Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 140160
Business Number: […]
November 2, 2012
Dear [Client]:
Subject: GST/HST RULING AND INTERPRETATION
Application of GST/HST with respect to a […][program]
Thank you for your fax of November 17, 2011, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies provided by […][(the “Operator”)], a […][program] operator, and […][(the “Company”)]. We apologize for the delay in replying.
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We understand that:
1. The Operator is a corporation that is resident in […][Province 1] and is registered for purposes of the GST/HST. The Company is a corporation that is resident in [Province 1] and is registered for purposes of the GST/HST.
2. The Operator has developed a [program] that consists of a secure network and various business, communications and software systems.
3. The clients of the Operator are businesses that supply taxable goods and services and independent contract agents ("ICAs") who are contracted by the businesses to provide […] services. […].
4. The ICAs are provided access to, and the use of, the [program] to provide their […] services. […]. There are no restrictions with respect to where the [program] may be accessed and used by the businesses and the ICAs.
5. The performance of the ICAs can be monitored by the businesses through […]. The ICAs are not employees of the businesses. The ICAs work remotely from in or outside Canada […] to provide their services to the businesses.
6. The businesses and the ICAs may or may not be registered for GST/HST purposes and may or may not be residents of Canada.
7. […][billing practices].
[…]
RULING REQUESTED
You would like to know the following:
1. Is the GST/HST applicable to the supply of access to, and use of, the [program] made by the Operator to non-resident non-registered businesses?
2. Is the GST/HST applicable to the supply of access to, and use of, the [program] made by the Operator to non-resident non-registered ICAs?
RULING GIVEN
1. The supply made by the Operator to non-resident non-registered businesses of the right of access to, and use of, the [program] is a zero-rated supply of intangible personal property under section 10.1 of Part V of Schedule VI.
2. The supply made by the Operator to non-resident non-registered ICAs of the right of access to, and use of, the [program] is a zero-rated supply of intangible personal property under section 10.1 of Part V of Schedule VI.
EXPLANATION
A taxable (other than zero-rated) supply of property or a service that is made in Canada is subject to the GST at a rate of 5% if made in a non-participating province and is subject to the HST at the applicable rate if it is made in a participating province.
The supply of the right to access and use the [program] made by the Operator to the business and ICAs is a taxable supply of intangible personal property (IPP). Paragraph 142(1)(c) deems a supply of IPP to be made in Canada if the property may be used in whole or in part in Canada. In contrast, paragraph 142(2)(c) deems a supply of IPP to be made outside Canada if the property may not be used in Canada. The supply of the IPP made by the Operator is a taxable supply that is deemed to be made in Canada, pursuant to paragraph 142(1)(c) as the IPP may be used in Canada.
A supply of IPP that is made in Canada may be zero-rated (taxed at 0%) in certain circumstances if it is made to a non-resident person who is not registered for purposes of the GST/HST. Section 10.1 of Part V of Schedule VI zero-rates a supply of IPP made to a non-resident person who is not registered for purposes of the GST/HST at the time the supply is made, but not including
(a) a supply made to an individual unless that individual is outside Canada at the time the supply is made;
(b) a supply of IPP that relates to
(i) real property situated in Canada,
(ii) tangible personal property ordinarily situated in Canada, or
(iii) a service the supply of which is made in Canada and is not a zero-rated supply described by any section of this Part (Part V) or Part VII or IX;
(c) a supply that is the making available of a telecommunications facility that is tangible personal property for use in providing a service described in paragraph (a) of the definition of “telecommunication service” in subsection 123(1);
(d) a supply of IPP that may only be used in Canada; or
(e) a prescribed supply.
As the exclusions in section 10.1 of Part V of Schedule VI do not apply in this case, the supply of IPP made by the Operator to non-resident non-registered businesses and to non-resident non-registered ICAs is zero-rated pursuant to that provision.
To support the zero-rating of supplies under section 10.1 of Part V of Schedule VI, suppliers must verify and maintain satisfactory evidence that the supplies are made to non-residents of Canada. For more information, please see GST/HST Info Sheet G-034 Exports of Intangible Personal Property available on the CRA web site at: http://www.cra-arc.gc.ca/E/pub/gi/gi-034/README.html.
If a taxable supply is determined to be made in Canada and is not zero-rated (which would be the case where the business or ICA is a resident or is registered for GST/HST purposes), it must then be determined if the supply is made in a participating province. Under section 144.1, a supply that is made in Canada is also considered to be made in a province if it is determined to be made in the province under the place of supply rules in Schedule IX. In any other case, the supply is deemed to be made in a non-participating province.
Pursuant to section 3 of Part IX of Schedule IX, a supply of property or a service is deemed to be made in a province if the property or service is prescribed to be made in the province under the New Harmonized Value-Added Tax System Regulations (the "Regulations”).
