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, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 142049
Business Number: […]
January 12, 2018
Dear [Client]:
Subject: GST/HST INTERPRETATION
Sale of books online
Thank you for your […][correspondence], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to shipping charges for the sale of books online. We apologize for the delay in this response.
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 the following from the information provided in your faxes, our telephone conversations, and the […] [(agreement)]:
1. For GST/HST purposes, the […] (Board) is a determined municipality […]. It is a registered charity under the Income Tax Act and a public institution for GST/HST purposes. It is resident in […][Province X].
2. The Board is not registered for GST/HST purposes, and it is unclear whether it is required to be registered. The Board files the public service bodies’ (PSB) rebate for municipalities.
3. The Board sells […] books through the websites of […] (OnlineCo), an online bookseller. OnlineCo facilitates transactions between the Board and the Board’s customers. It does not take title to the books and is not a party to the transactions.
4. Customers place orders for the Board’s books through OnlineCo using a step-by-step facilitated purchase process that sends customers’ order and payment details to the Board and the customers. The Board determines the selling price of the books and shipping fees to be billed to the customer, which are separately identified on the invoice. The Board does not collect or remit the GST/HST on the sale of books through the websites.
5. When a customer places an order through the OnlineCo website, the Board ships the books to the customer by mail through Canada Post. The books may be sent to customers at an address inside or outside of Canada. The Board is responsible for the condition of the book when it is delivered to the customer. The Board pays Canada Post for the shipping fees, plus GST/HST where applicable, and the Board claims a PSB rebate for municipalities for the GST/HST paid on the shipping fees.
6. The amount set by the Board for the shipping fees is equal to the total amount, including the GST/HST, paid by the Board to Canada Post.
7. OnlineCo processes orders for the books and accepts payments by credit card, PayPal, or other methods. OnlineCo charges the Board a payment service fee for transactions processed through the OnlineCo payment service […] plus HST.
8. OnlineCo also charges a commission of […]% on the book sale amount, consisting of the list price of the book plus shipping and any extra charges, plus HST, […].
9. OnlineCo remits payments for orders of the Board’s books by electronic funds transfer on a weekly basis. The payment includes the Board’s list price for the book plus shipping charges less any commissions and payment service fees.
10. […].
RULING REQUESTED
You would like to know if the Board is required to charge the GST/HST on the sale of books through the OnlineCo website. You would also like to know if the Board is entitled to claim the PSB rebate for the GST/HST paid to Canada Post on the shipping charges even though the Board recovers this amount from its customers by including it in the shipping charges billed to its customers.
RULING GIVEN
Based on the facts set out above, we rule that:
1. The sale of books by the Board through the OnlineCo websites is taxable for GST/HST purposes.
Where the Board sends the books to an address in Canada, the GST/HST would apply to both to the selling price of the books and the related shipping charges (the related shipping charges would be considered to be part of the amount payable for the books). However, the Board would only be required to collect and remit the GST/HST on the sales if it is registered or required to be registered for the GST/HST.
Where the Board sends the books to an address outside of Canada, the sales would be zero-rated (i.e., taxable at a rate of zero-percent). Therefore, the Board would not be required to collect and remit the GST/HST on the sales even if it is registered or required to be registered for the GST/HST.
2. If the Board is not registered or required to be registered for the GST/HST, then it is eligible to claim a PSB rebate for municipalities for the GST/HST paid on shipping charges related to its sales of books provided all of the criteria for claiming the rebate are met. The Board’s eligibility to claim the rebate would not be affected if it recovers the GST/HST paid on the shipping charges from its customers by including the GST/HST in the shipping charges to the customer.
If the Board is registered or required to be registered for the GST/HST, then it would be eligible to claim input tax credits (ITCs) for the GST/HST paid on the shipping charges provided all of the criteria for claiming the ITCs are met. The Board’s eligibility to claim ITCs would not be affected if it recovers the GST/HST paid on the shipping charges by including the GST/HST in the shipping charges to the customer.
EXPLANATION
Ruling 1
A sale of personal property (e.g., books), made by a municipality is deemed to be made in the course of its commercial activities, unless the sale is specifically exempt. As a result, most sales of personal property of municipalities are taxable supplies for GST/HST purposes. There are no exempting provisions that apply to the sale of the books by the Board, so the sales are taxable supplies.
