Section 142

Subsection 142(1) - General Rule — in Canada

Administrative Policy

P-193R "Supplies of Tangible Personal Property Otherwise than by Way of Sale"

P-078R "Meaning of the Phrase 'Delivered or Made Available in (or Outside) Canada to the Recipient

P-200R "Place of Supply of Intangible Personal Property and Real Property"

GST M 300-5 "Place of Supply"

General discussion.

Paragraph 142(1)(a)

Cases

Escape Trailer Industries Ltd v. Canada (Attorney General), 2019 FC 31

imposing HST on goods earmarked for immediate export fails to apply s. 142(1)(a) purposively

When a B.C.-based company (the “applicant”) sold an RV to a U.S. customer, it could have avoided the requirement to charge HST on the sale price by delivering the RV to the customer in the U.S. (so that under ETA s. 142 the place of supply would have been outside Canada) or by shipping the RV to the customer in the U.S. on a common carrier (thereby engaging zero-rating). Both options were cumbersome or inconvenient, and what it did instead was to deliver the RV to the customer in a parking lot just north of the border, with the customer then driving the RV across the border as the importer of record. When CRA assessed the applicant for failure to charge HST on the sales (on the basis that the sales were taxable under s. 142), the applicant paid the tax but then requested that CRA recommend a remission order under s. 23(2) of the Financial Administration Act. The requested grounds were three of the criteria set out in the CRA Remission Guide, namely, financial setback coupled with extenuating factors, incorrect CRA advice and “unintended results of the legislation.”

After finding that CRA had reasonably rejected the first two grounds, Manson J went on to find, respecting the third ground (paras. 49-51):

The text of section 142 is clear; it draws a distinction between goods and services received by the final consumer in Canada (subject to tax), and those received outside of Canada (not subject to tax).

In characterizing the legislative intent of section 142, the Officer chose to follow the express language of section 142 over the broader purpose of the ETA to tax the consumption of goods or services in Canada … .

I find this interpretation to be reasonable. It is also consistent with past jurisprudence of this Court which has preferred the strict language of the ETA over its broader purpose … .

However, he went on to state, obiter (at paras. 52-54):

[I]f I had [instead] applied the correctness standard to this issue, I may have come to the opposite conclusion.

…The Officer’s literal interpretation tends to frustrate both a purposive construction of section 142 and the intent of the ETA to tax consumption of goods in Canada. In my view, the result of applying such a “strict liability” approach appears to be contrary to the scheme and objects of the ETA.

Additionally, subsection 23(2) of the FAA allows for tax to be remitted in circumstances where the collection of the tax would be unreasonable or unjust. The Officer’s literal application of section 142 of the ETA appears to lead to a result which is at odds with the equitable underpinnings of subsection 23(2) of the FAA.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Financial Administration Act - Section 23 - Subsection 23(2) business continued to prosper after assessment, CRA oral contrary advice not substantiated and not unreasonable for CRA to apply literal over purposive ETA interpretation 363
Tax Topics - Statutory Interpretation - Ordinary Meaning jurisprudence has applied ETA literally 159

Montecristo Jewellers Inc. v. The Queen, 2019 TCC 31

delivery in Canada as full voluntary transfer of possession there

Customers would purchase watches or jewellery at Vancouver stores of the appellant in order to take them as gifts on their regular trips to China. The appellant’s staff would personally take the items to the airport (shortly before the flight departure) where they were inspected by a CBSA officer who would stamp a completed E15 form (a Canadian customs form evidencing exportation of the listed items) and then essentially ensure or monitor that the items were not handed over to the customer until shortly before boarding.

After finding that the sales were not zero-rated, Lyons J went on to find that the supplies of the items (the “Jewellery”) were made in Canada as they were delivered in Canada. After quoting with approval the position in Memorandum 3.3 as to the meaning of "delivery" and "made available" (signifying constructive delivery) and quoting with approval the statement in Marshall and Van Allen v Crown Assets Disposal Corporation, [1956] OR 930 (Ont CA) that “Delivery is accomplished by the purchaser obtaining the actual physical possession of the goods or, if certain conditions are present, there may be a symbolical delivery which divests the seller's possession,” she stated (at paras. 99, 104):

… [T]he focus in section 142 is on “delivered”. Generally, that equates to delivery of a full voluntary transfer of possession of the property to the buyer immediately upon physical possession by the buyer without restriction. …

Clearly, Customers were given full possession of the Jewellery at the time these were hand delivered, before or after airport security. Full possession enabled Customers to derive the full benefit of the Jewellery immediately upon physical delivery of the Jewellery. The appellant had done everything that needed to be done to enable the Customers to use the Jewellery and derive the benefits without any restrictions on use or possession. Customers then also assumed risks inherent in the Jewellery; for example, if Jewellery was lost the risk was the Customers’.

