31 January 2006 GST/HST Interpretation 51717 - Construction of Senior's Residence

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 (with attachments) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the importation of XXXXX. We apologize for the delay in replying.

You have provided the following information:

•   XXXXX.

•   A GST/HST interpretation letter XXXXX was provided to XXXXX by GST/HST Rulings XXXXX explaining the application of section 180 of the Excise Tax Act (the "Act") where a commercial service is supplied by a registrant in respect of imported goods. This interpretation letter also acknowledged that XXXXX was not carrying on business in Canada for GST/HST purposes.

•   XXXXX which is a corporation resident in Canada and registered for GST/HST purposes, operates a XXXXX.

•   XXXXX.

•   XXXXX.

•   XXXXX.

•   The XXXXX were imported between XXXXX.

•   XXXXX was the importer of record of the XXXXX and paid GST at time of importation.

•   Title to the XXXXX transferred from XXXXX when the XXXXX arrived at XXXXX. XXXXX did not take ownership of the XXXXX.

•   XXXXX.

•   XXXXX.

Interpretation Requested

Does the ITC relief mechanism under section 180 of the Act apply with respect to the GST paid on the XXXXX at the time of importation?

Interpretation Given

As explained below, section 180 of the Act would not apply in this case. However, based on the application of proposed section 178.8 of the Act and subsection 169(1) of the Act, XXXXX would appear to be entitled to an ITC for the tax on the importation of the XXXXX.

Section 180 of the Act is intended to provide for the flow-through of an ITC to a registrant for unrecoverable tax that is paid by an unregistered non-resident on the importation of goods in certain circumstances. The provision applies where an unregistered non-resident pays tax on the importation of goods:

•   the physical possession of which the non-resident causes to be transferred in Canada to a registrant in order for the registrant to make a taxable supply of a commercial service in respect of the goods to the non-resident, or

•   that the non-resident supplies to a registrant and delivers, or makes available, in Canada to the registrant before they are used in Canada by or on behalf of the non-resident.

Once the non-resident provides the registrant in either of the circumstances described above with satisfactory evidence that the tax has been paid on the importation of the goods, the registrant is deemed at the time the non-resident paid the tax, to have paid tax in respect of a supply of the goods to the registrant equal to the tax paid on the importation.

The registrant described above who acquires physical possession of the imported goods to perform a commercial service in respect of the goods is also deemed to have acquired the goods for use exclusively in its commercial activities, resulting in the registrant satisfying all of the conditions to become entitled to an ITC for the tax that the registrant is deemed to have paid.

The registrant described above who is a recipient of a supply of the imported goods made by the non-resident must in fact have acquired the goods for consumption, use or supply in the course of its commercial activities to become entitled to an ITC for the tax that the registrant is deemed to have paid.

In accordance with subsection 123(1) of the Act, "commercial service", in respect of tangible personal property, means any service in respect of the property other than

(a) a service of shipping the property supplied by a carrier, and

(b) a financial service.

Our interpretation of a "service in respect of property" is set out in enclosed GST/HST Policy Statement P-151, Interpretation of "Commercial Service" and enclosed GST/HST Memoranda Series 4.5.3 Services and Intellectual Property.

In order to determine whether a service is in respect of tangible personal property it is necessary to determine the requisite degree of relationship between the service and the property. To be considered a commercial service, there must be a functional relationship between the service and the property. A functional relationship exists between the service and the property where the purpose of the service arises from or relates to the property itself. It is also necessary to establish whether a functional relationship between the service and the property is more direct than indirect based on the particular circumstances of the case. Generally, a direct functional relationship exists between a service and property if the service is performed to or on the property.

Based on the information provided, the XXXXX of the XXXXX with the XXXXX would not be considered to be the supply of a service in respect of the XXXXX. Specifically, for purposes of section 180 of the Act, XXXXX is not considered to have acquired physical possession of the XXXXX for the purpose of making a taxable supply of a commercial service in respect of the XXXXX. Rather, it appears that XXXXX acquired physical possession of the XXXXX for the XXXXX.