Where the Board charges an amount for the sale of books and a separate amount for shipping them, it is necessary to determine whether the Board is making both a supply of books and a supply of a freight transportation service, or whether it is only making a single supply of books, and the shipping charge is part of the amount payable for that supply.
In this case, it is our position that the Board is making a single supply of books. Under the agreement terms for the supply of the books, the Board is required to transport books to its customers and remains responsible for the books until they are delivered to the customers. Accordingly, the shipping of the books is considered to form part of the supply of the books and the same rate of GST/HST applies to both the amount payable for the books and the related shipping charge.
Where the Board sends books by mail or courier to an address in Canada, the rate of tax may vary depending on the province to which the books are sent. If the books are sent to an address in a non-participating province, the GST will apply at a rate of 5%. If the books are sent to an address in a participating province, the HST will apply at the rate applicable in that province. However, provided the Board is not registered or required to be registered for GST/HST purposes, it will not be required to collect the GST/HST on the sale of the books. (Footnote 1)
Where the books are sent by mail or courier to an address outside Canada, the supply of the books would be zero-rated (i.e., subject to tax at a rate of 0%), and therefore the Board would not be required to collect and remit the GST/HST in respect of these supplies, even if it is registered or required to be registered for the GST/HST.
Ruling 2
If the Board is not registered or required to be registered for the GST/HST, then, as a determined municipality, it would be eligible to claim a PSB rebate for municipalities for the GST/HST paid on shipping charges to Canada Post relating to its sales of books, provided all of the criteria for claiming the rebate are met. […][Description of the PSB rebate rate for municipalities resident in Province X].
The fact that the shipping charges invoiced to a customer by the Board is equal to the shipping charges, including the GST/HST, paid by the Board to Canada Post would not preclude the Board from claiming the PSB rebate for the GST/HST paid on the shipping charges to Canada Post. The amount or amounts to be paid for a supply of goods or services is a matter to be determined between the parties involved in the transaction. The Canada Revenue Agency (CRA) does not have the authority to instruct a supplier on how to determine the amount charged in respect of the supply.
Generally, if the Board were to register for the GST/HST, or if it is required to be so registered, it would continue to be eligible to claim the PSB rebate for municipalities, but only to the extent that it cannot claim ITCs. It would generally be ineligible to claim the PSB rebate for the GST/HST paid on the shipping charges relating to the sale of the books, as it could claim ITCs for these amounts, provided all of the criteria for claiming the ITCs are met.
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(s) given in this letter provided that: none of the issues discussed in the ruling(s) 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.
INTERPRETATION GIVEN
In our telephone conversation, you stated that the Board’s other sources of revenue are through fundraising activities and provincial and municipal funding. […], it is your understanding that fund-raising activities are exempt supplies and, accordingly, the Board is a small supplier and not required to register for GST/HST purposes.
Supplies are not exempt solely on the basis that the purpose of the activity is fund-raising. A specific exempting provision must apply in order for the supply to be exempt. To assist you in determining whether the Board is required to register for GST/HST, we provide the following information on the relevant exempting provisions that may apply to the Board’s supplies of property and services and the application of the GST/HST to donations and government funding.
Exempt supplies
Section 3 of Part VI of Schedule V exempts a supply made by a public institution of an admission to a fund-raising dinner, ball, concert, show, or similar fund-raising event where the public institution is permitted to issue a donation receipt for income tax purposes for part of the admission price or could issue a donation receipt if the recipient of the supply were an individual. This exemption does not require a public institution to issue a donation receipt.
Under section 3.1 of Part VI of Schedule V, supplies of personal property or services by a public institution in the course of a fundraising activity are exempt if the supplies are not made on a regular or continuous basis throughout the year or a significant part of the year, the agreement for the supplies does not entitle the recipients to receive property or services throughout the year or a significant part of the year, and the supply is not an admission in respect of a place of amusement where the principal activity is betting or games of chance.
