Notice to the reader:

Please note that the following GST Memorandum, although correct at the time of issue, has not been updated to reflect any subsequent legislative changes since the date of issue. As a result, some of the technical information this memorandum contains may no longer be valid. Please contact your GST/HST Rulings Centre for assistance.

GST memoranda 300-9

TAX ON SUPPLIES
IMPORTED SERVICES AND INTANGIBLE PROPERTY
Ottawa, January 2, 1991

This memorandum in the TAX ON SUPPLIES series explains, for purposes of the Goods and Services Tax (GST), what an imported taxable supply is and how the GST is imposed on imported taxable services and intangible property under the Excise Tax Act.

LEGISLATIVE REFERENCES

Excise Tax Act - sections 123, 152, 169, 217-220, 245-251, Schedules V, VI and V11

DEFINITIONS

The following definitions have either been taken from the Excise Tax Act (as amended by Bill C-62), or represent departmental interpretations of terms relevant to the administration of that Act.

"Act" means the Excise Tax Act as amended by Bill C-62;

"calendar quarter" means a period of three months beginning on the first day of January, April, July or October in each calendar year;

"Canada"

(a) «Canada» includes:

(i) the sea bed and subsoil of the submarine areas adjacent to the coasts of Canada in respect of which the government of Canada or of a province may grant a right, licence or privilege to explore for or - exploit any minerals; and

(ii) the seas and airspace above the submarine areas referred to in paragraph (i) in respect of any activities carried on in connection with the exploration for or exploitation of minerals;

(b) in respect of imports, Canada has the meaning assigned by the Customs Act;

"commercial activity" means

(a) any business carried on by a person;

(b) any adventure or concern of a person in the nature of trade; and

(c) any activity engaged in by a person that involves the supply of real property or of a right or interest in respect of real property by that person;

but does not include

(d) any activity engaged in by a person to the extent that it involves the making of an exempt supply by the person;

(e) any activity engaged in by an individual without a reasonable expectation of profit; or

(f) the performance of any duty or activity in relation to an office or employment;

"consideration" may be money, a thing, a service, forbearance in the exercise of a right or anything else which induces the supplier to make the supply. Where consideration is monetary the amount of the money will be used to calculate the tax. Where the consideration is non-monetary, the fair market value of the consideration at the time the supply was made will be used to calculate the tax;

"Department" means the Department of National Revenue, Customs and Excise;

"exclusive", in respect of the consumption, use or supply of property or a service, means all or substantially all of the consumption, use or supply of the property or service, and "all or substantially all", in respect of the consumption, use or supply of property or a service by a financial institution, means all of the consumption, use or supply of the property or service;

"exempt supply" means a supply included in Schedule V to the Excise Tax Act;

"fiscal year" of a person means

(a) where the person has made an election under section 244 of the Excise Tax Act that is in effect, the period that the person elected to be the fiscal year of the person, and

(b) in all other cases, the taxation year of the person;

"goods" has the same meaning as in the Customs Act;

"imported taxable supply" means a taxable supply of personal property or a service that is made outside Canada to a recipient who is resident in Canada and that may reasonably be regarded as having been received by the recipient for use in Canada otherwise than exclusively in a commercial activity, but does not include

(a) a supply in respect of which tax under Division II of the Excise Tax Act is payable,

(b) a supply of goods in respect of which tax under Division III of the Excise Tax Act is payable,

(c) a zero-rated supply,

(d) goods included in Schedule VII to the Excise Tax Act, or

(e) a prescribed supply;

"input tax credit" means a credit claimed by a registrant for the Goods and Services Tax paid or payable on any property or service consumed, used or supplied in the course of a commercial activity;

"non-resident" means not resident in Canada;

"permanent establishment", in respect of a particular person, means

(a) a fixed place of business of the particular person, including

(i) a place of management, a branch, an office, a factory or a workshop, and

(ii) a mine, an oil or gas well, a quarry, timberland or any other place of extraction of natural resources,

through which the particular person makes supplies, or

(b) a fixed place of business of another person (other than a broker, general commission agent or other independent agent acting in the ordinary course of business) who is acting in Canada on behalf of the particular person and through whom the particular person makes supplies in the ordinary course of business;

"person" means an individual, partnership, corporation, trust or estate, or a body that is a society, union, club, association, commission or other organization of any kind;

"personal property" means property that is not real property;

"prescribed" means

(a) in the case of a form, the information to be given on a form or the manner of filing a form, prescribed by the Minister, and

(b) in any other case, prescribed by regulation or determined in accordance with rules prescribed by regulation;

"property" means any property, whether real or personal, movable or immovable, tangible or intangible, corporeal or incorporeal, and includes a right or interest of any kind, a share and a chose in action, but does not include money;

"recipient", in respect of a supply, means the person who pays or agrees to pay consideration for the supply or, if no consideration is or is to be paid for the supply, the person to whom the supply is made;

"registrant" means a person who is registered, or who is required to apply to be registered, under sections 240 and 241 of the Excise Tax Act;

"reporting period" of a recipient means

(a) where the recipient is a registrant, a reporting period of the recipient as determined under sections 245 to 251 of the Excise Tax Act, and

(b) in any other case, a calendar quarter;

"service" means anything other than

(a) property,

(b) money, and

(c) anything that is supplied to an employer by a person who is or agrees to become an officer or employee of the employer in the course of or in relation to the office or employment of that person;

"supply" means, subject to sections 133 and 134 of the Excise Tax Act, the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition;

"taxable supply" means a supply that is made in the course of a commercial activity, but does not include an exempt supply;

"zero-rated supply" means a supply included in Schedule VI to the Act.

