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.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 109863
July 28, 2011
Dear [Client]:
Subject:
GST/HST INTERPRETATION
Importation of goods
Thank you for your email of November 6, 2008 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to goods imported into Canada under Customs Tariff headings 9813.00.00 and 9814.00.00. We apologize for the delay in replying.
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 Requested
You would like to know:
If under the following conditions goods classified under Customs Tariff headings 9813.00.00 and 9814.00.00 may be imported into Canada free of the GST:
• Goods are supplied by way of sale, but are returned because the sale is cancelled;
• Goods are returned as defective, or not as ordered, or to be exchanged; or
• Goods have been supplied by way of lease, license or similar arrangement.
Whether the goods should always be imported by the same person who exported them.
In addition, you are inquiring as to the tax status of an aircraft. In particular you have asked:
What effect if any, does the condition of the aircraft at time of export (i.e., new or used) have on the tax status on importation?
What is the tax status of the importation if:
• the exporter and the importer is a lessor (Canadian resident owner of the aircraft);
• the exporter and the importer is a lessee (person operating the aircraft outside Canada);
• the exporter of the aircraft is the lessor and the importer is the lessee; and
• the exporter is the lessee and the importer is the lessor.
Interpretation Given
Pursuant to section 213 of the ETA, goods may be imported into Canada free of Division III tax if the goods are included in Schedule VII to the ETA.
Section 1 of Schedule VII lists goods that may be imported into Canada free of GST/HST when classified under certain headings or subheadings of chapter 98 of Schedule I to the Customs Tariff. Goods classified under heading Nos. 98.13 and 98.14 are not included in this section. These headings pertain to goods originating in Canada, and goods once accounted for, exported, and returned to Canada without having been advanced in value.
Section 8 of Schedule VII, however, provides for the non-taxable importation of prescribed goods imported in prescribed circumstances and under prescribed terms and conditions. The goods that are prescribed, together with their terms and conditions, are listed in the Non-Taxable Imported Goods (GST/HST) Regulations (the "Regulations") made pursuant to section 8 of Schedule VII.
The Department of Finance's Press Release dated December 18, 1990, indicated that amendments to the Regulations will be made to codify current practice with respect to the application of GST/HST to Canadian goods and goods once accounted for, exported, and returned. Although, the Regulations have yet to be amended, the Canada Revenue Agency (CRA) has adopted the treatment of goods imported under headings 98.13 and 98.14 as identified in the Press Release and further elaborated in Customs Notice N-118 Tax Treatment to be Accorded to Imported Goods Considered to be Canadian Goods and Goods Once Accounted for, Exported, and Returned, dated April 4, 1997.
In accordance with the Finance Press Release, goods classified under heading 98.13 or 98.14 of Schedule I to the Customs Tariff will not be relieved from GST/HST if they were supplied:
(a) outside Canada by way of sale;
(b) outside Canada by way of lease, licence, or similar arrangement;
(c) in Canada in circumstances to which Part V of Schedule VI (zero-rated exports) applies; or
(d) in Canada to a recipient who claimed, or was entitled to claim, a rebate for tax paid on the goods under subsection 252(1);
and are being imported for first time after that supply.
Paragraph (a) deals with the goods that are imported for the first time after having been supplied by way of sale outside of Canada. A supply of a good that is made by way of sale is deemed to be made outside of Canada pursuant to paragraph 142(2)(a), if the good is, or is to be, delivered or made available outside of Canada to the recipient of the supply.
For example, a Canadian company sells heavy equipment to a non-resident company. In accordance with the agreement, the Canadian company will deliver the equipment to the non-resident outside of Canada. The Canadian company is not required to collect tax on the supply under Division II because the supply is made outside of Canada. When the heavy equipment is imported into Canada for the first time after the supply by way of sale was made outside Canada, Division III tax would therefore apply in respect of the importation as the importation is excluded by the Press Release from being a non-taxable importation.
Note that where a supply is made outside of Canada by a Canadian vendor and the goods are returned to the vendor in Canada because the sale is cancelled, or the goods are defective, or they are to be exchanged, tax under Division III would not apply on the importation of the goods as described in Customs Notice N-118.
Paragraph 142(2)(b) deems a supply of a good made by way lease, license or similar arrangement to be made outside of Canada if possession or use of the good is given or made available outside Canada to the recipient of the supply. For example, if a Canadian lessor leases an aircraft to a non-resident lessee to whom possession is given outside of Canada and the aircraft is registered in the foreign country for use outside of Canada, the supply of the leased aircraft would be considered to be made outside Canada.
When goods that were supplied outside Canada by way of lease, license or similar arrangement, are imported for the first time after the supply, Division III tax would apply in respect of the importation. However, as described in Customs Notice N-118, generally Division III tax is not applicable if the goods are imported to be returned to the owner or lessor. For example, continuing with the example above, if at the end of the lease, the Canadian lessor imports the aircraft into Canada, the conditions for relief described in the Press Release and N-118 would be met and Division III tax would not apply with respect to the importation if it is classified under tariff headings 9813.00.00 or 9814.00.00 of the Customs Tariff.
Regarding your query about whether goods should be imported by the same person who exported them, it should be noted that under Customs Notice N-118, the lessor or owner should be the importer of the goods. However, where a person other than the owner or lessor imports goods at the end of a lease, solely for return to the owner or lessor or on behalf of the owner or lessor, the importer would be considered to be the owner or lessor of the goods, such that the relief described by the Press Release and Customs Notice N-118 would not be denied in this case. In addition, neither the Press Release nor Customs Notice N-118 requires that the importer of the goods be the same person that exported them.
Finally, it does not matter whether an aircraft was new or used at the time it was exported for purpose of determining whether Division III tax applies in respect of the importation of that aircraft. Further, regarding the application of Division III tax on the importation of an aircraft classified under tariff headings 9813.00.00 or 9814.00.00 of the Customs Tariff, it is important to note that the circumstances for relieving tax on the importation as outlined in the preceding paragraphs is not generally based on the identity of the importer/exporter.
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 613-957-7841. 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,
Dwayne Moore
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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