Two new info sheets were released by the Canada Revenue Agency on the implications of using the Alternate Collection Method (“ACM”) for direct sellers and distributors that have been granted approval to use the ACM by the CRA (GI-125), as well as for independent sales contractors (“ISC”s) and distributors not approved to use the ACM (GI-126).
GI-125, “Direct Selling Industry – The Alternate Collection Method for Approved Direct Sellers and Approved Distributors”, includes a discussion on how direct sellers and distributors may apply for approval from the CRA on the use of this method. The application may be made solely by the direct seller, or jointly with one or more of its distributors. All parties involved in the application may use the ACM, upon receiving approval from the CRA.
GI-126, “Direct Selling Industry – The Alternate Collection Method for Independent Sales Contractors”, discusses how the ACM applies to ISCs, including distributors that have not been granted approval to use the ACM.
Generally, when approved to use the ACM, the direct seller or distributor charges GST/HST on the sale of exclusive products to ISCs based on the retail value of those products, even if it is greater than the actual selling price to the ISC. The direct seller or distributor remits the GST/HST on the sale and the ISC recovers the tax on the subsequent sale to a purchaser or another ISC. The ISC does not remit GST/HST on the subsequent sale.
In both documents, the GST/HST implications of several scenarios are analyzed, including:
- sales of exclusive products, including zero-rated sales;
- sales of sales aids, such as, customized business forms, samples, demonstration kits;
- bonus payments;
- host gifts; and
- the eligibility of input tax credits.