17 May 1995 GST/HST Interpretation 11645-3-4[2] - Registered Non-Resident Importers (NRI)

                                                                        11645-3-4
Ss. 142(1),165(1), 169(1), 212, 232
XXXXX

Dear XXXXX

This letter is in reply to your facsimile transmission of April 24, 1995, sent to Susan Mailer of the GST Imports Unit, concerning the above-noted subject. In particular, you ask if the key to qualifying for input tax credits (ITCs), involves an understanding of where the goods were delivered (meaning "inside" or "outside" Canada)? Further, you ask if the goods are "deemed" to be delivered within Canada, may the NRI registrant subsequently recover the Goods and Services Tax (GST) on exportations of returned goods?

Statement of Facts:

You state that your clients ("mail order companies") supply mail order goods (hereinafter referred to as "goods") for sale. These mail order companies sell these goods on an equivalent to FOB (customer's door) basis. Customs duty is added to the order as a separate line item, GST is added as a separate line item, plus a shipping and handling charge. All goods, inclusive of duty, GST and the shipping and handling charge are paid in full by the customer, prior to shipping. In all cases, you state, the mail order company is responsible for the goods until such time as the goods are received by the customer in Canada.

Questions Raised

1. Does the key to qualifying for input tax credits (ITCs), involve an understanding of where the goods were delivered (meaning "inside" or "outside" Canada)?

2. If the goods are "deemed" to be delivered within Canada, may the NRI registrant subsequently recover GST on exportations of returned goods?

Interpretation Given

Division III tax (tax on importation of goods) is paid directly to the Crown. The liability to pay tax on imported goods is based on the circumstances of the importation, or other conditions as provided for in the Customs Act, whereas the liability to pay Division II tax (GST on domestic supplies of goods and services) is imposed on the recipient of the supply, if the supply is made in Canada.

Section 169 of the Excise Tax Act (ETA) provides that, in order for a person to be eligible to claim an ITC in respect of the tax payable on a property or service, the following conditions must be met:

1. the person must be the recipient of the property or service or the person must be the importer of the property or service;

2. the person must be a GST registrant during the reporting period in which the supply or importation is made;

3. tax must be payable by the person in respect of the supply or importation, or be paid by the person prior to its becoming payable;

4. the property or services must be acquired or imported for consumption, use or supply in the course of the commercial activities of the person; and

5. the person must have obtained sufficient documentation to establish the eligibility for the ITC before the claim is made.

Casual versus commercial importations

If the shipments are being cleared as casual importations, the mail order company cannot be considered the importer. It is the customer in Canada who is considered to be the importer and who is liable to pay the GST at time of importation, whether or not that amount of tax is paid by someone else on their behalf. Further, where the customer paid the GST at time of importation, or was considered liable to pay the GST at time of importation, and chooses to return the goods to the supplier, section 215.1 of the Excise Tax Act (ETA) clearly states that it is the Canadian customer who is entitled to claim a rebate of the amount of GST paid. To claim a rebate of the GST, the Canadian customer must file a B2G customs document with Canada Customs.

If, on the other hand, the mail order company clears the goods owned by that company at time of importation as commercial shipments, then as importer and owner, that company is liable under the Customs Act for the payment of duties and taxes at time of importation. It should be noted that a commercial importation requires various permits and certificates to be included with the Customs accounting documents. As well, as a commercial importer, the mail order company could not benefit from the remission relief available under the Postal or Courier Imports Remission Orders.

Entitlement to claim ITCs

Under the general conditions for claiming ITCs, your mail order company clients must meet all the requirements before they can include the eligible amount of ITCs on their GST return for that period. Further, as a registrant, they must demonstrate that the company imported the property, paid the tax at time of importation and was liable to pay the tax and was not paying the tax on behalf of the customer. Your client must also satisfy the Customs accounting documentary requirements as required by Canada Customs. The remaining question is whether the goods are for consumption, use or supply in the course of the commercial activity of the mail order company at the time the tax is paid or payable.

If the mail order company can demonstrate that the goods being imported at time of importation are intended for supply in the course of its commercial activity, the mail order company would meet all the necessary requirements for claiming ITCs for the Division III tax paid on the goods being imported.

You have indicated that the sales by your clients, the mail order companies, are such that the terms of delivery of the goods are delivered or made available in Canada, i.e., FOB Canadian destination. Thus, the sale to the customer is considered to be a supply made in Canada. While GST would not be applicable under Division II on supplies made outside Canada, sales made in Canada by a GST registrant would be subject to Division II tax. Therefore, under these circumstances, your client mail order companies should charge and collect Division II tax on the supplies made to customers in Canada.

Goods returned to the Mail Order Company

As a GST registrant, the mail order company is entitled to the same benefits as any other registrant, under the same conditions. As well, they are bound by the same obligations. There may be occasions where the GST registered mail order company has charged or collected from another person tax under Division II calculated on the consideration, and subsequently adjusts the consideration. Where the GST registered mail order company chooses to refund or credit an amount of tax relative to that adjustment in favour of, or to the other person, then that mail order company is required to issue a credit note containing certain prescribed information to the customer.

Where the tax refunded or credited has already been remitted by the mail order company as part of the mail order company's net tax on the mail order company's GST return, the mail order company is allowed to deduct such amount in determining the net tax for the period in which the credit note was issued. There are certain time limits for this allowance. For further information or discussion of a particular fact scenario, the registrant should contact their local Tax Services office.

Please note that the above-noted provision only applies to Division II tax. This does not apply where the mail order company only pre-collects Division III tax from the customer, and remits it to Customs on behalf of the customer.

The foregoing comments represent our general views with respect to the subject matter of your letter. Unannounced, proposed or future changes to the Excise Tax Act may result in changes to our interpretation. 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.

Sincerely,

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

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