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.
GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 166421
Dear [Client]:
Subject: GST/HST INTERPRETATION
Importation of warranty replacement goods
Thank you for your letter dated [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to replacement goods imported under a warranty. We regret the delay in responding to your query.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We understand, based on the information provided in your letter and that is available on your website, that:
1. […] (USco) is located […][outside of Canada] and is registered for the GST/HST.
2. USco is a manufacturer of […][electronic] products (Product) and supplies the Product to clients in Canada.
3. USco supplies an optional […] (Warranty) to customers of the Product for periods of one, three or five years. The Warranty provides, in part, a replacement Product for no charge where the delivered Product is defective. The replacement Product is a new or refurbished unit of the same model.
4. Pursuant to the Warranty terms, where a customer receives a defective Product the customer must notify USco to request a replacement. USco will subsequently use reasonable efforts to ship a replacement Product within one business day of being notified. USco will concurrently issue a return authorization number to the customer.
5. USco will not charge the customer for the replacement Product as long as the defective Product is returned within 30 days after shipment of the replacement Product. If USco does not receive the defective Product within 30 days, then USco will charge the customer the current list price for the replacement Product.
6. USco pays all shipping costs to send the replacement Product to the customer located in Canada. The customer pays the shipping costs to return the defective Product to USco.
INTERPRETATION REQUESTED
You would like to know the tax status of an imported replacement Product pursuant to the Warranty.
INTERPRETATION GIVEN
Generally, under section 212, every person who is liable under the Customs Act to pay duty on imported goods, or who would be so liable if the goods were subject to duty, must pay GST on the goods calculated at the rate of 5% on the value of the goods.
Under subsection 212.1(2), every person who is liable under the Customs Act to pay duty on imported goods, or would be so liable if the goods were subject to duty, must also generally pay the provincial part of the HST on the goods calculated at the tax rate for a participating province on the value of the goods if the person is resident in the participating province. However, pursuant to subsection 212.1(3), the requirement to pay the provincial part of the HST on the goods does not apply if the goods are accounted for as commercial goods under section 32 of the Customs Act. “Commercial goods” are defined under subsection 212.1(1) to mean goods that are imported for sale or for any commercial, industrial, occupational, institutional, or other like use.
Section 213 provides that no tax is payable in respect of goods included in Schedule VII.
Section 5 of Schedule VII provides for the non-taxable importation of goods imported by a particular person where 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. For example in your situation, the importation of the replacement Product pursuant to the Warranty for no consideration, other than shipping and handling charges, would qualify as a non-taxable importation under section 5 of Schedule VII.
However, where it is established at a later date that the conditions in section 5 of Schedule VII were in fact not met, for example, where USco charges the customer for the replacement Product as a result of the customer not returning the defective Product within the 30 days, then the importation of the replacement Product would not be considered a non-taxable importation under section 5 of Schedule VII and a correcting entry under the Customs Act would be required.
Pursuant to subsection 216(3) a redetermination of the GST/HST tax status of an importation for the purposes of Schedule VII is treated under the Customs Act as if it were a redetermination of the tariff classification of the importation. The importer has 90 days to make a correction. Where a correcting entry is required but is not filed, the importer would be liable to penalties under the Administrative Monetary Penalty System (AMPS). Please refer to the Canada Border Service Agency (CBSA) Memorandum D11-6-6, “Reason to Believe” and Self-adjustments to Declarations of Origin, Tariff Classification, and Value for Duty, https://www.cbsa-asfc.gc.ca/publications/dm-md/d11/d11-6-6-eng.html for more information related to the redetermination process of imported goods.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 905-242-9234. 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,
Jill McDonald
Goods Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate
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