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Transitional rules: HST on Ticket Exchanges bought before HST implementation

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This is a hot topic, very hot. There is general confusion reading the HST transitional rules and they are neither clear, nor pretty.

The Arts Management team are not tax accountants or experts, so Theatre Manager is designed to implement a somewhat safe interpretation of the rules. These rules were generally acceptable for the Maritime provinces HST transition some years back.

Please read the examples below that are taken from Ontario Transitional Rules and do check with your accountants. There is enough in this document to warrant taking the safer road on the taxation side. As I said, we are not tax accountants, so the actual rules may be different, or there may be specific exceptions that we are not aware of.

The approach that you can take in TM to handle exchanges is:

  • new tickets (and exchanged tickets) get the new tax rate that applies to the performance
  • refunded tickets are refunded at the tax rate used to buy them
  • venues who want to implement what are effectively tax rebates on subscription ticket exchanges need to discount the final order difference using a negative order fee to write off the HST. It will come through the end of day as 'negative' tax, but in the end, that is good because you can track it as an input tax credit.

    This assumes that it is legally valid to do that. Please please please, talk to your Accountant for your specific situation.

Background History to the TM Transitional Rules

The rules that we've been observing are are found in a published web article by the Ontario Government.

There is a small section in this document near the bottom labelled Returns and exchanges near example 28 which is excerpted below. it is the subsequent caveat that is the most interesting.

Example 28: In July 2010, a person returns a shirt that was purchased in June 2010 for $40. The vendor exchanges the returned shirt for another shirt that costs $60. In this situation, the vendor would collect the Ontario component of the HST on $20.

If the RST did not apply to property that was purchased before July 1, 2010, and it is exchanged on or after July 1, 2010, the Ontario component of the HST would apply to the full consideration for the replacement property.

Tickets generally have no RST. By that interpretation, exchanges for events that occur after July 1,2010 would be charged the HST on the full amount, even if bought before May 1, 2010.

Example 22 speaks to tickets (albeit a circus example) and has an implication that shows across the boundary of july, but sold earlier than May (i.e. buy now, go later), should probably have HST in them in the first place. It states:

Consideration due or paid on or before October 14, 2009: Notwithstanding the general RST wind-down rules, the RSTA would apply where consideration for a sale of goods, services or admissions becomes due or is paid on or before October 14, 2009.

Example 22: In September 2009, a vendor sells tickets to a circus show to be held in July 2010. The RST would apply to the price of admission.

Interesting interpretation of this is that if you were not charging RST (because you were exempt), then you cannot use the 'difference on the exchange' from example 28. Otherwise, you might be able to take advantage of example 28 - but you would have to have been charging RST on tickets last October.

Revenue Canada speaks to a transitional rule with a ticket example using Stratford Festival. It has a specific example where tickets are purchased after May and the performance is in July. It clearly states that HST applies. Revenue Canada speaks of a transitional rule that follows:

The HST will generally apply to a service to the extent that the service is performed on or after July 1, 2010. The HST will generally not apply, however, to a supply of a service if all or substantially all (90 per cent or more) of the service is performed before July 20

Our reading of that suggests that a subscription where 10% or more of the ticket value is after July 1st suggests that HST should be applied to the initial sale.

There are some exceptions to the transition rules listed in various places.

We took a representative example from Tax Tips for subscriptions. In every interpretation we've seen, this means magazine periodicals. Anything mentioning tickets refers to transportation.

Nothing specifically talks to non-profit arts organizations exchanging subscription tickets when a new tax rate applies.

Finally, there is a small note in the Ontario Transitional Rules document called 'anti-avoidance'.

It looks innocuous - but the meaning is clear - if the Government thinks you are doing something to avoid the tax (they coin it 'blatant tax avoidance arrangements', then trouble looms and the department of finance can make any rule they want. So, 'buy your pass now to avoid HST next year' may (or may not) be on that 'tax avoidance arrangement' category.


Existing anti-avoidance rules in the ETA (Excise Tax Act) would apply to transactions to which the general transitional rules for the HST apply. Additional anti-avoidance rules may be implemented in order to maintain the integrity of the GST/HST and the RST during the period of transition to the HST in Ontario.

The legal ruling from University of Toronto is provided for your reference.

Would the Government prosecute? Might not, it may be bad press. On the other hand, Governments like their tax revenue, so they might, especially if it amounted to a significant tax influx when you consider the value of all advance subscription tickets sold for all venues in the entire Province for a year.

I hope these references help. If you are confused, I can understand it. Our reading is not necessarily correct, but in the absence of a very specific printed ruling, we've chosen to play safe, yet give the venues an option of using a negative order fees to effectively claim back the tax if that is what they wish to do.