GST/HST and Electronic Commerce

GST/HST Technical Information Bulletin B-090
July 2002

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• Place of Supply
• I. Supplies made in Canada
• Intangible personal property
• Services
• Telecommunication services
• II. Supplies made in a participating province
• Intangible personal property
• Services
• Telecommunication services
• Prescribed supplies

Place of Supply

Whether a supply is made in or outside Canada, and, if made in Canada, whether it is made in or outside a participating province (i.e., Nova Scotia, New Brunswick or Newfoundland and Labrador), affects the rate of tax that applies to that supply. Where a taxable (other than zero-rated) supply of property or a service is made in Canada, tax at the rate of 7% or 15% applies to that supply, depending on whether it is made in a participating province.

Generally, a supply of property or services made outside Canada is not subject to the GST/HST. However, the GST/HST may apply to property or services acquired by a resident outside Canada and subsequently imported into Canada. While tax is not collected at the border for taxable importations of intangible personal property or services, resident recipients of such supplies may be required to self-assess the tax.

The general rules for determining whether a supply is made in or outside Canada are set out in section 142 of the Act. However, section 143 of the Act overrides the general place of supply rules found in section 142 for supplies made by a non-resident who is not carrying on business in Canada and is not registered for GST/HST purposes at the time the supply is made.

Non-resident registration and carrying on business in Canada are explained in Non-Resident Registration.

I. Supplies made in Canada

Intangible personal property

Pursuant to paragraph 142(1)(c) of the Act, a supply of intangible personal property is deemed to be made in Canada if the property may be used in whole or in part in Canada, or the property relates to real property situated in Canada, tangible personal property ordinarily situated in Canada, or to a service to be performed in Canada. Paragraph 142(2)(c) of the Act provides that a supply of intangible personal property is deemed to be made outside Canada if the property may not be used in Canada, or the property relates to real property situated outside Canada, to tangible personal property ordinarily situated outside Canada, or to a service to be performed wholly outside Canada.

The expression "may be used" in paragraph 142(1)(c) is interpreted to mean "allowed to be used." In other words, a supply of intangible personal property could be considered to be made in Canada even if it is not actually used in Canada. The fact that the supply may be made to a recipient who is outside Canada has no bearing on whether the supply is made in Canada.

In determining whether intangible personal property may be used in Canada, reference may be made to any written agreement for the supply that contains terms governing the place of use of the intangible personal property. This is common practice in a business-to-business transaction. In consumer transactions there may be a general restriction as to the use of the intangible personal property, to which the recipient agrees either expressly or implicitly upon acquisition of the supply. The restriction may be explained on the Web site through which a product is supplied.

Services

Pursuant to paragraph 142(1)(g), a supply of a service is deemed to be made in Canada if the service is, or is to be, performed in whole or in part in Canada. Paragraph 142(2)(g) provides that a supply of a service is deemed to be made outside Canada if the service is, or is to be, performed wholly outside Canada.

Although the word "performed" is not defined in the Act, the place where a service is performed is traditionally the place where the person physically doing the work is situated. For example, if a non-resident supplier sends a technician to Canada to provide programming services, the place of performance is in Canada as the service is physically performed in Canada.

Where all of the activities carried out by the supplier in performing a service are clearly undertaken in Canada (i.e., the employees performing the service are in Canada, or the supplier's equipment used to provide the service is located in Canada), the place of performance of the service is in Canada.

Where part of the activities carried out by the supplier in performing a service are carried out in Canada, the place of supply of the service is considered to be in Canada. For example, a supplier may prepare a report in Canada in respect of programming services carried on outside Canada. As the report is a component of the services supplied, the place where the report is prepared must be considered when determining the place of supply.

Electronic commerce allows services to be provided remotely. A supplier can provide a service to a customer in Canada without physically being in Canada. For example, a supplier can have a technician perform work from outside Canada by electronically accessing a customer's computer located in Canada, rather than sending the technician to Canada. Work is being performed both at the location of the service provider, as well as the location of the customer's property that is the object of the service. It is therefore necessary to take into account the location of the customer's property when determining the place of performance.

Whether a service is performed in whole or in part in Canada is a question of fact. Each supply in respect of a service must be examined on a case-by-case basis to determine whether that service is performed in whole or in part in Canada. However, a supply of a service is performed at least in part in Canada if:

• the service requires a person to perform a task (i.e., the supplier acts through one or more of its employees), and the person performing or physically carrying out the task is situated in Canada at the time the activity is done;
• the service includes operations performed by a supplier's equipment (e.g., computer equipment), and the equipment is located in Canada;
• the supply involves doing something to or with a recipient's equipment by accessing it from a remote location, and the recipient's equipment is located in Canada (however, this does not apply to a service wholly performed outside Canada, where the results are subsequently delivered electronically to a recipient's computers in Canada, e.g., a programming service carried out at the supplier's location outside Canada and e-mailed to a recipient in Canada); or
• any activity related to the performance of the service is undertaken in Canada.

