16 February 2005 GST/HST Ruling 46992 - Sales of XXXXX Lots

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 XXXXX letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your operations. We apologize for the delay in our response.

You design book covers. You live and work in XXXXX, and are not registered for the GST/HST. Your clients are predominately located in the United States. You design the cover for a book, and send it electronically to the client. The client receives the rights to the cover design.

You have an arrangement with a printer in XXXXX ("the Printer") that you use as an incentive to attract clients. The clients can have their books, with the book cover designed by you, printed by the Printer. You usually submit the printing request, although the client may discuss specific issues directly with the Printer.

The document and cover design is provided to the Printer electronically. You also provide advice to your clients regarding the printing of their books, such as what type of paper to request and how to best set up the book for printing. You can upload the document and cover design to the Printer's server for the client, but refer clients to another person if the file format of the document has to be converted to the format used by the printer.

The Printer prints the books, and ships the books directly to the clients. At no time do you receive the books.

The Printer invoices you for the books, and gives you a discount because of the volume of business you generate. The invoices from the Printer do not contain shipping information. The delivery charges are usually paid by the U.S. client.

You pay the Printer for the books and charge your clients a higher price for the books than the Printer charges you. You keep the difference as your profit. You sometimes bill the client separately for the book cover design and the books.

Rulings Requested

Should the Printer charge you GST in respect of the books that are shipped to the U.S?

Should the Printer charge you GST in respect of the books that are shipped within Canada?

Interpretation Given

In accordance with section 1.4 of Chapter 1 of the GST/HST Memoranda Series, a ruling can only be issued with reference to a clearly defined fact situation of a particular person. Rulings are issued upon request and where the person has presented all the relevant facts such as the nature of the transactions undertaken, detailed descriptions of services and property involved, the parties involved in all transactions and relevant documentation such as invoices, contracts and other pertinent agreements. Where all the relevant facts are not provided, an interpretation may be issued. We are pleased to offer you the following interpretation.

Generally, a taxable supply made in Canada is subject to tax at 7%, or 15% if the supply is made in a participating province (Nova Scotia, New Brunswick, and Newfoundland and Labrador), pursuant to section 165 of the Excise Tax Act (ETA). A supply that is made outside Canada is not subject to tax. Whether a supply is made in or outside Canada is determined under the general place of supply rules outlined in section 142 of the ETA, and depends on the nature of the supply (i.e., whether it is of tangible personal property, real property, intangible personal property or services).

Based on the limited facts provided, it would appear that the Printer is making supplies of books (tangible personal property). You are the recipient of that supply (as defined in subsection 123(1) of the ETA, the "recipient" of a supply of property or a service is the person who is liable to pay the consideration for the supply), although the books are shipped directly to your clients, most of whom are non-residents. You in turn supply the books to your clients.

Paragraph 142(1)(a) of the ETA states that a supply by way of sale of tangible personal property shall be deemed to be made in Canada if the property is, or is to be, delivered or made available in Canada to the recipient of the supply. Paragraph 142(2)(a) states that a supply by way of sale of tangible personal property shall be deemed to be made outside Canada if the property is, or is to be, delivered or made available outside Canada to the recipient of the supply.

Memorandum 3.3, Place of Supply, provides more information on how the phrase "delivered or made available" is interpreted for purposes of paragraphs 142(1)(a) and 142(2)(a) of the ETA. 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, as follows:

•   "Delivered" refers to those situations where delivery of the tangible personal property under the applicable law of the sale of goods is effected by actual delivery.

•   "Made available" refers to those situations where delivery of the tangible personal property under the applicable law of the sale of goods is effected by constructive delivery (i.e., actual physical possession of the tangible personal property is not transferred to the recipient of the supply yet is recognized as having been intended by the parties and as sufficient in law). For example, situations arise where a person sells tangible personal property to another person and agrees to hold the property as bailee for the buyer.

Generally, the place where the tangible personal property is delivered or made available can be determined by reference to the terms of the contract. However, in the absence of such terms, the place where the tangible personal property is delivered or made available may be determined by reference to the place where the tangible personal property is considered to have been delivered under the law of the sale of goods applicable in that case. For example, in the absence of evidence to the contrary, where the Printer is authorized or required to send the books to your client, delivery of the books to a carrier for the purpose of transmission to your client would constitute delivery to you whether the carrier is named by you or not. As such, where this takes place in Canada, the supply of the books by the Printer would be considered to be made in Canada and subject to tax at 7% unless zero-rated (taxed at 0%) as an export.

A taxable supply of tangible personal property made in Canada may be zero-rated as an export under section 1 or section 12 of Part V of Schedule VI to the ETA provided the conditions in either of the provisions are met.

Section 1 of Part V of Schedule VI to the ETA zero-rates a supply of tangible personal property (other than an excisable good) made by a person to a recipient who intends to export the property provided:

•   the recipient is not a consumer;

•   the recipient exports the property as soon after the property is delivered to the recipient as is reasonable, taking into account the circumstances surrounding the exportation and where applicable, the recipient's usual business practices;

•   the property is not acquired by the recipient for consumption, use or supply in Canada prior to export;

•   after the supply is made and before the recipient exports the property, the property is not further processed, transformed or altered in Canada by the recipient except to the extent reasonably necessary or incidental for its transportation; and

•   the supplier maintains satisfactory evidence of the exportation of the property by the recipient.

Under section 12 of Part V of Schedule VI to the ETA, a supply of tangible personal property may be zero-rated if the supplier

•   ships the property to a destination outside Canada that is specified in the contract for carriage of the property;

•   transfers possession of the property to a common carrier or consignee that has been retained by the supplier on behalf of the recipient or the recipient's employer to ship the property to a destination outside Canada; or

•   sends the property by mail or courier to an address outside Canada.

When a supply of tangible personal property is zero-rated as an export, the supplier must maintain satisfactory evidence that it has been exported. We have enclosed a copy of section 4.5.2, Exports - Tangible Personal Property of the GST/HST Memoranda Series that discusses these zero-rating provisions and the documentary requirements.

The determination of whether a supply of books by the Printer to you is zero-rated under section 1 or section 12 of Part V of Schedule VI to the ETA must be made based on the facts of each case.

Where it is determined that the supply by the Printer is made in Canada and not zero-rated, the supply of the books by the Printer is considered to be made in a participating province where the Printer ships the books to a destination in a participating province or transfers possession of the books to a common carrier that the Printer has retained on behalf of the recipient to ship the property to such a destination.

Generally, taxable supplies made in a participating province are subject to HST of 15% unless zero-rated. However, a point-of-sale rebate of the provincial component of the HST (8%) is available on supplies of a printed book or an update of a printed book, an audio recording all or substantially all of which is a spoken reading of a printed book, or a bound or unbound printed version of scripture of any religion. The point-of-sale rebate applies at every point in the distribution chain, including sales by retailers, publishers, wholesalers and distributors. Normally, the supplier pays or credits the rebate to the purchaser when the qualifying goods are bought, so that the tax is applied at a rate of 7%.

Please note that 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 or $50,000 where the person is a public service body.

There is an exception to this rule. Generally, 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 world-wide taxable supplies made by the person, or an associate of the person at the beginning of the calendar quarter, exceeds $30,000 or $50,000 where the person is a public service body. 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 $30,000 (or $50,000) 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 in determining the $30,000 (or $50,000) threshold.

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) 957-8253.

Yours truly,

Jacqueline Russell
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2005/02/17 — RITS 47887 — GST on the Supply of a Condominium Unit