24 September 2004 GST/HST Interpretation 45519 - Application of GST to Digital Images and Graphic Designs

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'agence.

Dear XXXXX:

Thank you for your letter XXXXX concerning the entitlement of a Canadian resident GST/HST registrant to claim input tax credits pursuant to subsection 169(2) of the Excise Tax Act (the "Act"). We apologize for the delay in replying.

The following information was provided in your letter:

•   A Canadian resident, GST/HST registrant enters into a manufacturing services contract with a non-resident, non-registrant customer. No GST/HST applies to the consideration charged because of section 179(3) of the Excise Tax Act ("the Act"). The non-resident is not a "consumer".

•   Foreign suppliers who are not registered ship parts to the Canadian resident. The Canadian resident acts as the importer of record, clearing the goods through Customs and paying GST on the imported parts at that time.

•   The Canadian resident stores the parts at a warehouse in Canada, typically their own facility. The foreign supplier retains title to the parts until the Canadian resident pulls them from the warehouse for manufacturing and processing.

•   When the Canadian resident pulls the parts from the warehouse, title to the parts passes from the foreign supplier to the non-resident customer. The non-resident customer retains title to the parts throughout the manufacturing process.

•   Once processed, the finished goods are exported from Canada, either to the non-resident customer or directly to their customers.

•   In certain circumstances, the registrant charges a warehousing fee to the foreign supplier.

Interpretation Requested

Whether the registrant in the circumstances described above is entitled to an ITC pursuant to subsection 169(2) of the Act for the tax paid on the importation of the goods where no consideration is charged to the non-resident supplier for the warehousing service.

Interpretation Given

Pursuant to subsection 169(2) of the Act, a registrant, who imports goods of a non-resident person, who is not registered for purposes of the GST/HST, for the purpose of making a taxable supply to the non-resident person of a commercial service in respect of the goods, is entitled to an ITC equal to the tax paid by the registrant at time of importation. The term, "commercial service" is defined under subsection 123(1) of the Act to include any service in respect of tangible personal property other than a service of shipping the property and a financial service. The meaning of the expression is further set out in GST/HST Policy Statement P-151 Interpretation of Commercial Service. The supply of a storage service is considered to be a supply of a commercial service.

Based on the information provided, the registrant who is supplying a commercial service to the non-resident supplier by storing the goods is entitled to an ITC pursuant to subsection 169(2) of the Act for the tax paid on the importation of the goods, regardless of whether the registrant charges consideration for the supply of the commercial service.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Revenue Agency with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6743.

Yours truly,

Cheryl R. Leyton
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2004/09/21 — RITS 46269 — GST/HST Treatment of Interchange Fee