Principals and Agents (Mandators and Mandataries)
A mandate is a contract by which a person (an “agent” for GST purposes and a “mandatary” for QST purposes) is empowered to represent another person (the “principal” for GST purposes and the “mandator” for QST purposes) in the performance of a judicial act in respect of a third party. When the agent transacts with a third party in the course of a mandate, the agent is considered to be acting on behalf of the principal. An agent may thus sell tangible personal property on behalf of a principal.
Where the principal is required to collect the taxes on a sale, the usual GST and QST rules apply. In other words, principals must collect and report the taxes on the taxable sales (excluding zero-rated sales) made by their agents. For their part, agents must collect and report the taxes on the services they provide to principals with regard to taxable sales (excluding zero-rated sales).
ABC Ltd., a company registered for the GST and QST, has several surplus computers that were used in its commercial activities. The company arranges to have the computers sold by an agent who is also registered for the GST and QST.
The agent asks for a commission amounting to 10% of the sale price (excluding the taxes), and sells all of the computers to one buyer for $1,000.
The agent therefore bills the purchaser $50 GST ($1,000 × 5%) and $99.75 QST ($1,000 × 9.975%).
The agent then credits $1,149.75 to ABC Ltd. and requests payment of the $100 commission, $5 GST and $9.98 QST (for a total of $114.98).
ABC Ltd. therefore receives $1,034.77 from the agent ($1,149.75 − $114.98), and remits $45 net GST ($50 − $5) and $89.77 net QST ($99.75 − $9.98) to Revenu Québec. The agent reports to Revenu Québec only the taxes charged on the commission.
However, an agent and a principal may jointly elect to have the agent collect, report and remit the taxes. This election must be made using form FP-2506-V, Election or Revocation of an Election by a Principal and the Principal's Agent: Responsibility for Collecting, Reporting and Remitting the GST/HST and the QST. Under the election, the agent and principal become jointly and severally responsible for any obligations arising from the tax payable. Also, the agent must collect GST and QST on the commission received from the principal.
Where the principal is not required to collect the GST or QST on the sale of taxable tangible personal property, the agent is generally considered to have sold the property to the buyer. The agent must therefore be registered for the GST and QST, and must collect the taxes and remit them to Revenu Québec. However, the agent is not required to collect the taxes on the services provided to the principal with regard to the sale.
Jane Smith, who is not registered for the taxes, asks a merchant (the agent) to sell a desk for her. The desk was used in Jane's home for non-business purposes. The agent, who is a registrant, asks for a commission of 10% of the sale price (excluding GST and QST), and sells the desk for $1,000. The agent must collect $50 GST and $99.75 QST from the recipient and remit the amounts to Revenu Québec. However, the $100 commission that Ms. Smith pays to the agent is not taxable.
In such cases, the principal and the agent may make a joint election, in writing, to have the principal collect the taxes from the buyer and report them to Revenu Québec. This election can be made if the principal is a registrant who is not required to collect the taxes on the sale in question and if the property was last acquired by the principal for consumption or use in a business, adventure or concern in the nature of trade. In this case, the agent must collect and report the GST and QST applicable to the services provided to the principal.
Auctioneers are considered agents, and are subject to special rules. For more information, contact us.