Words and Phrases
delivery
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Schedules - Schedule VI - Part V - Section 12 - Paragraph 12(a) items were not “shipped” to China under a “contract of carriage” when they were handed directly to the customer on boarding the aircraft 180

See Also

Jayco, Inc. v. The Queen, 2018 TCC 34

under the UCC goods were delivered by a U.S. manufacturer outside Canada/”symbolical” delivery can occur under a bill of lading

The appellant (Jayco – which was registered for GST/HST purposes) would arrange for a wholly-owned freight transportation company (“JET”) to deliver recreational vehicles, that Jayco had manufactured at its facility in Indiana, to Canadian dealers, with those dealers being the importers of record. The freight transportation service was included on the Jayco invoice to a Canadian dealer and was based on an approximate estimate of the transportation cost. Jayco also sold parts to the Canadian dealers, as to which it retained a customs broker and logistics firm (“Frontier”) to consolidated the parts’ orders into one master load and used a freight transportation company to transport the load to Frontier’s facility in Winnipeg under one bill of lading for the entire shipment. Frontier then contracted with third party carriers to deliver the parts to the Canadian dealers.

After noting (at para. 91) that under the Uniform Commercial Code, “absent an agreement between the seller and the buyer, delivery occurs at the seller’s place of business,” D’Auray J went on to conclude that although “None of the above documents contain any explicit mention as to where the delivery of the RV would take place” (para. 102), “there was an agreement between Jayco and the Canadian dealers that the delivery of the RVs would take place at the business premises of Jayco in the USA at the time the RVs were turned over to the common carrier” (para. 97) – so that the place of supply of the RVs was outside Canada under ETA s. 142(2)(a). Indicative factors in this regard included:

  • Under the manufacturer’s financing agreements with inventory financing companies, Jayco had the right to be paid at the point of shipment (para. 104).
  • “Once the RV was turned over to JET, JET became the agent of the Canadian dealer and became responsible for any damages occurring to the RV while in its possession pursuant to the provisions of the US Transportation Code dealing with the Bill of Lading” (para. 105). In this regard, D’Auray J referenced (at para. 108) the statement in Marshall v Crown Assets Disposal Corp., [1956] O.J. No. 572, that:

… [I]f certain conditions are present, there may be a symbolical delivery which divests the seller’s possession … . The transfer to the buyer of a bill of lading, as representing the goods, forms a good delivery in performance of the contract.

  • [T]he certificate of origin was always issued and dated on or before the RV was turned over to the common carrier for shipment to the dealer (para. 107).
  • A statement in the Dealership Sale Service Agreements that neither party was “the agent … of the other for any reason” had “to be interpreted in its context” (para. 116) and, in fact, Jayco acted on the dealers’ behalf in arranging delivery.

However, the parts were delivered to Canadian dealers by Frontier as Jayco’s agent given an express statement “that Frontier would act as an agent of Jayco” (para. 128), and the fact that “Frontier would consolidate all material bound for Canada … under one Bill of Lading” indicated “that the bill of lading could not serve as a title and delivery document for individual parts orders going to different dealers,” nor “could the consolidated bill of lading be used to illustrate a ‘symbolical delivery’ of the parts” (para. 130). Thus, “the parts were delivered or made available in Canada,” so that Jayco was required to collect HST on their sale.

Words and Phrases
delivery
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 306.1 - Subsection 306.1(1) - Paragraph 306.1(1)(a) issue of multiple supplies not raised in Notice of Objection (or Notice of Appeal) 144
Tax Topics - General Concepts - Agency statement in agreement that taxpayer was not an agent was not followed in practice 140

Erris Promotions Ltd. v. Commissioner of Inland Revenue (2003), 6 ITLR 364 (NZ HC)

While the medium which carries software may be tangible property, the actual software itself is not. Because software is not tangible property, it did not qualify as depreciable property under the Tax Administration Act 1994 (New Zealand).

Words and Phrases
tangible property

ADV Ltd. v. Canada, [1997] G.S.T.C. 60 (TCC) (Informal Procedure), briefly aff'd [1998] G.S.T.C. 64 (FCA)

delivery to US courier in US did not constitute delivery in US as courier mailed the goods in Canada

The two appellants, who were U.S.-resident GST registrants, sold goods under mail orders which had been solicited in Canada through bulk mail and Canadian-magazine advertising. The Canadian customers sent their orders to a Windsor address. The appellants delivered the goods to an unconnected U.S. cartage company (“Hunt”), which delivered them in Detroit to a U.S. courier (PDQ”), which cleared the packages through Canadian Customs at Windsor and then mailed them at a Windsor Canada Post facility for delivery to the customers. The appellants were assessed for uncollected GST on the sales.

The appellants relied on s. 31(1) of the Sale of Goods Act (Ontario), which provided:

Where in pursuance of a contract of sale the seller is authorized or required to send the goods to the buyer, the delivery of the goods to a carrier whether named by the buyer or not, for the purpose of transmission to the buyer, is, in the absence of evidence to the contrary, delivery of the goods to the buyer.

Bowie J found (at p. 60-5):

[I]t is clear that the carrier referred to in subsec. (1) is the agent of the buyer, even though it may be selected and instructed by the seller. It cannot be said…that either Hunt or PDQ is the agent of the buyer for delivery to the buyer. Each of these companies has a specific mandate…to effect a delivery, but not to the buyer.

