20 February 2006 GST/HST Interpretation 53901 - Registration Requirements for a Non-resident

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 facsimile XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of intermodal cargo containers by XXXXX. XXXXX. The request, which was submitted to the XXXXX Regional Office of the Canada Revenue Agency, was subsequently forwarded to our office for reply.

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

Statement of Facts

1. XXXXX is a non-resident corporation that is registered for purposes of the GST/HST XXXXX.

2. XXXXX is a lessor of intermodal cargo containers, i.e., watertight steel boxes of various sizes and types that are used by shipping lines and other transport companies to move goods in international trade. The containers are designed to transport goods over multiple modes including by ship, rail, or road.

3. XXXXX is considered a "container operator" which, as defined in the Canada Border Services Agency (CBSA) Memorandum D3-7-1, means, "a person or a company who is a lessor of cargo containers classified under tariff item No. 9801.10.00, for use in international service."

4. The intermodal foreign-based containers that XXXXX leases are covered by the Customs Convention on Containers (1972).

5. XXXXX leases containers from XXXXX locations XXXXX, including depots in Canada.

6. While a container is under lease the lessee is contractually responsible to handle any domestication issues XXXXX, consumption tax issues XXXXX and any other tax related issue, if applicable. XXXXX.

7. A lease starts when the lessee picks-up the container from a depot and ends when the lessee returns the container to the nearest depot location (which may be any place in the world and not necessarily the one from where it was initially taken). During the period of the lease, XXXXX is unaware of the location of the leased container.

8. When not under lease, a container that is in Canada is stored and serviced (repaired), if necessary, by a depot in Canada that has been contracted by XXXXX to provide these services.

9. The depot is an unrelated third party who provides services to the container lessor. The depot is considered a "container pool operator", which is defined in Memorandum D3-7-1 to mean, "a company which maintains a storage facility for cargo containers classified under tariff item No. 9801.10.00, which will be leased for use in international service."

10. Some of the depots used by XXXXX in Canada are licensed as bonded warehouses, others are licensed as sufferance warehouses, and some are considered qualified container pool operators that are authorized to maintain containers under the Customs Post Audit System (described in the CBSA Memorandum D3-7-1).

11. While the containers are being held for international lease at the depots in Canada and an opportunity to dispose of the containers arises in respect of which the benefits of sale are economically compelling, XXXXX will sell the containers. The purchasers of the containers that are supplied by way of sale from the depots by XXXXX may include: the depots, international and local transport companies, and businesses that may use the containers for storage.

12. The sale typically occurs while the container is at the depot, and the contract requires the purchaser of the container to perform any required domestication (if the container is to remain within the country) and pay any required fees or taxes XXXXX. XXXXX does not have any knowledge of how or where the purchaser will use the container. XXXXX.

13. The delivery clause of the XXXXX agreement states that the containers are sold on an XXXXX basis. Title to the equipment is transferred to the purchaser on the date of the pickup of the equipment from the depot.

Ruling Requested

1. Based on section 144 of the ETA, the sales of containers at depots in Canada (including at a Customs bonded warehouse, a sufferance warehouse, or the depot of a qualified container pool operator while under the control of the operator) by XXXXX (as described in the facts) are considered to be supplies made outside Canada for GST/HST purposes.

2. XXXXX is not required to collect Division II tax (of Part IX of the ETA) on the supply by way of sale of the containers at depots in Canada and instead the recipients of the supplies of the containers are required to pay Division III tax (of Part IX of the ETA) with respect to the containers.

Ruling Given

Based on the facts set out above, we rule that:

1. The supplies by way of sale of containers at depots in Canada by XXXXX as described in the facts are deemed to be taxable supplies made in Canada for GST/HST purposes. Section 144 of the ETA does not apply to the sale of the containers.

2. As the supplier of the containers supplied by way of sale in Canada, XXXXX is required to collect GST at 7% or HST at 15% on the taxable (other than zero-rated) supplies by way of sale of the containers in 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 ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

A taxable (other than zero-rated, i.e., taxable at 0%) supply that is made in Canada is subject to the GST at the rate of 7% or the HST at the rate of 15% where the supply is made in the participating provinces of Nova Scotia, New Brunswick or Newfoundland and Labrador.

