11645-3-5
Section 8, Schedule VII; Section 213, ETA
March 24, 1995
XXXXX
Dear XXXXX
I acknowledge receipt of your facsimile of March 21, 1995, addressed to Susan Mailer of the GST Imports Unit, requesting clarification of the intention of information contained in Customs Notice N-579 regarding amendments to the Value of Imported Goods (GST) Regulations. In specific, you have asked for an interpretation of the wording of one of the conditions:
"(2) the goods are being imported for the first time after having been exported for the purpose of having work performed on them outside Canada, ..."
You ask, if the goods were subsequently exported again (a second or subsequent time) for re-work/further processing, would GST be applicable to the full value of the goods?
It is the Department's position that goods may be subsequently exported again (a second or subsequent time) for re-work/further processing and qualify for this provision, if all of the conditions and requirements of the Customs Notice N-579 are satisfied. The provisions of this Customs Notice apply anew to each importation, regardless of how many times the goods have been exported for the purpose of having work performed abroad.
As you may know, there is a proposed amendment to the Excise Tax Act contained in the Department of Finance Press Release of March 27, 1991, which will allow the GST to apply only on the value added outside Canada - that is, the value of any work performed on the goods while outside Canada (plus, of course, any custom duties applicable on re-importation). To qualify under this provision, certain conditions must be met.
Proposed amendments to the Value of Imported Goods (GST) Regulations are currently being drafted to provide for these special importation situations. It is anticipated that the regulations will ensure that where goods are exported for the purpose of being serviced or further processed outside Canada and are subsequently imported, or can be demonstrated to have been incorporated into other imported goods, the GST applies only to the value of the processing performed outside Canada (including the value of any goods that were added to produced the processed goods) and the remaining duties payable on the processed goods.
The GST would be applicable to the value of the goods in accordance with the following formula:
A + B
where
A is the value of the processing, including the value of any goods that were added to the exported goods, and
B is the remaining duties payable in respect of the processed goods.
This interpretation is based on our understanding of the Press Release of March 27, 1991, as proposed by the Department of Finance. At this time, the proposed amendment as identified in Customs Notice N-579, has not been passed into law. As such this interpretation may change if the final legislation passed into law differs from our understanding of the Press Release as proposed by the Department of Finance.
Should you require further information or clarification, please contact Susan Mailer at 952-9579, or Roy McKain at 952-4294.
Yours truly,
H. L. Jones
Director
General Tax Policy
GST Rulings and Interpretations
Policy and Legislation - XXXXX
| c.c.: |
Imports Unit
XXXXX
XXXXX |
Background
Department of Finance PRESS RELEASE
Ottawa, March 27, 1991
FURTHER STREAMLINING OF THE GST ANNOUNCED
Goods Serviced Abroad:
The Value of Imported Goods (GST) Regulations under the Excise Tax Act will be amended to provide that goods exported for the purpose of being serviced or further processed outside Canada will, upon reimportation, be subject to GST only on the value added outside Canada -that is, the value of any work performed on the goods while outside Canada (plus, of course, any custom duties applicable on re-importation). To qualify under this provision, the following conditions must be met:
• the goods must have originated in Canada or have previously been released and accounted for under section 32 of the Customs Act;
• they are being imported for the first time after having been exported for the purpose of having work performed on them outside Canada; and
• the goods were not, prior to importation, supplied outside Canada by way of sale, outside Canada by way of lease, in Canada in circumstances to which Part V of Schedule VI applies, or in Canada to a recipient who claimed or was entitled to claim, a rebate for tax paid on those goods under subsection 252(1).
This change will be effective for goods released on or after April 1, 1991.
April 1, 1991
The Value of Imported Goods (GST) Regulations will be amended, and made retroactive to April 1, 1991, to allow goods exported for the purpose of being serviced or further processed outside Canada and subsequently reimported to be subject to GST, only on the value of the work performed on the goods while outside of Canada. The amendment to this regulation will not affect the dutiable status of the imported goods.