In concluding that GST was exigible in light of s. 142(1)(a), he stated (at p. 60-7):

Delivery of the goods…is at the time of delivery of the parcels to Canada Post, and therefore takes place in Windsor, Ontario.

Administrative Policy

13 June 2011 Headquarters Letter Case No. 133042

Incoterm delivery terms

In finding that a supply of goods shipped by a non-resident supplier to a GST/HST registrant at an address in a participating province was a supply made in Canada and in that province , CRA stated:

...the phrase "delivered or made available" has the same meaning as that assigned to the concept of "delivery" under the general law of the sale of goods. It is not based on the place where title to the goods transfers....If an Incoterm is used...the place where legal delivery of the goods occurs can be determined by reference to the place where delivery is considered to occur under that Incoterm.

16 February 2005 Ruling Case No. 46992

goods made available to recipient when provided to courier for shipment to recipient's customers

A non-registrant who designed book covers and arranged for books, with the designed covers, to be printed by a printer and shipped directly to U.S. clients, was found to have the books made available to him or her when the books were delivered to a carrier for the purpose of transmission to the clients. Accordingly, the supply of such books by the printer to the non-registrant (who was the recipient) occurred in Canada and, therefore, would be subject to GST except to the extent that the zero-rating requirements were satisfied. CRA stated:

Generally, the place where the tangible personal property is delivered or made available can be determined by reference to the terms of the contract. However, in the absence of such terms, the place where the tangible personal property is delivered or made available may be determined by reference to the place where the tangible personal property is considered to have been delivered under the law of the sale of goods applicable in that case. For example, in the absence of evidence to the contrary, where the Printer is authorized or required to send the books to your client, delivery of the books to a carrier for the purpose of transmission to your client would constitute delivery to you whether the carrier is named by you or not.

GST/HST Memorandum 3.3 "Place of Supply" April 2000

Meaning of the phrase "delivered or made available"..

7. For purposes of paragraphs 142(1)(a) and 142(2)(a) which deem supplies of tangible personal property by way of sale to be made in Canada or outside Canada, the phrase "delivered or made available" has the same meaning as that assigned to the concept of "delivery" under the law of the sale of goods, as follows:

  • "Delivered" refers to those situations where delivery of the tangible personal property under the applicable law of the sale of goods is effected by actual delivery.
  • "Made available" refers to those situations where delivery of the tangible personal property under the applicable law of the sale of goods is effected by constructive delivery (i.e., actual physical possession of the tangible personal property is not transferred to the recipient of the supply yet is recognized as having been intended by the parties and as sufficient in law). For example, situations arise where a person sells tangible personal property to another person and agrees to hold the property as bailee for the buyer.
The Sale of Goods Act and the Civil Code

10. In common law provinces, the law of the sale of goods is primarily contained in the appropriate Sale of Goods Act. ...

Contract governed by the Convention

11. In those cases where the contract between the parties is governed by the United Nations Convention on Contracts for the International Sale of Goods (Convention), the place where the tangible personal property is delivered or made available will have to be determined in accordance with the rules relating to delivery contained in the Convention rather than in accordance with the domestic law of any province.

Articles

Brent F. Murray, "Incoterms 2010 Rules and Place of Delivery", Canadian GST Monitor, No. 274, July 2011, p.1.

Common law meaning of delivery

Under common law, delivery occurs when and where the goods are placed under the dominion and control of the person receiving the goods. ...[I]n the absence of evidence to the contrary, delivering goods to a carrier for purposes of shipping the goods to the buyer will constitute delivery to the buyer, since the carrier is presumed to be the bailee or agent of the buyer, irrespective of who contracts with the carrier.

List of Incoterms

[T]here are 11 specific Incoterms rules, as follows:

  • Group E: EXW (Ex Works).
  • Group F: FCA (Free Carrier), FAS (Free Alongside Ship), FOB (Free on Board).
  • Group C: CFR (Cost and Freight), CIF (Cost, Insurance and Freight), CPT (Carriage paid To), CIP (Carriage and Insurance Paid To).
  • Group D: DAT (delivered at terminal), DAP (delivered at place) and DDP (delivered duty paid).
C Incoterms

The C-terms may present some difficulties, since only the point of destination is mentioned after the respective term: for example, in contract of sale concluded between a buyer in New York and a seller in London, only New York is likely to be mentioned after the C-term, with nothing usually being said about shipment from London. Obviously, this can give rise to the false impression that the goods are to be delivered in New York and that the seller has not fulfilled his obligation until they have in fact been delivered there.

Incoterms not necessarily binding on CRA

As indicated by the CRA in GST Ruling No. 103662, dated November 26, 2008, the use of a particular Incoterms rule will generally dictate the location where delivery occurs:

When an Incoterm has been used in an agreement/purchase order/contract (not necessarily contained within a specific "delivery" clause) in accordance with its intended circumstances (such as set out under Incoterms 2000), that Incoterm will generally, subject to any evidence to the contrary, be used to dictate where the TPP is delivered or made available for the purposes of section 142 of the Act.

