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: 131828
November 23, 2011
Dear [Client]:
Subject:
GST/HST RULING
Place of Supply of Intangible Personal Property
Thank you for your letter of July 6, 2010, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of memberships to an online social networking site that grant access to proprietary content.
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.
Statement of Facts
Based on the information in your letter, we understand the following:
1. [...] (the "Supplier") makes supplies of specified time memberships to a social networking website [...] (the "Website").
2. The Supplier is the sole and exclusive owner of the Website's content and related intellectual property.
3. The Supplier's head office is in [...] [Participating Province X].
4. The Supplier is registered for GST/HST purposes.
5. The Supplier supplies memberships online through its Website or via physical membership cards (the "Membership Cards") which are sold in retail stores (the "Retailers") across Canada.
6. The Membership Cards are plastic cards [...].
7. Memberships acquired [...] can be purchased in [...] month, [...] month or [...] month increments, for$[...], $[...] or $[...] respectively. For the duration of the membership period, the member has full access to and use of the paid content of the Website, but once the membership period has expired, access the paid content portion of the Website is restricted.
8. The Supplier arranges for [...] The Supplier retains ownership of the cards at all times until the cards are sold by the Retailers to consumers.
9. Each month, [...].
10. [...]
11. When a Membership Card is sold [...]
12. To redeem the Membership Card the consumer accesses the Website and enters [...], the Supplier [...] and creates a user account for the member for the specified time period.
13. The memberships may be used anywhere in Canada and a Membership Card may be redeemed anywhere in Canada regardless of where it is purchased.
14. The Supplier does not obtain a home or business address of the recipients of the supplies of the memberships to the Website.
15. When a Membership Card is redeemed, the supplier uses geo-location software to try to identify the physical location of the computer that is associated with the acquisition of the membership based on the IP address of the computer.
Ruling Requested
You would like confirmation that paragraph 8(b) of the New Harmonized Value-added Tax System Regulations [SOR/2010-117] (the "Regulations") is applicable for determining the place of supply of the memberships that are obtained by redemption of the Membership Cards on the Website, and that the IP address obtained by the Supplier at the time of redemption of the Membership Cards is an acceptable address of the recipient for purposes of applying paragraph 8(b) of the Regulations.
Ruling Given
Based on the facts set out above, we rule that paragraph 8(b) of the Regulations is not applicable for determining the place of supply of the memberships and that the IP address obtained by the Supplier through the use of geo-location software is not considered to be an address of the recipient for purposes of paragraph 8(b) of the Regulations.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
Explanation
The supply of a [...] membership is a supply of intangible personal property ("IPP") for GST/HST purposes - that is, the membership constitutes a right to access and use the paid content of the Website for a specific period of time. Pursuant to subparagraph 142(1)(c)(i), a supply of IPP is deemed to be made in Canada if the IPP may be used in whole or in part in Canada. The membership may be used in Canada and therefore the supply of the membership is deemed to be supplied in Canada.
In accordance with section 144.1 a supply of IPP made in Canada is made in a participating province or non-participating province respectively as determined by the rules in Schedule IX to the ETA. Pursuant to section 3 of Part IX of Schedule IX, a supply of property or a service is deemed to be made in a province if the property or service is prescribed to be made in the province.
There are no restrictions with respect to the province in which the IPP may be used in this case. Generally, for supplies of IPP with respect to which there are no restrictions regarding where the property may be used, paragraph 8(b) of Division 2 of Part 1 of the Regulations provides that the supply of IPP is made in a particular province if
• in the ordinary course of business of the supplier, the supplier obtains a particular address that is
• if the supplier obtains only one address that is a home or business address in Canada of the recipient, the home or a business address in Canada obtained by the supplier,
• if more than one such address is obtained by the supplier, the home or business address in Canada of the recipient that is most closely connected with the supply, or
• in any other case, the address in Canada of the recipient that is most closely connected with the supply, and
• the particular address is in the province, and
• the intangible personal property can be used in the province.
Where the above rule does not determine the supply of the IPP to be made in a province, paragraph 8(c) of the Regulations provides that the supply is made in the participating province for which the tax rate is the highest among the tax rates for the provinces in which the property can be used.
Based on the facts, the Supplier is not considered to have obtained an address of the recipient when the right to access and use the content on the Website is granted to the recipient.
An IP address is not considered to be an address of the recipient. The type of address obtained for purposes of the rule must be an address of the recipient that represents a specific physical location that is situated in a province. For instance, an e-mail address or an IP address obtained by a supplier that does not represent an actual specific physical address is not considered to be an address for purposes of the rule.
As the rule in paragraph 8(b) of the Regulations does not deem the supply to be made in a province, the place of supply of the IPP is determined in accordance with the rule in paragraph 8(c) of the Regulations and the supply of the IPP is deemed to be made in the province with the highest tax rate amongst the provinces where the property may be used. In this instance, as there are no restrictions with respect to where the property can be used, the supply of the IPP is deemed in this case to be made in the province of Nova Scotia for which the tax rate is 15%.
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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