IMPORTED SERVICES AND INTANGIBLE PROPERTY

General

1. This memorandum deals with imported services and intangible personal property only. For information on imported goods, please refer to GST MEMORANDUM 300-8, «IMPORTED GOODS», in the «TAX ON SUPPLIES» series.

2. Pursuant to subsection 218(1) of the Act, every recipient of an imported taxable supply shall pay to Her Majesty in right of Canada a tax equal to seven per cent of the value of the consideration for the supply.

3. The recipient of an imported taxable supply is required to self-assess the tax on the supply and remit the GST payable. This means that Canada Customs will not collect the GST at the border or at time of importation for the GST payable under subsection 218(1) of the Act. Neither will the non-resident making the supply be required to collect the GST on such supplies.

4. The term «imported taxable supply» includes personal property and services. Intangible personal property includes such things as intellectual property rights, royalties and copyright fees. An imported service includes architectural consulting services, computer software design and other similar service-related activities.

5. The GST will not be imposed directly on services and intangible property when imported by registrants for use exclusively (90 per cent or more) in a commercial activity. Registrants will not be able to claim an input tax credit with respect to such imports, since no GST was paid. The value of these imports, however, will be reflected in the value of the taxable supplies of the registrant.

6. When an imported taxable supply is used partly, but not exclusively, in a commercial activity (less than 90 per cent), registrants will be able to claim an input tax credit on the GST payable on that part of the supply for use in a commercial activity.

7. Further information on input tax credits is available in the GST 400 MEMORANDA series on input tax credits.

When Tax Payable

8. Subsection 218(2) of the Act states that the GST imposed on an imported taxable supply is payable by the recipient on the earlier of the day the consideration for the supply is paid and the day the consideration for the supply becomes due.

9. When determining when tax is payable under subsection 218(2), reference should be made to section 152 of the Act, which explains when consideration becomes due.

Returns

10. Subsection 219(1) requires every person who is liable to pay the GST on imported services and intangible property to prepare a return in prescribed form containing prescribed information for the reporting period of the person in which the GST becomes payable. This return is called the "Goods and Services Tax Return for Imported Taxable Supplies other than Goods", GST 59.

11. Where the recipient of a supply of imported services or intangible property is a registrant and files returns on an annual basis, the recipient must file GST 59 and remit the GST payable to the Receiver General not later than the day that is three months after the end of the reporting period.

12. In any other case, the recipient must file GST 59 and remit the GST payable to the Receiver General not later than the day that is one month after the end of the reporting period to which the return relates. Please note that the reporting period of a non- registrant who receives a Division IV supply is a calendar quarter.

13. More information on filing returns and remitting payments will be available in GST MEMORANDUM 500-2-6, «OTHER GST RETURNS».

Supplies Between Branches

14. Section 220 of the Act provides a special rule for transactions between a permanent establishment in Canada of a person and a permanent establishment of that person outside Canada. Such permanent establishments are deemed to be separate persons who deal with each other at arm's length for purposes of Division IV tax.

15. Section 220 also provides that a transfer of personal property or the rendering of a service between such establishments is treated as a supply, with the consideration therefor being the amount used for purposes of calculating the income of the establishments for purposes of the Income Tax Act.

16. For example, if a foreign corporation allocates certain head office expenses to its Canadian branch, the amount deductible in respect of those expenses in calculating the branch income for income tax purposes is treated as being the consideration for the supply.

NOTE: This memorandum is not a legal document. It contains general information and is provided for your convenience and guidance in applying the Excise Tax Act and Regulations. Readers should refer to the legislation and/or contact the nearest Revenue Canada Excise office if interpretation problems occur.

REFERENCES
OFFICE OF RESPONSIBILITY:

Policy and Legislation

LEGISLATIVE REFERENCES:

Excise Tax Act as amended by Bill C-62

HEADQUARTERS FILE:

N/A

SUPERSEDES GST MEMORANDUM:

N/A

OTHER REFERENCES:

N/A

SERVICES PROVIDED BY THE DEPARTMENT ARE AVAILABLE IN BOTH OFFICIAL LANGUAGES.

THIS MEMORANDUM IS ISSUED BY TECHNICAL INFORMATION, EXCISE BRANCH UNDER THE AUTHORITY OF THE DEPUTY MINISTER OF NATIONAL REVENUE, CUSTOMS AND EXCISE.