13 September 2005 GST/HST Ruling 60479 - Section 256 New Housing Rebate

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.

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your client's operations.

We regret to inform you that the Canada Revenue Agency (CRA) is unable to issue a GST/HST ruling in regards to the matters raised in your submission. The CRA's policy with respect to the issuance of GST/HST rulings is outlined in the enclosed document entitled GST Memorandum 1.4 Goods and Services Tax Rulings. You will note that for GST/HST purposes, an application ruling provides the CRA's position on specific provisions of Part IX of the Excise Tax Act (ETA) as these relate to a clearly defined fact situation of a particular person. In order for the CRA to provide a ruling that pertains to specific circumstances, all relevant documents (e.g. all contractual agreements, copies of certificates with terms and conditions) and information must be provided. Since the matters referred to us deal with unknown parties, and the nature of all the contractual obligations and, in particular, terms of all payments have not been specifically identified in all instances, we are unable to provide a ruling. However, we are pleased to issue a GST/HST interpretation based on our understanding of the information presented in your request.

The following information is based on your letter, our telephone conversation on XXXXX and XXXXX. We apologize for the delay in this response.

Background

1. Your business is a corporation ("the Corporation") and is in the electronic (i.e. online) XXXXX trade. The Corporation, XXXXX, is located in Canada and is currently not registered for GST/HST purposes.

2. XXXXX may organize their own XXXXX with the Corporation at XXXXX. The Corporation does not charge a XXXXX fee to the XXXXX.

3. The XXXXX are divided into equitable portions such as XXXXX.

4. XXXXX visit the online XXXXX and contribute money online by credit card to the portion(s) of their choice.

5. The Corporation tracks XXXXX made by the XXXXX and will notify the XXXXX of these contributions made.

6. Contributions are made in Canadian dollars only and are held in the Corporation's trust account until a predetermined date, when the money is paid to the XXXXX by direct deposit or certified cheque.

7. In essence, the contributions collected from the XXXXX; it does not require the registered XXXXX to purchase the specific XXXXX. More so, the XXXXX can choose to purchase any XXXXX directly from merchants listed on your website or, use the funds at there own discretion with no restrictions whatsoever. The Corporation does not supply any of the XXXXX.

8. The Corporation's XXXXX is targeting the Canadian marketplace however, XXXXX can be non-residents of Canada, in particular, from the United States.

9. The Corporation is considering using one of the two following scenarios when charging a fee for their service:

Scenario A - A percentage of the total contributions will be retained at the time the money is paid to the XXXXX, and

Scenario B - A percentage will be added to the contributions made by the XXXXX at the time each contribution is made (your preferred method).

Thus, Scenario A will have the fee paid by the XXXXX and Scenario B will have the fee paid by the XXXXX.

10. The Corporation will also supply advertising space on the website to merchants in the XXXXX. The Corporation will charge a monthly fee for the space, plus a commission for any sales made by the merchant as a result a link provided on your website.

Interpretation Requested

1. How does the GST/HST apply to the fees being charged in Scenario A and Scenario B, as described above?

2. How does tax apply to the fees for advertising space including commissions?

Interpretation Given

Every recipient of a taxable supply (other than zero-rated) made in Canada is required to pay GST or HST in respect of the supply. Where a taxable supply (other than zero-rated) is determined to be made in a non-participating province, it will be subject to the GST at the rate of 7%. Where a taxable supply (other than zero-rated) is determined to be made in a participating province, the supply is subject to HST at the rate of 15%. The three participating provinces are Nova Scotia, New Brunswick, and Newfoundland and Labrador.

The characterization of a supply (i.e., determining whether the supply is one of property or services) is fundamental to the application of the GST/HST, as it affects the place where a supply is considered to be made, the tax rate that applies to a supply, the manner in which tax is collected, and the timing of liability for tax in respect of a supply. Supplies made by electronic means are considered to be either intangible personal property or services.

