1 October 1996 GST/HST Interpretation 11640-3[7] - Application of GST to Telecommunication Services After April 23, 1996

                                                                        Telephone #: (613) 954-8585
Fax #: (613) 990-1233
File #: 11640-3(dc)
Para. 142.1(2)(a)
Ss. 7 & 22.1, Sch. VI, Part V

Dear Sir:

I refer to your request for an opinion of June 6, 1996, sent to Mr. Garry Ryhorchuk of my staff, concerning the application of the Goods and Services Tax (GST) to the supply of telecommunication services under the proposed amendments to the GST legislation, included in the Ways and Means Motion of April 23, 1996. I apologize for the lateness of this response.

You have provided us with two hypothetical examples, enumerated below, in respect of proposed paragraph 142.1(2)(a) and the proposed amendment to paragraph 7(a) of Part V of Schedule VI to the Excise Tax Act (Act).

1. Supply to a Non-Resident of a Dedicated Line Partly in Canada

A Canadian telecommunication carrier supplies a dedicated telephone line to a non-resident corporation (NRCO) for a fixed monthly charge. The line connects a point in Canada to a point outside Canada.

You ask whether the supply of the line is a zero-rated supply in accordance with section 7, as amended, or any other provision of Part V of Schedule VI to the Act, and would the answer be different if NRCO also carried on the business of supplying telecommunication services, whether or not a GST registrant.

Interpretation Given

Proposed new paragraph 142.1(2)(a) provides that where the telecommunication service consists of making a telecommunications facility available for use, the supply of the service is made in Canada if the facility or any part thereof is located in Canada. This applies whether or not the telecommunication facility is used. Thus, the supply of a dedicated line that is partly located in Canada is a supply of a telecommunication service made in Canada.

Although the supply of such a telecommunication service would be deemed to be made in Canada, Part V of Schedule VI provides for the zero-rating (taxed at 0%) of certain supplies made in Canada that are considered as being exported outside Canada.

Section 7 of Part V is the general zero-rating provision for the supplies of exported services, that are not otherwise listed elsewhere in Part V, so long as these supplies are not excluded from zero-rating by virtue of paragraphs 7(a) to 7(g).

With the proposed amendment brought to section 7 to replace current paragraph 7(a) — a service that is primarily for consumption use or enjoyment in Canada — the supply by the telecommunication carrier of a dedicated telephone line to NRCO would not be excluded from zero-rating under any paragraphs 7(a) to 7(g). Therefore, such a supply may be zero-rated by virtue of section 7.

With respect to the second part of your question, as to whether the answer would be different if NRCO were carrying on the business of supplying telecommunication services, as a GST registrant or not, the answer would remain the same. However, should NRCO be unregistered and also carry on the business of supplying telecommunication services, proposed section 22.1 of Part V, Telecommunication Services, would also apply, under the circumstances, to zero-rate the supply made by the Canadian telecommunication carrier, provided the telecommunication was not emitted and received in Canada.

2. Supply to a Non-Resident of a Dedicated Line Wholly in Canada

For purposes of the above supply, you indicate that the situation and the questions posed are the same as in preceding example number 1.

Interpretation Given

Proposed new subparagraph 142.1(2)(b)(i) provides that a telecommunication service is considered to be supplied in Canada when the telecommunication is both emitted and received in Canada. For example, a telephone call from one location in Canada to another located in Canada is a supply made in Canada, even if the telecommunication facility used to make the call is normally located outside Canada.

Although the above supply is deemed to be made in Canada, the proposed section 7 of Part V would apply to zero-rate this supply as well, regardless if NRCO were registered and carrying on the business of supplying telecommunication services.

Proposed section 22.1 of Part V, however, would exclude such a supply from being zero-rated where the telecommunication is emitted and received in Canada or where NORCO would be a GST registrant.

The foregoing comments represent our general views with respect to the proposed amendment(s) to the Excise Tax Act relating 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 the GST Memoranda Series, do not bind the Department with respect to a particular situation.

Should you require further information concerning the above, please contact Mr. Randy Nanner at (613) 952-8810 or Mr. Daniel Chamaillard at (613) 957-8220.

Yours sincerely,

H.L. Jones
Director
General Applications Division
GST Rulings and Interpretations Directorate
Policy and Legislation Branch

GAD #: 697(GEN)