30 March 2006 GST/HST Ruling 59018 - Application of GST/HST to early termination of vehicle lease

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 the supply of a membership through the Internet XXXXX.

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

Statement of Facts

We understand the following facts from your letter.

•   XXXXX is resident in Canada and is registered for GST/HST purposes. XXXXX a Web site; XXXXX.

•   XXXXX offers memberships for a fee XXXXX. Individuals who purchase memberships XXXXX and the right to enter the Web site XXXXX.

•   XXXXX.

•   XXXXX employs individuals, who are resident in Canada, to search the Internet XXXXX.

•   XXXXX.

•   XXXXX.

•   XXXXX.

•   XXXXX.

•   XXXXX.

•   The server is located in Canada XXXXX.

•   XXXXX makes this supply to both residents and non-residents of Canada.

Ruling Requested

Are the supplies of the memberships XXXXX subject to GST/HST?

Ruling Given

The supplies of the memberships XXXXX are taxable (other than zero-rated) supplies of intangible personal property made 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

The supply of XXXXX membership XXXXX is a supply of intangible personal property (IPP) for purposes of the GST/HST.

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

Pursuant to paragraph 142(1)(c) of the ETA, a supply of IPP is deemed to be made in Canada if the IPP may be used (meaning "allowed to be used"), in whole or in part in Canada. Paragraph 142(2)(c) of the ETA deems a supply of IPP to be made outside Canada if it may not be used in Canada.

In determining whether IPP may be used in Canada, reference may be made to any written agreement for the supply that contains terms governing the place of use of the IPP or a general restriction that may be explained on the supplier's Web site as to the use of the IPP, to which the recipient agrees either expressly or implicitly upon acquisition of the supply. As there are no restrictions regarding the place where the IPP supplied by XXXXX may be used, it is considered that the IPP may be used in Canada. This is the case regardless of whether the IPP is actually used in Canada. For example, the fact that IPP may be supplied to a recipient who is outside Canada has no bearing on whether the supply of IPP is considered made in Canada.

Pursuant to section 10 of Part V of Schedule VI to the ETA, the supply of intellectual property or any right, licence or privilege to use any such property is zero-rated when supplied to a recipient who is not resident in Canada and who is not registered for GST/HST purposes at the time the supply is made. A supply of IPP, such as the XXXXX membership, is not considered to be a supply of intellectual property nor is it a right, licence or privilege to use intellectual property, and therefore does not qualify for zero-rating under this provision.

Since the supply XXXXX is neither exempt nor zero-rated, XXXXX is required to collect tax on the supply of the IPP.

Where the supply of the membership is made in Canada, a further analysis with respect to the province in which the supply is made is necessary.

Whether a supply of IPP made in Canada is made in a participating province or non-participating province is determined by section 144.1 of the ETA and Schedule IX to the ETA. Section 144.1 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, made in the province. In any other case, the supply is deemed to be made outside the province. Section 144.1 also states that a supply made in Canada that is not made in a participating province is deemed to be made in a non-participating province.

Section 3 of Part IX of Schedule IX to the ETA provides that, notwithstanding any other Part of Schedule IX, a supply of property or a service is made in a province if the supply is prescribed to be made in the province.

Pursuant to section 6 of the Place of Supply (GST/HST) Regulations, where a supply of a membership is made to an individual and the Canadian rights in respect of the membership may be exercised otherwise than exclusively in one province, the supply is made in a particular province if the mailing address of the individual is in that province. "Canadian rights" refers to that part of the IPP that may be used in Canada (Section 1 of the Place of Supply (GST/HST) Regulations). Where there are no restrictions regarding the province in which the membership may be used, it will always be the case that the membership may be used otherwise than exclusively in one province. Therefore, where the supply of the membership is made to an individual whose mailing address is in a participating province, the supply will be subject to HST at 15%. Otherwise, the supply of the membership is subject to GST at 7%. As such a non-resident who acquires a membership from XXXXX is required to pay GST at 7%.

For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Goods and Services Tax Rulings.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 729-4140.

Yours truly,

Cheryl R. Leyton
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/03/17 — RITS 60371 — Application of GST/HST on Vehicle "Trade-ins"