Based on the information provided, it is the CRA's view that the supply of the Corporation's online XXXXX is a supply of service made in Canada.

Transfer of money

In accordance with paragraph (a) of the definition of "financial service" under subsection 123(1) of the Excise Tax Act (ETA), a financial service includes "the exchange, payment, issue, receipt or transfer of money, whether effected by the exchange of currency, by crediting or debiting accounts or otherwise".

Where a person is supplying a service of transferring money XXXXX between two other persons, the service would be considered a financial service for GST/HST purposes. Section 1 of Part VII of Schedule V to the ETA exempts a financial service that is not included in Part IX of Schedule VI (i.e. zero-rated supplies).

Advertising services

The supply of hosting advertising links (e.g. publicizing companies' messages on the internet by placing hypertext links or banner ads) on a web site is considered the supply of advertising service. More particularly, the supply of referrals and representation on behalf of on-line suppliers of goods or services XXXXX but not supplying the goods or services being advertised or marketed, is the supply of bringing consumers and merchants together on-line and is characterized as a supply of a service. Such advertising services would be taxable for GST/HST purposes at the rate of 7%/15%, respectively.

As an example, a web site operator hosts electronic links of various merchants XXXXX on its server, and shoppers XXXXX can select products from these links and place orders on-line, the operator is making a supply of advertising service. In these cases, the merchants may pay the operator a set fee or, a commission based on a percentage of the value of sales that are placed through the site. The web site operator has no contractual relationship with the shopper, but merely transmits orders to the merchant who is ultimately responsible for accepting and filling the shopper's request. The web site operator is making a taxable supply of advertising services to the merchant and would charge GST/HST on the consideration payable for the supply.

Registration and other information

Every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada must register for the GST/HST except where, among other things, the person is a small supplier. Generally, a person qualifies as a small supplier during any calendar quarter and the following month if the total value of the consideration for world-wide taxable supplies, including zero-rated supplies, made by the person (or an associate of the person at the beginning of the particular calendar quarter) that became due, or was paid without becoming due, in the previous four calendar quarters does not exceed $30,000 (note, where the person is a public service body, the small supplier threshold is $50,000).

There is an exception to the rule above. A person ceases to be a small supplier at any time in a calendar quarter if the total value of the consideration that becomes due, or is paid without having become due, in that quarter for worldwide taxable supplies made by the person, or an associate of the person at the beginning of the calendar quarter, exceeds $30,000. In this case, the person ceases to be a small supplier immediately before the consideration becomes due or is paid for the particular taxable supply that puts the person over the small supplier threshold.

Both of these calculations exclude consideration attributable to the sale of goodwill of a business, supplies of financial services, and supplies by way of sale of capital property.

Small suppliers may voluntarily register for the GST/HST. For more information on small suppliers, voluntary registration, and required registration, please refer to the enclosed guide, General Information for GST/HST Registrants.

Generally, a GST/HST registrant is eligible to claim input tax credits (ITCs) for the GST/HST paid or payable on goods and services acquired or imported by the registrant for consumption, use or supply in its commercial activities. These ITCs permit the registrant to recover the GST/HST paid or payable on goods and services to the extent that it relates to taxable (including zero-rated) supplies of goods and services made by the registrant. As such, if the Corporation is registered for the GST/HST, it may be entitled to claim ITCs to recover any GST/HST paid or payable in the course of providing the zero-rated advertising services. For more information on ITCs, please refer to the enclosed guide, General Information for GST/HST Registrants.

We have also enclosed for your perusal, the GST/HST Technical Information Bulletin B-090, GST/HST And Electronic Commerce. This bulletin provides further information on the application of GST/HST to supplies made by electronic means.

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.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-952-0328.

Yours truly,

Collin Baird
GST/HST Rulings Officer
Specialty Tax Unit
Financial Institutions & Real Property Division
Excise and GST/HST Rulings Directorate

Enc.: GST Memorandum 1.4 Goods and Services Tax Rulings

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