8 February 2008 GST/HST Ruling 98769 - Application of GST/HST to supplies of dried fruit

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 entitlement to input tax credits (ITCs) for tax paid on imported goods.

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

Effective January 1, 2008, the rate of the GST has been reduced from 6% to 5% and the rate of HST from 14% to 13%. The new rates apply to supplies for which the GST/HST is paid on or after January 1, 2008, 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 GST/HST Notice 226, GST/HST Rate Reduction in 2008 on the Canada Revenue Agency (CRA) Web site at www.cra-arc.gc.ca/E/pub/gi/notice226/README.html.

Statement of Facts

We understand that:

1. XXXXX is a GST/HST registrant XXXXX and is a licensed customs house brokers located in XXXXX.

2. XXXXX arranges the clearance of a variety of goods through Canada Customs on behalf of commercial importers.

3. Many of XXXXX clients have arranged with the Canada Border Services Agency (CBSA) direct payment of GST on the last business day of each month and this indemnified XXXXX from any liability in the event of their inability to remit.

4. For all of its other clients, XXXXX is severally liable for all Customs Duties and GST whether or not it has received payment.

5. XXXXX was caused to remit to the Receiver General of Canada $XXXXX on behalf of its client, XXXXX. This importation consisted of XXXXX purchased from a non resident non registered supplier XXXXX.

6. XXXXX is identified on the form B-3 customs accounting document XXXXX, with their own GST registration number XXXXX.

7. XXXXX has not received payment from XXXXX, who has since become bankrupt. The XXXXX were seized by the XXXXX Police as a result of fraudulent activity of the importer.

8. These XXXXX subsequently became Crown property and XXXXX purchased the XXXXX from XXXXX.

9. Since XXXXX acquired legal ownership of XXXXX it has been successful in selling approximately XXXXX leaving a remaining balance of XXXXX. These XXXXX are currently stored in a warehouse XXXXX, and XXXXX is attempting to market and sell them to XXXXX.

10. XXXXX

Ruling Requested

You have requested whether XXXXX is entitled under section 169 of the ETA to claim an ITC for the Division III tax it paid on the importation of the goods on behalf of its client XXXXX.

Ruling Given

Based on the facts set out above, we rule that XXXXX is not entitled under section 169 of the ETA to claim an ITC for Division III tax it paid on the importation of the goods on behalf of its client XXXXX.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are 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

Generally, a registrant is entitled to an ITC under subsection 169(1) of the ETA 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.

Section 178.8 of the ETA affects who is entitled to an ITC under subsection 169(1) of the tax on imported goods in certain circumstances. Subsection 178.8(1) defines a "specified supply" as a supply of goods that "are to be imported" (it also includes goods that have been imported in circumstances where section 144 deems the supply to be made outside Canada because the goods are delivered or made available in Canada to the recipient prior to their release).

Where a specified supply of goods is made outside Canada to a constructive importer of the goods and the goods are imported by the constructive importer or another person for consumption, use or supply by the "constructive importer" of the goods, subsection 178.8(2) 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. Subsection 178.8(2) defines a "constructive importer" of goods as "the recipient of a specified supply of goods made outside Canada who has not made a supply of the goods outside Canada before their release".

Based on the information provided, XXXXX was a recipient of a specified supply of the goods made outside Canada who did not make a supply of the goods outside Canada before the goods were released. Therefore, XXXXX was the constructive importer of the good. For purposes of section 169 of the ETA, the goods are therefore deemed to have been imported solely by XXXXX for supply by XXXXX and the tax on the imported goods is deemed to have been paid and been payable, solely by XXXXX. As a result, XXXXX is the only person who would have been entitled to claim an ITC for the tax on the imported goods.

XXXXX is not entitled to an ITC under subsection 169(1), for the tax on the imported goods because XXXXX is not the constructive importer of the goods pursuant to subsection 178.8(2). Specifically, XXXXX is not considered to have imported the goods nor were the goods imported for its consumption, use or supply nor is the Division III tax considered to have been paid or payable by XXXXX for purposes of subsection 169(1). This is regardless of the fact that XXXXX subsequently purchased the goods from XXXXX.

Where a broker pays an amount of Division III tax as an agent on behalf of its client, as in this case, the recovery of the tax by the broker from the client is a private matter that must be resolved between the parties.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-8530. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Carolle Mercier
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2008/02/19 — RITS 99952 — Financial Institution Annual Information Schedule