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
[Addressee]
Case Number: 145581R
November 5, 2012
Dear [Client]:
Subject: GST/HST INTERPRETATION
Importation of U.S. Based Aircraft
This interpretation letter is further to our interpretation letter of September 11, 2012 (case number 145581) concerning the importation of aircraft, and replaces the section of the interpretation given in that letter that related to the issues of claiming input tax credits (ITCs) for tax on imported goods and carrying on business in Canada for GST/HST purposes. The facts remain the same as those described in the September 11, 2012 interpretation letter.
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
INTERPRETATION GIVEN
As explained in the interpretation letter of September 11, 2012, the importation of the aircraft may be subject to tax under section 212. Furthermore, the importation of the aircraft which are commercial goods would not be subject to the provincial part of the HST under section 212.1 where they are accounted as such 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.
The tax on the importation of the aircraft may be recovered in certain circumstances by the claiming of an ITC. Generally, a registrant is entitled to an ITC under subsection 169(1) of the ETA 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. The amount of the ITC to which the registrant is entitled is generally based on the extent to which the goods are for consumption, use or supply in the course of its commercial activities.
The determination of the person who is entitled to an ITC under subsection 169(1) for the tax on imported goods can be affected by the application of various provisions, including sections 178.8 and 180 which are explained below, 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 as explained below. As explained below, a key factor in making this determination is the place of supply of the goods. Generally, as explained below, 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. It is not necessarily the person who acts as the importer of record.
With respect to the place of supply, section 142 provides that a supply of tangible personal property otherwise than by way of sale is deemed to be made in Canada if possession or use of the property is given or made available in Canada to the recipient of the supply, and is deemed to be made outside Canada if possession or use of the property is given or made available outside Canada to the recipient of the supply. Even if possession or use of the tangible personal property is given or made available to the recipient of the supply in Canada, the supply of the property may still be deemed to be made outside Canada under subsection 143(1) if it is made by a non-resident person that is not registered for GST/HST purposes and is not carrying on business in Canada as explained below.
Section 178.8 determines who is entitled to an ITC for the tax on imported goods in certain circumstances where the imported goods are supplied outside Canada. Subsection 178.8(2) provides that where a specified supply of goods is made outside Canada to a constructive importer of the goods and the goods are imported by the constructive importer or another person for consumption, use or supply by the constructive importer of the goods, the goods are deemed to have been so imported, and any amount payable as or on account of tax on the importation is deemed to have been paid or payable, by or on behalf of the constructive importer and not by or on behalf of any other person. The “constructive importer” of goods is the person who is the recipient of a specified supply of the goods made outside Canada who has not made a supply of the goods outside Canada before their release. Generally, a “specified supply” of goods means a supply of goods that are imported at any time after the supply is made. Section 133 provides in part that where an agreement is entered into to provide property or a service, the entering into of the agreement is deemed to be a supply of the property or service made at the time the agreement is entered into.
Based on the above rules, if the Canadian company is determined to be the last recipient of a specified supply of the aircraft made outside Canada before their release, as the constructive importer it would be the only person who is entitled to an ITC for the tax on the importation of the aircraft. This would be regardless of the person who acts as the importer of record, subject to the parties entering into an agreement under subsection 178.8(3) as described below.
Although a constructive importer may be entitled to an ITC for the tax on the importation of goods, the constructive importer must first satisfy the relevant ITC documentary requirements under subsection 169(4) in order to be able to claim the ITC in a return. Where a person other than the constructive importer acts as the importer of record, such as the supplier, the constructive importer must obtain a copy of the necessary import documentation from the supplier in order to satisfy the ITC documentary requirements. However, this may not always be practical. As a result, where the supplier is a registrant (as a result of being required to register or voluntarily registering as explained below) and the imported goods are supplied outside Canada, subsection 178.8(3) allows the parties to agree to an alternative GST/HST treatment in order to avoid the need for the supplier to pass on the import documentation to the constructive importer for purposes of recovering the tax. This alternative treatment is available where:
* a supplier who is a registrant makes a taxable specified supply of goods outside Canada to the constructive importer of the goods (based on the previously explained place of supply rule under section 142), and
* tax on the importation of the goods is paid or payable by the supplier as a result of the supplier having accounted for the goods.
The supplier and the constructive importer in this case may enter into an agreement at any time in prescribed form containing prescribed information (Form GST 532 Agreement and Revocation of an Agreement Between Supplier and Constructive Importer) with respect to the supply and importation of the goods. The effects of entering into the agreement are as follows:
* The supplier is deemed to have imported the goods for the purpose of supply in the course of its commercial activities and the tax paid or payable on the imported goods is deemed to be paid or payable on behalf of the supplier and on no other person's behalf. As a result, the supplier rather than the constructive importer is entitled to an ITC for the tax on the importation.
