19 January 2006 GST/HST Ruling 59545 - 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 XXXXX.

All legislative references below are to the Excise Tax Act.

Statement of Facts

The following is our understanding of the background facts, based on the information that you have provided:

1. XXXXX is a privately held company incorporated in the United States. Its head office and operations are located in XXXXX. XXXXX does not have an office in Canada, and is not registered for the GST/HST.

2. XXXXX specializes in the design and manufacture of XXXXX. Accordingly, its customers are automotive plants and parts suppliers. It also provides technical support to its customers.

3. This ruling request concerns, in part, supplies by XXXXX to Canadian automotive plants and parts suppliers. XXXXX sells equipment to these recipients on terms where legal delivery occurs at XXXXX plant before the equipment is imported into Canada.

4. XXXXX also provides installation and ongoing technical support to its Canadian customers. Some of these services are provided under the terms of the equipment sale contract (i.e., installation and warranty work). Other services are provided under separate agreements, and a separate fee, for monthly, quarterly or annual service programs XXXXX. Some of these services may involve equipment that was not sold or installed by XXXXX.

5. XXXXX hired a Canadian resident, living in XXXXX, as an employee. This employee provides the services described above to XXXXX clients in Canada, Europe and the United States. Approximately XXXXX% of the employee's time is spent providing service and support to XXXXX customers in Canada. With respect to these customers, perhaps XXXXX% of the employee's time is spent on installation and warranty work, the remainder being spent on the various service programs referred to in the preceding paragraph.

6. Some of XXXXX service employees located in XXXXX (the staff there numbers about XXXXX) may also provide the services described above to the Canadian customers whether remotely from XXXXX or on-site in Canada. On-site visits by XXXXX employees are generally for the purpose of work under a service program as opposed to installation or warranty work. Such on-site visits are infrequent. Since the visits are generally to nearby XXXXX, the workers commute daily, even if the project takes longer than a day.

7. XXXXX employee in Canada is not required to maintain an office on behalf of XXXXX whether in his home or elsewhere. The employee has a laptop computer, which is used to communicate with the XXXXX office; i.e., orders are received and processed by XXXXX in XXXXX, and the XXXXX office then gives direction to the employee. The employee also receives faxes from, and sends faxes to, XXXXX but the employee does not receive orders by fax (or otherwise) from the customers. The employee does not receive business mail.

8. XXXXX does not have an office, inventory, assets or a bank account in Canada. All billing is done from XXXXX. XXXXX is not listed in any Canadian phone directories, and it does not advertise in Canada.

9. XXXXX website address is XXXXX.

10. XXXXX Ltd. is a major provider of employee services to employers (payroll services, human resources management, benefits administration, etc.). XXXXX supplies payroll services to XXXXX in respect of XXXXX employee in Canada and collects GST from XXXXX on the fee paid by XXXXX for this service. The services provided by XXXXX consist of processing the pay of this employee, which involves making the proper payroll deductions and remittances. XXXXX does not provide an advisory, consulting or professional service to XXXXX. XXXXX Ltd. is a resident of Canada and is registered for the GST/HST.

Rulings Requested

1. Is XXXXX required to be registered for the GST/HST?

2. Is XXXXX required to pay GST on the fee paid to XXXXX Ltd. for the payroll services supplied by XXXXX to XXXXX in respect of XXXXX employee in Canada?

Ruling Given

1. Based on the facts set out above, XXXXX is required to be registered for the GST/HST.

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.

Ruling Explanation

Pursuant to subsection 240(1), every person ^[xlviii]1 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 the purposes of the GST/HST 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.

In the present case, it is apparent that the exceptions under paragraphs 240(1)(a) and (b) above do not apply. Likewise, the exception under paragraph 240(1)(c) does not apply since, based on the facts, XXXXX does carry on business in Canada for GST/HST purposes. Therefore, XXXXX is required to register for the GST/HST.

With reference to paragraph 240(1)(c) above, whether a non-resident person such as XXXXX carries on business in Canada for GST/HST purposes is a determination that requires consideration of all relevant facts. Enclosed GST/HST Policy Statement P-051R Carrying on Business in Canada sets out factors and principles to be considered in making such a determination. These 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.

As explained in the policy statement, the importance or relevance of a given factor in a specific case depends on the nature of the business activity under review, and the facts and circumstances of each case.

XXXXX is making supplies of services, as described in the facts, that are to be performed in Canada by XXXXX employees, whether by the employee residing in Canada year-round, or the employees who, on occasion, enter Canada to perform services. XXXXX is carrying on business in Canada for GST/HST purposes based on this fact and the significance of these services to the overall business activity of XXXXX.

As a registrant (i.e., a person that is registered or is required to be registered for the GST/HST), XXXXX is required to collect tax on its taxable supplies made in Canada. A supply of a service is deemed to be made in Canada under subsection 142(1) if the service is performed in whole or in part in Canada. Generally, with the exception of zero-rated supplies, a taxable supply made in Canada is subject to GST at the rate of 7%, or to HST at a rate of 15% if the supply is made in the "participating provinces" of Nova Scotia, New Brunswick or Newfoundland and Labrador.

As a registrant, XXXXX is also entitled to input tax credits under subsection 169(1) in order to recover any tax that is paid or becomes payable by XXXXX as a registrant with respect to goods or services acquired or imported for consumption, use or supply in the course of its commercial activities.

Interpretation Given Re Payroll Services

As we discussed with you recently, we are unable to provide a written ruling concerning the payroll services supplied by XXXXX since we have not been provided a copy of the agreement describing XXXXX services to XXXXX. However, for your assistance, we will provide the following general comments concerning payroll services.

Section 7 of Part V of Schedule VI zero-rates a supply of services made to a non-resident, subject to certain exceptions set out in the provision. Please note that a "zero-rated" supply is a taxable supply where the applicable tax rate is zero. Generally, a supply of payroll services supplied to a non-resident is zero-rated under section 7. Based on the information you provided concerning the payroll services supplied by XXXXX to XXXXX, it appears that the services would fall under the zero-rating provision of section 7 of Part V to Schedule VI.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-4291.

Yours truly,

Michael Place
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/01/24 — RITS 63749 — GST Exemption Certificate