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, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 187096
Attention: […]
Dear [Client]:
Subject: GST/HST RULING
Supply of in-store product demonstrations
Thank you for your letter of [mm/dd/yyyy] concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the supply of in-store product demonstrations.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. 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.
STATEMENT OF FACTS
We have reviewed your letter of [mm/dd/yyyy] along with the additional documentation provided with your letter, including:
* a sample contract for the purchase of in-store product demonstration services from […](“DemoCo”) dated [mm/dd/yyyy], and
* a sample invoice from DemoCo dated [mm/dd/yyyy].
Based on this review, our understanding of the facts is as follows:
1. DemoCo, a Canadian resident corporation registered for the GST/HST, is in the business of providing in-store product demonstrations (“demos”).
2. A non-resident corporation that is not registered for the GST/HST (“USCo”) purchases demos from DemoCo in order to help promote and boost sales of its products in Canada.
3. RetailCo […] [sells] a wide range of goods, […].
4. USCo is a manufacturer of […] and regularly sells to RetailCo a variety of […] (“product”), which are in turn sold by RetailCo to customers in […][Canada].
5. DemoCo is hired by USCo to perform a certain number of demos of the product in various RetailCo store locations […]. DemoCo is not acting as an agent of USCo or RetailCo.
6. Details […] of the demos are finalized by USCo and DemoCo in consultation with RetailCo.
7. Once RetailCo, DemoCo and USCo agree […], a schedule is drawn up and a work order is issued for DemoCo to perform the demos according to the specifications.
8. DemoCo performs the requested demos […] in conformity with the schedule/contract for product demonstration services.
9. DemoCo sends an invoice to USCo for the supply of product demonstration services and charges GST/HST on the supply. The invoice separately itemizes the fee charged for the product demonstration services and the cost of the disposable […][materials] and product samples [purchased by DemoCo to be] used and consumed in the course of performing the demos.
10. A demo typically entails […] one or more of its product demonstrators […]. The demonstrators are trained in sales and are expected to acquire a working knowledge of the products being demonstrated.
11. Demonstrators are […] strategically placed within the RetailCo store. […][Quantities] of the product may be on display, arrayed in proximity to the demonstration […][area], in order to make them easily accessible for shoppers to purchase.
12. Demonstrators will routinely engage with passing shoppers who are in the store coincidentally as part of their normal shopping routines in order to encourage them to buy the product.
13. […], demonstrators assigned to give the demo at a particular RetailCo store location will purchase from that store […][the disposable materials and product samples to be used and consumed in the course of performing the demo].
14. […][Details about the tasks and responsibilities of the demonstrators before a demo; during the setup of the demo area; and while the demonstrators are performing the demo and engaging with shoppers in conformity with the contract].
15. The demonstrators interact with shoppers by providing basic information about the product, such as pricing and […], and by answering simple questions wherever possible. The main focus of these activities is to enable shoppers to experience the product and immediately purchase it as a result. The purpose of the demos is to immediately increase overall sales of the product.
16. After completion of the demos, DemoCo […][fulfils the balance of their responsibilities under the Agreement, such as the preparation of reports] which may include an analysis of the increased sales of the product resulting from the demos.
RULING REQUESTED
You would like to know whether:
1. DemoCo is providing a zero-rated supply of a service to USCo in accordance with sections 5 or 8 of Part V of Schedule VI to the ETA.
2. DemoCo is providing a single supply of demos that includes the disposable […][materials] and product samples required to complete the demos.
3. The provincial place of supply rule at section 13 of the New Harmonized Value-Added Tax System Regulations, Part I (“Regulations”) would apply to the supply of demos made by DemoCo to USCo.
RULING GIVEN
Based on the facts set out above, we rule that:
1. The supply of demos by DemoCo to USCo is a taxable supply pursuant to subsection 165(1) and is subject to GST at the rate of 5% or HST at the applicable rate if the supply is made in a participating province. The supply does not constitute a zero-rated supply of services under either of sections 5 or 8 of Part V of Schedule VI.
2. DemoCo is making a single supply of in-store product demonstration services which includes the disposable [materials] and product samples used in the course of making the supply.
EXPLANATION
Whether zero-rated supply
Generally, unless the supply is exempt or zero-rated, a supply of a service that is made in Canada is subject to the GST pursuant to subsection 165(1) or subject to the HST pursuant to subsection 165(2) if the supply is made in a participating province.
Pursuant to paragraph 142(1)(g), a supply of a service is deemed to be made in Canada if the service is, or is to be, performed in whole or in part in Canada. DemoCo performs its product demonstration services for USCo exclusively in RetailCo stores located in Canada, therefore DemoCo’s supply of product demonstration services is deemed to be made in Canada.
Under certain conditions, supplies made in Canada to non-resident persons may be zero-rated under Part V of Schedule VI. In particular, section 8 of Part V of Schedule VI zero-rates a supply of a service of advertising made to a non-resident person who is not registered for purposes of the GST/HST at the time the service is performed.
