18 December 1996 GST/HST Interpretation 11640-3[1] - Paragraph 2(a) of Part V of Schedule VI to the ETA

                                                                        Telephone #: (613) 954-8585
Fax #: (613) 990-1233
Files #: 11640-3(dc)
Sch. VI/V/2(a)

Dear Sir:

I refer to your request for an interpretation of September 19, 1996, sent to Mr. Garry Ryhorchuk, and to your subsequent telephone conversations with Ms Carol Ann Villeneuve, concerning the application of section 2 of Part V of Schedule VI to the Excise Tax Act (the Act) in respect of the supply of repair services made in Canada to an unregistered non-resident carrier. I apologize for the lateness of this response.

The specific situation that you describe is as follows:

1. An unregistered courier company, resident in the U.S., is in the business of transporting goods between points within the U.S, using aircraft.

2. The courier company's aircraft, as required by the Federal Aviation Authority, must meet maintenance specifications. This will include major work such as a "C" check.

3. Without scheduled maintenance, the conveyance would not be allowed to fly and the courier business would not be allowed to operate (using aircraft).

4. The courier flies the aircraft into Canada for purposes of having the maintenance and repair services performed.

Interpretation Requested:

You wish to know whether the repair and maintenance services acquired by the non-resident carrier, in the above mentioned situation, would be zero-rated.

Opinion:

Paragraph 2(a) of Part V of Schedule VI to the Act provides for the zero-rating (taxed at 0%) the supply of property (other than real property) or of a service made to an unregistered non-resident person (who in the business of transporting passengers or property to or from Canada or between places outside Canada ), where the property or service is acquired by the person for consumption, use or supply in the course of so transporting passengers or property by ship, aircraft or railway.

For purposes of zero-rating a supply of property or service pursuant to paragraph 2(a) of Part V, the Department considers that the following two requirements must be met:

(1) the person must be transporting passengers or property, whether the conveyance is mobile or immobile, at the time the person acquires the property or service for consumption, use or supply; and

(2) the consumption, use or supply of the property or service by the person must be connected with or arise from the service of transporting passengers or property.

According to fact number 1, the unregistered non-resident courier company transports goods between points within the U.S. Therefore, it is assumed that the courier company does not transport goods to or from Canada or even through Canada. In addition, according to fact number 4, it appears the courier company, at the time it imports its aircraft into Canada, is not transporting property or goods. Furthermore, it would not be acquiring the repair service for consumption, use or supply in the course of transporting property, albeit while operating the conveyance.

As mentioned above, the courier company must be in the process of transporting property at the time it acquires the property or service and the consumption, use or supply of the property or service must be connected with providing the transportation service.

In consideration of the Department's position, it does not appear that the repair services acquired by the courier company are zero-rated by virtue of paragraph 2(a), as the above stated requirements would not have been met.

However, the supply of these repair services may be zero-rated pursuant to section 4 of Part V of Schedule VI, which provides for the zero-rating of such services where the aircraft, which is ordinarily situated outside Canada, is temporarily imported for the sole purpose of having the service performed.

The foregoing comments represent our general views with respect to the subject matter of your letter. Unannounced proposed or future amendments to the legislation may result in changes to our interpretation. These comments are not rulings and, in accordance with the guidelines set out in Section 1.4 of the GST memoranda Series, do not bind the Department with respect to any particular situation.

Should you require further information, please contact me at (613) 957-8220.

Yours truly,

Daniel E.B. Chamaillard
Senior Rulings Officer
Border Issues
General Operations and Border Issues Division
GST Rulings and Interpretations Directorate
Policy and Legislation Branch

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