The place of supply rules that determine the province in which a supply, including a supply of IPP, is made are explained in GST/HST Technical Information Bulletin B-103 Place of supply rules for determining whether a supply is made in a province (available on the CRA web site at: http//www.cra-arc.gc.ca/E/pub/gm/b-0103README.html). Generally, as explained in this publication, a supply of IPP for which there are no restrictions with respect to where it may be used in Canada is deemed to be made in a province if the supplier obtains an address of the recipient in the province in the ordinary course of its business.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
INTERPRETATION REQUESTED
1. How does the GST/HST apply to the supply of the […] services made by the ICAs to the businesses?
2. How does the GST/HST apply to the supply of the […] service made by the Company to the businesses and the ICAs?
INTERPRETATION GIVEN
1. A taxable (other than zero-rated) supply of a service, such as the service supplied by an ICA to a business, that is made in Canada is subject to GST at a rate of 5% if made in a non-participating province and is subject to HST at the applicable rate if it is made in a participating province.
Pursuant to paragraph 142(1)(g), a supply of a service is deemed to be made in Canada if the service is, or is to be, performed in whole or in part in Canada. A supply of a service is deemed to be made outside Canada pursuant to paragraph 142(2)(g), if the service is, or is to be, performed wholly outside Canada.
Therefore, if a service supplied by an ICA to a business is performed wholly outside Canada, the supply is deemed to be made outside Canada and is not subject to GST/HST. An ICA that does not make supplies in Canada is not required to be registered for GST/HST purposes.
If a taxable supply of a service, such as the service supplied by an ICA, is made in Canada to a non-resident person, there are provisions in Part V of Schedule VI that may apply to zero-rate the supply. The general zero-rating provision for services is section 7 which zero-rates a supply of a service made to a non-resident person, but not including a supply of
(a) a service made to an individual who is in Canada at any time when the individual has contact with the supplier in relation to the supply;
(a.1) a service that is rendered to an individual while that individual is in Canada;
(b) an advisory, consulting or professional service;
(c) a postal service;
(d) a service in respect of real property situated in Canada;
(e) a service in respect of tangible personal property that is situated in Canada at the time the service is performed;
(f) a service of acting as an agent of the non-resident person or of arranging for, procuring or soliciting orders for supplies by or to the person;
(g) a transportation service; or
(h) a telecommunication service.
This provision would zero-rate the supply of the service made by an ICA to a non-resident business where none of the exclusions in the provision apply.
Depending on the circumstances, the service supplied by an ICA may be zero-rated under section 5 of Part V of Schedule VI which zero-rates a supply made to a non-resident person of acting as an agent of the person, or of arranging for, procuring or soliciting orders for supplies by or to the person, where the service is in respect of:
(a) a supply that is zero-rated under any other section of Part V of Schedule VI or,
(b) a supply made outside Canada by or to the person.
To support the zero-rating of supplies of services under section 5 or 7 of Part V of Schedule VI, suppliers must verify and maintain satisfactory evidence that the supplies are made to a non-resident of Canada. For more information, please see GST/HST Memoranda Series Chapter 4.5.1 Exports - Determining Residence Status available on the CRA web site at: http://www.cra-arc.gc.ca/E/pub/gm/4-5-1/README.html. For more information regarding the zero-rating of supplies of services, please see GST/HST Memoranda Series Chapter 4.5.3 Exports - Services and Intellectual Property available on the CRA web site at: http://www.cra-arc.gc.ca/E/pub/gm/4-5-3/README.html.
If the taxable supply of a service that is made in Canada by an ICA does not qualify for zero-rating, the province in which the supply is made must be determined for HST purposes.
A supply of a general service, such as the service supplied by the ICAs to the businesses, that is made in Canada is made in a province under subsection 13(1) of the Regulations if, in the ordinary course of business of the supplier, the supplier obtains an address in the province that is
(a) if the supplier obtains only one address that is a home or a business address in Canada of the recipient, the home or business address in Canada obtained by the supplier,
(b) if the supplier obtains more than one address described in paragraph (a), the address described in that paragraph that is most closely connected with the supply, or
(c) in any other case, the address in Canada of the recipient that is most closely connected with the supply.
The business address of the recipient from which the supplier is hired pursuant to the agreement for the supply (the “contracting address”) is generally the address that is most closely connected with the supply. This address will therefore determine the province in which the supply of the service is made where it is in Canada and is obtained by the supplier in the ordinary course of its business. The determination of the place of supply can therefore be made with certainty at the time the supply is first made where the contracting address is identified in the agreement for the supply or, if it is not identified in the agreement, has otherwise been obtained by the supplier in the ordinary course of its business.
For further information regarding the place of supply rules that determine the province in which a supply of a service is made, please see GST/HST Technical Information Bulletin B-103 Place of supply rules for determining whether a supply is made in a province (available on the CRA web site at: http//www.cra-arc.gc.ca/E/pub/gm/b-0103README.html).
2. The previously explained place of supply rules for services and the zero-rating rule for services in section 7 of Part V of Schedule VI would also be the relevant rules for purposes of determining the application of GST/HST to the taxable […] service supplied by the Company to the ICAs and to the businesses.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 957-7841. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Dwayne Moore
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
Email this Content