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 0L5XXXXX
XXXXX
XXXXX
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Case Number: 62564XXXXX
XXXXX
XXXXXJune 30, 2006
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Subject:
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GST/HST RULING
GST/HST Registration of XXXXX
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Dear XXXXX:
Thank you for your fax XXXXX, on behalf of your client, XXXXX, in which you requested a ruling concerning the application of subsection 240(1) of the Excise Tax Act ("ETA") to XXXXX.
The Minister of Finance announced in the Federal Budget of May 2, 2006, a proposal to reduce the rate of the GST and the federal portion of the HST by 1%, effective July 1, 2006. Bill C-13 was tabled in Parliament on May 2, 2006, and received royal assent on June 22, 2006. The general rule is that the rate of GST will be reduced from 7% to 6% and the rate of the HST from 15% to 14% on supplies for which the GST/HST is paid on or after July 1, 2006, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to Reduction in the Rate of the GST/HST - Questions and Answers http://www.cra-arc.gc.ca/agency/budget/2006/gstrateqa-e.html on the CRA Web site.
Statement of Facts
We understand the following facts from the fax XXXXX and other additional information you submitted.
• XXXXX is a United Sates company and is incorporated in the state XXXXX.
• XXXXX is not registered for GST/HST purposes.
• XXXXX.
• XXXXX has an office in Canada where the Canadian operations are managed. The office is located in XXXXX.
• XXXXX has a full time employee in Canada who manages these operations.
• XXXXX purchases goods in Canada, maintains an inventory of those goods in Canada and sells all of them XXXXX.
• XXXXX contracts with Canadian XXXXX to sell their goods XXXXX.
• XXXXX.
• XXXXX.
• XXXXX has a bank account in Canada.
• XXXXX.
• XXXXX.
Ruling Requested
Whether XXXXX is required to be registered under subsection 240(1) of the ETA.
Ruling Given
Based on the facts set out above, we rule that XXXXX is not required to be registered under subsection 240(1) of the ETA.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by this ruling provided that none of the above issues is 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
Subsection 240(1) of the ETA requires every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada to be registered for GST/HST purposes, except where
(a) the person is a small supplier (i.e., annual worldwide taxable sales, including those of the person's associates, do not exceed $30,000);
(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 XXXXX is carrying on business in Canada is a question of fact that requires consideration of all relevant facts. The factors that will be considered in determining whether a non-resident is carrying on business in Canada for GST/HST purposes are listed in enclosed Policy Statement P-051R2, Carrying on Business in Canada and 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 or assets are acquired;
• the place from which transactions are solicited;
• the location of assets or 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.
Based on the information provided, XXXXX has an office in Canada, purchases goods in Canada, has an inventory of goods in Canada, has an employee in Canada, solicits orders in Canada and has a bank account in Canada. Based on these factors XXXXX appears to be carrying on business in Canada for GST/HST purposes.
Although XXXXX appears to be carrying on business in Canada for GST/HST purposes, it is not required to be registered under subsection 240(1) of the ETA because XXXXX does not make taxable supplies in Canada. The sale of goods by XXXXX. Subsection 142(2) of the ETA provides that a supply of a good by way of sale is deemed to be made outside Canada if the good is, or is to be, delivered or made available outside Canada to the recipient of the supply. XXXXX.
Generally, subsection 169(1) of the ETA provides that where a person acquires or imports property or a service or brings into a participating province for exclusive consumption, use or supply in the course of its commercial activities and, during a reporting period of the person during which the person is a registrant, tax in respect of the supply, importation or bringing in becomes payable by the person or is paid by the person without having become payable, the person is entitled to an ITC for the period in respect of the tax on the property or service. A "registrant" is defined in subsection 123(1) of the ETA as a person who is registered, or who is required to be registered.
XXXXX is not entitled to ITCs under subsection 169(1) of the ETA for tax that became payable or was paid by XXXXX on its purchases during reporting periods during which XXXXX was not a registrant. As XXXXX is not required to be registered, as previously explained, XXXXX may only become entitled to ITCs under subsection 169(1) of the ETA for tax that becomes payable or is paid by XXXXX during reporting periods during which it is registered. XXXXX may register voluntarily as explained below.
Subsection 171(1) of the ETA provides that where at any time a person becomes a registrant and immediately before that time the person was a small supplier, for the purpose of determining an ITC of the person, the shall be deemed
(a) to have received, at that time, a supply by way of sale of each property of the person that was held immediately before that time for consumption, use or supply in the course of commercial activities of the person; and
(b) to have paid, at that time, tax in respect of the supply equal to the basic tax content of the property at that time.
Please note that subsection 171(1) of the ETA will not apply to XXXXX if it voluntarily registers since XXXXX will not be a small supplier immediately before it registers. Generally, under section 148 of the ETA, a person is considered to be a small supplier if the person's total worldwide taxable revenues, including the taxable revenues of its associates are $30,000 or less in the last four consecutive calendar quarters and in any single calendar quarter.
Although XXXXX is not required to register pursuant to subsection 240(1) of the ETA, it may voluntarily register pursuant to subsection 240(3) of the ETA. This subsection provides for the voluntary registration of a person who is engaged in a commercial activity in Canada.
Subsection 123(1) of the ETA defines commercial activity of a person as a business carried on by the person (other than a business carried on without a reasonable expectation of profit by an individual, a personal trust or a partnership, all of the members of which are individuals), except to the extent to which the business involves the making of exempt supplies by the person.
If XXXXX voluntarily registers, it will be considered a registrant as of the effective date of its registration.
For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Goods and Services Tax Rulings.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-6743.
Yours truly,
Cheryl R. Leyton
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
2006/07/11 — RITS 76850 — Tax Status of Memberships
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