Dear XXXXX
Thank you for your letter dated May 4, 1993, in which you request confirmation that your client, XXXXX[.]
(i) is not obligated to collect the Goods and Services Tax (GST) on sales of journals and books ("Publications") made to non-resident subscription agents which purchase and sell the Publications as principals; and
(ii) may import Publications into Canada without incurring GST under Division III of the Excise Tax Act (Act)
I must apologize for the delay in replying to your letter but as I advised you in an interim response dated, August 27, 1993, we needed to resolve a number of issues concerning former subsection 143(2) and current section 143.1, before we could respond to your questions.
Our previous interpretation of section 143(2) of the Act stated that all registered non-resident persons in the chain of supply of publications destined for delivery in Canada by mail or courier should charge and collect the GST in their respective transactions.
We recently reviewed this interpretation and have obtained a legal opinion confirming that subsection 143(2) and new section 143.1 (which applies to supplies made on and after January 1, 1993) do not apply to supplies made by registered non-residents where the prescribed publications are not sent to the recipient of these supplies at an address in Canada. For example, a supply of prescribed publications made by a non-resident publisher to a resident or non-resident subscription agent who re-sells them as a principal is not deemed to be made in Canada under subsection 143(2) or section 143.1 if the non-resident publisher does not send the publications to the subscription agent (the recipient of the supply made by the non-resident publisher) at an address in Canada.
A registered non-resident shall collect and remit GST, however, if the supply is delivered or made available in Canada. For your information, attached is a copy of the approved GST Policy Statement concerning the meaning of the phrase "delivered or made available" for purposes of section 142 of the Act. You will note that the transfer of title of tangible personal property (TPP) is not directly relevant when determining if a supply of TPP provided by way of sale is, or is to be, delivered or made available in (or outside) Canada. The place where the TPP is delivered or made available may be determined by reference to the place where the TPP is considered to have been delivered under the law of the sale of goods applicable to that case. Generally, the place where the TPP is delivered or made available can be determined by reference to the terms of the contract.
You have stated that XXXXX sells Publications to subscription agents, such as XXXXX who take title to the Publications, however, we are still not able to make a specific determination as to the place of supply of the publications in that specific fact situation.
In your letter you state that XXXXX is the importer of record for Publications which are individually addressed outside of Canada and then shipped to Canada in bulk, destined for delivery by mail or courier in Canada. A typical shipment consists of Publications for delivery to XXXXX customers (whether subscribers or bookstores) and to a subscription agent's customers. After importation, the Publications are sorted, assembled, mailed or sent by courier to subscribers and customers in Canada by an independent fulfillment house, XXXXX.
New section 7.1 (for importations on and after January 1, 1993) of Schedule VII to the Act provides that importations of prescribed publications, regardless of value, are non-taxable at the time of importation if they are sent by mail or courier to the recipient of the supply at an address in Canada and the supplier is registered for the GST at the time the goods are imported. Please note that the "supplier" is not necessarily the person who sends the publications to Canada. In accordance with subsection 123(1), the "supplier" in respect of a supply, means the person making the supply, which in this case may refer to the publisher.
As stated previously, section 143.1 does not apply in cases where prescribed publications are not sent to the recipient of the supply. Considering that section 143.1 does not apply to the supply, then it follows that section 7.1 cannot be used to obtain non-taxable importation of the prescribed publications. Under these circumstances, tax is applicable under Division III if the value of the publication is more than $20. If the value of the publication is less than $20, however, then section 7 may be used providing the importation meets all of the conditions of that section.
If, as stated in the preceding paragraph, the value of the Publications is less than $20, XXXXX [m]ay use GST status code 65 on Customs accounting documents only for those Publications supplied by a registered person, whether that supplier is XXXXX or a subscription agent (resident or non-resident), in situations where:
1. a shipment of Publications arrives in Canada by mail or courier;
2. a bulk shipment of Publications arrives by any mode of transportation and the Publications are individually addressed and destined for the mail stream in Canada; or
3. a bulk shipment of Publications arrives by any mode of transportation and the Publications are destined for preparation (individual addressing) and mailing in Canada (suitable documentation or other evidence that the Publications are destined for a labelling and wrapping operation in Canada, and that delivery to the purchaser will be completed via the Canadian mail system, must also be provided to Customs).
In each case, the person who actually supplied the publications to the recipient at an address in Canada must provide evidence of GST registration as per section 4 of the Publications Supplied by a Non-resident Registrant Regulations.
