trying to play catch-up, but it doesn't seem to have the right equipment to walk on to the ball field", said ARTA Canada President Bruce Bishins, CTC.
ARTA Canada has posted a web page with updates and resources for HST and the Place of Supply Rules. For more information, please visit: www.artacanada.ca/hst.
About ARTA Canada
ARTA Canada is the largest non-profit federally incorporated professional association of travel retailers in Canada, the members of which consist exclusively of travel agencies and travel agents. In addition to advocating fair and equitable treatment of travel consumers, ARTA Canada represents the commercial and strategic interests of its member travel agencies and travel agents in a variety of national and provincial domains including regulatory and legislative matters, automation, technology, sales and marketing, and distribution.
ARTA Canada is the strategic partner in Canada of the U.S.-based Association of Retail Travel Agents (ARTA). ARTA Canada is the Canadian member of UFTAA, the United Federation of Travel Agents' Associations. To join ARTA Canada, complete details and online membership application and secure payment are available on the ARTA Canada web site at www.artacanada.ca/join.