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, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addresee]
Case Number: 137696
Business Number: [...]
October 31, 2013
Dear [Client]:
Subject: GST/HST INTERPRETATION
Sale of tangible personal property
Thank you for your letter of [mm/dd/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale of tangible personal property by [...] (the "Company"). We apologize for the delay in responding.
The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador, 14% in Prince Edward Island (effective April 1, 2013) and 15% in Nova Scotia. 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:
1. The Company is a non-resident person based in [...][locations in Country X]. The Company does not have a place of business in Canada.
2. The Company is registered for GST/HST.
3. The Company is a distributor of [...].
4. The Company's terms and conditions of sale provide that prices, title, and risk of loss are FOB the Company's warehouse in [...][Country X]. The Company's terms and conditions also include a governing law clause providing that sales transactions made by the Company will be governed by, and interpreted in accordance with, the laws of [...][a location in Country X].
5. With respect to those sales which are the subject of this request, when selling products to its customers in Canada, the Company contracts with [...] (the "Carrier") for the transport of the products into Canada. [...]
6. The Carrier maintains a record of all of the shipping documentation in respect of the transport of the products into Canada. The Company pays the fees charged by the Carrier (the "transportation fees") to transport the products sold by the Company to its Canadian customers. The Company then charges the customer for the cost of the transportation fees. [...].
7. The Company serves as the importer of record with respect to all sales to Canadian purchasers which are the subject of this request. [...] (the "Broker") acts as the Company's agent or broker to clear Canadian customs. The Broker charges the Company a fee for the brokerage services (the "brokerage fee").
8. As the importer of record, the Company pays the GST at the rate of 5% as required in respect of the imported products when they pass through Canadian customs en route to Canadian customers.
9. The Company is reimbursed by its customers for the GST paid at customs by the Company.
10. The Company limits its sales into Canada by selling only to businesses. Accordingly, to the best of the Company's knowledge, Canadian customers do not purchase products from the Company for personal use, but rather for sale or for any other commercial, industrial, occupational, institutional, or other like use.
11. The issues involved in your request as they apply to the Company are not the subject of an audit by the CRA, are not the subject of a notice of objection filed by the Company, and are not before the courts.
Interpretation Requested
You would like to know:
1. Is the Company required to collect GST/HST under Division II on the sale of goods to Canadian customers?
2. As the importer of record, is the Company required to pay GST/HST under Division III on the importation of goods sold to Canadian customers?
3. Is the brokerage fee paid by the Company to [...][the broker] zero-rated under section 5 and/or section 7 of Part V of Schedule VI?
4. Are the transportation fees paid by the Company to the Carrier zero-rated under section 8 and section of 10 of Part VII of Schedule VI?
Interpretation Given
As indicated in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, requests for rulings should include copies of any relevant supporting agreements or documents, together with references to, and summaries of the specific provisions of these agreements or documents which pertain to the request. As discussed, we are unable to issue a ruling since copies of the relevant supporting agreements for the supplies in this case have not been provided as requested. However, we are pleased to provide you with the following interpretation.
1. A taxable (other than zero-rated) supply that is made in Canada is subject to the GST at a rate of 5% if it is made in a non-participating province and is subject to the HST at the applicable rate if it is made in a participating province.
Subject to sections 143, 144 and 179, a supply by way of sale of tangible personal property is deemed to be made in Canada under paragraph 142(1)(a) if the property is, or is to be, delivered or made available in Canada to the recipient of the supply. A supply by way of sale of tangible personal property is deemed to be made outside Canada, under paragraph 142(2)(a), if the property is, or is to be, delivered or made available outside Canada to the recipient of the supply.
Generally, the place of supply rules in section 142 are based on where legal delivery of the good to the recipient occurs. The place at which legal delivery occurs can generally be determined by reference to the terms of the agreement for the sale of the good and the applicable sale of goods law.
Where a trade term such as an Incoterm is used in an agreement for the sale of a good in accordance with its intended circumstances, the place at which legal delivery of the good is considered to occur is generally determined by reference to the place at which legal delivery of the good is considered to occur pursuant to that particular trade term. Where the trade term FOB is used in the agreement with a reference to a location, delivery of the good is generally considered to occur at that location, subject to any evidence to the contrary.
Therefore, where the trade term FOB is used with a reference to a location that is outside Canada in an agreement for the sale of a good that is sent to the recipient in Canada, legal delivery of the good will generally be considered to occur outside Canada. In such a case, the supply of the good will be deemed to be made outside Canada and the supplier will not be required to collect tax in respect of the supply.