However, in the event that the Incoterms rule referenced in the contractual documents does not correspond with the parties' intentions, then the parties may be placing undue reliance on a particular Incoterms rule to determine such things as the place of supply and which party is responsible for paying import duties. In this situation, as explained in Question No. 18 from the February 24, 2000 GST Roundtable Meeting with the Canadian Bar Association (Sales & Commodity Tax Section), the CRA may determine that the place of delivery occurs in a different place, as follows:

In the scenario described above, the terms are that delivery is FOB the non-resident's place of business. The term F.O.B. a designated point generally means that the buyer is responsible for the shipment of the goods from that point onward. While the seller may arrange for the carriage of goods, it is the buyer that settles the carrier's account in such cases. Delivery to a carrier is considered to be delivery to the buyer in such a case, if the seller in fact gives possession of the goods to the buyer through the buyer's intermediary (the carrier). Consequently, where the contract calls for delivery on an F.O.B. basis and this is in fact what occurs, the place of delivery will be the place specified in the contract.

In the example at hand, while the terms are F.O.B. the non-resident's place of business, the non-resident not only arranges for the shipping, but also pays to have the goods shipped to the recipient in Canada, indicating that actual delivery is in Canada. [emphasis added]

Incoterms 2000
Term Delivery meaning
EXW (Ex Works) The seller delivers when he places the goods at the disposal of the buyer at the seller's premises or another named place (i.e. works, factory, warehouse, etc.) not cleared for export and not loaded on any collecting vehicle.
FCA (Free Carrier) The seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the named place.
FAS (Free Alongside Ship) The seller delivers when the goods are placed alongside the vessel at the named port of shipment.
FOB (Free On Board) The seller delivers when the goods pass the ship's rail at the named port of shipment.
CFR (Cost and Freight) The seller delivers when the goods pass the ship's rail in the port of shipment.
CIF (Cost Insurance and Freight) The seller delivers when the goods pass the ship's rail in the port of shipment.
CPT (Carriage Paid To) The seller delivers the goods to the carrier nominated by him but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination.
CIP (Carriage and Insurance Paid To) The seller delivers the goods to the carrier nominated by him, but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination.
DAF (Delivered At Frontier) The seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport not unloaded, cleared for export, but not cleared for import at the named point and place at the frontier, but before the customs border of the adjoining country.
DES (Delivered Ex Ship) The seller delivers when the goods are placed at the disposal of the buyer on board the ship not cleared for import at the named port of destination.
DEQ (Delivered Ex Quay) The seller delivers when the goods are placed at the disposal of the buyer not cleared for import on the quay (wharf) at the named port of destination.
DDU (Delivered Duty Unpaid) The seller delivers the goods to the buyer, not cleared for import, and not unloaded from any arriving means of transport at the named place of destination.
DDP (Delivered Duty Paid) The seller delivers the goods to the buyer, cleared for import, and not unloaded from any arriving means of transport at the named place of destination.

James J. White, Robert S. Summers, Uniform Commercial Code, 4th ed., Vol. 1 (West Publishing Co., 1995)

Place of Delivery under §2-308 and §2-504 of the UCC (pp. 128-129)

The contract of the parties may be wholly silent on the place for delivery. Section 2-308 generally fills this gap with the seller's place of business as the place for delivery. Often, however, the gap will only be partial. In an important class of cases, the contract will either require or authorize the seller to ship the goods, but will not require the seller to deliver them at a particular destination. The most common of these are contracts that include the symbols "F.O.B. seller's plant" or "F.O.B. seller's city." The place of delivery in such contracts (and those that include equivalent language) is the place where the facilities of seller's carrier are located, for the seller must "put the goods into the possession of the carrier." In the jargon of commercial lawyers, a contract that requires or authorizes the seller to send the goods to the buyer but does not require that the seller deliver them at any particular destination is called a "shipment contract." Generally, in shipment contracts, risk of loss passes to the buyer at the point of shipment, which is also the point of "delivery," while in "destination contracts" (seller must deliver at a particular destination) risk passes upon seller's tender at destination. From the agreement of the parties and surrounding circumstances it will usually be possible to tell (1) whether the seller is authorized to send the goods (the fact the parties are at a distance will usually be enough) and (2) whether the contract is of the shipment or the destination variety. Where the contract is silent, Code comments state a presumption that the parties intended a shipment contract. The case law is not enlightening on what it takes to overcome this presumption. The place of delivery in a contract that includes symbols such as "F.O.B. buyer's plant" or equivalent language is, of course, the named destination point.

Paragraph 142(1)(b)

Administrative Policy

GST/HST Memorandum 3.3 "Place of Supply" April 2000

Terms of the agreement

16. The place where possession or use of the tangible personal property is given or made available can be determined based on the location of the property at the time the supply is made (i.e., at the time the agreement is entered into). Generally, the location can be determined by reference to the terms of the agreement (e.g., lease or rental agreement). In those instances where there is no agreement or the terms of the agreement are not conclusive, it is necessary to look to the actions of the parties.