Pursuant to subsection 142(1), a supply by way of sale of tangible personal property (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. This rule is based on where legal delivery of the TPP occurs.

With respect to the HST, section 1 of Part II of Schedule IX provides that a supply by way of sale of TPP is made in a province if the supplier delivers the property or makes it available in the province to the recipient of the supply. As a result, where legal delivery of a container supplied by way of sale occurs at a depot in a participating province, the supply of the container is deemed to be made in the participating province.

Based on the facts, delivery of each of the containers in question occurs at the particular depot in Canada at which the container is located for pick-up by the purchaser. The supplies of the containers are therefore made in Canada. As the supplier, XXXXX is required under subsection 221(1), to collect the GST at 7% or the HST at 15% on the taxable (other than zero-rated) supplies of the containers. That tax is to be included pursuant to subsection 225(1) in determining the net tax of XXXXX for the reporting period in which it became collectible. Any resulting positive amount of net tax must be remitted by the due dates of the returns for those reporting periods under subsection 228(2).

If the purchaser of the container is a GST/HST registrant and has acquired the container for use, consumption or supply exclusively in the course of its commercial activities, the purchaser would be entitled to an input tax credit (ITC) under subsection 169(1) for the tax on the container and may claim that ITC once it has been provided with sufficient documentation required under 169(4), including prescribed information under the Input Tax Credit Information (GST/HST) Regulations.

Although section 144 is a place of supply rule that can override subsection 142(1) and deem a supply of goods that is delivered in Canada to be made outside of Canada, this rule does not apply to deem the supply of the containers in this case to be made outside of Canada.

Section 144 provides that a supply of goods that have been imported in compliance with the Customs Act or any other Act of Parliament that prohibits, controls or regulates the importation of goods, but have not been released before the goods are delivered or made available in Canada to the recipient of the supply, shall be deemed to be made outside Canada.

The containers in this case are not subject to tax when they are imported on the basis of having been classified under tariff item 9801.10.00. Section 1 of Schedule VII to the ETA provides for the non-taxable importation of goods classified under tariff item 9801.10.00. However, for purposes of section 144, the containers in this case are considered to have been delivered or made available to the recipient after their release.

"Release" is defined under the Customs Act to mean in respect of goods, to authorize the removal of the goods from a customs office, sufferance warehouse, bonded warehouse or duty free shop for use in Canada. The containers in this case are considered to have been imported temporarily when they physically enter Canada and are considered to have been released at that time. This is regardless of whether the containers are directly sent to a depot that is a bonded warehouse, a sufferance warehouse or the facility of a qualified container pool operator operating under the Customs Post Audit System for containers.

Subsection 32(6) of the Customs Act provides for regulations to be made prescribing the circumstances in which goods may be released without any requirement of accounting. As set out in the enclosed CBSA Memorandum D17-1-0, pursuant to section 7 of the Accounting for Imported Goods and Payment of Duties Regulations, imported goods classified under tariff item 9801.10.00 are considered to have been released without any requirement of accounting and are reported orally under the Reporting of Imported Goods Regulations.

Although the imported goods that are in the containers may not be considered to have been released, and may be relieved of tax on the basis of having been placed in a bonded warehouse or sufferance warehouse, the containers themselves are not released and relieved of tax on that basis.

A taxable supply of TPP can be zero-rated as an export under Part V of Schedule VI to the ETA, in certain circumstances. Whether a particular supply of TPP satisfies the conditions for zero-rating is a question of fact requiring consideration of all the relevant facts. For your information, the enclosed GST /HST Memorandum 4.5.2 Exports - Tangible Personal Property, explains the zero-rating provisions in Part V that apply to TPP.

The GST/HST relief accorded to imported goods classified under tariff item 9801.10.00 is conditional on the use of the containers specified for that tariff item as explained in the enclosed CBSA Memoranda D3-1-5 and D3-7-1. For information regarding the application of the Customs Act and its regulations where the containers are sold at a depot in Canada, please contact Virginia Tyrrell, Manager, Carrier and Cargo Policy, Canada Border Services Agency at (613) 954-7198.

If you require clarification with respect to any of the GST/HST issues discussed in this letter, please call me directly at (613) 957-7841.

Yours truly,

Dwayne Moore
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

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