23 June 2006 GST/HST Interpretation 80536 - PROPOSED LAW/REGULATION GST/HST Rate Reduction

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 the services supplied by 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. 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

Based on the information in your letter, the contractual arrangement between XXXXX and subsequent telephone discussions with XXXXX, our understanding of the facts is as follows:

•   XXXXX is a Canadian resident XXXXX contractor and is registered for GST/HST purposes XXXXX.

•   XXXXX has been contracted to provide labour to XXXXX, a Canadian resident business, in relation to a construction project XXXXX outside Canada.

•   Pursuant to the contract, XXXXX must provide all the labour to finish the work as per the drawings and specifications for the construction project named XXXXX that is located in XXXXX.

•   The services supplied pursuant to the contract are, or, are to be performed by employees of XXXXX on-site at the construction project XXXXX.

Ruling Requested

The supply by XXXXX to XXXXX is not subject to GST/HST.

Ruling Given

Based on the facts set out above, we rule that the supply by XXXXX to XXXXX is not subject to GST/HST as the supply is deemed to be made outside Canada pursuant to paragraph 142(2)(d) of the Excise Tax Act by virtue of the fact that the services performed are in relation to real property that is situated outside Canada.

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 Excise Tax Act, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

Under section 165 of the Excise Tax Act, a taxable supply of a service made in Canada is subject to tax at the GST rate of 7% (HST rate of 15% when made in a participating province: Nova Scotia, New Brunswick, or Newfoundland and Labrador) on the value of the consideration for the supply unless the supply is zero-rated (taxed at 0%). Supplies that are made outside Canada are not subject to GST/HST under Division II of the Excise Tax Act.

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) 952-8812.

Yours truly,

Jeff Frobel
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/06/23 — RITS 81008 — Business Claims for Visitor Rebates