Lease etc. of property ss 136.1(1)

17. Where property is supplied by way of lease, licence or similar arrangement, and consideration is paid on a periodic basis (lease interval), a separate supply is deemed to occur in respect of each lease interval. The CCRA's position is that, for purposes of paragraphs 142(1)(b) and 142(2)(b), possession or use of the tangible personal property is given or made available only once under the lease agreement. This point in time is at the beginning of the lease.

19. The ... test of whether a supply of property by way of lease, licence or similar arrangement is made in or outside Canada continues to be a once-and-for-all test that is irrespective of the separate-supply rule [in s. 136.1(1)]. In the case of tangible personal property, the determination would generally be based on where legal delivery of the property was made to the recipient under the terms of the arrangement ... . This determination would govern whether all the deemed supplies made under the arrangement was considered to be made in or outside Canada, irrespective of whether the property was situated in Canada during some lease intervals and outside Canada during others.

Paragraph 142(1)(c)

Administrative Policy

4 February 2012 Ruling Case No. 99181

use of know-how in Canada not contractually prohibited

A resident supplier agrees to supply an unregistered non-resident recipient with the non-exclusive use rights to information belonging to the supplier for an up front payment as well as and contingent payments for a number of the succeeding years.

As the Agreement contains no terms or conditions with respect to the location of the use of the rights, the supply is deemed by s. 142(1)(c) to be made in Canada. However, it is zero-rated under Sched. VI, Pt. V, s. 10.1.

18 May 2011 Headquarters Letter Case No. 123947

points to use resort units could be IPP or real property rights

A resort developer supplies memberships that entitle a member to use certain real property at one or more resort locations located in Canada and outside Canada, namely, the right to use a villa or condominium at one of the resorts. The resort developer also may supply a number of points to be redeemed each year for the use of a unit.

CRA declined to comment on whether the supply of memberships or points was a supply of intangible personal property or real property in the absence of being provided with the relevant agreements other than to say that if the supply of points gave the recipient only the right to use real property, the supply would be considered as a supply of real property for GST/HST purposes.

15 October 2004 Ruling RITS 52698

situs of supply where resort points seized

In connection with rulings on the consequences of the seizure by creditors and resale by them of resort points, the Directorate noted that the portion of sold resort points that was considered to be supplied in Canada was determined by prorating the consideration payable by a recipient of resort points based on the extent to which the resort points represented a right to use real property situated in Canada. The parties made this determination by calculating, at the time of sale, the ratio of Canadian points (namely, resort points issued by the Club in respect of real property in Canada) available for sale, to the total number of World points available for sale.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 183 - Subsection 183(7) 14

15 October 2004 Headquarter Letter RITS 52554

prorating resort points between Canada and U.S.

Where there is a supply of resort points (a form of intangible personal property) relating to real property situated in and outside Canada, it is the position of CRA that GST will apply (including on a sale by a U.S. or other non-resident entity) only to the extent that the intangible personal property relates to real property in Canada at the time consideration for the intangible personal property becomes due. In determining what is a reasonable allocation:

"One method that is fair and reasonable is to determine the total resort points remaining available for sale by X and the U.S. entities (as issued by the Club) in respect of property situated in Canada (Canadian points) and the total resort points that were issued by the Club remaining available for sale by X and the U.S. entities in respect of all properties throughout the world (World points) at the time points are sold."

19 December 2003 Headquarters Letter Case No. 45870

Charges for electrical capacity, if regarded as consideration for a supply separate from a supply of electricity, would represent consideration for intangible personal property (rather than tangible personal property as would be the case for a supply of electricity) and, therefore, would not be eligible for zero-rating, and would be governed by s. 142(1)(c) rather than (a).

30 March 2001 T.I. 13555

The supply to Canadian clients by a non-resident registrant of the right to access and use existing information or data stored in a website would generally be considered to be a supply of IPP that may be used in whole or in part in Canada, with the result that the supply would be made in Canada.

Subparagraph 142(1)(c)(ii)

Administrative Policy

23 March 2017 CBA Commodity Taxes Roundtable, Q.22

supply of IPP in Canada if it relates to tangible personal property situate both inside and outside Canada

A supplier makes a supply to a non-registered non-resident recipient of intangible personal property (IPP) that may not be used in Canada and that relates both to tangible personal property (TPP) ordinarily situated in Canada and TPP ordinarily situated outside Canada? Where is the supply? CRA responded:

If it is determined based on a complete set of facts that the supply being made by a registrant is a supply of IPP that relates to TPP and that the TPP is ordinarily situated in Canada, the supply would be deemed to be made in Canada for GST/HST purposes pursuant to subparagraph 142(1)(c)(ii) of the ETA. This would not change if the supply of the IPP relates to TPP that is ordinarily situated in Canada and TPP that is ordinarily situated outside Canada.

