2 June 2006 GST/HST Interpretation 59999 - Application of the Excise Tax Act (the "ETA") to the XXXXX

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 goods purchased by XXXXX and its eligibility for corresponding input tax credits ("ITCs"). We apologize for the delay in replying.

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 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 at: (http://cra-arg.gc.ca/agency/budget/2006/gstrateqa-e.html).

We understand that:

•   XXXXX is resident in Canada and is registered for GST/HST purposes XXXXX.

•   XXXXX.

•   Canadian customers can order goods, which will be delivered to the address of their choice. XXXXX.

•   XXXXX.

•   XXXXX.

•   After delivery of the goods to the destination, XXXXX.

•   XXXXX.

•   XXXXX.

•   XXXXX.

•   XXXXX.

•   XXXXX.

•   XXXXX.

•   XXXXX.

Interpretation Requested

1. Whether the application of the GST/HST XXXXX is correct XXXXX.

2. Whether XXXXX can claim an ITC for all of the GST/HST XXXXX. XXXXX whether XXXXX has met the documentary requirements under subsection 169(4) of the Excise Tax Act (the "Act") necessary for it to claim an ITC XXXXX.

Interpretation Given

1. Based on the information provided, the taxable (other than zero-rated) supply of goods XXXXX made by a supplier who is a registrant XXXXX is:

•   made in Canada and subject to GST at a rate of 7% where the goods are delivered or made available XXXXX in Canada and are not deemed supplied in a participating province;

•   made outside Canada and not subject to GST/HST where the goods are delivered or made available XXXXX outside Canada;

•   made in a participating province and subject to HST at a rate of 15% where the goods are either delivered or made available XXXXX in a participating province or are otherwise deemed to be delivered XXXXX in a participating province in certain circumstances where the goods are shipped to a destination in a participating province; and

•   made in a non-participating province and subject to GST at a rate of 7% where XXXXX contracts with the carrier to pick up the goods at the supplier's premises in a non-participating province for shipment to a participating province and the supplier's involvement regarding the shipment is limited to simply notifying the carrier hired by XXXXX of the availability of the goods for pick-up.

Generally, a taxable (other than zero-rated) supply of tangible personal property (TPP) that is made in Canada is subject to GST at a rate of 7% or HST at a rate of 15% if it is made in the participating province of Nova Scotia, New Brunswick or Newfoundland and Labrador.

Pursuant to subsection 142(1) of the Act, a supply by way of sale of TPP is 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. Pursuant to subsection 142(2) of the Act, a supply of TPP is deemed to be made outside Canada if the TPP is, or is to be, delivered or made available to the recipient outside Canada.

These place of supply rules are based on where legal delivery of the TPP occurs. The Canada Revenue Agency's (CRA) 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 GST/HST Memorandum 3.3, Place of Supply. Specifically, 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. "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.

The previously explained place of supply rule under subsection 142(1) of the Act is subject to a further place of supply rule that applies in certain circumstances involving supplies made by suppliers who are unregistered non-residents. Specifically, subsection 143(1) of the Act deems a supply of personal property or a service made in Canada by a non-resident person to be made outside Canada where the non-resident is not registered for GST/HST at the time the supply is made and the supply is not made in the course of a business carried on in Canada by the non-resident.

Once a supply of goods is determined to be made in Canada, for HST purposes, it must then be determined whether the supply is made in a participating province. Section 144.1 of the Act, provides that a supply is deemed to be made in a province if it is made in Canada and is, under the rules set out in Schedule IX to the Act, made in the province, but is deemed to be made outside the province in any other case. Also, a supply made in Canada that is not made in any participating province is deemed to be made in a non-participating province.

Pursuant to section 1 of Part II of Schedule IX to the Act, a supply by way of sale of TPP is made in a province if the supplier delivers the TPP or makes it available in the province to the recipient of the supply. This rule is based on where legal delivery of the TPP occurs as previously explained with respect to section 142 of the Act. However, this rule is subject to the application of the deemed "delivery" rule set out in section 3 of Part II of Schedule IX to the Act. Section 3 provides that for HST purposes, TPP is deemed to be delivered in a particular province by a supplier and is deemed not to be delivered in any other province by the suppler where the supplier either:

•   ships the property to a destination in the particular province that is specified in the contract for carriage of the property or transfers possession of the property to a common carrier or consignee that the supplier has retained on behalf of the recipient to ship the property to such a destination; or

•   sends the property by mail or courier to an address in the particular province.