Alternatively, where the trade term FOB is used with a reference to a location that is in Canada, legal delivery of the good will generally be considered to occur in Canada, in which case the supply will be deemed to be made in Canada and therefore generally subject to tax.
With respect to supplies of goods that are made in Canada, for information regarding the HST place of supply rules that determine the province in which such supplies are made see GST/HST Technical Information Bulletin B-103 Harmonized Sales Tax - Place of supply rules for determining whether a supply is made in a province (available on the CRA website at: http://www.cra-arc.gc.ca/E/pub/gm/b-103/).
2. Generally, under section 212, every person who is liable under the Customs Act to pay duty on imported goods, or who would be so liable if the goods were subject to duty, must pay GST on the goods calculated at the rate of 5% on the value of the goods. The importer of record of imported goods, which can include a non-resident supplier of goods, is generally the person who is liable to pay any duties on the goods under the Customs Act and consequently liable to pay GST on the goods.
Under subsection 212.1(2), every person who is liable under the Customs Act to pay duty on imported goods, or would be so liable if the goods were subject to duty, must also generally pay the provincial part of the HST on the goods calculated at the tax rate for a participating province on the value of the goods if the person is resident in the participating province. However, pursuant to subsection 212.1(3), the requirement to pay the provincial part of the HST on the goods does not apply if the goods are accounted for as commercial goods under section 32 of the Customs Act. "Commercial goods" are defined under subsection 212.1(1) to mean goods that are imported for sale or for any commercial, industrial, occupational, institutional, or other like use.
A person such as a registered non-resident supplier who acts as the importer of record and pays the tax on an importation of goods is not necessarily the person who is entitled to an input tax credit (ITC) under subsection 169(1) for that tax. The determination of the person who is entitled to an ITC for the tax can be affected by the application of various provisions of the ETA including section 178.8, and requires consideration of all relevant facts. Generally, it requires a determination of the person who is considered to be the constructive or de facto importer. A key factor in making this determination is the place of supply of the goods. Generally, the person who is entitled to an ITC will be the recipient of a supply of the imported goods where the goods are supplied outside Canada, or the supplier where the imported goods are supplied in Canada. For additional information regarding the issue of ITCs and imported goods, see GST/HST Policy Statement P-125R: Input Tax Credit Entitlement for Tax on Imported Goods available on the CRA website at http://www.cra-arc.gc.ca/E/pub/gl/p-125/README.html).
3. Section 5 of Part V of Schedule VI provides that a supply made to a non-resident person of a service of acting as an agent of the person or of arranging for, procuring or soliciting orders for supplies by or to the person, is zero-rated where the service is in respect of
(a) a supply to the person that is included in any other section of Part V of Schedule VI; or
(b) a supply made outside Canada by or to the person.
The supply of a customs brokerage service to a non-resident supplier of goods is zero-rated under section 5 of Part V of Schedule VI where the customs brokerage service is in respect of a supply of goods that is made outside Canada by the non-resident supplier. A supply of a service of acting as an agent of a non-resident person or of arranging for, procuring or soliciting orders for supplies by or to the person is excluded from zero-rating under paragraph 7(f) of Part V of Schedule VI.
4. There are several provisions in Part VII of Schedule VI that can zero-rate a supply of a freight transportation service. A determination of the particular provision under which a supply of a freight transportation service is zero-rated requires consideration of all the relevant facts and agreements.
Section 8 of Part VII of Schedule VI zero-rates a supply of a freight transportation service in respect of the transportation of tangible personal property from a place outside Canada to a place in Canada. For example, a supply of a freight transportation service made to a non-resident supplier of goods of transporting the goods from a place outside Canada to the location of the supplier's customers in Canada would be zero-rated under this provision.
Section 10 of Part VII of Schedule VI also zero-rates a supply of a freight transportation service from a place in Canada to another place in Canada if that service is part of a continuous freight movement from an origin outside Canada to a destination in Canada. The supplier of the service must maintain documentary evidence satisfactory to the Minister that the service is part of a continuous freight movement from an origin outside Canada to a destination in Canada. A "continuous freight movement" is defined under Part VII of Schedule VI to mean the transportation of tangible personal property by one or more carriers to a destination specified by the shipper of the property, where all freight transportation services supplied by the carriers are supplied as a consequence of instructions given by the shipper of the property. The "shipper" of tangible personal property is defined under Part VII of Schedule VI to mean the person who, in respect of a continuous freight movement or a continuous outbound freight movement, transfers possession of the property being shipped to a carrier at the origin of the freight movement and, for greater certainty, does not include a person who is a carrier of the property to which the freight movement relates.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-953-8530. 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,
Carolle Mercier
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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