Telecommunication services

Section 142.1 of the Act sets out place of supply rules for determining when a supply of a telecommunication service is made in Canada. This section overrides the general place of supply rules in section 142, but remains subject to section 143, which deems supplies made by non-resident persons to be made outside Canada in certain situations.

Pursuant to paragraph 142.1(2)(a), a telecommunication service is deemed to be made in Canada where it consists of making available telecommunications facilities, and the facilities or any part thereof are located in Canada.

Billing location in Canada

The billing location for a telecommunication service is a factor only where the telecommunication is either emitted or received in Canada, but not both emitted and received in Canada. Pursuant to subsection 142.1(1) of the Act, the billing location is considered to be in Canada if the fee for the service is charged or applied to an account the recipient has with the telecommunication service supplier that relates to a telecommunications facility used or made available for use by the recipient to obtain telecommunication services, and that telecommunications facility is ordinarily located in Canada. The billing location is not necessarily the same as the billing address, or the place to which an invoice is sent.

Where the fee for a service is not charged or applied to an account the recipient has with the telecommunications provider, the billing location is considered to be in Canada if the telecommunications facility used to initiate the service is located in Canada.

II. Supplies made in a participating province

There are special place of supply rules for determining whether a supply that is made in Canada is made in a participating province. If a taxable (other than zero-rated) supply is made in a participating province, tax at the HST rate of 15% must be collected on that supply.

Section 144.1 of the Act provides that a supply is deemed to be made in a province if it is made in Canada and is, under the rules set out in Schedule IX, made in the province. In any other case the supply is deemed to be made outside of the province. A supply that is made in Canada and that is not made in a participating province is deemed to be made in a non-participating province.

Intangible personal property

The relevant place of supply rules for supplies of intangible personal property made by electronic means are in section 1 and paragraphs 2(d) and 3(d) of the Part III of Schedule IX to the Act.

Canadian rights

Pursuant to subparagraph 2(d)(i) of Part III of Schedule IX, a supply of intangible personal property that does not relate to real property, tangible personal property, or services is considered to be made in a province if all or substantially all of the Canadian rights in respect of the property may be used only in that particular province. "Canadian rights" refers to that part of the intangible personal property that may be used in Canada.

This rule is not specific to the participating provinces and may locate the place of supply of a supply made in Canada of intangible personal property in any province, provided that the use of the property is restricted to that province. For example, if business software acquired over the Internet is restricted to use in Ontario, the place of supply is considered to be in Ontario.

Place of negotiation

Pursuant to subparagraph 2(d)(ii) of Part III of Schedule IX, a supply of intangible personal property that does not relate to real property, tangible personal property or services will also be considered to be made in a particular province if the place of negotiation of the supply is in the province, and the property may be used otherwise than exclusively outside that province. Where there are no restrictions regarding the use of the intangible personal property in a particular province, it will always be considered that the property may be used otherwise than exclusively outside the province where the place of negotiation occurred.

Pursuant to section 1 of Part I of Schedule IX, the "place of negotiation" of a supply means the location of the supplier's permanent establishment at which the individual principally involved in negotiating an agreement for the supplier ordinarily works or to which that individual ordinarily reports in the performance of his or her duties relating to the supplier's activities in the course of which the supply is made. "Negotiating" includes the making or acceptance of an offer.

Subsection 132.1(2) of the Act defines a permanent establishment for purposes of the place of supply rules set out in Schedule IX. Generally, the meaning of permanent establishment is as defined in various provisions of the Income Tax Regulations under the Income Tax Act, based on the type of person. For more information, refer to Memorandum 3.4, Residence , of the GST Memoranda Series.

Other rules

Where subparagraphs 2(d)(i) and 2(d)(ii) of Part III of Schedule IX fail to locate the place of supply of intangible personal property (that does not relate to real property, tangible personal property or services) in a particular province, the supply is considered to be made in a participating province under section 3 of Part III of Schedule IX in the following circumstances:

• the place of negotiation of the supply is in Canada and the Canadian rights that relate to the property can only be used primarily in the participating provinces; or
• the place of negotiation of the supply is outside Canada, the property can only be used exclusively in Canada, and the Canadian rights can only be used primarily in the participating provinces.

In either case, the supply of the intangible personal property is considered to be made in the participating province with the greatest proportion of the Canadian rights that may be only used in the participating provinces.

Services

Canadian element

Pursuant to paragraph 2(a) of Part V of Schedule IX to the Act, a service is considered to be supplied in a particular province if all or substantially all of the Canadian element of the service is performed in that province. Pursuant to section 1 of Part V of Schedule IX, the "Canadian element" of a service is the portion of the service that is performed in Canada. This rule is not specific to the participating provinces and may locate the place of supply of a supply made in Canada in any province.

