Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
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XXXXX
XXXXX
XXXXX
XXXXX
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Case Number: 42944
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XXXXX
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November 12, 2004
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Subject:
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GST/HST INTERPRETATION
Section 180 - Entitlement to Input Tax Credit
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Dear XXXXX:
Thank you for your letter XXXXX concerning the application of section 180 of the Excise Tax Act ("the Act"). We apologize for the delay in replying to your letter.
The following information was provided in your letter:
1. Company A is a non-resident corporation. Company A does not have a permanent establishment in Canada, does not carry on a business in Canada and is not registered for GST/HST purposes.
2. Company B is an affiliate of Company A. Company B is engaged in a commercial activity in Canada and is registered for GST/HST purposes.
3. Company C is an arm's length Canadian corporation that is registered for GST/HST purposes.
4. Company A has a manufacturing contract in place with Company C. Under the terms of this contract, Company A will ship raw materials from outside Canada to Company C's manufacturing facilities in Canada. Where the goods are imported into Canada, Company C will act as the importer of record and will pay any applicable GST at the border.
Company C may also purchase raw materials in Canada either as agent for Company A, or in its own name with title transferring to Company A at the work-in-process stage. Where the goods are purchased by Company C as agent of Company A, Company C will provide a drop shipment certificate to the third party supplier pursuant to subsection 179(2) of the Act, with the result that the third party supplier is not required to charge GST on the invoice to Company A.
5. Company C will use the raw materials obtained through various means to manufacture taxable finished goods for Company A. Company A will retain title to the raw materials throughout the production process and will also maintain title to the finished goods produced by Company C until such time as the finished goods are shipped from Company C's manufacturing facilities. The majority of the goods are shipped by Company C directly outside Canada, on the instructions of Company A. The remainder of the goods are shipped to consignees in Canada.
6. Upon completion of the manufacturing process, Company C will issue an invoice to Company A for manufacturing services rendered. As well, where the raw materials were purchased by Company C for re-supply to Company A during the manufacturing process, Company C will charge Company A for the supply of raw materials.
Company C will not charge GST on the supply of manufacturing services where they relate to finished goods that are shipped directly outside Canada pursuant to subsection 179(3) of the Act. As well, Company C will not charge GST on the supply of raw materials to Company A pursuant subsections 179(3) and 179(4) of the Act, where the finished goods are shipped by Company C directly outside of Canada.
7. With regard to the supply of raw materials and manufacturing services relating to goods that remain in Canada, Company C will charge GST pursuant to subsection 179(1) of the Act on the fair market value of the finished goods. None of the relieving provisions under subsection 179 of the Act will be relied upon.
With regard to the goods that remain in Canada, Company B will provide shipping instructions/detail to Company A, who will, in turn, instruct Company C to ship the finished goods directly from its facilities in Canada to customers of Company B in Canada. Title to the goods will transfer (i.e., a sale will take place) from Company A to Company B as the goods leave Company C's manufacturing facility. Title to the goods transfers from Company B to its Canadian customers (i.e., a sale of goods occurs) at the point in time that the goods arrive at the customers' premises.
8. Company A will charge Company B for the sale of the finished goods that remain in Canada. Company B will pay the amount indicated to Company A, and will then issue an invoice to its customers, with appropriate GST charged for the sale of the goods.
Interpretation Requested
Whether Company B, pursuant to section 180 of the Act, qualifies to claim an input tax credit ("ITC") for the GST paid by Company A to Company C on the purchase of raw materials and manufacturing services related to finished goods that remain in Canada.
Interpretation Given
Generally, subsection 179(1) of the Act provides that where a registrant under an agreement between the registrant and a non-resident person who is not registered for GST/HST purposes, makes a taxable supply in Canada of tangible personal property by way of sale, a taxable supply of a service of manufacturing or producing tangible personal property, or a commercial service in respect of tangible personal property, to the non-resident person and at any time causes physical possession of the property to be transferred, at a place in Canada, to a third person referred to as the "consignee", the following rules apply:
• the registrant is deemed to have made to the non-resident person, and the non-resident person is deemed to have received from the registrant, a taxable supply of the property.
