24 March 2005 GST/HST Interpretation 44623 - Importation of Warranty Replacement Goods

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 application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to goods imported for warranty replacement. We apologize for the delay in replying.

The following information was provided in your letter and subsequent facsimiles and telephone conversations.

•   XXXXX a non-registrant, resident in XXXXX, sells products to residents in Canada.

•   XXXXX ships warranty replacement goods to resident customers in Canada on the understanding that the goods to be replaced are exported to the United States. The resident customers act as the importers of record and clear the goods at time of importation.

•   XXXXX is in the process of setting up a depot/warehouse in Canada for the purposes of supplying warranty replacement goods to the resident customers in Canada. Goods shipped to the warehouse/depot will be stocked for future warranty issues. The depot/warehouse in Canada will eliminate the need to export the goods to the United States for replacement.

Interpretation Requested

Are the replacement goods, shipped to the depot/warehouse in Canada, considered to be non-taxable importations under section 5 of Schedule VII to the Excise Tax Act ("the Act")?

Interpretation Given

Section 5 of Schedule VII to the Act provides for the non-taxable importation of "goods that are imported by a particular person if the goods are supplied to the particular person by a non-resident person for no consideration, other than shipping and handling charges, as replacement parts or as replacement property under a warranty".

In order for an imported good to qualify as a non-taxable importation under section 5 of Schedule VII, the "particular person" importing the goods must be the same person to whom the replacement parts or property are supplied under a warranty.

The importation of a replacement good under warranty currently shipped directly by XXXXX to a Canadian customer is considered to be a non-taxable importation pursuant to section 5 of Schedule VII to the Act because the good is imported by a particular person (Canadian customer) and supplied to that particular person (Canadian customer) by a non-resident person XXXXX pursuant to an existing request made by the particular person under a warranty. Furthermore, the good is supplied for no consideration, other than shipping and handling charges. The importation of the replacement good would be non-taxable in this case regardless of whether the defective good has been exported when the replacement good is imported.

If warranty replacement goods are instead merely shipped to a depot/warehouse in Canada in anticipation of future warranty issues, then XXXXX will be considered to have imported the goods rather than a "particular person" to whom the goods have been supplied under a warranty, as required under section 5 of Schedule VII to the Act. The requirement under section 5 of Schedule VII for the warranty replacement good to be imported by the customer reflects the fact that importation relief under the provision is only intended to apply where the good is being imported as a result of an existing warranty obligation. Therefore, importation relief under section 5 of Schedule VII to the Act is not applicable to the importation of the replacement goods in this case.

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

2005/03/21 — RITS 47101 — Joint Venture Arrangements Between XXXXX and XXXXX