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

Marginal note:Definitions

• 178 (1) The following definitions apply in this section and section 236.5.

  network commission

  network commission of a sales representative of a person means an amount that is payable by the person to the sales representative under an agreement between the person and the sales representative

  • (a) as consideration for a supply of a service, made by the sales representative, of arranging for the sale of a select product or a sales aid of the person; or

  • (b) solely as a consequence of a supply of a service, made by any sales representative of the person described in paragraph (a) of the definition sales representative, of arranging for the sale of a select product or a sales aid of the person. (commission de réseau)

  network seller

  network seller means a person notified by the Minister of an approval under subsection (5). (vendeur de réseau)

  sales aid

  sales aid of a particular person that is a network seller or a sales representative of a network seller means property (other than a select product of any person) that

  • (a) is a customized business form or a sample, demonstration kit, promotional or instructional item, catalogue or similar personal property acquired, manufactured or produced by the particular person for sale to assist in the promotion, sale or distribution of select products of the network seller; and

  • (b) is neither sold nor held for sale by the particular person to a sales representative of the network seller that is acquiring the property for use as capital property. (matériel de promotion)

  sales representative

  sales representative of a particular person means

  • (a) a person (other than a person that is an employee of the particular person or that acts, in the course of its commercial activities, as agent in making supplies of select products of the particular person on behalf of the particular person) that

    • (i) has a contractual right under an agreement with the particular person to arrange for the sale of select products of the particular person, and

    • (ii) does not arrange for the sale of select products of the particular person primarily at a fixed place of business of the person other than a private residence; or

  • (b) a person (other than a person that is an employee of the particular person or that acts, in the course of its commercial activities, as agent in making supplies of select products of the particular person on behalf of the particular person) that has a contractual right under an agreement with the particular person to be paid an amount by the particular person solely as a consequence of a supply of a service, made by a person described in paragraph (a), of arranging for the sale of a select product or a sales aid of the particular person. (représentant commercial)

  select product

  select product of a person means tangible personal property that

  • (a) is acquired, manufactured or produced by the person for supply by the person for consideration, otherwise than as used property, in the ordinary course of business of the person; and

  • (b) is ordinarily acquired by consumers by way of sale. (produit déterminé)

• Marginal note:Qualifying network seller

  (2) For the purposes of this section, a person is a qualifying network seller throughout a fiscal year of the person if

  • (a) all or substantially all of the total of all consideration, included in determining the income from a business of the person for the fiscal year, for supplies made in Canada by way of sale is for

    • (i) supplies of select products of the person, made by the person, by way of sales that are arranged for by sales representatives of the person (in this subsection referred to as “select supplies”), or

    • (ii) where the person is a direct seller (as defined in section 178.1), supplies by way of sale of exclusive products (as defined in that section) of the person made by the person to independent sales contractors (as defined in that section) of the person at any time when an approval of the Minister for the application of section 178.3 to the person is in effect;

  • (b) all or substantially all of the total of all consideration, included in determining the income from a business of the person for the fiscal year, for select supplies is for select supplies made to consumers;

  • (c) all or substantially all of the sales representatives of the person to which network commissions become payable by the person during the fiscal year are sales representatives, each having a total of such network commissions of not more than the amount determined by the formula

    $30,000 × A/365

    where

    A

    is the number of days in the fiscal year; and

  • (d) the person and each of its sales representatives have made joint elections under subsection (4).

• Marginal note:Application

  (3) A person may apply to the Minister, in prescribed form containing prescribed information, to have subsection (7) apply to the person and each of its sales representatives, beginning on the first day of a fiscal year of the person, if the person

  • (a) is registered under Subdivision D of Division V and is reasonably expected to be, throughout the fiscal year,

    • (i) engaged exclusively in commercial activities, and

    • (ii) a qualifying network seller; and

  • (b) files the application in prescribed manner before

    • (i) in the case of a person that has never made a supply of a select product of the person, the day in the fiscal year on which the person first makes a supply of a select product of the person, and

    • (ii) in any other case, the first day of the fiscal year.

• Marginal note:Joint election

  (4) If subsection (3) applies to a person or a person is a network seller, the person and a sales representative of the person may jointly elect, in prescribed form containing prescribed information, to have subsection (7) apply to them at all times when an approval granted under subsection (5) is in effect.

• Marginal note:Approval or refusal

  (5) If the Minister receives an application under subsection (3) from a person, the Minister may approve the application of subsection (7) to the person and each of its sales representatives beginning on the first day of a fiscal year of the person or may refuse the application and the Minister shall notify the person in writing of the approval and the day on which it becomes effective or of the refusal.