• that supply is deemed to have been made for consideration, that becomes due and is paid at that time, equal to:
• where the registrant has caused physical possession of the property to be transferred to a consignee to whom the non-resident person has supplied the property for no consideration, nil, and
• in any other case, the fair market value of the property at that time.
Based on the information provided, subsection 179(1) of the Act would apply to the supply made by Company C to Company A, resulting in Company A being required to pay tax on the fair market value of the goods in question when physical possession of the goods is transferred to the consignee.
Section 180 of the Act applies where an unregistered non-resident is required to pay tax in respect of goods deemed supplied to the non-resident under subsection 179(1) of the Act and that the non-resident supplies to a registrant and delivers or makes available to the registrant in Canada without being used in Canada by or on behalf of the non-resident. Section 180 provides for a flow-through of the ITC from the unregistered non-resident to the registrant, in this case, for the tax that the non-resident has paid provided the non-resident provides the registrant with satisfactory evidence that the tax has been paid. Pursuant to subsection 169(1) of the Act, the registrant must be acquiring the property exclusively for consumption, use or supply in the course of its commercial activities to be entitled to the ITC.
The CRA's position with respect to where a supply of TPP by way of sale is considered to have been delivered or made available is set out in paragraphs 7 to 11 of GST/HST Memoranda Series 3.3, Place of Supply. Specifically, for purposes of paragraph 142(1)(a) and 142(2)(a) of the Act the phrase "delivered or made available" has the same meaning as that assigned to the concept of "delivery" under the law of the sale of goods. "Delivered" refers to those situations where delivery of the TPP under the applicable law of the sale of goods is effected by actual delivery, while "made available" refers to those situations where delivery of the TPP under the applicable law of the sale of goods is effected by constructive delivery (i.e., actual physical possession of the TPP is not transferred to the recipient of the supply yet is recognized as having been intended by the parties and as sufficient in law).
In any given case, the place where TPP is delivered or made available may be determined by reference to the place where it is considered to have been delivered under the law of the sale of goods applicable in that case. Generally, the place where the TPP is delivered or made available can be determined by reference to the terms of the contract of sale.
Based on the information provided, the property is delivered or made available in Canada to Company B as required under section 180 of the Act. Section 180 could on this basis, therefore, apply to allow Company B to claim an ITC for the tax that Company A has paid to Company C on the deemed supply of the goods.
Notwithstanding the above, we note that based on the information provided, it appears that Company A would be carrying on business in Canada for GST/HST purposes.
Subsection 240(1) of the Act provides that every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to be registered for GST/HST purposes, except where
(a) the person is a small supplier;
(b) the only commercial activity of the person is the making of supplies of real property by way of sale otherwise than in the course of a business; or
(c) the person is a non-resident person who does not carry on any business in Canada.
Whether a particular non-resident person is carrying on business in Canada is a question of fact requiring consideration of all relevant facts. The factors that will be considered in determining whether a non-resident person is carrying on business in Canada for GST/HST purposes in a particular situation include:
• the place where agents or employees of the non-resident are located;
• the place of delivery;
• the place of payment;
• the place where purchases are made;
• the place from which transactions are solicited;
• the location of an inventory of goods;
• the place where the business contracts are made;
• the location of a bank account;
• the place where the non-resident's name and business are listed in a directory;
• the location of a branch or office;
• the place where the service is performed; and
• the place of manufacture or production.
As previously indicated, the determination of whether a person is carrying on business in Canada for GST/HST purposes is a question of fact requiring consideration of all relevant facts. However, based on the information provided, it appears that Company A would be carrying on business in Canada for GST/HST purposes. Factors indicating that Company A is carrying on business in Canada for GST/HST purposes are that Company A purchases some raw materials in Canada, has goods manufactured from those raw materials, has an inventory of the finished goods in Canada for sale, and delivery of some of the finished goods supplied by Company A occurs in Canada.
For your further information, please find enclosed a copy of revised GST/HST Policy Statement P-051R2, Carrying on Business in Canada, which was released on September 8, 2004, for public comments by November 30, 2004.
XXXXX
The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Revenue Agency with respect to a particular situation.
For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6743.
Yours truly,
Cheryl R. Leyton
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
2004/11/16 — RITS 49335 — Site Lease
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