Meaning of the Phrase Reasonably Regarded as Incidental (Revised first on April 1998 second on March 8, 1999)

From: Canada Revenue Agency

Please note that the following Policy Statement, although correct at the time of issue, may not have been updated to reflect any subsequent legislative changes.

GST/HST Policy Statement P-159R1

Date of Issue

Issued: June 14, 1994
First Revision: April 1998
Second Revision: March 8, 1999

Subject

Meaning of the Phrase "Reasonably Regarded as Incidental"

Legislative Reference(s)

Section 138 of the Excise Tax Act (the ETA)

National Coding System File Number(s)

11755-16

Effective Date

January 1, 1991 for GST

April 1, 1997 for HST

Text

This policy statement discusses the meaning of the phrase "reasonably regarded as incidental" for purposes of section 138 of the Excise Tax Act (the "Act").

It is part of a series of policy statements addressing situations where a number of properties and services are provided together. It is intended to be used in conjunction with the following policy statements:

1. Single and Multiple Supplies (P-077R)

2. Meaning of the Phrase "Where a particular property or service is supplied together with any other property or service" (P-160R)

Issue and Decision

According to section 138,

"where

(a) a particular property or service is supplied together with any other property or service for a single consideration, and

(b) it may reasonably be regarded that the provision of the other property or service is incidental to the provision of the particular property or service,

the other property or service shall be deemed to form part of the particular property or service so supplied."

This policy statement provides guidelines in the form of two questions, which may be used to help determine whether the provision of one property or service may reasonably be regarded as incidental to the provision of another property or service. The questions are intended to help guide the analysis of a particular fact situation. Such an analysis is typically conducted on a transaction basis. That is, the analysis should be conducted in the context of the arrangements, contracts, agreements and all other circumstances (e.g. the conduct of the parties) that exist between the supplier and recipient with respect to a transaction or series of transactions.

The concept of incidental supply must be viewed in the context of the design and purpose of the section in which it is used. Section 138 is intended to deal with recurring commercial transactions where an allocation of the purchase price between two or more items provided together would be administratively cumbersome for the supplier particularly where the transactions are frequent and the dollar value of the property or services is small. These types of transactions generally involve sales to consumers.

Definitions of "incidental" often use words and phrases such as:

  • minor role
  • not essential
  • subordinate
  • depending upon
  • pertaining to

Based on these words and phrases, one can surmise the type of relationship that must exist between the properties and/or services being provided for one to be regarded as incidental to the other. Generally, the provision of one would have to be insignificant, or of little importance relative to the provision of the other. In other words, the provision of one can play only a minor role in relation to the provision of the other. Where the provision of property or services plays an important role by itself in the context of a particular transaction, it is not likely to be reasonably regarded as incidental to the provision of another. Section 138 is intended to apply in situations where the dollar value of the purported incidental supply is small. It generally will not apply to transactions where its application would have significant tax revenue implications.

The following two questions have been designed to help determine the nature of a transaction and the relationship between the properties and/or services provided under the transaction. In particular, they are intended to help determine whether the provision of one property or service may reasonably be regarded as incidental to the provision of another.

Where the answers to both questions indicate that the provision of one property or service may reasonably be regarded as incidental to the provision of another, it is reasonable to conclude that the provision of the one is incidental to the provision of the other. However, if the answer to one or both questions indicates that the provision of one property or service may not reasonably be regarded as incidental to the provision of the other, then the provision of the one property or service would not be considered incidental to the provision of the other.

1) Where a transaction involves the provision of two or more properties and/or services, is the supplier's primary objective to provide a particular property or service, or several properties or services together?

This question seeks to determine the objective of the supplier. If the supplier's objective is to provide a particular property or service and not several other properties or services, then the provision of the other properties or services might be regarded as incidental to the provision of the particular property or service. However, if the supplier's objective is to provide several properties or services, then it is unlikely that the provision of one of the properties or services would be regarded as incidental to the provision of any other.

2) Is the value of consideration charged for a particular property or service provided together with other properties or services the same as, or only marginally different from, what the value of the consideration for the particular property or service would be if it were provided alone? [If yes, then the provision of the other properties or services may be regarded as incidental to the provision of the particular property or service.]

Generally, where the value of the consideration for a particular property or service provided together with several other properties or services is the same as, or only marginally different from, what it would be if the particular property or service were provided alone, the provision of the other properties or services may be regarded as incidental to the provision of the particular property or service.

SAMPLE RULINGS

Example 1

Statement of Facts

  1. A non-profit organization (NPO) supplies a ticket for the right to attend an amateur performance together with a bus ticket for the right to a single trip on public transit.
  2. The NPO provides the bus ticket to reduce traffic related problems on the day of the performance. It would not provide the bus ticket if it were not already providing the ticket to the performance.
  3. The customer may use the bus ticket at any time and is not required to use it on the day the performance is held.
  4. In its advertisement for the event, the NPO indicates that a bus ticket is supplied together with the ticket to the performance.
  5. The face value of the ticket to the performance is $80.00, and the face value of the bus ticket is $1.50.
  6. The NPO supplies the two tickets together for a single consideration of $81.00.

Ruling Given

The provision of the bus ticket may reasonably be regarded as incidental to the provision of the ticket to the performance. Therefore, the bus ticket is deemed under section 138 of the Excise Tax Act to form part of the ticket provided to the performance.

To make this determination, it is first necessary to determine whether the two tickets constitute a single supply, or separate supplies, based on the facts of the transaction and the policy set out in Policy Number P-077R, Single and Multiple Supplies. Each of the two tickets has a separate use. The ticket to the performance would be useful even if the purchaser was not provided with the bus ticket. The purchaser is not required to use public transit to get to the performance and the customer may use the bus ticket at any time. These facts indicate that the two tickets may constitute separate supplies.

The NPO supplies the two tickets together as a package. The tickets are not supplied separately. This indicates that the provision of the two tickets may constitute a single supply.

In its advertising, the NPO informs potential purchasers that they will get both a bus ticket and a ticket to the performance. Purchasers know precisely which performance they will attend, the date and the time on which the performance will be held and the nature of the performance. They also know that they will get a bus ticket providing the right to use public transit at any time. These facts indicate that the provision of the two tickets may constitute separate supplies.

On balance, the above factors indicate that the provision of each ticket constitutes separate supplies.

Consequently, pursuant to Policy P-160R, Meaning of the Phrase "Where a particular property or service is supplied together with any other property or service", section 138 of the Act can be used to determine whether the provision of one ticket may reasonably be regarded as incidental to the provision of the other.

The primary objective of the NPO is to provide the ticket to the performance. It is not to provide both tickets to the performance and a bus ticket. The latter plays only a minor role in the transaction. This criterion indicates that the provision of the bus ticket may reasonably be regarded as incidental to the provision of the ticket to the performance.

Moreover, the face value of the ticket to the performance is $80.00, and the NPO charges $81.00 for both tickets. Therefore, the consideration charged for both tickets is only marginally different from the amount the NPO would charge if it was only supplying the ticket to the performance. This criterion indicates that the provision of the bus ticket may reasonably be regarded as incidental to the provision of the ticket to the performance.

Given that the two above criteria lead to the same conclusion, the provision of the bus ticket may reasonably be regarded as incidental to the provision of the ticket to attend the performance. Consequently, pursuant to section 138, the bus ticket is deemed to form part of the ticket to the performance.

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