Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 244554
Business Number: [#]
Dear [Client]:
Subject: GST/HST Ruling and Interpretation
Importation of tangible personal property
Thank you for your correspondence which was received in our office on [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the importation of tangible personal property. […].
In your incoming letter, you requested that our response be in English, given the volume of correspondence between the importer and the non-resident supplier. We are pleased to provide the following in the language you requested.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
Based on the information you provided, we understand the following:
1. The […] (hereafter “the Customer”), located in […], has entered into a rental agreement (hereafter “the Agreement”) with […] (hereafter “the Company”) to rent tangible personal property, specifically a […] (hereafter “the TPP”) from the Company. The Agreement is comprised of the Rental Agreement dated [mm/dd/yyyy] and the accompanying Rental Terms and Conditions.
2. The Customer is registered for GST/HST purposes.
3. The Customer acquired the TPP to make exempt supplies.
4. The Company is a non-resident and is registered for GST/HST purposes.
5. The Customer’s purchase order, addressed to the Company, lists the following:
i) […] months rental of the TPP from [mm/dd/yyyy] to [mm/dd/yyyy] at a cost of $[…] per month, plus GST and provincial sales tax;
ii) […] days rental of the TPP from [mm/dd/yyyy] to [mm/dd/yyyy] at a cost of $[…] per day, plus GST and provincial sales tax;
iii) shipping and handling of the TPP in the amount of $[…], plus GST and provincial sales tax; and
iv) delivery terms of FOB destination.
6. The Rental Agreement provides, in part, the following:
i) the Company agrees to rent the TPP to the Customer at the following “ship to” address, referred to as “the Site” in the Agreement:
[…][Third party address]
ii) the Agreement will commence on or about [mm/dd/yyyy] and end on or about [mm/dd/yyyy];
iii) rental charges are $[…] per month, plus any applicable sales taxes; and
iv) a delivery fee of $[…] is charged.
7. The Rental Terms and Conditions provide, in part, the following: […]
8. The TPP was imported into Canada on [mm/dd/yyyy], pursuant to Canada Customs Coding Form B3 (“Form B3”), which provides the following information:
i) the Customer’s name and address has been entered in the box titled, “Importer name and address”;
ii) the Company’s name and address has been entered in the box titled, “Vendor name”;
iii) an amount of $[…] has been entered in the box titled, “Value for tax”; and
iv) an amount of $[…] has been entered in the box titled “GST”.
9. The Customer paid GST in the amount of $[…] on the importation of the TPP.
10. The Company delivered the TPP to the Customer’s Site on [mm/dd/yyyy].
11. The Company charged the GST on the consideration for the supply of the leased TPP to the Customer.
12. The TPP was shipped back to the Company on [mm/dd/yyyy].
13. The Customer filed an application with the Canada Revenue Agency (“CRA”) for a rebate of 83% of the $[…] GST paid on importation of the TPP.
RULINGS REQUESTED
You would like to know the following:
1. Can the Customer obtain a refund of the GST paid in connection with the importation of the TPP into […] (amount of $[…]) as tax paid in error?
2. If the Customer cannot obtain a refund of tax paid in error, could the Customer transfer 100% of the GST paid ($[…]) to the Company through a mandate/mandator letter considering the lease entered into between the parties?
As noted in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, a ruling provides the Canada Revenue Agency's (CRA's) position on specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person. The CRA reserves the right to not issue a ruling where it would be inappropriate to do so, as in the case of the second ruling request. However, we are able to provide an interpretation in respect of the use of a mandate/mandator letter.
RULING GIVEN
Based on the facts set out above, we rule that the Customer cannot claim a rebate for GST paid in error in connection with the importation of the TPP into […].
EXPLANATION
Generally, all goods imported into Canada are subject to GST/HST under Division III of the ETA. Pursuant to section 212, every person who is liable under the Customs Act to pay customs duty on imported goods, or who would be liable if the goods were subject to such duty, is required to pay 5% GST on the value for duty of the goods. Imported goods may be relieved of GST/HST pursuant to section 213 and Schedule VII to the ETA. As there are no relieving provisions in Schedule VII that apply to the importation of the particular TPP ([…]) for supply by way of lease, the 5% GST on the value for duty of the TPP was payable upon importation.
