XXXXX
I am replying to a letter from XXXXX dated April 30, 1992. In her letter, XXXXX presents several questions about various supplies made by non-residents. I certainly apologize for the delay in responding to her queries and hope that the following information will clarify these issues. This information follows the same sequence as presented in XXXXX letter.
XXXXX
Question:
If subscription agents are considered as "principals" (i.e. they do take title to the publications), are the publications being sent by the non-resident publisher "to the recipient at an address in Canada", whereby subsection 143(2) would apply?
If so, the response provided in the letter to XXXXX dated March 27, 1992, would appear to be in error regardless of the fact that it does not deal with subscription agents. In both cases, the parties purchasing the subscription are "principals".
Answer:
It is noted that your reference to "Pg. 2, Para. 1, of a letter to XXXXX [d]ated December 18, 1991" should have read "Pg. 3, Point 2, paragraph 2, of an undated letter written to XXXXX file 11645-1."
This particular excerpt essentially states that the conditions described in subsection 143(2), for the purposes of subsection 240(4), are met when a non-resident publisher supplies prescribed publications to Canadian recipients on behalf of a non-resident subscription agent. However, it was also assumed that the non-resident publisher was soliciting sales of publications to recipients in Canada, in its own right, i.e., the "solicitation" activities of a subscription agent do not reflect on a non-resident publisher unless the subscription agent is an "agent at law".
On the other hand, the excerpt from the letter to XXXXX dated March 27, 1992, file 11645-1, states that, in a situation where a non-resident person directly sells a subscription to a particular non-resident person and, at the direction of that person, sends the publications to persons in Canada, the supply between the two non-resident persons is outside the scope of GST.
Unfortunately, it was not indicated in the XXXXX [l]etter that this non-resident person was soliciting sales of publications to recipients in Canada pursuant to subsection 240(4). (The information concerning the non-resident was provided subsequent to the receipt of the letter.) Therefore, the general provisions of subsection 143(1) would be applicable.
The response provided to XXXXX does state, in effect, that subsection 143(2) applies to the supply between a non-resident publisher and a subscription agent. In retrospect, we reviewed this scenario to determine whether the publisher would be considered to be sending the publication to the subscription agent (i.e. the recipient of the supply made by the publisher) at an address in Canada when the publication is actually sent to a third party at an address in Canada at the direction of the agent. This matter was referred to Legal Services and the Department of Finance to solicit their opinion. In order to respond to the questions raised by the XXXXX [l]etter, we are dividing the response into three case scenarios.
1. If a non-resident non-registered company arranges with a non-resident non-registered publisher to send a publication to a third party at an address in Canada, the recipient of the supply is considered to be the non-resident non-registered person and not the third party to whom the publication is sent. The supply is, therefore, deemed not to be made in Canada in accordance with former subsection 143(2) and new section 143.1.
2. A non-resident registered company arranges with a non-resident registered publisher to send a publication to a third party at an address in Canada. If the non-resident registered company is the recipient of the supply, then in accordance with former subsection 143(2) and new section 143.1, the supply is deemed not to be made in Canada.
3. A non-resident registered subscription agent arranges with a non resident registered publisher to send a publication to a third party at an address in Canada. If the non-resident registered subscription agent is the recipient of the supply, i.e., the person who is liable to pay for the publication,then in accordance with former subsection 143(2) and new subsection 143.1, the supply is deemed not to be made in Canada.
In light of our findings, we will continue to review this matter to determine the taxable status of the publication.
Question 1:
Pg. 1, Para. 4, appears to contradict Pg. 2, Paras. 2 and 3. Is the place of supply dependent on where the non-resident is located when making a supply, rather than on where the goods are delivered or made available to the recipient of the supply?
Answer:
The place where the non-resident is located is not relevant when determining whether goods are delivered or made available in (or outside) Canada.
For purposes of paragraphs 142(1)(a) and 142(2)(a) of the Act respectively, whether goods (other than prescribed publications) have been delivered or made available in (or outside) Canada can usually be determined by reference to the terms of the contract. For example, if the terms of sale are "F.O.B. shipping point" and the shipping point is located in the United States, the supply is made outside Canada.
Question 2:
Pg. 2, Para. 5 — if a registered (for whatever reason) non-resident publisher ships only bulk shipments (NOT individually addressed) with a total shipment value that exceeds $40 and the terms of sale are FOB Canada, is he deemed to have made a supply in Canada pursuant to subsection 142(1)?
If so, is he required to collect GST pursuant to subsection 165(1) even though Canada Customs will assess GST under section 212?
Answer:
I assume we are dealing with publications that do not meet the criteria outlined in subsection 143(2) or section 143.1 of the Act. In these circumstances, the supply will be deemed to be made in Canada if the terms of sale are "F.O.B. Canadian destination". If the supply is deemed to be made in Canada, the registered non-resident publisher is required to collect and remit Division II tax. Whether or not Canada Customs collects Division III tax at the time of importation is not relevant when determining liability for Division II tax.
Question 3:
Does subsection 143(2) apply if a non-resident sends publications valued at $40 or less each, by mail or courier, and the odd shipment contains two or more publications (not individually addressed) with a total shipment value of $40 or less?
