17 February 1995 GST/HST Interpretation Reference: ETA Sch. VI, Part V, 5(a), Sch. VI, Part V, 5(b) - Visit to Region - Trans-Border Issues

I refer to XXXXX facsimile message of December 5, 1994, forwarding Mr. Rob Allwright of my staff a number of questions for discussion at the presentation on December 15, 1994.

As promised by Mr. Allwright, the following are provided regarding the issues raised by your office:

1. Question

What is the tax status of brokerage fees relating to import/export of taxable, zero-rated and exempt goods?

Answer:

Please refer to the attached copy of GST Question and Answer 6.A.23 for the answer.

2. Will Canadian agents, acting on behalf of foreign companies charge and remit tax on their commissions?

Answer

As outlined in GST Memorandum 300-3-5 (Exports), the Department will consider a person dealing with a non-resident to be providing the services of an agent based on general legal principles. An agent includes a person who is authorized to bring another party for whom the person acts (i.e., the principal) into contractual relations with third parties. There must be sufficient information available to make a determination as to whether or not a person is an agent of its non-resident client, or is merely acting as a sales representative. Where the person is an agent of the non-resident and the services are supplied under conditions outlined in paragraph 5(a) or (b) of Part V of Schedule VI to the Excise Tax Act (Act), the supply may be zero-rated.

If a determination is made that a person is not an agent of the non-resident but is, in fact, only acting as a sales representative, departmental policy is outlined below:

Sales representatives' services would not qualify for zero-rating under Schedule VI, Part V, section 5. In addition, the services would not qualify for zero-rating under Schedule VI, Part V, section 7 to the Act as the services are primarily for consumption, use or enjoyment in Canada.

 XXXXX

This policy is limited to circumstances where the requirements in Schedule VI, Part V, section 5 are met. That is, the representative's services must be in respect of a zero-rated export supply to the non-resident or a supply made outside Canada by or to the non-resident.

 XXXXX

3. Question

What is the tax status of goods imported into Canada by Indians where goods are delivered to a reserve by an agent?

Answer:

The response to this question can be found in the "GST Administrative Policy on Application of GST to Indians" TIB B-039R. The final paragraph on page 6 of the Bulletin states "Importation of goods are subject to the GST even in those instances where, after importation, the property is delivered to a reserve by the vendor's agent by XXXXX

4. Question

Can a commission sales person, who is not an agent, qualify under section 7 of Part V of Schedule VI, to have his commissions received from a non-resident zero-rated?

Answer:

A commission sales person, who does not meet the requirements of section 5 of Part V of Schedule VI, would generally not qualify under section 7 of Part V of Schedule VI, to have his commissions zero-rated. These services are primarily for consumption, use or enjoyment in Canada (e.g., the purpose or objective of the service — to solicit and promote the non-resident's products in Canada — is realized in Canada).

5. Question

Who is responsible for collecting GST on goods imported into Canada, when the non-resident seller is registered for GST, but the importer of records is a Canadian customer?

Answer:

Registration for GST purposes does not automatically infer that the registrant collects Division II tax on goods imported into Canada. It only means that the registrant has to collect the tax if a taxable supply is made in Canada.

Where the supply is made or deemed to be made outside Canada the supply is not subject to Division II tax. The recipient of the supply (the Canadian customer) is not liable to pay tax under Division II and the registered non-resident is not liable to collect the Division II tax.

In order to determine the tax application, it is necessary to determine where the goods were delivered or made available. Generally the place where the goods are delivered or made available can be determined by reference to the terms of the contract.

If goods are delivered or made available outside Canada to the Canadian customer (e.g. the supply of goods is FOB U.S. plant) and the non-resident seller arranges transportation for the customer, and the customer is responsible for clearing the goods through Customs then the customer as the "importer" is responsible for paying the Division III tax at time of importation. In such instances the non-resident seller should neither bill nor collect the Division II tax from the consumer.

If the goods are delivered or made available in Canada (that is the goods are shipped FOB Canadian destination) tax under Division II would apply.

