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: 127269
Business Number: [...]
April 19, 2011
Dear [Client]:
Subject:
GST/HST INTERPRETATION
GST/HST on Heat Treatment of Parts
Thank you for your fax of August 11, 2010, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the painting of parts supplied to [...] by a heat treatment service provider located in [...] [Province Y].
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.
We understand that the Company is a manufacturer of various machine parts for the [...] industries.
In this case, the Company ships parts from their plant in [...] [City 1, Province X] (a non-harmonized province) to [...] (the "service provider"), a sub-contractor in [Province Y] (a harmonized province), for a specialized heat treatment process as described in Company purchase order #[...] and #[...] and service provider invoice #[...].
The Company has an account with a carrier with whom it has negotiated freight terms and rates that are paid directly by the Company.
After the service provider completes their service in respect of the Company's parts, the service provider contacts the carrier that has been hired by the Company to advise the carrier that the parts are ready to be picked up at its premises and shipped back to the Company in [City 1].
Interpretation Requested
You would like to know whether the heat treating service in relation to the Company's parts is subject to the HST or the GST.
Interpretation Given
A taxable supply (other than a zero-rated supply) of property or a service made in Canada is subject to GST at 5% when it is deemed to be made in a non-participating province, and is subject to HST at the applicable provincial rate when it is deemed to be made in a participating province. The participating provinces are Ontario, Nova Scotia, New Brunswick, British Columbia, and Newfoundland and Labrador.
The supply of the heat treatment service is made in Canada under subsection 142(1), since it is performed in Canada.
The ETA has various place of supply rules to determine whether a supply that is made in Canada is made in a province. Under section 144.1, a supply that is made in Canada is also considered to be made in a particular province if it is determined to be made in the province under the place of supply rules in Schedule IX. In any other case, the supply is deemed to be made in a non-participating province. Pursuant to section 3 of Part IX of Schedule IX, notwithstanding the place of supply rules in Schedule IX, a supply is made in a province if the supply is prescribed under the New Harmonized Value-Added Tax System Regulations (the "Regulations") to be made in the province.
The heat treatment service supplied to the Company is considered to be a service in relation to tangible personal property. The relevant place of supply rule in this case is in section 15 of the Regulations. This rule applies where, a person makes a supply of a service in relation to tangible personal property that is situated in one or more provinces at the particular time when the Canadian element of the service begins to be performed and, at all times when the Canadian element of the service is performed, the tangible personal property remains in the province in which it was situated at the particular time. The Canadian element of a service means the portion of the service that is performed in Canada. The supply of the service in this case is made;
(a) in a participating province if the property is situated primarily (i.e. more than 50%) in participating provinces at the particular time and
(i) an equal or greater proportion of the tangible personal property is not situated in another participating province at the particular time, or
(ii) if subparagraph (i) does not apply, the tax rate for the participating province is the highest among the participating provinces for which no greater proportion of the tangible personal property is situated in another participating province at the particular time; and
(b) in a non-participating province if the tangible personal property is not situated primarily in participating provinces at the particular time.
In this case, since the property remains at the heat treatment service provider's premises in [Province Y] during the heat treatment process, the supply of the heat treatment service is made in [Province Y]. The heat treatment service provider would therefore be required to collect HST at [...]% in respect of the supply of the service.
For additional information on these, or other, place of supply rules please refer to GST/HST Technical Information Bulletin B-103, Harmonized Sales Tax Place Of Supply Rules For Determining Whether A Supply Is Made In A Province. (A copy of this publication can be found on the CRA website at http://www.cra-arc.gc.ca/E/pub/gm/b-103/README.html).
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. (A copy of this publication can be found at http://www.cra-arc.gc.ca/E/pub/gm/1-4/README.html).
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-8220. 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,
Kevin W. Smith
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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