• Marginal note:Evidence of joint elections

  (6) Every network seller shall maintain evidence satisfactory to the Minister that the network seller and each of its sales representatives have made joint elections under subsection (4).

• Marginal note:Effect of approval

  (7) For the purposes of this Part, if, at any time when an approval granted under subsection (5) in respect of a network seller and each of its sales representatives is in effect, a network commission becomes payable by the network seller to a sales representative of the network seller as consideration for a taxable supply (other than a zero-rated supply) of a service made in Canada by the sales representative, the taxable supply is deemed not to be a supply.

• Marginal note:Sales aids

  (8) For the purposes of this Part, if, at any time when an approval granted under subsection (5) in respect of a network seller and each of its sales representatives is in effect, the network seller or a sales representative of the network seller makes in Canada a taxable supply by way of sale of a sales aid of the network seller or of the sales representative, as the case may be, to a sales representative of the network seller, the taxable supply is deemed not to be a supply.

• Marginal note:Host gifts

  (9) For the purposes of this Part, if, at any time when an approval granted under subsection (5) in respect of a network seller and each of its sales representatives is in effect, the network seller or a particular sales representative of the network seller makes a supply of property to an individual as consideration for the supply by the individual of a service of acting as a host at an occasion that is organized for the purpose of allowing a sales representative of the network seller or the particular sales representative, as the case may be, to promote, or to arrange for the sale of, select products of the network seller, the individual is deemed not to have made a supply of the service and the service is deemed not to be consideration for a supply.

• Marginal note:Notification of refusal

  (10) If the Minister notifies a person of a refusal under subsection (5) at any time when the person and a sales representative of the person have made a joint election under subsection (4), the person shall forthwith notify the sales representative of the refusal in a manner satisfactory to the Minister.

• Marginal note:Revocation by Minister

  (11) The Minister may revoke an approval granted under subsection (5) in respect of a network seller and each of its sales representatives, effective on the first day of a fiscal year of the network seller, if, before that day, the Minister notifies the network seller of the revocation and the day on which it becomes effective and if

  • (a) the network seller fails to comply with any provision of this Part;

  • (b) it can reasonably be expected that the network seller will not be a qualifying network seller throughout the fiscal year;

  • (c) the network seller requests in writing that the Minister revoke the approval;

  • (d) the notice referred to in subsection 242(1) has been given to, or the request referred to in subsection 242(2) has been filed by, the network seller; or

  • (e) it can reasonably be expected that the network seller will not be engaged exclusively in commercial activities throughout the fiscal year.

• Marginal note:Deemed revocation

  (12) If an approval granted under subsection (5) in respect of a network seller and each of its sales representatives is in effect at any time in a particular fiscal year of the network seller and, at any time during the particular fiscal year, the network seller ceases to be engaged exclusively in commercial activities or the Minister cancels the registration of the network seller, the approval is deemed to be revoked, effective on the first day of the fiscal year of the network seller immediately following the particular fiscal year, unless, on that first day, the network seller is registered under Subdivision D of Division V and it is reasonably expected that the network seller will be engaged exclusively in commercial activities throughout that following fiscal year.

• Marginal note:Effect of revocation

  (13) If an approval granted under subsection (5) in respect of a network seller and each of its sales representatives is revoked under subsection (11) or (12), the following rules apply:

  • (a) the approval ceases to have effect immediately before the day on which the revocation becomes effective;

  • (b) the network seller shall forthwith notify each of its sales representatives in a manner satisfactory to the Minister of the revocation and the day on which it becomes effective; and

  • (c) a subsequent approval granted under subsection (5) in respect of the network seller and each of its sales representatives shall not become effective before the first day of a fiscal year of the network seller that is at least two years after the day on which the revocation became effective.

• Marginal note:Failure to notify on revocation

  (14) For the purposes of this Part, a taxable supply (other than a zero-rated supply) of a service made in Canada by a sales representative of a network seller is deemed not to be a supply if

  • (a) the consideration for the taxable supply is a network commission that becomes payable by the network seller to the sales representative at any time after an approval granted under subsection (5) in respect of the network seller and each of its sales representatives ceases to have effect as a consequence of a revocation on the basis of any of paragraphs (11)(a) to (c);

  • (b) the approval could not have been revoked on the basis of paragraph (11)(d) or (e) and would not have otherwise been revoked under subsection (12);

  • (c) at the time the network commission becomes payable, the sales representative

    • (i) has not been notified of the revocation by the network seller, as required under paragraph (13)(b), or by the Minister, and

    • (ii) neither knows, nor ought to know, that the approval ceased to have effect; and

  • (d) an amount has not been charged or collected as or on account of tax in respect of the taxable supply.