Paragraph 142(1)(d)

Cases

Club Intrawest v. Canada, 2017 FCA 151

supplies of services re cross-border vacation home portfolio split into domestic and foreign supplies

A Canadian and U.S. developer in the Intrawest group transferred individual “vacation homes (i.e., resort condos), which they had acquired in Canada, the U.S. and Mexico, to the Appellant (which was a non-share corporation resident in Canada) in consideration for the Appellant transferring occupancy rights (a.k.a., resort points) to the vacation homes to them in perpetuity. The developers then sold the resort points to members of the public in Canada and the U.S. (who also thereupon became member of the Appellant along with the developers). The resort points could be periodically applied under a booking system to obtain access to particular vacation homes at specified times.

The Appellant paid various expenses respecting the vacation home operations which it recovered through “annual resort fees” charged to its members. In finding that these fees represented consideration for a single supply of a service, which was deemed to be made in Canada under s. 142(1)(g), D’Arcy J had stated:

[P]aragraphs 142(1)(d) and 142(2)(d)…only apply if the single supply of a service relates solely to real property. The paragraphs do not apply if only a portion of the single supply of the service relates to real property. In such a situation, the supply is subject to the general deeming rules set out in paragraphs 142(1)(g) and 142(2)(g).

In rejecting this approach, Dawson JA stated (at paras 82, 83, 85):

What I take from Global Cash Access is that...regard must be had to the predominant element of a single supply. It is an error of law to apply the Act having regard to services that do not form the predominant element of a single supply… .

It follows… that the Tax Court erred in its application of subsections 142(1) and 142(2) of the Act when it broke down the single supply into its constituent elements for the purpose of determining whether each constituent element related directly and solely to real property… .

…[T]he predominant element of the supply is the use of the annual resort fee to fund the operation of the Intrawest program. Because the Intrawest program operates vacation homes in Canada, the United States and Mexico, the predominant element of the supply is in relation to real property situated both inside and outside of Canada.

In finding that there were two supplies under ss. 142(1)(d) and 142(2)(d), respectively, Dawson JA stated (at paras. 95, 97):

I see no reason in principle that precludes splitting up the supply so that the supply is treated as two supplies in order to recognize that ultimately the services are inherently distinct in one important respect: the services relating to the operation of the vacation homes located in Canada are services in relation to real property situated in Canada and hence are a taxable supply – the services relating to the operation of the Intrawest vacation homes situated outside of Canada are services related to real property situated outside of Canada and hence are a non-taxable supply.

…This approach simply recognizes the distinction between the intertwined bundle of services that constitute the Intrawest program and the reality that the bundle of services are operated on a property-by-property basis.

Dawson JA accepted the Appellant's submission that "the resort fees should be allocated based on the ratio of membership costs associated with the operation of the vacation homes in resorts situated in Canada to the total membership costs for all resorts," as contrasted to the Crown’s position that the allocation between the two geographic supplies should be made on the basis of the ratio of resort points issued in respect of Canadian versus non-Canadian vacation homes.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Agency absence of direct agreement that expenses were incurred as agent 250
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply service in relation to a cross-border vacation home portfolio split into two (GST-taxable and non-taxable) geographic components 413

See Also

Club Intrawest v. The Queen, 2016 TCC 149, varied 2017 FCA 151

s. 142(1)(d) only applies to a supply exclusively re real property

The members of the Appellant (which was a non-share Delaware corporation resident in Canada) included Canadian and U.S.-resident individuals who had been sold “Resort Points,” which could be periodically applied under a booking system to obtain access to particular resort condo units ("Vacation Homes") beneficially owned by the Appellant in Canada, the U.S. and Mexico. The Appellant paid various expenses respecting the Vacation Home operations which it recovered through “Annual Resort Fees” charged to its members. D’Arcy J found that the Annual Resort Fees were consideration for a service rather than intangible personal property, stating (paras. 237-8):

The Appellant does not provide any rights in consideration of the Annual Resort Fee. … What it supplies is the agreement to use the Annual Resort Fees to fund its operations. … This…is the supply of something other than property.

In rejecting the Appellant’s submission that it “made, in consideration of the Annual Resort Fee, separate single supplies of services in respect of each Vacation Home,” he stated (at para. 259):

It made a single supply by agreeing to use the Annual Resort Fee to fund its operations…with the consideration being based upon the Appellant’s total estimated costs. The Appellant could only continue to operate the Intrawest Program if it incurred all of the costs…; it could not cherry-pick certain costs.

Although "'in relation to'...should be given a wide scope" (para. 265), he found (at para. 265) that in order for there to be “a supply…of a service in relation to real property” under s. 142(1)(d) or 142(2)(d):

The service must be performed directly on the real property or relate directly to the real property. This would include services such as repairs to the real property, maintenance of the real property, architectural services relating to a specific building or legal services performed in respect of the sale or rental of the real property.

