Excise Tax Act (R.S.C., 1985, c. E-15)

Direct Sellers

Marginal note:Definitions

178.1 In this section and sections 178.2 to 178.5,

applicable provincial tax

applicable provincial tax means any amount that can reasonably be attributed to a tax, duty or fee imposed under an Act of the legislature of a province and prescribed for the purposes of section 154; (taxe provinciale applicable)

direct seller

direct seller means a person who sells exclusive products of the person to independent sales contractors of the person; (démarcheur)

distributor

distributor of a direct seller means a person who is an independent sales contractor of the direct seller and who, in the course of the contractor’s business, sells some or all of the exclusive products of the direct seller acquired by the contractor to other independent sales contractors of the direct seller; (distributeur)

exclusive product

exclusive product of a direct seller means personal property that is acquired, manufactured or produced by the direct seller for sale, in the ordinary course of a business of the direct seller, to an independent sales contractor of the direct seller, with the expectation that the property would be ultimately sold, otherwise than as used property, by an independent sales contractor of the direct seller, in the ordinary course of a business of the contractor, for consideration to a person other than another independent sales contractor of the direct seller; (produit exclusif)

independent sales contractor

independent sales contractor of a direct seller means a person (other than an agent or employee of the direct seller or of a distributor of the direct seller) who

• (a) has a contractual right to purchase exclusive products of the direct seller from the direct seller or from a distributor of the direct seller,

• (b) purchases exclusive products of the direct seller for the purpose of resale to other independent sales contractors of the direct seller or to purchasers, and

• (c) does not solicit, negotiate or enter into contracts for the sale of exclusive products of the direct seller to purchasers primarily at a fixed place of business of the person other than a private residence; (entrepreneur indépendant)

purchaser

purchaser of an exclusive product of a direct seller means a person who is the recipient of a supply of the product and who is not acquiring the product for the purpose of supplying it for consideration; (acheteur)

sales aid

sales aid of a person who is a direct seller or an independent sales contractor of a direct seller means

• (a) property (other than an exclusive product of the direct seller)

  • (i) that is a customized business form or a sample, demonstration kit, promotional or instructional item, catalogue or other personal property acquired, manufactured or produced by the person for sale to assist in the promotion, sale or distribution of exclusive products of the direct seller, and

  • (ii) that is neither sold nor held for sale by the person to an independent sales contractor of the direct seller who is acquiring the property for use as capital property, and

• (b) the service of shipping or handling, or processing an order for, either property included in paragraph (a) or an exclusive product of the direct seller; (matériel de promotion)

suggested retail price

suggested retail price at any time of an exclusive product of a direct seller means the lowest price published by the direct seller applicable to supplies of the product made at that time to purchasers, but does not include any amount on account of tax. (prix de vente au détail suggéré)

Marginal note:Application for alternate collection method

• 178.2 (1) A direct seller who is a registrant may apply, in prescribed form containing prescribed information and filed in prescribed manner, to the Minister to have section 178.3 apply to the direct seller.

• Marginal note:Idem

  (2) Where a direct seller and a distributor of the direct seller are registrants, they may apply jointly, in prescribed form containing prescribed information and filed in prescribed manner, to the Minister to have section 178.4 apply to the distributor.

• Marginal note:Grant of approval

  (3) Where the Minister receives an application under subsection (1) from a direct seller, the Minister may approve in writing the application of section 178.3 to the direct seller, and the Minister shall, in writing, notify the direct seller of the approval and the day on which it becomes effective.

• Marginal note:Idem

  (4) Where the Minister receives a joint application under subsection (2) from a direct seller and a distributor of the direct seller, the Minister may approve in writing the application of section 178.4 to the distributor, and the Minister shall, in writing, notify both the distributor and the direct seller of the approval and the day on which it becomes effective.