• Marginal note:Failure to notify on revocation

  (15) Subsection (16) applies if the following conditions are satisfied:

  • (a) the consideration for a taxable supply (other than a zero-rated supply) of a service made in Canada by a sales representative of a network seller is a network commission that becomes payable by the network seller to the sales representative at any time after an approval granted under subsection (5) in respect of the network seller and each of its sales representatives ceases to have effect as a consequence of a revocation under subsection (11) or (12);

  • (b) the approval was, or could at any time otherwise have been, revoked on the basis of paragraph (11)(d) or (e) or was, or would at any time otherwise have been, revoked under subsection (12);

  • (c) at the time the network commission becomes payable, the sales representative

    • (i) has not been notified of the revocation by the network seller, as required under paragraph (13)(b), or by the Minister, and

    • (ii) neither knows, nor ought to know, that the approval ceased to have effect; and

  • (d) an amount has not been charged or collected as or on account of tax in respect of the taxable supply.

• Marginal note:Failure to notify on revocation

  (16) If the conditions described in paragraphs (15)(a) to (d) are satisfied, the following rules apply for the purposes of this Part:

  • (a) section 166 shall not apply in respect of the taxable supply described in paragraph (15)(a);

  • (b) tax that becomes payable or that would, in the absence of section 166, become payable in respect of the taxable supply shall not be included in determining the net tax of the sales representative referred to in paragraph (15)(a); and

  • (c) the consideration for the taxable supply shall not, in determining whether the sales representative is a small supplier, be included in the total referred to in paragraph 148(1)(a) or (2)(a).

• Marginal note:Sales aids on revocation

  (17) For the purposes of this Part, a taxable supply of a sales aid of a particular sales representative of a network seller made in Canada by way of sale to another sales representative of the network seller is deemed not to be a supply if

  • (a) the consideration for the taxable supply becomes payable at any time after an approval granted under subsection (5) in respect of the network seller and each of its sales representatives ceases to have effect as a consequence of a revocation under subsection (11) or (12);

  • (b) at the time the consideration becomes payable, the particular sales representative

    • (i) has not been notified of the revocation by the network seller, as required under paragraph (13)(b), or by the Minister, and

    • (ii) neither knows, nor ought to know, that the approval ceased to have effect; and

  • (c) an amount has not been charged or collected as or on account of tax in respect of the taxable supply.

• Marginal note:Restriction on input tax credits

  (18) If

  • (a) a registrant that is a network seller in respect of which an approval granted under subsection (5) is in effect acquires or imports property (other than a select product of the network seller) or a service or brings it into a participating province for supply to a sales representative of the network seller or an individual related to the sales representative,

  • (b) tax becomes payable in respect of the acquisition, importation or bringing in, as the case may be,

  • (c) the property or service is so supplied by the registrant for no consideration or for consideration that is less than the fair market value of the property or service, and

  • (d) the sales representative or individual is not acquiring the property or service for consumption, use or supply exclusively in the course of commercial activities of the sales representative or individual, as the case may be,

  the following rules apply:

  • (e) no tax is payable in respect of the supply, and

  • (f) in determining an input tax credit of the registrant, no amount shall be included in respect of tax that becomes payable, or is paid without having become payable, by the registrant in respect of the property or service.

• Marginal note:Appropriations for sales representatives

  (19) For the purposes of this Part, if a registrant that is a network seller in respect of which an approval granted under subsection (5) is in effect appropriates, at any time, property (other than a select product of the network seller) that was acquired, manufactured or produced, or any service acquired or performed, in the course of commercial activities of the registrant, to or for the benefit of a sales representative of the network seller, or any individual related to the sales representative, that is not acquiring the property or service for consumption, use or supply exclusively in the course of commercial activities of the sales representative or individual, in any manner (otherwise than by way of supply for consideration equal to the fair market value of the property or service), the registrant shall be deemed

  • (a) to have made a supply of the property or service for consideration paid at that time equal to the fair market value of the property or service at that time; and

  • (b) except where the supply is an exempt supply, to have collected, at that time, tax in respect of the supply calculated on that consideration.

• Marginal note:Exception

  (20) Subsection (19) does not apply to property or a service appropriated by a registrant if the registrant was not entitled to claim an input tax credit in respect of the property or service because of section 170.

• Marginal note:Ceasing to be a registrant

  (21) If, at any time when an approval granted under subsection (5) in respect of a network seller and each of its sales representatives is in effect, a sales representative of the network seller ceases to be a registrant, paragraph 171(3)(a) does not apply to sales aids of the sales representative that were supplied to the sales representative by the network seller or another sales representative of the network seller at any time when the approval was in effect.

• Marginal note:Non-arm’s length supply

  (22) Section 155 does not apply to the supply described in subsection (9) made to an individual acting as a host.