Based on Form B3, the Customer was named as the importer of record (as required under clause […] of the Agreement) and was therefore responsible under section 12 of the Customs Act for reporting the TPP upon its importation. Additionally, pursuant to subsection 18(2) of the Customs Act, any person who reports goods under section 12 is liable for any customs duties levied on the goods. As a result, the Customer would have been liable for any duties levied on the TPP under the Customs Act and consequently, the Customer was required to pay 5% GST on the value of the TPP under section 212.
Section 261 provides for a rebate of payment made in error where a person pays an amount as or on account of, or that was taken into account as tax, net tax, penalty or interest, and the amount was not payable or remittable by the person. However, because the Customer was required, as the importer of record, to pay 5% GST on the value for duty of the TPP, the Customer cannot claim a rebate under section 261 for tax paid in error.
INTERPRETATION GIVEN
You have asked if the Customer, instead of applying for a rebate of tax paid in error, could transfer to the Company the GST paid under Division III on the importation of the TPP through a mandate/mandator letter. As explained in GST/HST Memorandum 1.4, the CRA will not issue a ruling where a request is for a determination of fact, and the circumstances are such that all of the pertinent facts cannot be established; however, we can provide the following guidance.
“Mandate” corresponds to the common law concept of agency, which is a type of relationship where one person (the principal) authorizes another person (the agent) to represent it and take certain actions on its behalf; whether such a relationship exists is based on a determination of fact and an application of legal principles. In accordance with GST/HST Policy Statement P-182R, Agency, there are three essential qualities that help in determining whether a person is acting as agent in making a transaction on behalf of another person. The three essential qualities are: consent of both the principal and the agent; authority of the agent to affect the principal's legal position; and the principal's control of the agent's actions.
As a result, in order for the Company and the Customer to use a mandate/mandator letter to establish that the Division III GST/HST was paid by the Customer on behalf of the Company it would need to be established that there was a mandate, or agency relationship, in place between the parties in respect of the importation of the TPP.
Section 169 sets out the general rules regarding the entitlement of a person to an ITC in respect of GST/HST paid or payable on the acquisition and importation of property or services.
Generally, a registrant is entitled to an ITC with respect to tax on the importation of goods that is paid or payable by the registrant, if the registrant imports the goods for consumption, use or supply in the course of its commercial activities. However, the person considered to have imported goods for consumption, use or supply in the course of its activities is not necessarily the person who imports the goods and is the importer of record. It is only the de facto importer who may be considered to have imported goods for consumption, use or supply in the course of its commercial activities and, subject to special rules under section 178.8, the only person who may claim an ITC in respect of the Division III GST/HST.
As explained in GST/HST Policy Statement P-125R: Input Tax Credit Entitlement for Tax on Imported Goods, a de facto importer who imports goods for consumption, use or supply in the course of its commercial activities will generally be either a recipient of a supply of goods made outside Canada, or a supplier where it supplies imported goods in Canada.
If a person other than a de facto importer imports goods and acts as the importer of record, it is only the de facto importer who may be considered to have imported the goods for consumption, use or supply in the course of its activities. As a result, the de facto importer will be considered to have paid the Division III GST/HST if evidence is maintained that the importer of record paid that tax on behalf of the de facto importer. The de facto importer will then be required to obtain a copy of the import documentation from the importer of record to satisfy the documentary requirements under subsection 169(4) for claiming an ITC in respect of the Division III GST/HST that was paid or payable.
Based on the information provided, the Company could be the de facto importer if it supplied the TPP in Canada to the Customer, despite the Customer being the importer of record and paying the Division III GST/HST. If the Company retains evidence that the tax was paid by the Customer on the Company’s behalf, the Company would then be able to claim an ITC if it meets the documentary requirements under subsection 169(4).
DISCLAIMER
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the CRA is bound by the ruling given in this letter provided that: none of the issues discussed in the ruling are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation or additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-298-1678. Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287 or by fax to 1-418-566-0319.
Sincerely,
Gabrielle Nadeau
Industry Sector Specialist
Border Issues
General Operations and Border Issues Division
GST/HST Rulings Directorate
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