Unless the sale is structured in such a way as to avoid this apparent double taxation, the only recourse to the registered Canadian importer who has acquired the goods for use in a commercial activity is that he may be able to claim the two amounts of GST as the ITC.

6. Question

What is the GST status of marketing services provided by a Canadian person to non-resident companies where the service consists of finding prospective customers, explaining the product and having the goods directly shipped to the Canadian customers by the non-resident supplier?

Answer:

Please refer to the answers to questions 2 and 4 setting out our policy on export services of agents and sales representatives. It is assumed that these services do not qualify as advertising services for purposes of section 8 of Part V of Schedule VI to the Act.

7. Question

Is a Canadian business entitled to claim ITC's on GST paid at the time of importation (Division III tax) and GST paid in the Canadian market (Division II tax) in the rare case where the Canadian company is the importer of record but the goods are FOB to the Canadian plant?

Answer:

There are two different fact situations that would appear to meet the situation in this question:

A. The non-resident is registered for the GST and owns the goods at time of importation but a Canadian resident acts as the importer of record and pays Division III tax to clear the goods through Customs. This situation may arise where title in goods intended for sale to the Canadian has not passed at the time of importation or the goods are for lease or rental to the Canadian. Therefore, legal possession or use of the goods are with the Canadian in Canada. However, risk and title in the goods remain with the non-resident at time of importation.

B. The non-resident is registered for the GST and title to the goods is transferred prior to importation and, while the non-resident does not own the goods at time of importation, the terms and conditions of sale specify that the non-resident will complete the sale on delivery to the Canadian resident's factory.

In the first scenario, if a Canadian resident acts as the documented importer of record for Customs purposes and pays the GST under Division III, the entitlement would normally rest with the non-resident, as the goods are still intended for use in the non-resident's commercial activity until the sale or lease/rental is completed. Because the sale to the Canadian resident has not been completed, the goods are not yet owned by the resident or in the case of a lease/rental the resident does not have constructive possession or use of the goods. Accordingly, the goods would not yet be considered to be for use in the commercial activity of the resident and the resident would not be entitled to claim the ITCs for the tax paid at time of importation. The non-resident would need to obtain evidence that the Canadian was acting on the non-resident's behalf when the tax was paid under Division III before the non-resident would be able to claim the ITCs for tax paid under Division III pursuant to section 169 of the Act.

In the second scenario, if the terms and conditions of the sale specify transfer of ownership prior to importation but delivery inside Canada, then both Division II and III could apply to the goods. In such a case, the Canadian resident would be able to claim ITCs for both taxes provided the resident meets all the necessary conditions for claiming ITCs for each amount.

8. Question

When does section 7, Part V of Schedule VI apply as opposed to section 23, Part V of Schedule VI with respect to services provided by a Canadian supplier to a non-resident?

Answer:

Section 23 of Part V of Schedule VI to the Act is applicable to supplies of services the performance of which began on or after June 10, 1993.

Section 7 of Part V of Schedule VI is a general zero-rating provision for supplies of services to a non-resident person (other than an individual) or to a non-resident individual who is outside Canada at all times at which the individual has contact with the supplier with respect to the particular supply. One of the exceptions to this general rule is an advisory, consulting, or professional service. This exclusion is merely to make export provisions mutually exclusive as most advisory, consulting and professional services are provided for under section 23 of Part V of Schedule VI. Accordingly, these services, where supplied to non-resident persons are zero-rated regardless of where the services may be consumed, used or enjoyed, provided the exclusions in paragraph 23(a) to (d) of Part V of Schedule VI do not apply.

Should you require further clarification, please do not hesitate to contact Mrs. Carol Ann Villeneuve at (613) 957-8224 or Mr. Rob Allwright at (613) 952-8810.

H.L. Jones
Director
General Tax Policy
Policy and Legislation
Excise/GST

Attach.

Telephone No.: (613) 957-8224;

Fax No.: (613) 990-3602