• Marginal note:Deemed approval

  (5) Where, at a time when an approval for the application of section 178.3 to a direct seller would not, but for this subsection, be in effect, an approval granted under subsection (4) in respect of a distributor of the direct seller becomes effective and no other approval under that subsection in respect of a distributor of the direct seller is in effect at that time, the direct seller shall be deemed, for the purposes of this section and sections 178.3 to 178.5, to have been granted an approval under subsection (3) that becomes effective immediately before that time.

• Marginal note:Revocation of approval

  (6) The Minister may, effective on any day, revoke an approval granted under subsection (3) in respect of a direct seller where an approval granted under subsection (4) in respect of a distributor of the direct seller is not in effect on that day and

  • (a) the direct seller fails to comply with any provision of this Part, or

  • (b) except in the case of an approval deemed under subsection (5) to have been granted, the direct seller requests, in writing, the Minister to revoke the approval,

  and where the Minister revokes the approval, the Minister shall, in writing, notify the direct seller of the revocation and the day on which it becomes effective.

• Marginal note:Idem

  (7) The Minister may revoke an approval granted under subsection (4) in respect of a distributor of a direct seller where the distributor fails to comply with any provision of this Part or the distributor and the direct seller, in writing, jointly request the Minister to revoke the approval, and the Minister shall, in writing, notify both the distributor and the direct seller of the revocation and the day on which it becomes effective.

• Marginal note:Cessation

  (8) An approval granted under subsection (3) in respect of a direct seller ceases to have effect on the earliest of

  • (a) the day the direct seller ceases to be a registrant,

  • (b) the day an approval granted under subsection (4) in respect of any distributor of the direct seller ceases to have effect and there is no other approval granted under that subsection in respect of any distributor of the direct seller in effect, and

  • (c) the day a revocation of the approval under subsection (6) becomes effective.

• Marginal note:Idem

  (9) An approval granted under subsection (4) on the joint application of a direct seller and a distributor of the direct seller ceases to have effect on the earliest of

  • (a) the day the direct seller ceases to be a registrant,

  • (b) the day the distributor ceases to be a registrant, and

  • (c) the day a revocation of the approval under subsection (7) becomes effective.

Marginal note:Effect of approval for direct seller

• 178.3 (1) For the purposes of this Part, where at any time when an approval of the Minister for the application of this section to a direct seller is in effect, the direct seller makes in Canada a taxable supply by way of sale (other than a zero-rated supply) of an exclusive product of the direct seller to an independent sales contractor of the direct seller who is not a distributor in respect of whom an approval granted under subsection 178.2(4) on application made jointly with the direct seller is in effect at that time or becomes effective immediately after that time, the following rules apply:

  • (a) the supply shall be deemed to have been made for consideration

    • (i) that becomes due, and is paid, at the particular time that is the earliest time at which any consideration for the supply becomes due or is paid, and

    • (ii) that is equal to the suggested retail price of the product at the time the supply is made;

  • (b) tax is deemed not to be payable by the contractor in respect of the supply;

  • (c) the contractor is not entitled to any rebate under section 261 in respect of the supply; and

  • (d) in determining the net tax of the direct seller for the reporting period of the direct seller that includes the particular time, there shall be added an amount equal to tax calculated on the suggested retail price of the product at the time the supply is made.

• Marginal note:Idem

  (2) Where

  • (a) at any time when an approval of the Minister for the application of this section to a direct seller is in effect, a particular independent sales contractor of the direct seller makes in Canada a particular taxable supply by way of sale (other than a zero-rated supply) of an exclusive product of the direct seller,

  • (b) the particular contractor is not a distributor in respect of whom an approval granted under subsection 178.2(4) on application made jointly with the direct seller is in effect at that time or becomes effective immediately after that time, and

  • (c) subsection (1) applied to a supply of the product made at an earlier time or subsection 178.5(1) applied to the product at an earlier time,

  the following rules apply:

  • (d) if the recipient of the particular supply is another independent sales contractor of the direct seller, the particular supply shall be deemed, for the purposes of this Part except section 178.1 and this section, not to have been made by the particular contractor and not to have been received by the other contractor, and