* The supply of the goods to the constructive importer is deemed to have been made in Canada resulting in the supplier having to collect tax on the supply. The constructive importer would in turn be entitled to an ITC for the tax on the deemed supply if all of the relevant ITC conditions are met.
The rules in section 178.8 do not affect the person who is actually liable under section 212 to pay the tax on the importation of the goods. Also, the rules do not apply where section 180 applies to deem a person to have paid tax in respect of a supply of property equal to the tax payable in respect of the importation of goods.
Section 180 provides for the flow-through of an ITC to a registrant for unrecoverable tax that is paid by an unregistered non-resident on the importation of goods in certain circumstances. Generally, section 180 applies where an unregistered non-resident:
* pays tax on the importation of goods that the non-resident supplies to a registrant and delivers, or makes available, in Canada to the registrant before they are used in Canada by or on behalf of the non-resident, and
* provides to the registrant evidence, satisfactory to the Minister, that the tax has been paid.
Once the non-resident provides the registrant with satisfactory evidence that the tax has been paid on the importation of the goods, the registrant is deemed at the time the non-resident paid the tax, to have paid tax in respect of a supply of the goods to the registrant equal to the tax paid on the importation. As a result, where the registrant has acquired the goods for consumption, use or supply in the course of its commercial activities, the registrant becomes entitled to an ITC for the tax that the registrant is deemed to have paid. Section 180 could result in the Canadian company becoming entitled to an ITC for an amount equal to the tax paid on an importation of the aircraft by the American subsidiary where the conditions described above have been met.
Where sections 178.8 and section 180 do not apply, a determination of the person who is the
de facto importer is required. Where the supplier is a registrant who imports goods that it supplies in Canada, the supplier would be the de facto importer of the goods who is considered to have imported the goods for supply in the course of its commercial activities and be entitled to an ITC for the tax on the importation of the goods. If the recipient of the supply of the goods were to instead import the goods that are supplied in Canada, the recipient who has the import documentation to support an ITC claimed would be considered to be the de facto importer who is entitled to the ITC to avoid the need to pass on the import documentation to the supplier.
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).
Whether a non-resident person is carrying on business in Canada for GST/HST is important in determining if the non-resident is required to register for GST/HST and collect tax on its taxable supplies. Generally, under subsection 240(1), every non-resident person who carries on business in Canada, other than a small supplier, must register for GST/HST if the non-resident person makes a taxable supply in Canada. As a registrant, the non-resident would consequently be required to collect tax in respect of taxable supplies that it makes in Canada. A taxable (other than zero-rated) supply of property or a service that is made in Canada is subject to GST at 5% if made in a non-participating province and is subject to HST at the applicable rate if made in a participating province. For additional information regarding the HST place of supply rules that determine the province in which a supply is made see draft 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/README.html). As previously explained, as a registrant the non-resident would also be entitled to an ITC for the tax on the importation of goods that it imports and supplies in Canada.
The determination of whether a non-resident person is considered to be carrying on business in Canada for GST/HST is a question of fact requiring consideration of all relevant facts. GST/HST Policy Statement P-051R2: Carrying on Business in Canada (available on the CRA website at http://www.cra-arc.gc.ca/E/pub/gl/p-051r2/p-051r2-e.html), sets out factors and principles to be considered in determining whether a person is carrying on business in Canada for GST/HST purposes. The importance or relevance of a given factor in a specific case depends upon the nature of the business activity under review.
If the American subsidiary were to make a supply of tangible personal property by way of lease to the Canadian company it could be considered to be carrying on business in Canada for GST/HST purposes. As indicated in the examples in the policy statement, in the case of a supply of property by way of lease, factors that are typically of greater importance include the place where the property is acquired by the non-resident lessor and the place where the property is delivered to the lessee. It is important to note that a non-resident lessor of tangible personal property would not be considered to be carrying on business for GST/HST purposes and required to be registered where the supply of the property is made outside Canada based on the previously explained place of supply rule under section 142. Nor would a non-resident lessor be considered to be carrying on business in Canada for GST/HST purposes merely on the basis of the tangible personal property being delivered to the lessee in Canada.
A non-resident supplier who is not considered to be carrying on business in Canada for GST/HST purposes may still be able voluntarily register in certain circumstances. As a registrant, the non-resident would be required to collect tax and be entitled to ITCs as previously explained. For additional information see GST/HST Memoranda Series 2.3 Voluntary Registration (available on the CRA website at: http://www.cra-arc.gc.ca/E/pub/gm/2-3/2-3-e.pdf).
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 613-957-8253. 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,
Gunar Ozols
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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