Question 4:
Does subsection 143(2) apply only if a non-resident sends the odd shipment that contains only one publication that is valued at $40 or less?
Answer to Questions 3 and 4:
Subsection 143(2) applies if a prescribed publication valued at $40 or less is sent to Canada by mail or courier and is "individually addressed". "Individually addressed" means addressed to an individual person, professional, doctor, lawyer, dentist, company, or an institution, such as a library or a hospital. Single or multiple copies can be involved.
Bill C-112 amended the Excise Tax Act by repealing subsection 143(2) effective January 1, 1993, and replacing it with section 143.1. This new section has no reference to a value threshold for supplies made on and after January 1, 1993. In other words, the provisions of section 143.1 will apply regardless of the value of a prescribed publication. It will also apply to supplies made by residents where the publication is sent to Canada by mail or courier from a place outside Canada.
Memberships
XXXXX
Question 1:
In determining whether a non-resident person is carrying on business in Canada, must we look at subsection 240(4), and therefore 143(2), if one of the benefits of membership is a publication?
Answer:
If a membership is a taxable supply made in Canada, it must be determined if the non-resident person is carrying on business in Canada and therefore required to register under subsection 240(4) of the Act. If it can be determined that the non-resident person is not carrying on business in Canada, subsection 143(1) of the Act would deem the supply to be made outside Canada.
The second sentence of this paragraph and that which follows merely states that, if subsection 240(4) of the Act applies, the non-resident will be deemed to be carrying on business in Canada and no further determination need be made. It was not intended to imply that the issuance of memberships in any way would evidence the application of subsection 240(4) of the Act.
Where publications are provided as a benefit of membership in an organization, it is necessary to determine whether a single or multiple supply is being made. In addition, the nature of the supply or supplies must be established. Publications supplied as a benefit of membership might be viewed as incidental to the membership or alternatively, the supply might be viewed as a single supply that is essentially either a subscription or a membership.
For example, suppose an organization advertises memberships for a $50 fee and the recipient receives a magazine subscription that would have a market value approximating $50. There are little or no other rights accruing to the member. In this situation, we would likely view the supply as a single supply of a magazine subscription. As a result, the provisions of subsection 240(4) are applicable if the organization, in Canada, solicits orders for, or offers to supply these "memberships" and a publication provided as a benefit of "membership" is valued at $40 or less and is sent to Canada by mail or courier. It should be noted that the amendments in Bill C-112 remove the value threshold for supplies made on and after January 1, 1993.
If the publications are viewed as incidental to the memberships or the supply is a single supply that is essentially a membership, subsection 240(4) does not apply as the supply is that of memberships, not a prescribed publication. In this case, established guidelines would be used to determine whether the organization is carrying on business in Canada.
Question 2:
Is it reasonable to expect that consumers purchasing a taxable membership from a non-registrant non-resident will self-assess on the full cost of the membership and remit GST to the Receiver General?
Answer:
Individuals who enquire about the self-assessment of the GST under Division IV are advised that the Excise Tax Act (the Act) requires them to pay the tax in respect of " imported taxable supplies" within the meaning of section 217 of the Act. We are aware that in reality it is not easy to enforce this provision where individuals/consumers are involved. It should be noted however, that S. 217 refers to a person resident in Canada and this includes individuals.
Question 3:
If a consumer does, in fact, comply with the letter of the law, what is the impact if a book valued at more than $40 is one of the benefits of membership and Canada Customs collects the GST on importation? The consumer has now paid GST on the cost of the membership and again on one of the benefits of membership. Are there any rebate provisions for this "double taxation"?
Answer:
If we were to assume that the consumer complied with the requirements of S. 217, (that is, the consumer/individual purchased a taxable membership from the non-resident non-registrant and in respect of that membership the individual self-assessed on the cost of the membership under Division IV) and subsequently receives a publication valued in excess of $20 on which the GST is applicable at the time of importation, then the question of double taxation may indeed arise There are no rebate provisions in the Act to cover these situations if indeed they do arise.
GST 6. E.30 Revised April 1991
As a result of your queries, Q&A 6. E.30 will be revised as follows:
Q. A non-resident association (non-profit) sells memberships to Canadians. The payments are made directly to the non-resident "for about $55.00 U.S.". The non-resident then sends $7.00 to the Canadian section. The member receives a magazine subscription, a membership in a Canadian section and monthly dinners "the additional charge for the dinner is less than cost".
1. Is the $55.00 fee for the membership taxable?
2. Is the $7.00 fee transferred to the Canadian section taxable?
3. Is the non-resident association required to register?
Answer
1. Is the $55.00 fee for the membership taxable?
The following assumes that the supply is a single supply of a membership (see GST policy statement on single/multiple supplies).
Section 17 of Part VI of Schedule V to the Act will not exempt membership in the non-profit organization if the memberships confer the right to receive property or services for a fee that is less than the fair market value of the supply (i.e. monthly dinners at less than cost).