  • (e) if the recipient of the particular supply is any person (other than the direct seller and another independent sales contractor of the direct seller),

    • (i) the particular supply is deemed, for the purposes of this Part except section 178.1 and subsections (4) to (6) and 178.5(7), to be a taxable supply made by the direct seller, and not by the particular contractor, for consideration equal to the lesser of the actual consideration for the supply and the suggested retail price of the product at the time the particular supply is made,

    • (ii) any tax in respect of the particular supply that is collected by the particular contractor shall be deemed to have been collected on behalf of the direct seller, and

    • (iii) tax in respect of the particular supply shall not be included in determining the net tax of the direct seller for any reporting period.

• Marginal note:Adjustment to direct seller’s net tax

  (3) For the purposes of this Part, where a direct seller has made a supply of an exclusive product of the direct seller in circumstances in which an amount was required under paragraph (1)(d) to be added in determining the net tax of the direct seller and an independent sales contractor of the direct seller subsequently supplies the product to the direct seller in a particular reporting period of the direct seller, the contractor is deemed not to have so supplied the product and the amount may be deducted, in determining the net tax of the direct seller for the particular reporting period or a subsequent reporting period, in a return under Division V filed by the direct seller within four years after the day on or before which the return under Division V for the particular reporting period is required to be filed.

• Marginal note:Idem

  (4) Where

  • (a) at a particular time a direct seller makes a supply of an exclusive product of the direct seller in circumstances in which an amount is required under paragraph (1)(d) to be added in determining the net tax of the direct seller,

  • (b) after March 1993 a particular independent sales contractor of the direct seller

    • (i) makes a supply of the product that is

      • (A) a zero-rated supply,

      • (B) a supply made outside Canada, or

      • (C) a supply in respect of which the recipient is not required to pay tax because of an Act of Parliament,

    • (ii) makes a supply of the product to a person other than an independent sales contractor of the direct seller for consideration

      • (A) that is less than the suggested retail price of the product at the particular time and more than nominal, and

      • (B) on which was calculated tax that was paid by the person, or

    • (iii) makes a supply of the product to a person other than an independent sales contractor of the direct seller for no consideration or for nominal consideration or appropriates the product for the consumption, use or enjoyment of the particular contractor, and

  • (c) the direct seller pays to, or credits in favour of, the particular contractor an amount in respect of the product equal to

    • (i) where subparagraph (b)(i) applies, tax calculated on the suggested retail price of the product at the particular time, and

    • (ii) where subparagraph (b)(ii) or (iii) applies, the amount determined by the formula

      A - B

      where

      A

      is the tax calculated on the suggested retail price of the product at the particular time, and

      B

      is

      • (A) where subparagraph (b) (ii) applies, tax calculated on the consideration for the supply of the product by the particular contractor, and

      • (B) where subparagraph (b)(iii) applies, tax calculated on the consideration for the supply of the product to the particular contractor determined without reference to paragraph (1)(a),

  the direct seller may deduct the amount determined under paragraph (c), in determining the net tax for the particular reporting period of the direct seller in which the payment or credit is given or a subsequent reporting period, in a return under Division V filed by the direct seller within four years after the day on or before which the return under Division V for the particular reporting period is required to be filed.

• Marginal note:Adjustment where supply not in participating province

  (5) Where

  • (a) at a particular time a direct seller makes a supply in a participating province of an exclusive product of the direct seller in circumstances in which an amount is required under paragraph (1)(d) to be added in determining the net tax of the direct seller,

  • (b) included in the amount required under paragraph (1)(d) to be added in determining the net tax of the direct seller is tax payable under subsection 165(2) in respect of the supply,

  • (c) a particular independent sales contractor of the direct seller makes a supply of the product outside the participating provinces, and

  • (d) the direct seller pays to, or credits in favour of, the particular contractor an amount in respect of the product equal to the amount of the tax payable under subsection 165(2) calculated on the suggested retail price of the product at the particular time,

  the direct seller may deduct the amount determined under paragraph (d), in determining the net tax for the particular reporting period of the direct seller in which the payment or credit is given or a subsequent reporting period, in a return under Division V filed by the direct seller within four years after the day on or before which the return under Division V for the particular reporting period is required to be filed.

