20 July 1994 GST/HST Interpretation 11640-3(glr)[2] - Services Supplied in Respect of Cargo Containers

                                                                        Telephone: (613) 954-8585
Fax: (613) 990-1233

                                                                        July 20, 1994

Dear Mr. XXXXX:

I refer to your facsimile message of July 11, 1994, addressed to Mr. Robert Allwright of my staff, concerning the application of the Goods and Services Tax (GST) to storage and repair services supplied to your client, an unregistered non-resident leasing company (USCo.).

You advise that USCo. leases cargo containers to international carriers. A Canadian registrant (CANCo.) stores and repairs the containers in Canada. You feel that the storage and repair services may qualify for zero-rating under the provisions of Schedule VI, Part V, section 4 to the Excise Tax Act (Act). In your letter you refer to previous correspondence with the XXXXX District Excise/GST Office. That correspondence dealt with the possible application of Schedule VI, Part V, sections 2, 4, 6 or 7 to the Act to the storage and repair services. Although not specifically stated in your letter, it appears from the correspondence with the XXXXX District Excise/GST Office that USCo. does not carry on the business of transporting passengers or property to or from Canada.

The following interpretations are based on the assumption that the storage and repair services are considered to be separate supplies for GST purposes. Whether the services are actually separate supplies can only be determined on a case-by-case basis based on the facts presented, such as the agreements between USCo. and CANCo.

1. Storage Services

The supply of a service of storing cargo containers, when supplied to an unregistered non-resident who does not carry on the business of transporting passengers or property to or from Canada, would not be zero-rated under Schedule VI, Part V, paragraph 2(a) to the Act.

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 is practicable after the service is performed."

I agree that a service of storing the cargo containers is a service that is in respect of tangible personal property. Whether the containers are ordinarily situated outside Canada can only be determined on a case-by-case basis. Notwithstanding that the services are in respect of containers which may ordinarily be situated outside Canada, it appears that the reason the containers arrive in Canada is not because they are being temporarily imported for storage purposes, but because they contain goods destined for the Canadian market. As the containers are not being imported for the sole purpose of being stored, the zero-rating provisions of Schedule VI, Part V, section 4 would not apply.

The zero-rating provisions of Schedule VI, Part V, section 6 to the Act would not apply to the storage and repair services because USCo. does not carry on the business of transporting passengers or property to or from Canada.

Schedule VI, Part V, section 7 is the general provision designed to zero-rate exports of services supplied to non-residents. However, a number of services are specifically excluded from this section under paragraphs 7(a) to 7(g). Schedule VI, Part V, paragraph 7(a) excludes from zero-rating a service that is primarily for consumption, use or enjoyment in Canada. Further, Schedule VI, Part V, paragraph 7(e) excludes from zero-rating a service in respect of tangible personal property that is situated in Canada at the time the service is performed. The containers are in Canada when they are stored, and the storage service is entirely consumed, used or enjoyed in Canada. The service is, therefore, excluded from zero-rating by virtue of Schedule VI, Part V, paragraphs 7(a) and 7(e).

The drop-shipment provisions contained in subsection 179(3) of the Act would not apply as they exclude a service of storing the property (i.e., cargo containers).

The storage service is, therefore, subject to the GST at 7% when supplied by CANCo. to USCo.

2. Repairs to Cargo Containers

The service of repairing the cargo containers would not be zero-rated under either Schedule VI, Part V, sections 2, 4, 6 or 7 for the reasons noted in the answer to 1.

If the containers are subsequently exported from Canada empty, then the supply of the repair service may be deemed to be made outside Canada under the provisions of subsection 179(3) provided, of course, that all the conditions of the provision are met. However, if the containers are subsequently used in Canada, prior to being exported, to contain goods destined for export, the drop-shipment provisions in subsection 179(3) would not apply.

As the result, the supply of the service of repairing empty containers, when provided by CANCo. to USCo., is subject to the GST at 7% unless, of course, it may be deemed to be made outside Canada under subsection 179(3).

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.

If you have any questions or require additional information, please contact the XXXXX District Excise/GST Office, XXXXX or telephone XXXXX, and his staff will be pleased to assist you.

Yours sincerely,

H.L. Jones
Director
General Tax Policy
Policy and Legislation
Excise/GST