During a telephone conversation with my officer XXXXX you asked whether the above treatment (situations 2 and 3) could be accorded to importations of Publications where ultimate delivery to the recipient is made by courier rather than through the mail stream in Canada. At the present time, our guidelines do not provide for ultimate delivery by courier in these circumstances. These guidelines appear in Customs Memorandum D5-1-13 and page 8 of the guide entitled, "Information for Non-Resident Suppliers of Publications".
The foregoing comments represent our general views with respect to the subject matter of your letter. Unannounced proposed or future amendments to the legislation may result in changes to our interpretation. These comments are not rulings and, in accordance with the guidelines set out in GST Memorandum 100-3, do not bind the Department with respect to a particular situation.
Should you require further clarification or additional information on section 143.1 of the Act or on section 7.1 of Schedule VII to the Act, please call Cheryl Leyton at (613) 954-5124. Any questions regarding section 142 of the Act should be directed to Gary Ryhorchuk at (613) 952-6743.
Yours truly,
H.L. Jones
Director
General Tax Policy
Policy and Legislation
Goods and Services Tax
XXXXX
Attachment
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S. Mailer
C. R. Leyton
J. Diguer
R. Allwright |
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Subject:
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Temporary Importation of and Repair to Boats XXXXX Schedule VI, Part V, Section 4 of the Excise Tax Act.
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This refers to the letter of October 20, 1993 from XXXXX requesting an interpretation of the above mentioned sections of the Excise Tax Act (the Act) with respect to the temporary importation of American boats XXXXX [i]mported by their owners for seasonal service by XXXXX border marinas. I apologize for the delay in responding.
I understand that:
XXXXX residents own boats located in the United States.
The boats are temporarily imported into XXXXX for the sole purpose of being repaired and/or maintained and housed during the winter (Canada Customs issues the residents an E29B Temporary Importation Permit, for the boats).
The boats are brought into Canada through the waterways by their owners and return to the United States by the same route.
Various services and/or goods may be supplied by XXXXX marina operators to the residents in respect of these boats. These supplies may include:
(a) Winter storage of boats, which includes removing the boats from water and refloating in the spring, winter storage and winterization (including washing out of bilges, winterization of pipes, oils as required and the supply of anti-freeze).
(b) Engine tune-up and engine maintenance services (including oil change, replacement of spark plugs, checking and adjustment, etc.).
(c) Specific repairs, such as the sale and installation of certain parts (damaged screw, repair of damaged hull).
(d) Sale of equipment, including installation, such as the sale of sonar apparatus[.]
This letter raises two issues, first the temporary importation of Canadian-owned, non-duty and tax paid boats by Canadian residents and second the application of the GST to the services and parts used in providing such services by XXXXX border marinas.
With respect to the temporary importation issue, Customs indicates that they apply item 16 of the Schedule to the Temporary Importation Regulations (TIR) in Customs Memorandum D8-1-1 to such goods at time of entry. Under this item goods may be imported temporarily for repair, overhaul, alteration or adjustment without the payment of customs duties. Goods permitted importation under this provision, are non-taxable based on subparagraph 3(i)(i) of the Non-Taxable Imported Goods (GST) Regulations. This subparagraph of the Regulations prescribe that certain articles, namely those described in item 16 of the Schedule to the TIR, are non-taxable when imported in circumstances where the terms and conditions of the Temporary Importation Regulations are met. The terms and conditions of the Temporary Importation Regulations relate to documentation, security, time during which the goods are allowed to remain in Canada and export requirements.
While it appears that this item of the Schedule to the TIR may allow a Canadian owned non-duty paid boat to be temporarily imported for repair purposes, it precludes the use of such a provision for such boats when imported for recreation or storage purposes in Canada. Thus non duty-paid Canadian-owned boats which are brought into Canada for the sole purpose of storage or recreation would not qualify for temporary importation under any Customs TIR procedures. Neither is there any GST provision to allow for non-taxable treatment to be accorded such goods at time of importation.
In response to the second issue that is whether any or all of the services, including the parts, may qualify for zero-rating under the provisions of Schedule VI, Part V, section 4, I would comment as follows;
Schedule VI, Part V, section 4 zero-rates:
"A supply of a service(other than a transportation service) in respect of tangible personal property that is ordinarily situated outside Canada, that is temporarily imported for the sole purpose of having the service performed and that is exported as soon as practicable after the service is performed."