Where the goods in question that are supplied XXXXX are shipped from an origin in Canada to a destination in Canada, the goods are considered to be delivered or made available XXXXX in Canada, resulting in the supply of the goods being made in Canada under subsection 142(1) of the Act. Where legal delivery of the goods XXXXX occurs in a participating province, the supply of the goods will be deemed under section 1 of Part II of Schedule IX to be made in that province and subject to HST at 15%. As previously indicated, a determination of the province in which goods are delivered or made available in each case requires a review of the terms of the agreement with each supplier and all relevant facts. However, where XXXXX has contracted with the carrier to have the goods picked up at its supplier's premises and shipped to XXXXX customers (i.e. where the supplier is merely notifying the carrier hired by XXXXX of the availability of the goods for pick-up), legal delivery of the goods XXXXX will generally be considered to have occurred in the province in which the goods are picked up by the carrier.

Even if legal delivery of the goods supplied XXXXX does not occur in a participating province, the goods may still be deemed to be delivered in a participating province, and consequently supplied in that province, where the supplier has undertaken one of the actions described in section 3 of Part II of Schedule IX to the Act as described above. For instance, if the supplier has hired a carrier on its own account or on behalf of XXXXX to ship the goods to a destination in a participating province, the goods would be deemed to be delivered in the participating province and supplied in the participating province. On the other hand, where XXXXX hires the carrier to pick up the goods at the supplier's premises in a non-participating province, such as Ontario, for shipment to a participating province, such as New Brunswick, and the supplier simply notifies the carrier of the availability of the goods for pick-up, the rule in section 3 of Part II of Schedule IX to the Act would not apply to deem the goods delivered in a participating province. As a result, the supply of the goods XXXXX in this case would be deemed to be made in the non-participating province of Ontario and subject to GST at 7%.

Where the goods supplied XXXXX by a supplier who is a registrant are shipped to a destination in Canada from a destination outside Canada and the goods are delivered or made available XXXXX outside Canada, the goods will be deemed to be supplied outside Canada under subsection 142(2) of the Act and the supplier will not be required to collect tax from XXXXX on the supply. Where the goods are instead delivered or made available XXXXX in Canada, the goods will be deemed to be supplied in Canada under subsection 142(1) of the Act. The goods may also be deemed to be supplied in a participating province where the conditions of section 1 of Part II of Schedule IX to the Act and where the previously explained conditions of that provision have been met.

2. Based on the information provided, XXXXX would be considered to have met the ITC documentary requirements under subsection 169(4) of the Act to claim an ITC for the tax that it has paid to the suppliers in respect of the goods. This is provided that XXXXX has obtained, whether in a single document or several documents (including in any record contained in a computerized or electronic retrieval or data storage system), all of the information with respect to each of the XXXXX transactions that will allow the amount of the ITC to be accurately verified, including all of the information that is prescribed in the Input Tax Credit Information (GST/HST) Regulations. As always, the determination of a registrant's entitlement to an ITC under subsection 169(1) of the Act and whether it may be claimed in a particular case is subject to verification by the CRA at the time of audit.

Generally, subsection 169(1) of the Act provides that where a person acquires or imports property or a service, or brings it into a participating province and, during a reporting period of the person in which the person is a registrant, the GST/HST in respect of the property or service becomes payable by the person or is paid by the person without having become payable, that person is entitled to an ITC in respect of the tax to the extent (expressed as a percentage) it was acquired, imported or brought into a participating province for consumption, use or supply in the course of the person's commercial activities.

Under subsection 169(4) of the Act, a registrant may not claim an input tax credit for a reporting period unless, before filing the return in which the credit is claimed,

(a) the registrant has obtained sufficient evidence in such form containing such information as will enable the amount of the input tax credit to be determined, including any such information as may be prescribed; and

(b) where the credit is in respect of property or a service supplied to the registrant in circumstances in which the registrant is required to report the tax payable in respect of the supply in a return filed with the Minister under this Part, the registrant has so reported the tax in a return filed under this Part.

The enclosed Input Tax Credit Information (GST/HST) Regulations set out the prescribed information for purposes of subsection 169(4) of the Act. As previously indicated, XXXXX would have to obtain all of the required information set out in these regulations with respect to each transaction XXXXX in order to satisfy the requirements of subsection 169(4) of the Act. All of this prescribed information may be found in more than one document. Also note that "supporting documentation" as defined in paragraph 2(b) of the Regulations includes any record contained in a computerized or electronic retrieval or data storage system.

The foregoing comments represent our general views with respect to the subject matter of your letter. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the Act, regulations, or our interpretative policy could affect this interpretation.

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

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