In addition, the memberships are taxable if they confer the right to receive publications, the value of which is significant (i.e. greater than 30%) in relation to the membership fee. Where membership confers a right to receive a publication that provides information on the activities of the person or its financial status, the value of which is significant in relation to the membership fee and which is sold to non-members, the membership will be taxable.
Accordingly, if the benefits (i.e., reduced price on admissions to dinners and the magazine subscription) are provided by the non-resident association to its members in the circumstances described above, the membership fee will be taxable.
The supply of a membership is a supply of intangible personal property and, in this case, the supply is deemed to be made in Canada pursuant to subparagraph 142(1)(c)(i) if the property may be used in Canada (i.e., entitled to receive the benefits of membership in the Canadian section). If the membership is a taxable supply made in Canada, it must be determined if the non-resident person is carrying on business in Canada and therefore required to register under to subsection 240(1) of the Act. If the non-resident person is not registered and it can be determined that it is not carrying on business in Canada, subsection 143(1) of the Act would deem the supply to be made outside Canada. In these circumstances, the $55.00 membership fee would not attract GST. However, if the requirements of section 217 are met, then the person will be required to self-assess on the cost of the membership under Division IV of the Act.
2. Is the $7.00 fee transferred to the Canadian section taxable?
More facts are required in order to determine whether the supply by the Canadian section to the non-resident is a supply of a membership (for re-supply by the non-resident) or a supply of administrative services, i.e., administering the Canadian portion of memberships. Also, it is not clear whether the Canadian section and the non-resident are the same or separate persons. Further,the registration status of the parties and whether or not the non-resident is carrying on business in Canada — which are not disclosed in the question — could have an impact on the proper tax application.
It is assumed that the parties to the transaction are either separate persons or subsection 132(4) applies to deem the transfer of property or rendering of the service from the Canadian section to the non-resident to be a supply between separate persons dealing with each at arm's length.
A supply of intangible personal property will be deemed to be made in Canada if paragraph 142(1)(c) of the Act applies. Specifically, the supply will be deemed to be made in Canada if
(i) the property may be used in whole or in part in Canada and the recipient is resident in Canada or registered under Subdivision d of Division V, or
(ii) the property relates to real property situated in Canada, to tangible personal property ordinarily situated in Canada or to a service to be performed in Canada;
Conversely, paragraph 142(2)(c) deems certain supplies of intangible personal property to be made outside of Canada where:
(i) the property may not be used in Canada, or
(ii) the property relates to real property situated outside Canada, to tangible personal property ordinarily situated outside Canada or to a service to be performed wholly outside Canada;
These provisions are not conclusive — certain supplies may be made in Canada based on general legal principle, even though the specific conditions in paragraph 142(1)(c) are not met.
Based on the limited information available, it would appear that the $7.00 charge, if it were for a supply of intangible personal property, would be a supply made in Canada, and subject to the GST at the standard rate of 7%.
If the fee was for a supply of a service by the Canadian section to the non-resident, paragraph 142(1)(g) would apply to deem the supply to be made in Canada — it is assumed that the service is performed in whole or in part in Canada. As a taxable supply made in Canada, the supply of the service would be subject to the standard rate of 7% unless it were zero-rated. Section 7 of Part V of Schedule VI to the Act zero-rates supplies of services to non-residents in certain specific circumstances. The provision contains a number of exclusions. In particular, a supply of a service, other than an advisory, consulting or professional service cannot be zero-rated under section 7 of Part V of Schedule VI if the service is primarily consumed, used or enjoyed in Canada. Again, additional information regarding the nature of the supply would be required before a determination of the zero-rated status of the supply can be made.
3. Is the non-resident required to register.
A non-resident person is required to register for GST purposes under either subsection 240(1), (2) or (4) of the Excise Tax Act.
Under subsection 240(1) of the Act, a non-resident person is required to register if it makes taxable supplies in Canada in the course of carrying on business in Canada provided it is not a small supplier. To determine if a non-resident is carrying on business in Canada, see GST Memorandum 200-1-1. For information on the calculation of the small supplier threshold, see GST Memorandum 200-3.
Subsection 240(2) of the Act states that where a non-resident person enters Canada to make a taxable supply of an admission in respect of a place of amusement, a seminar, an activity or an event, the non-resident person must register for GST purposes before making such a supply. Whether this provision applies with respect to the dinners is a question of fact.
Under the provisions of subsection 240(4) of the Act every person (other than a small supplier), whether or not resident in Canada, who in Canada, whether through an employee or agent or by means of advertising directed at the Canadian market, solicits orders for the supply of prescribed property to be sent by mail or courier to the recipient at an address in Canada shall be deemed to be carrying on a business in Canada and is required to register under Part IX of the Act. Prescribed property includes a book, newspaper, periodical, magazine and any similar printed publication.
There is insufficient information contained in the question posed to make a determination with respect to which of these provisions, if any, may be applicable to the non-resident association in question.
I hope I have clarified some of the issues dealing with supplies made by non-residents, particularly by non-resident publishers. Should you require additional information, please call Cheryl Leyton at (613) 954-5124.
Yours truly,
H.L. Jones
Director
General Tax Policy
Policy and Legislation XXXXX
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