The service mentioned in section 4 may be supplied to either a resident or non-resident person. The person may be a consumer. In order to determine if any of the supplies qualify for zero-rating under this part and section of the Schedule the following questions must be answered:
1. Is a service being supplied?
2. Are the boats ordinarily situated outside Canada?
3. Are the boats temporarily imported for the sole purpose of having the service performed?
4. Are the boats exported as soon as is practicable after the service is performed?
In dealing with the first question it should be noted that section 4 Part V, of Schedule VI, applies to "a supply of a service". Although section 4 of Part V of Schedule VI, does not specifically zero-rate parts, there are certain situations whereby parts may qualify for zero-rating under this provision. A determination as to the zero-rated status of the parts will depend on the type of contract entered into (i.e., the nature of the supply). For example:
A person contracts for the supply, by XXXXX marina, of an engine maintenance service(including oil change, replacement of spark plugs, checking and adjustment). The cost of parts is included in the cost of the maintenance service agreement (no separate charge is made).
The engine maintenance service, including the parts, may qualify for zero-rating provided the other requirements under section 4, of Part V, of Schedule VI are met.
Where a person purchases sonar equipment on a supply and install basis for a single consideration, under the provisions of section 138 of the Act, the installation service is considered to be an incidental supply to the supply of the sonar apparatus.
The supply would be considered to be a supply of tangible personal property and, as a result, is subject to the GST at 7%. If the supply is made to a consumer, it would not qualify for zero-rating under Schedule VI, Part V, section [1] to the Act. If the supply is made to a person other than a consumer, it would be excluded from zero-rating by virtue of Schedule VI, Part V, paragraph (b) as the sonar equipment would be for use in Canada prior to export.
Two distinct supplies - one for parts and one for service. A separate charge is made for each supply. The provisions of section 138 do not apply.
The supply of the service may be zero-rated provided the requirements under section 4, of Part V, of Schedule VI are met. The supply of the parts would not qualify for zero-rating under section [1,] Part V, of Schedule VI (i.e., for use in Canada prior to export and lose their separate identity prior to export) and would be subject to the GST at 7%.
Two supplies - one for parts and one for service - for a single consideration. It is assumed in this case, that the parts are considered to be an incidental supply to the supply of the services.
The supplies may be zero-rated provided the requirements under the provisions of section 4, of Part V, of Schedule VI are met.
Two supplies - one for parts and one for service - for a single consideration. It is assumed in this case, that the parts are considered to be an incidental supply to the supply of the services.
The supplies are subject to the GST at 7%. They would not qualify for zero-rating under Schedule VI, Part V, section [1] to the Act because they are for use in Canada prior to export and their identity is lost prior to export. (NOTE: The supplies would also be excluded if supplied to a consumer.)
With respect to the second question the Excise Tax Act does not define the word "ordinarily". Therefore, it is necessary to look at the normal meaning of the word as defined by a dictionary. The Houghton Mifflin Dictionary states that "ordinarily" means: as a general rule; usually; in the regular or usual manner; to the usual extent or degree. The Random House Dictionary states that "ordinarily" means: most of the time; generally; usually; to the usual extent, reasonably.
Whether a boat is ordinarily situated outside Canada can only be determined on a case by case basis based on the facts presented. One factor to be considered would be the length of time the boat is in Canada as opposed to the length of time the boat is outside Canada. Another factor could be the registration status of the boat (i.e., is the boat registered in XXXXX or in the United States?).
The third question deals with the issue of whether the boat is imported for the sole purpose of having the service performed. This is an issue which can only be dealt with on a case-by-case basis. Customs is responsible for issuing E29B Temporary Importation permits, which fall within the Temporary Importation Regulations and we would assume that the boats fit the conditions for temporary importation.
If a boat is imported for the sole purpose of storage and, while in storage, the owner decides to have regular maintenance services performed, it could not be said that the boat was imported for the sole purpose of having the maintenance services performed. Thus, the regular maintenance services would be subject to the GST at 7%.
Regarding the question of whether the boats are exported as soon as practicable after the service is performed, this can only be determined on a case-by-case basis. Paragraph 37 of GST Memorandum 300-3-5 lists the factors the Department will consider when making this determination. In addition it may be necessary to consult with Customs for the appropriate timing factor.
In conclusion, a determination as to whether a particular supply may be zero-rated by virtue of Schedule VI, Part V, section 4, depends on the answers to the four questions posed above which in turn depends on the facts of each case.
If you have any questions concerning this letter, please do not hesitate to contact Mr. Roy McKain at (613) 952-4294.
H.L. Jones
Director
Policy and Legislation Goods and Services Tax XXXXX
| c.c.: |
Rob Allwright
Susan Mailer
Roy McKain |
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