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.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 13th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 175518
Dear [Client]:
Subject: GST/HST INTERPRETATION
Interpretation of section 144 of the Excise Tax Act
[Whether a supply is made outside Canada]
Thank you for your letter of February 2, 2016, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the importation and sale of goods by […], a multinational commodities trading company (“Trading Co.”).
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.
We understand that Trading Co., a non-resident corporation registered for the GST/HST, ships and sells goods to customers in Canada and around the world. Purchasers in Canada take possession of the goods in a customs office or a sufferance or bonded warehouse in Canada and must pay any applicable taxes and duties on the imported goods in order to obtain their release by the Canada Border Services Agency (“CBSA”).
On occasion, Trading Co. also sells goods to customers who are neither resident in Canada nor registered for the GST/HST and then delivers them in Canada to a third person acting on behalf of the non-resident purchaser (“consignee”).
INTERPRETATION REQUESTED
You would like to know whether the supply of goods by Trading Co. to customers in Canada, under the circumstances you have described, would be considered a supply made outside Canada by virtue of section 144.
Where Trading Co. makes a taxable supply of goods by way of sale to a non-resident person who is not registered for the GST/HST and transfers physical possession of the goods to a consignee in Canada, you would like a confirmation that the drop shipment rules in section 179 will apply to such supplies made by Trading Co. to a consignee.
INTERPRETATION GIVEN
A supply of goods that have been imported in compliance with the Customs Act or any other Act of Parliament that prohibits, controls or regulates the importation of goods, but have not been released by CBSA before the goods are delivered or made available in Canada to the recipient of the supply, shall be deemed to be made outside Canada pursuant to section 144.
One of the requirements of section 144 is that the goods be imported before the supply is made. Under section 133, the supply of the goods is deemed to be made when the agreement for the supply of the goods is entered into. Various provisions in the ETA reflect the fact that the supply is considered to be made when the agreement is entered into. The relevance of the timing of when a supply is made under section 133 to the application of section 144 is reflected in the wording of the definition of “specified supply” of goods under subsection 178.8(1). Specifically, this definition distinguishes between a supply of goods that are imported after the supply is made, and a supply of goods that have been imported in circumstances in which section 144 deems the supply to have been made outside Canada.
Therefore, in order to determine whether section 144 applies, we must establish when the goods are imported, when the supply is made, and whether the former precedes the latter. Since under section 133, the supply of the goods is deemed to be made when the agreement for the supply of the goods is entered into, we must determine when the agreement for the supply is entered into.
An “agreement” is not a defined term in the ETA and must be understood with reference to generally accepted legal principles. An agreement for a supply, which can be either in writing or verbal, is a meeting of the minds on all of the essential and material components of the supply, a common understanding or intent with respect to the relative rights and responsibilities of the parties to the agreement. For further information on this topic, please refer to GST Memorandum 300-6-4 “Agreements in writing.”
It is a mixed question of fact and law whether, in any particular set of circumstances, a legally binding agreement exists and the precise moment at which such agreement is formed between the contracting parties. In the context of a general interpretation request, the Canada Revenue Agency (“CRA”) is unable to determine whether or at what point a contract or agreement for the supply of goods is formed between Trading Co. and its customers as this would require a determination of law in the particular facts of a case. Such a determination is a fact based determination that requires consideration of all relevant facts and the particular terms of the agreements between the parties.
Section 144 may apply to the supply of goods by way of sale by Trading Co. to its Canadian customers if the goods have already been imported into Canada, but not yet released by CBSA, when Trading Co. and its customers enter into an agreement for the supply. However, based on the information provided, it is not possible to determine whether, in any particular instance, the goods have been imported at the time of supply by Trading Co. This is a determination of fact that will depend upon the timing of the supply in relation to when the goods are imported into Canada.
Unless particular deeming provisions apply, such as those in sections 143, 144 or 179, the general place of supply rules found in section 142 will determine whether a supply is deemed to be made inside or outside Canada. A supply by way of sale of goods that are delivered or made available in Canada to the recipient is generally considered to be made in Canada by virtue of subsection 142(1). These general rules are based on where legal delivery of the goods to the recipient occurs, a matter determined with reference to the terms of the agreement of sale and the applicable sale of goods legislation.
Division II tax may apply to the supply of goods by way of sale by Trading Co. because the goods are delivered or made available in Canada to the recipient and, if the recipient is the importer of record, Division III tax may also be payable by the recipient on the same goods. In this situation, if the recipient is a GST/HST registrant and uses the goods exclusively in its commercial activities, it can claim an input tax credit for both the Division II tax and the Division III tax paid (assuming documentation requirements are satisfied).
Although the drop shipment rules in section 179 may apply in the circumstances described, a definite determination requires consideration of all relevant facts and the particular terms of the agreements between the parties. Since you have not provided any agreements or supporting documentation, we are unable to provide the confirmation you have requested. For further information on the drop shipment rules, please refer to GST Memorandum 3-3-1 “Drop Shipments”.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretation(s) 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(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please do not hesitate to call me at 613-670-9892. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Anna Messore
Senior Rulings Officer
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
Email this Content