• Marginal note:Adjustment where supply is in participating province

  (6) Where

  • (a) a direct seller makes a supply outside the participating provinces of an exclusive product of the direct seller in circumstances in which an amount is required under paragraph (1)(d) to be added in determining the net tax of the direct seller,

  • (b) no tax under subsection 165(2) in respect of the supply is included in the amount required under paragraph (1)(d) to be added in determining the net tax of the direct seller, and

  • (c) an independent sales contractor of the direct seller makes at a particular time a supply of the product in a participating province,

  in determining the net tax of the direct seller for the reporting period of the direct seller that includes the particular time, there shall be added an amount equal to the tax that would be payable under subsection 165(2) in respect of the supply, calculated on the suggested retail price of the product at the particular time, if the supply by the direct seller were made in that participating province at the particular time.

• Marginal note:Adjustment in respect of participating provinces

  (6.1) In determining the net tax of a direct seller for a reporting period of the direct seller that includes a prescribed time, the direct seller shall add or may deduct, as the case may require, an amount determined in prescribed manner if

  • (a) the direct seller makes a supply in a participating province of an exclusive product of the direct seller in circumstances in which an amount is required under paragraph (1)(d) to be added in determining the net tax of the direct seller;

  • (b) tax payable under subsection 165(2) in respect of the supply is included in the amount required under paragraph (1)(d) to be added in determining the net tax of the direct seller;

  • (c) an independent sales contractor of the direct seller makes a supply of the exclusive product in another participating province; and

  • (d) prescribed conditions, if any, are satisfied.

• Marginal note:Bad debt on sale by contractor

  (7) If

  • (a) a direct seller has made a supply of an exclusive product of the direct seller in circumstances in which an amount was required under paragraph (1)(d) to be added in determining the net tax of the direct seller,

  • (b) a particular independent sales contractor of the direct seller has or would have, but for paragraph (2)(e), also made a supply of the product to a person with whom the particular contractor was dealing at arm’s length (other than the direct seller and another independent sales contractor of the direct seller),

  • (c) the direct seller has obtained evidence satisfactory to the Minister that the consideration and the tax payable in respect of the supply by the particular contractor have become in whole or in part a bad debt and that the amount of the bad debt has, at a particular time, been written off in the particular contractor’s books of account, and

  • (d) the direct seller pays to, or credits in favour of, the particular contractor an amount in respect of the product equal to the amount determined by the formula

    A × B/C

    where

    A

    is the tax payable in respect of the supply by the particular contractor,

    B

    is the total of the consideration and tax, and any applicable provincial tax in respect of that supply, remaining unpaid and written off at the particular time as a bad debt, and

    C

    is the total of the consideration and tax, and applicable provincial tax, payable in respect of that supply,

  the direct seller may, in determining the net tax for the particular reporting period of the direct seller in which the payment or credit is given or for a subsequent reporting period, deduct the amount paid or credited in a return under Division V filed by the direct seller within four years after the day on or before which the return for the particular reporting period is required to be filed.

• Marginal note:Recovery of bad debt

  (8) If all or part of a bad debt in respect of which a direct seller has made a deduction under subsection (7) is recovered, the direct seller shall, in determining the net tax for the direct seller’s reporting period in which the bad debt or that part is recovered, add the amount determined by the formula

  A × B/C

  where

  A

  is the amount recovered;

  B

  is the tax payable in respect of the supply to which the bad debt relates; and

  C

  is the total of the consideration and tax, and any applicable provincial tax, payable in respect of that supply.