Section 4 of Part VI of Schedule V exempts supplies of goods (except alcoholic beverages and tobacco products) made by public sector body when all the following conditions are met:
• the body is not in the business of selling those goods;
• all the salespersons are volunteers;
• the sale price of each item is $5 or less; and
• the goods are not sold at an event where similar goods are sold by persons in the business of selling such goods.
Section 5 of Part VI of Schedule V exempts a supply made by a public sector body of an admission to a place of amusement if the principal activity is the placing of bets or the playing of games of chance where the administrative and other functions are performed exclusively by volunteers and, in the case of a bingo or casino, the place is not used primarily for the purposes of conducting gambling activities.
Section 5.1 of Part VI of Schedule V exempts, in part, supplies by a public institution of a right, other than an admission, to play or participate in a game of chance. Subsection 123(1) defines the term “game of chance” to be a lottery or other scheme under which prizes or winnings are awarded by way of chance or by way of a mixture of chance and other factors where the result depends more on chance than on the other factors. Bingos, raffles, and 50/50 draws are some examples of games of chance. This means that where sales of bingo cards, raffle tickets, or 50/50 tickets are made by a public institution, the sales are exempt pursuant to section 5.1 of Part VI of Schedule V.
Section 9 of Part VI of Schedule V exempts a supply made by a public sector body of an admission in respect of a place of amusement where the maximum consideration for a supply by the body of such an admission does not exceed one dollar. For example, if you charge adults a $5 admission and children a $0.50 admission, both supplies of admissions (for adults and for children) are taxable.
Under subsection 123(1), a “place of amusement” means
any premises or place, whether or not enclosed, at or in any part of which is staged or held any
a) film, slide show, sound and light or similar presentation,
b) artistic, literary, theatrical, musical or other performance, entertainment or exhibition,
c) fair, circus, menagerie, rodeo or similar event, or
d) race, game of chance, athletic contest or other contest or game,
and includes a museum, historical site, zoo, wildlife or other park, place where bets are placed and any place, structure, apparatus, machine or device the purpose of which is to provide any type of amusement or recreation;
Section 10 of Part VI of Schedule V exempts supplies of property and services made by public sector body when all or substantially all (90% or more) of the particular property or services are provided free of charge. This exemption does not apply to supplies of blood or blood derivatives that are zero-rated or to a supply of commercial parking where there is a charge for the parking even if a significant amount of parking is free of charge.
Section 19 of Part VI of Schedule V exempts supplies made by a public sector body of a right that confers borrowing privileges at a public lending library.
Donations and gifts
Generally, the GST/HST does not apply to donations and gifts. A donation or gift is a voluntary transfer of money or property for which the donor does not receive any benefit in return. If the donor receives property of nominal value in exchange for the donation, the donation will still not be subject to the GST/HST. However, if the donor receives a property or service of more than nominal value in exchange for the donation, the payment may be subject to the GST/HST, unless the property or service is an exempt or zero-rated supply.
Provincial and municipal funding
Where a grantor makes a payment to a grantee it must be determined whether that payment is consideration for a supply for purposes of the ETA. GST/HST Technical Information Bulletin B-067, Goods and Services Tax Treatment of Grants and Subsides provides administrative guidance to assist in determining the application of the GST/HST to such transfer payments. Generally, payments will not be consideration for a supply where the payments are not directly linked to a supply made by the grantee to the grantor or to a specified third party.
Such a determination requires an analysis of terms and conditions of the relevant legislation and/or contract or agreement for the funding. Generally, where a province or municipality provide payments to the Board to financially assist the Board in undertaking its own activities, the payments are not consideration for a supply and are not subject to the HST.
For additional information regarding the GST/HST in general, please refer to GST/HST Guide RC4022, General Information for GST/HST Registrants. For additional information on the application of GST/HST to municipalities and public institutions, please refer to GST/HST Guides RC4049, GST/HST Information for Municipalities, GST/HST Info Sheet GI-068, Basic GST/HST Guidelines for Public Institutions, and RC4034, GST/HST Public Service Bodies' Rebate.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretations 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 interpretations or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 905-984-2332. 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,
Maria Forte-Long
Municipal Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
FOOTNOTES
1 For further information, see GST/HST Info Sheet GI-068, Basic GST/HST Guidelines for Public Institutions, under the heading, “When is a public institution required to register for GST/HST purposes?”
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