27 May 1994 GST/HST Interpretation 1994-05-27 - Input Tax Credits and the Taxable Status of Insurance, Freight and Handling Charges

Dear XXXXX

I refer to a memorandum of February 4, 1993 from XXXXX and our interim reply of May 28, 1993, concerning XXXXX. In the February memorandum it was requested that we review and provide you with our opinion on the issues raised by XXXXX current practices and procedures, the entitlement/or requirement to register, entitlement to input tax credits and the taxable status of insurance, freight and handling charges. I apologize for the delay in providing this final reply.

The details as stated in your memorandum are that XXXXX:

a) is a mail order house located in XXXXX[;]

b) is registered for purposes of the GST;

c) solicits orders for non specified personal property in Canada by means of catalogue advertising;

d) employs a Canadian firm XXXXX, a division of XXXXX[;]

e) acts as the importer of record when a customer specifies that it clears the goods through Canada Customs;

f) makes sales of merchandise valued at both under and over $20.00;

g) individually wraps and addresses the goods to the recipient in Canada regardless of the value [;]

h) ships the goods via private carrier;

i) charges an amount to cover shipping, handling and insurance based on a sliding scale[;]

j) quotes an amount higher than that indicated under i. to its customers when an order is placed, the higher amount said to include GST, duty and brokerage fees on the goods which will be paid by XXXXX on behalf of the customer.

From the documentation and information provided, it appears that XXXXX ships goods by mail, courier service, namely XXXXX, and by private carrier (XXXXX).

In response to the specific questions you raise in your memorandum, whether XXXXX is or is not the importer of record for Customs purposes is irrelevant when determining if a supply of goods is delivered or made available in or outside Canada to the recipient of the supply.

Where the goods are shipped by mail to the Canadian recipient and the recipient is responsible for clearing the goods through Customs and paying any applicable assessments, it is a question of fact that the supply is delivered or made available outside Canada. Tax under Division II of the Act is not applicable. In this particular instance the shipping and handling charges that XXXXX charges its Canadian customers would not be included in the value for duty for Customs purposes. As a result the charges would not be subject to GST under Division III as they are excluded from the value for tax. The freight transportation service is considered to be an international inbound freight transportation service.

In the second scenario XXXXX ships the goods directly by courier XXXXX for delivery to the Canadian recipient, and the recipient is responsible for clearing the goods through Customs and paying any applicable duties and taxes. In such circumstances the goods are considered to be delivered or made available outside Canada and are, therefore, not subject to Division II tax. The shipping charges would be treated in the same manner as with the previous scenario.

In the third scenario XXXXX ships the goods by private carrier (XXXXX to the border, arranges with XXXXX to clear the goods in XXXXX name and pay the applicable duties and taxes, and subsequently supplies them to its customers in Canada. In a letter to General Tax Policy dated March 23, 1994, (copy attached), XXXXX of XXXXX states that title to the goods passes upon acceptance of the goods by the U.S. carrier (XXXXX) and that XXXXX terms of delivery are FOB XXXXX. Therefore, if one accepts the terms of delivery for the goods as "FOB XXXXX["], the supplies of the goods by XXXXX to its Canadian customers is deemed to be made outside Canada under the provisions of 142(2)(a) and therefore, not subject to the GST under Division II. The shipping charges would therefore be treated in the same manner as with the two previous scenarios.

With respect to your comments on the definitions of "Importer of Record" for Customs purposes, the definition that is normally applied by Customs is the person named on the Customs Accounting Document and as such, the person responsible for clearing the goods through Customs, and paying the duty and taxes. However, as you are aware this person may not necessarily be the "importer" that is the person who causes the goods to be imported into Canada.

You also mentioned that in some cases XXXXX acts as the importer of record. This fact was supported by reviewing copies of Customs accounting documents, which were used to obtain the release of the goods at time of importation and to pay the duties and taxes. As previously stated in this memorandum, the question of whether XXXXX is the importer of record is not relevant in determining if a supply of goods is delivered or made available in or outside Canada.

It is important to note that, the goods which are being supplied by XXXXX in this instance are determined by Customs to be casual goods and under the Customs Act the only persons who can account for casual goods are the persons in Canada to whom the goods are addressed, or a licensed Customs broker acting as the agent of the addressees. From a legal perspective, the "importer" that is the person who caused the goods to be imported into Canada in this case is the consumer and not XXXXX. Thus, XXXXX would not be entitled to import the goods in it's own name, neither is XXXXX entitled to claim an ITC for the Division III tax paid at time of importation for goods which are being delivered to those consumers in Canada.

XXXXX has been identified in item (d) above as the company that prepares and submits GST returns and maintains books and records for XXXXX. In addition the broker clears the goods through Customs for delivery to XXXXX customer's, pays duties and taxes at time of importation and subsequently bills these charges to XXXXX. It should also be noted that, where a customer were to agree that the customs broker clear the goods through customs on his/her behalf, XXXXX would then be regarded as making a supply outside of Canada in all scenarios. The customs broker would be clearing the goods on behalf of XXXXX customers and therefore, would pay the Division III tax in respect of these goods. XXXXX would in turn be reimbursing the customs broker on behalf of its customers and would not be entitled to claim ITC's in respect of the tax paid to the customs broker.

With respect to the issue of registration, you have stated that XXXXX is registered for purposes of the GST and that it solicits orders for non-specified personal property by means of catalogue advertising. If we conclude that we are only interested in the collection and remittance of tax under Division III, then registration for GST purposes would have no relevance to XXXXX unless they were otherwise required or voluntarily wished to register. If XXXXX did meet the qualification for voluntary registration under subsection 240(3) of the Act as a non-resident person who, in the ordinary course of carrying on a business outside Canada, regularly solicits orders for the supply of tangible personal property for delivery in Canada, then I assume that XXXXX voluntarily registered in order to recover the GST paid on expenses incurred such as, catalogue advertising, catalogue mailing, etc.

Where the non-resident is not registered for GST purposes or is not carrying on business in Canada, subsection 143(1) of the Act considers the supply of goods to be made outside Canada and thus only subject to tax at time of importation under Division III.

Thank you for bringing this issue to may attention. If you have any questions about this memorandum please do not hesitate to contact Mr. Roy McKain of my staff at (613) 952-4294.

H.L. Jones
Director
General Tax Policy
GST

Attachment

            Jim Wilson
Postal Programs
5th Floor Connaught Building

            Dave Caron
Rob Allwright
Adam Belyea
Mitch Bloom
Mike Matthews
Imports Unit