27 January 2006 GST/HST Interpretation 44598 - ITC for tax on imported 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 supplies made by XXXXX a non-resident corporation. We apologize for the delay in replying to your written request.

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

Statement of Facts

Based on your letter, the accompanying service agreement and the extension to the service agreement, we understand the following:

1. XXXXX a XXXXX company enters into a service agreement with XXXXX and XXXXX (both XXXXX are Canadian companies) for the consulting services provided by XXXXX with respect to the implementation of a software system XXXXX in XXXXX Canada.

2. The service agreement was signed in Canada XXXXX by representatives from XXXXX.

3. XXXXX is an employee of XXXXX. Prior to his employment with XXXXX, XXXXX was employed by XXXXX, which is not associated with XXXXX.

4. As per the service agreement, XXXXX hires out XXXXX to XXXXX for approximately XXXXX% of his working time. He spends XXXXX to XXXXX days per month working in Canada and XXXXX to XXXXX days per month working in XXXXX from XXXXX until XXXXX and XXXXX until XXXXX. An extension to the service agreement XXXXX was submitted along with the original service agreement. Pursuant to this document, the parties agreed to extend the client service agreement from XXXXX to XXXXX.

5. XXXXX invoices XXXXX for XXXXX services (charged on an hourly basis).

6. XXXXX has no connection to the software system and the only reason it enters into the service agreement is because of XXXXX prior relationship with XXXXX.

7. XXXXX does not solicit sales in Canada, nor does it have a bank account in Canada.

8. XXXXX has never entered into this type of agreement before, but may have entered into another service agreement with the same parties for the implementation of the software system at the XXXXX plant in XXXXX Canada, which was planned to start in XXXXX.

Ruling Requested

You would like confirmation that XXXXX was not carrying on business in Canada for purposes of the GST/HST and was therefore not required to be registered for the GST/HST in respect of the supply of the service provided by its employee in Canada.

Ruling Given

Based on the facts set out above, we rule that XXXXX was carrying on business in Canada for GST/HST purposes as of XXXXX and therefore was required to be registered for purposes of the GST/HST at that time.

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 provides that every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required 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.

As set out in enclosed GST/HST Policy Statement P-051R2 Carrying on Business in Canada, whether a particular non-resident person is carrying on business in Canada is a question requiring consideration of all relevant facts. The factors that will be considered in determining whether a non-resident person is carrying on business in Canada for GST/HST purposes in a particular situation 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.

The importance or relevance of a given factor in a specific case depends upon the nature of the business activity under review and the facts and circumstances of each case.

XXXXX entered into an agreement in Canada to supply services that were to be performed in Canada, and an employee of XXXXX regularly entered Canada to perform these services. These facts are sufficient to conclude that XXXXX had a significant presence in Canada for GST/HST purposes and was carrying on business in Canada for GST/HST purposes as of XXXXX. Pursuant to subsection 240(1) XXXXX was therefore required to register for the GST/HST as of XXXXX.

If you require clarification with respect to any of the 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

2006/01/05 — RITS 48589 — [Application of the GST/HST to the Purchase and Supply of Memberships]