As previously indicated, section 180 of the Act also applies where the non-resident supplies goods to a registrant and delivers the goods, or makes them available, in Canada to the registrant before they are used in Canada by or on behalf of the non-resident.

A "supply" as defined in subsection 123(1) means, "subject to sections 133 and 134, the provision of property or a service in any manner, including sale, transfer ... licence ... gift or disposition."

Based on the information provided, XXXXX is considered to have made a supply of the XXXXX to XXXXX. XXXXX was given possession of the XXXXX in Canada by XXXXX so that XXXXX could use the XXXXX.

However, in order for section 180 of the Act to apply, the non-resident who makes the supply of goods to the registrant must have paid tax on the importation of the goods. Based on the information provided, there is no indication that XXXXX paid the tax on the importation of the XXXXX. Rather, it is XXXXX, who imported the XXXXX that it owned at the time of the importation in its own leased trucks and who was the importer of record who appears to have paid the tax on the importation of the XXXXX. As a result, section 180 of the Act would not apply in this case regardless of whether a supply of the XXXXX was made to XXXXX or whether a supply of a commercial service in respect of the XXXXX were determined to be supplied by XXXXX in respect of the XXXXX.

Although section 180 of the Act does not apply, it appears that XXXXX would be entitled to an ITC for the tax on the importation of the XXXXX based on the application of proposed section 178.8 of the Act and subsection 169(1) of the Act.

Subsection 169(1) of the Act sets out the general rule regarding the entitlement of a person to an ITC with respect to tax on acquisitions and importations of goods and services. Generally, a registrant is entitled to an ITC with respect to tax on the importation of goods that is paid or payable by the registrant, if the registrant imports the goods for consumption, use or supply in the course of its commercial activities.

Proposed section 178.8 of the Act, was announced in a Notice of Ways and Means Motion tabled on October 3, 2003, and applies to goods imported on or after that day and to goods imported before that day that were not accounted for. ^[xlv]1

Proposed section 178.8 of the Act applies in circumstances where section 180 of the Act does not apply and a "specified supply" of goods is made. A "specified supply" is defined to include a supply of goods ^[xlvi]2 that "are to be imported" ^[xlvii]3. Where a specified supply of goods is made outside Canada and the goods are imported for consumption, use or supply by a "constructive importer" of the goods, subsection 178.8(2) of the Act deems the goods to have been so imported, and any amount payable as or on account of tax on the importation to have been paid or payable, by or on behalf of the constructive importer and not by or on behalf of any other person. The "constructive importer" of the goods is the last person to whom a specified supply of the goods is made outside Canada before their release.

Based on the information provided, it appears that the supply of the XXXXX made by XXXXX to XXXXX was made outside Canada. Generally, a supply of goods is made in Canada under subsection 142(1) of the Act if the goods are delivered, or made available, in Canada to the recipient of the supply. This rule is based on where legal delivery of the goods occurs. Delivery of the XXXXX to the parties in this case appears to have taken place in Canada at XXXXX. However, subsection 143(1) of the Act further 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. The supply of the XXXXX made by XXXXX to XXXXX and by XXXXX to XXXXX would both appear to be deemed made outside Canada under subsection 143(1) of the Act.

Based on the information provided, XXXXX appears to be the last recipient of a specified supply of the XXXXX made outside Canada prior to their release and consequently the constructive importer of the XXXXX. Therefore, the XXXXX that are imported for use by XXXXX in the course of making the supply of XXXXX to XXXXX are deemed under proposed subsection 178.8(2) of the Act to have been so imported, and the tax on the importation to have been paid, solely on behalf of XXXXX. This is regardless of whether another person such as XXXXX was the importer of record for the importation of the XXXXX. XXXXX would be entitled to an ITC for the tax on the importation of the XXXXX under subsection 169(1) of the Act. XXXXX may claim an ITC for the tax on the importation of the XXXXX provided it obtains a copy of the import documentation from XXXXX in order to satisfy the ITC documentation requirements under subsection 169(4) of the Act.

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 section 1.4 of Chapter 1 of the GST/HST Memoranda Series, 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

2006/01/09 — RITS 55422 — [New Residential Rental Property Rebate]