After noting (at para. 213) that where a service relates both to real property inside and outside Canada, ss. 142(1)(d) and 142(2)(d) “deem two mutually exclusive events to occur” i.e., that supply occurs inside and outside Canada, and (at para. 272) that “the supply of the Annual Services relates in part to real property in Canada and real property outside of Canada,” and finding (at para. 288) that “the GST Act…contemplates a single supply which is either subject to tax on the whole consideration paid for the supply or not subject to tax at all,” he found (at para. 318) that this inconsistency should be resolved on the basis that:

[P]aragraphs 142(1)(d) and 142(2)(d)…only apply if the single supply of a service relates solely to real property. The paragraphs do not apply if only a portion of the single supply of the service relates to real property. In such a situation, the supply is subject to the general deeming rules set out in paragraphs 142(1)(g) and 142(2)(g).

On this basis (paras. 321-2):

Paragraph 142(1)(g) deems the supply to be made in Canada since the Appellant performed the Annual Services partially in Canada.

Therefore the GST applied to all of the Annual Resort Fee paid by the Members... .

The CRA administrative position, which was "to allocate the Annual Resort Fee between taxable supplies made in Canada and taxable supplies made outside of Canada, basing the allocation on the ratio of total resort points issued in respect of properties located in Canada to the total resort points issued in respect of all properties" (para. 198), did not comply with the Act (para. 323). However, his judgment could not increase the tax assessed (para. 323).

Words and Phrases
in relation to
Locations of other summaries Wordcount
Tax Topics - General Concepts - Agency annual fees charged by non-share corporation to its members were not reimbursements for expenses incurred by it as their agent 371
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Service payment of condo operating expenses was a service 201
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply single supply of covering all time share operating costs 164
Tax Topics - Excise Tax Act - Section 168 - Subsection 168(1) GST collectible based on invoicing times 77
Tax Topics - Excise Tax Act - Section 306.1 - Subsection 306.1(1) objecting to quantum was sufficient particularity 169
Tax Topics - General Concepts - Ownership beneficial owner did not transfer property risk 177
Tax Topics - General Concepts - Evidence foreign law assumed the same 93

Administrative Policy

8 March 2018 CBA Commodity Tax Roundtable, Q.20

CRA accepts but will not extend the Club Intrawest case

Club Intrawest held that that although there was a single supply of services respecting real estate situated inside and outside Canada, the single supply could be split for purposes of applying the place of supply rules in s. 142, stating:

[T]he services relating to the operation of the vacation homes located in Canada are services in relation to real property situated in Canada and hence are a taxable supply—the services relating to the operation of the Intrawest vacation homes situated outside of Canada are services related to real property situated outside of Canada and hence are a non-taxable supply.

Will CRA apply the FCA’s decision to all similar situations – and can a single supply be broken down into “inherently distinct” parts for other purposes? CRA responded:

The CRA will apply the FCA’s decision regarding services relating to real property (that is, splitting up a single supply of services in relation to real property) to similar situations where a single supply of a service is made in relation to real property situated inside and outside Canada for purposes of the place of supply rules in section 142 of the ETA only.

We note that the end result of the FCA decision is generally consistent with the CRA’s position … B-103 … regarding the application of the place of supply rules in section 142 to services in relation to real property, pursuant to which only the proportion of the service that relates to the real property that is situated in Canada is considered to be made in Canada and subject to GST/HST.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply CRA not generally prepared to bifurcate supplies 73

Paragraph 142(1)(g)

See Also

Three-W Canada International Corporation v. The Queen, 2013 TCC 295 (Informal Procedure)

school recruiter serviced the Canadian schools partly in Canada

The appellant (“Three-W”), which carried on the business of recruiting foreign students abroad for private schools in Canada and the United States, was assessed for not having collected and remitted GST or HST on the services it provided to Canadian schools.

Three-W maintained an office in the London, Ontario home of its shareholder, Jason Wang’s London, Ontario home. All of the Canadian schools became clients through dealing with Mr. Jason Wang at their Canadian schools. The Canadian schools signed written agreements with Three-W to appoint it as recruitment agent for students from China and certain other countries. Three-W earned all of its income from the per student commissions paid by the schools. In finding that Three-W was required to charge GST or HST on its fees charged to the Canadian schools, Boyle J stated (at paras. 11-13):

While the taxpayer may take the position that much or even most of its revenue-generating activities takes place in China, the evidence is clear that its student recruitment services were carried on in part in Canada. This is the case even after allowing for the fact that, although issuing bills and receiving payment may be an integral part of carrying on business in Canada, it does not necessarily constitute part of the activities of performing the service sold to the Canadian schools being that of student recruitment. …

I can not accept the taxpayer’s submission that the only service which Three-W was paid to provide was that of recruiting students and it was entitled to its commissions once the students were registered regardless. …

The service is not provided wholly outside Canada for purposes of paragraph 142(1)(g).

Administrative Policy

5 February 2016 Interpretation 153241

doctor provided single supply of medical evaluation service to insurer so that all of fee taxable notwithstanding report writing outside Canada

A medical doctor residing in the U.S. who is registered for GST purposes would, at the request of insurance companies, interview and physically examine a patient in Ontario in an office usually provided by it or other interested parties and then, in the doctor’s home office, review medical documentation, and dictate and edit the report to the insurance company. Billing and other office duties also were performed in the home office. The doctor also, at the request of lawyers for victims of motor vehicle accidents, and slips and falls, would examine and interview the patient in a rented office room in Ontario, and prepare in the home office a report regarding the patient’s diagnosis, restrictions and limitations, and recommendations for treatment. Are the charges for these independent medical evaluations (IMEs) exempt from the GST/HST? Can the charges be broken down between time spent on the interview and examination in Canada and the work in the U.S. to produce the IME report?