The term “advertising” is not defined in the ETA; however, as described in GST/HST Memorandum 4-5-3, “Exports – Services and Intellectual Property,” the Canada Revenue Agency (CRA) generally considers an advertising service to be
(a) a service of creating a message oriented towards soliciting business, attracting donations, or calling public attention in the form of an information notice, a political announcement or other similar communication by any means including oral, written, or graphic statements and representations disseminated by any means, including,
(i) in a newspaper or other publication,
(ii) on radio or television,
(iii) in a notice, handbill, sign, catalogue, or letter, and
(iv) on a billboard or on real property;
and
(b) a service directly related to the communication of such a message (e.g., air time on a broadcasting service, space in a publication) where,
(i) the communication service is supplied as part of the supply of a message as defined in paragraph (a) above, or
(ii) the person providing the communication service can demonstrate that, at the time the supply is made, the service is in relation to the supply of a message as defined in paragraph (a) above.
Usually, it is the same person that both creates the message and communicates the message all within the same supply. But there are occasions where the person broadcasting or communicating a message, within the meaning of paragraph (b) above, will not be the same person creating the message within the meaning of paragraph (a). In that case, generally, the person supplying the broadcast or communication service will be in possession of the message or will have received sufficient information as to the content of the message prior to the supply of the communication service to know that the message is in the nature of advertising. In that case, the supply of the communication service, even though it is being supplied separately from the supply of the message, will nevertheless be considered as a supply of an advertising service.
Subparagraph (b)(i) of the above description applies where a person creates an advertising message within the meaning of paragraph (a) and also communicates that advertising message as part of the same supply. Based on our understanding of the facts, DemoCo is not providing a service of creating a set specific advertising message, within the meaning of paragraph (a) of the description. Since DemoCo is not providing a service of creating an advertising message, then subparagraph (b)(i) cannot apply.
Subparagraph (b)(ii) of the description of an advertising service applies where a person offers the use of a communications medium (i.e. billboard, space in newspaper, air time on tv, etc.) in order to broadcast a prepared advertising message received from another person who has created the message (“advertiser”). Thus, a supply of a communication service, in this context, relates to the act of putting a particular medium of communication at the disposal of an advertiser in order to facilitate the broadcast of the advertiser’s message.
In this case, DemoCo does not receive from an advertiser a specific set and controlled advertising message about the product, nor does it put a medium of communication at the disposal of an advertiser to enable the advertiser to broadcast or disseminate such a message.
Demonstrators set up a product demonstration [area] inside the store, prepare and distribute […][product] samples according to USCo’s specifications and personally interact with passing shoppers in an unscripted fashion. They strike up conversations whose content may vary depending on the specific needs of the shopper, putting more emphasis on points that seem to be of most interest to the shopper. Demonstrators adapt their conversation to each situation, according to the shopper’s reaction, in order to persuade shoppers to purchase the product on the spot. DemoCo’s purpose is not to provide a communications channel for the broadcast of an advertiser’s prepared message, but rather to demonstrate the product for the purpose of facilitating a sale. Consequently, DemoCo is not providing a communication service within the meaning of subparagraph (b)(ii) of CRA’s description of an advertising service.
The product demonstration services provided by DemoCo do not qualify as an advertising service for GST/HST purposes, and therefore the supply by DemoCo to USCo would not be considered a zero-rated supply of an advertising service made to a non-resident person under section 8 of Part V of Schedule VI.
Under section 5 of Part V of Schedule VI, a supply made to a non-resident person of a service of acting as an agent or representative of that person or of arranging for, procuring or soliciting orders for supplies by or to the person is zero-rated to the extent that the service is in respect of a supply that is
(a) a zero-rated export to the non-resident under Part V of Schedule VI to the Act, or
(b) a supply made outside Canada by or to the non-resident person.
The product demonstration services are not provided in connection with a separate zero-rated export supply made to the non-resident, therefore paragraph (a) does not apply. Paragraph (b) does not apply because the product demonstration services are not provided in respect of a supply made outside Canada by or to USCo. Accordingly, section 5 does not apply to zero-rate DemoCo’s supply of product demonstration services.
The supply of product demonstration services is taxable at the applicable rate depending on the province in which the supply is made.
Single or Multiple Supply
According to GST/HST Policy Statement P-077R2, Single and Multiple Supplies, whether a transaction consisting of several elements is a single supply or multiple supplies is a determination of fact. In general, multiple supplies occur when one or more of the elements of a transaction can sensibly or realistically be broken out from the other elements. Conversely, two or more elements of a transaction are generally considered to form part of a single supply when the elements are integral components, inextricably bound up with each other, and so intertwined and interdependent that they must be supplied together. An element may generally be regarded as any property or service that could reasonably be supplied on its own.
In identifying and analyzing the various elements of a supply, a distinction must be made between elements that are supplied to the recipient and those that are simply inputs used or consumed in making a supply. Elements that are simply inputs used or consumed in making a supply do not constitute a separate supply to the recipient but form part of a single supply.