For the purpose of the proposed amendment to the Value of Imported Goods (GST) Regulations, the "value of the work" performed on the goods while outside of Canada will be the price paid or payable in respect of a process performed abroad on the exported goods which shall include, but is not limited to, the price paid or payable for any adjustment, alteration, assembly, manufacture, modification, production, repair or service of the goods prior to their subsequent importation into Canada.
All of the following conditions must be met for the new provision to apply:
(1) the goods originated in Canada or had been previously released and accounted for under section 32 of the Customs Act,
(2) the goods are being imported for the first time after having been exported for the purpose of having work performed on them outside Canada, and
(3) the value of the work performed abroad in respect of the exported goods must be shown separately on the Canada Customs Invoice or commercial invoice.
In the absence of a determinable price paid or payable, a statement of the value of the work performed abroad must be submitted. This statement of value is necessary whether a charge is made for the service or the process is performed free under warranty or similar arrangement. It must include the cost of the material used, labour and factory overhead. In addition, a normal profit markup must be taken into consideration when calculating such a value.
Goods that were, prior to importation, supplied outside Canada by way of sale, outside Canada by way of lease, in Canada in circumstances to which Part V (Exports) of Schedule VI of the Excise Tax Act applies or in Canada to a recipient who claimed or was entitled to claim, a rebate for tax paid on those goods under subsection 252(1) of the Excise Tax Act, are not entitled to this new provision.
In order to arrive at the value for duty of the goods in field 37 of line 1 of the B3, importers are advised to deduct from the total value for duty of the goods, the value of the work performed on the goods outside Canada, the amount of which is to appear in field 37 of line 2 of the B3 and on which GST will be paid separately in Canada by the importer. That is, in field 37 of line 2 of the B3 the importer should enter the amount on which GST is payable in respect of the value of the work performed abroad and on line 1 should enter the difference between the total amount of the value for duty and the amount
In line 1, field 35, Rate of GST, the importers are advised to enter code "50" but on line 2, field 35, the rate of GST (i.e. "7" or "7.0") should be entered (see Appendix A).
In circumstances where an importer holds a valid Inward Processing licence, it shall be quoted in field 26, Special Authority (see Appendix B).
The attached B3 format(s) may be used to document Canadian goods and Canadian duty paid goods returning after having work performed on them under the conditions specified in the above captioned Regulations. This format may be used to account for all eligible shipments released on or after April 1, 1991. Appendix A to this notice refers to the payment of customs duties on the total value for duty and the payment of GST on only the value added. Appendix B to this notice refers to goods entitled to the full relief of the customs duties under Inward Processing and the payment of GST on only the value added.
As of April 1, 1991, where both duties and taxes were paid at the time of accounting, non-registrants may file for a refund of GST on Form B2 through Customs. This request for refund will then be forwarded to Excise for processing. Where only GST was paid at the time of accounting, non-registrants must file for a refund of GST on Form 189E (General Application for Rebate of Goods and Services Tax) directly with Excise. As in the current situation, registrants who have already accounted for and GST paid eligible shipments may receive an input tax credit for the GST paid at the time of importation. The provisions of the proposed Value of Imported Goods (GST) Regulations will not apply to goods already accounted for.
Please note that the proposed policy and procedural amendments outlined in this Customs Notice have been made in advance of legislative amendments. Effective April 1, 1991, accounting documents reflecting these proposed changes will be accepted, subject to amendment, pending passage of the Order in Council implementing these changes.
Any questions on the conditions which these goods must meet should be addressed to:
Ms. Candace Breakwell, (613) 954-6890
Mr. David Hotchkiss, (613) 954-6878
Duties Relief Programs,
Tariff Programs,
Customs and Excise,
Ottawa, Ontario.
K1A 0L5
Any questions on the attached format should be addressed to:
G. Wilkinson, Chief,
Entry and Amendment Systems,
Customs and Excise,
Ottawa, Ontario. K1A 0L5
(613) 954-7133
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