After finding that IMEs performed after March 21, 2013 generally are taxable supplies, CRA noted:

… In the case where a patient is examined in Canada and the report is prepared outside Canada, the supply of the service is deemed to be made in Canada pursuant to paragraph 142(1)(g), as the services are performed in part in Canada. Accordingly, where the supply of the IME is made or deemed to be made in Canada and is not a qualifying health care supply, the supply is taxable for GST/HST purposes at the applicable rate.

An IME … consists of an examination of the patient, reviewing medical documentation, dictation, editing and printing a report on the findings. These essential elements are part of a single composite supply of an IME that cannot be artificially split into separate supplies. In this case, the charges to the recipient are all part of a single supply of the IME and take on the same tax status. This applies whether the charges are invoiced separately or included in a single fee for the IME.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Schedules - Schedule V - Part II - Section 5 pre-2013 medical evauations for insurers generally exempt 274
Tax Topics - Excise Tax Act - Schedules - Schedule V - Part II - Section 1 - Qualifying Health Care Supply medical evaluations for insurers now excluded 294
Tax Topics - Excise Tax Act - Regulations - New Harmonized Value-Added Tax System Regulations - Subsection 13(1) situs of medical evaluation for insurer based on its address rather than patient's 79

CBAO National Commodity Tax, Customs and Trade Section – 2014 GST/HST Questions for Revenue Canada, Q. 27

telecommunication service not within s. 142.1 is not made in Canada
available with membership password at http://www.cba.org/CBA/sections_NSCTS/main/GST_HST.aspx

S. 142.1 provides a "two out of three" rule for deeming a telecommunication service to be made in Canada - for example, in the case of a telephone call, if two of the following are in Canada: place where the call is emitted; where it is received; and the billing location. CRA considers a telecommunication service, that is not deemed to be made in Canada under this rule, to be made outside Canada, even if that service is partly performed in Canada. See summary under s. 142.1(2)(b).

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 142.1 - Paragraph 142.1(2)(b) telecommunication service not within s. 142.1 is not made in Canada 199

8 October 2004 Headquarter Letter RITS 53429

The supply of advertising space sold in the Canadian edition of a magazine would be considered to be a supply made in Canada as the magazines were circulated in part to newsstands and subscribers in Canada. However, zero-rating under section 8 or section 7 of Part V of Schedule VI potentially would be available where there was a non-resident advertiser.

31 October 2003 Interpretation Case No. 46235

A non-resident registrant ("ForCo") is engaged in the publication and sale of various magazine which are sold both by subscription and on newsstands in all provinces in Canada, with the Canadian circulation representing between 1% and 10% of the total circulation, depending on the title. "Although ForCo is not involved in the creation or design of the advertising message, its provision of advertising space in magazines is considered to be a service of communicating the message and therefore a supply of an advertising service. As these magazines are circulated in part to newsstands and subscribers in Canada, the advertising service supplied by ForCo is made in Canada."

31 October 2003 Interpretation Case No. 41478

Advertising messages provided by a non-resident appeared in a magazine that was distributed in part in Canada. Accordingly, the advertising service was considered to be performed in part in Canada with the result that it was deemed under s. 142(1)(g) to be a supply made in Canada.

Technical Information Bulletin B-090 "GST/HST and Electronic Commerce" July 2002

Although traditionally, the place of performance has referred to where the person who is performing the service is physically present, where electronic commerce allows a service to be performed remotely (e.g., by remotely accessing a customer's computer located in Canada), it also is necessary to take into account the location of the customer's property.

Subsection 142(2)

Paragraph 142(2)(a)

Administrative Policy

8 March 2018 CBA Commodity Tax Roundtable, Q.9

Incoterms did not govern the place of delivery of goods

Company B, a registered resident, agreed to sell tangible personal property (the “Property”) to Company C, an unregistered non-resident, using the Incoterms® 2010 DAP Port of Liverpool, U.K. so that delivery and title transfer was to occur at the U.K. destination – although the parties agreed that Company C was to indemnify Company B if the Property were lost or damaged in transit. The Property is then loaded onto Company C’s vessel at the Port of Halifax and was immediately exported. CRA stated:

[I]t appears, based on the fact that Company C acquires physical possession of the Property in Canada pursuant to the terms of the agreement, that paragraph 142(2)(a) of the ETA would not apply to deem the supply to be made outside Canada. Our response … would not change if it were established that Company C’s affiliate (and not Company C itself) provided the commercial indemnity in a side agreement.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Schedules - Schedule VI - Part V - Section 1 no zero-rating of sale to Cdn purchaser who provided physical delivery of goods in Canada to NR ultimate purchaser 169