In addition, the way in which the price for a transaction is set out on an invoice does not in itself determine whether there are one or more supplies. A single price does not automatically mean that there is one supply. Equally, an invoice that separately identifies prices for certain elements does not necessarily mean that there are two or more supplies.
Based on the facts, DemoCo is not making a separate supply to USCo of the demo disposable […][materials] or product samples that are used or consumed in performing the demos. These elements are merely input components to the overall supply of demos. USCo does not have (nor would it want) the option of purchasing those individual elements separately from the demos as it would have no use for the […][disposable materials] and product samples on their own, without the demos. These individual elements cannot sensibly or realistically be broken out from the overall supply of product demonstration services. All of these elements form part of a single supply of product demonstration services, each element being an integral component of that single supply, inextricably bound up with each other, and so intertwined and interdependent that they must all be considered as being offered together as one supply.
INTERPRETATION GIVEN
Provincial place of supply
A ruling provides the Canada Revenue Agency's (CRA) position on specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person, and where all of the relevant facts and supporting documentation have been presented in writing. The CRA reserves the right not to issue a ruling where it considers that one would not be appropriate. In this case, we are unable to issue a written ruling on the provincial place of supply, as the information provided is insufficient to provide a determination. Therefore, we are issuing the following interpretation, which is a general explanation of the applicable provisions and how the legislation would apply.
A taxable (other than zero-rated) supply made in Canada is subject to GST at 5% when it is made in a non-participating province and is subject to HST at the applicable rate when it is made in a participating province. The participating provinces are Ontario, Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland and Labrador.
The provincial place of supply rules are contained in section 144.1, Schedule IX, and where applicable, the Regulations. Under section 144.1, a supply is deemed to be made in a province if it is made in Canada and is, under the rules set out in Schedule IX, made in the province. Also, a supply made in Canada that is not made in any participating province is deemed to be made in a non-participating province.
Section 3 of Part IX of Schedule IX provides that, notwithstanding any other part of Schedule IX, a supply of property or a service is made in a province if the supply is prescribed to be made in the province under the Regulations.
Under the Regulations, different provincial place of supply rules exist with respect to general services, services in relation to real or tangible personal property and other specific types of services. Generally, we must first consider whether any specific place of supply rule applies in a particular situation. When the more specific place of supply rules for services do not apply, then it is the general place of supply rule for services in section 13 of the Regulations that applies.
The supply made by DemoCo to USCo may be characterized as a supply of a service of demonstrating products in-person directly to passing shoppers on-site at RetailCo store locations in Canada. To the extent that all or substantially all of the service is performed in the presence of the individual to whom the service is rendered (i.e. the in-store shopper), we must first try to apply the specific place of supply rule at section 17 of the Regulations in order to determine in which province DemoCo’s supply of demonstration services is made.
Section 17 of the Regulations generally provides that a supply of a service (other than an advisory, consulting or professional service) all or substantially all of which is performed in the presence of the individual to whom it is rendered is made
(a) in a participating province if the Canadian element of the service is performed primarily in participating provinces and
(i) an equal or greater proportion of the service is not performed in another participating province, 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 service is performed in another participating province; and
(b) in a non-participating province if the Canadian element of the service is not performed primarily in participating provinces.
Where it is not possible to apply section 17 of the Regulations, then the general place of supply rule for services at section 13 would apply in order to determine the place of supply of those services. Where the supplier is able to obtain an address in Canada of the recipient, subsection 13(1) of the Regulations generally provides that, subject to sections 14 to 17 of the Regulations, a supply of a service is made in a province if, in the ordinary course of business of the supplier, the supplier obtains an address in the province that is
(a) if the supplier obtains only one address that is a home or a business address in Canada of the recipient, the home or business address in Canada obtained by the supplier;
(b) if the supplier obtains more than one address described in paragraph (a), the address described in that paragraph that is most closely connected with the supply; or
(c) in any other case, the address in Canada of the recipient that is most closely connected with the supply.
Where multiple business addresses of the recipient are obtained by the supplier in the ordinary course of its business, the business address of the recipient from which the supplier is hired pursuant to the agreement for the supply (the "contracting address") will generally be the address that is most closely connected with the supply.
Where the supplier is not able to obtain an address in Canada of the recipient, subsection 13(2) of the Regulations provides that, subject to subsection (1) and sections 14 to 17, a supply of a service is made
(a) in a participating province if the Canadian element of the service is performed primarily in participating provinces and
(i) an equal or greater proportion of the Canadian element of the service is not performed in another participating province, 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 service is performed in another participating province; and
(b) in a non- participating province if the Canadian element of the service is not performed primarily in participating provinces.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the CRA is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA's interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-670-9892. 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,
Anna Messore
Border Issues Unit
General Operations & Border Issues Division
Excise and GST/HST Rulings Directorate
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