Place of negotiation

A supply of a service is also considered to be made in a particular province, pursuant to paragraph 2(b) of Part V of Schedule IX, if the place of negotiation for the supply is in the province, and all or substantially all of the service is not performed outside that province.

Other rules

Where paragraphs 2(a) and 2(b) of Part V of Schedule IX fail to locate the place of supply of a service in a particular province, the supply may be considered to be made in a participating province pursuant to section 3 of Part V of Schedule IX.

In accordance with section 3, a supply of a service is made in a participating province in the following circumstances:

• the place of negotiation of the supply is in Canada and the Canadian element of the service is performed primarily in the participating provinces; or
• the place of negotiation of the supply is outside Canada, all or substantially all of the service is performed in Canada, and the Canadian element of the service is performed primarily in the participating provinces.

In either case, the supply of the service is made in the participating province in which the greatest proportion of the Canadian element of the service is performed.

Telecommunication services

Pursuant to section 2 of Part VIII of Schedule IX to the Act, if a telecommunication service consists of making telecommunications facilities available (other than a service of granting sole access to a telecommunications channel, e.g., to a telecommunications circuit, line, frequency, channel or partial channel, excluding a satellite channel), the supply of the service is made in a particular province if:

• all of the facilities are ordinarily located in that province; or
• not all of the facilities are ordinarily located in the province, but the invoice for the supply is sent to an address in that province.

For other telecommunication services (except a service of granting sole access to a telecommunications channel), the supply is considered to be made in a particular province if the telecommunication:

• is both emitted and received in that province;
• is either emitted or received in that province, and the billing location for the service is in that province; or
• is emitted in the province and received outside the province, and the billing location for the service is not in a province in which the telecommunication is emitted or received.

Billing location in a particular province

Pursuant to section 1 of Part VIII of Schedule IX to the Act, the billing location for a telecommunication service is considered to be in a particular province if the telecommunications supplier charges or applies the fee for the service to the recipient's account relating to telecommunications facilities that are used or are available for use to obtain telecommunication services, and all those facilities are ordinarily located in that province.

If the telecommunications company does not charge or apply the fee for the service to the recipient's account, the billing location is considered to be in a particular province if the telecommunications facility used to initiate the service is located in that province.

Prescribed supplies

For GST/HST purposes, some electronic commerce supplies are specifically identified as being made in a particular province. A computer-related service and Internet access are both identified in the Place of Supply (GST/HST) Regulations (the "Regulations") as being made in a particular province in certain circumstances.

A "computer-related service" as defined in section 1 of the Regulations means:

• a technical support service that is provided by means of telecommunications and relates to the operation or use of computer hardware or software; or
• a service involving the electronic storage of information and the computer-to-computer transfer of information.

In determining whether a supply of a computer-related service or Internet access is made in a province, it is important to know whether the supply is made to a "single final recipient" or "multiple final recipients." The rules for determining place of supply vary, according to the final recipient(s). A "final recipient," in respect of a computer-related service or Internet access, means a person who is the recipient of a supply of the service or access and who acquires it otherwise than for the purpose of supplying it to another person.

Single final recipient

Subsection 10(1) of the Regulations provides that when there is to be a single final recipient of a supply of a computer-related service or Internet access made by a particular supplier, and the recipient acquires the supply under an agreement either with the supplier or another supplier, the supply is made in a particular province if the recipient avails itself of the service or access at a single ordinary location in that province, and:

• the particular supplier maintains information sufficient to determine that location; or
• it is the normal business practice of the particular supplier to obtain information sufficient to determine that location.

Failing this, the supply will be made in a particular province if the mailing address of the recipient of the supply is in that province.

Multiple final recipients

Subsection 10(2) of the Regulations applies where there are to be multiple final recipients of a supply of a computer-related service or Internet access made by a particular supplier and each recipient acquires the supply under an agreement with either the particular supplier or another supplier.

Where, in the case of each recipient, there is a single location at which the recipient avails itself of the service or access and

• either the particular supplier maintains information sufficient to determine that location; or
• it is the normal business practice of the particular supplier to obtain information sufficient to determine that location;

the supply is made in the province, if any, that would be determined, under the place of supply rules for intangible personal property under Part III of Schedule IX (discussed above), or for services under Part V of Schedule IX (discussed above), to be the province in which the particular supply is made if the service were performed or the Internet access were attainable in each province in which, and to the same extent to which, the final recipients avail themselves of the service or access. In other words, the place of supply rules in Schedule IX are to be applied to the supply of Internet access as a supply of intangible personal property and to the supply of a computer-related service as a supply of any service.

In any other case the supply of the computer-related service or Internet access will be made in a particular province if the mailing address of the recipient is in that province.

Date modified:

2002-09-25