March 15, 1995
File: I11645-3-4
XXXXX
Dear XXXXX :
This is in reply to your facsimile transmission of February 10, 1995, that was sent to Susan Mailer of the GST Imports Unit, wherein you requested confirmation of your interpretation on the application of the Goods and Services Tax (GST) to your non-resident mail order company.
You have asked for confirmation on the following 8 points. Provided that the statement of facts and transactions is correct and complete and constitutes a complete disclosure of all relevant facts and transactions, and that those transactions are carried out in the manner described, I will repeat each point you have asked in bold and provide our comments.
By way of background, I would like to offer the following facts:
Section 212 of the Excise Tax Act provides the authority for Revenue Canada to impose tax on imported goods. The importer and owner of the goods is liable for the GST in the same manner as customs duty is imposed and collected. The importer is generally considered to be the person who caused the goods to be imported into Canada (i.e. the consumer).
Regardless of whether a non-resident mail order company has registered, GST is not to be charged on goods delivered or made available outside Canada. In this scenario, it is the Canadian recipient who is liable to pay the GST at time of importation. This amount is collected by Canada Customs.
It is our understanding that the majority of foreign mail order goods are delivered or made available outside Canada. Generally, the place where the tangible personal property (TPP) is delivered or made available can be determined by reference to the terms of the contract. In common law provinces, the law of the sale of goods is primarily contained in the appropriate Sale of Goods Act.
If the facts of your particular scenario differ from above, our response may change.
1. XXXXX may register for GST collection. However, XXXXX is not required to register for GST collection.
Non-residents who are carrying on business in Canada and who make taxable supplies in Canada, other than small suppliers, are required to be registered for the GST. Our general understanding of the U.S. mail order business is that they are not generally considered to be carrying on business in Canada. However, if, in the ordinary course of carrying on business outside Canada, the non-resident regularly solicit orders for goods to be delivered in Canada, this non-resident may be eligible to register voluntarily.
In designing the GST, it was recognized that there may be occasions where non-resident persons engaged in commercial activities outside Canada would incur GST on purchases and imports related to their taxable sales or sales made outside Canada. Persons electing to register on a voluntary basis are generally eligible to claim input tax credits (ITCs) for tax paid on inputs that are used in the course of their commercial activity.
2. XXXXX may collect GST from Canadian customers and rebate the GST to Revenue Canada, even though XXXXX is not registered to collect GST.
It is perhaps more correct to state that Revenue Canada has not prohibited XXXXX or any other business entity from consolidating collection of the customs duty and GST from the "importer of the goods" (i.e. the consumers) and remitting it to Revenue Canada on the importers' behalf. In this regard, since the goods will not be released from Customs until arrangements are made to pay the appropriate customs duty and GST, if the non-resident business is not carrying on business in Canada it does not need to be registered for the GST.
3. If XXXXX is not GST registered, XXXXX does not have an obligation to pay the GST on bills received from Canadian companies that provide services to XXXXX . An example of this would be XXXXX would not have to pay the GST billed on lettershop services, delivery of packages by Canada Post Corporation, delivery of advertising materials (postage bills) by Canada Post Corporation, etc. In a subsequent telephone conversation, you clarified the following facts:
• XXXXX uses the services of the lettershop XXXXX to do a final sort of the catalogues and drop into the Canadian mailstream only. XXXXX is responsible for the printing, stitching, addressing, primary sort and placing on pallets. Postage for these catalogues is affixed by means of a Canadian postal account number, which is printed directly on the catalogues by XXXXX .
• XXXXX buys the postal permit directly from Canada Post Corporation and affixes the account number on their catalogues. The goods are weighed and the postage affixed by XXXXX from a postage meter prior to leaving XXXXX facility.
• When sold to the canadian customer, merchandise is packaged, labelled and postage affixed by XXXXX . XXXXX has contracted with XXXXX , a highway carrier to transport the goods to the border, where is it cleared through customs, and then trucked to Canada Post and dumped into the Canadian mailstream.
Under subparagraph 179(1)(c)(i) of the Excise Tax Act, the commercial service (e.g. lettershop services) supplied by XXXXX to XXXXX will be deemed to be made for nil consideration. While these services are considered taxable at 7%, they will be taxed on a "zero" value.
The services of a customs broker are subject to the GST at the standard rate of 7% if the services are supplied to a Canadian resident. However, when the services are supplied to a non-resident, the services may be zero-rated (i.e. subject to the GST at 0%) but only to the extent that the services are in respect of a supply that is a zero-rated export under Schedule VI, Part V of the Excise Tax Act (Act) or a supply made outside Canada by or to the non-resident. Subsection 143(1) of the Act deems a supply of personal property or a service made in Canada by a non-resident to be made outside Canada if the non-resident is not carrying on a business in Canada or is not registered for GST purposes at the time the supply is made.
4. Whether or not XXXXX is GST registered, and a customer returns a product to XXXXX , it is the customers responsibility to prepare the proper paperwork and submit to Revenue Canada for rebate of the GST paid. XXXXX , may at its discretion, and in the interest of customer service, prepare the proper paperwork to Revenue Canada on the customers behalf. However, Revenue Canada refunds GST to the customer directly.
Because it is the Canadian recipient who paid the GST, in circumstances where they choose to return the goods to the supplier, the law clearly states that it is the Canadian recipient who is entitled to claim a rebate of that amount of GST. The legislation is specific on this matter.
Canada Customs has the authority to rebate the GST in the circumstances as noted above. Canada Customs has accepted 3rd party completion of the prescribed rebate form - Customs Informal Adjustment Request, form B2G - on behalf of the importer. In certain circumstances, the mail order company has printed a statement to the effect that "by directing your returned merchandise to a (specific person or location) you are authorizing that (person/business) to file, on your behalf, all necessary documentation to obtain your refund of duty, taxes and GST. All refunds are payable directly to you."
5. Revenue Canada does not now, nor has it even allowed a mailer to rebate the GST to the Canadian customer and then file proper paperwork with Revenue Canada to have Revenue Canada rebate the mailer the GST paid by a group of Canadian customers returning product to the mailer.
If the customer is the person entitled to claim the rebate of the GST, then it is the customer alone who is entitled to the rebate. As is further clarified in point 7, there is no provision for the consolidated rebate of the GST to be is payable to anyone but the importer who paid the tax.
6. Revenue Canada has not changed the way it operates in reference to number 5, above, for any U.S. company mailing catalogues into Canada.
In administering the provisions of the Excise Tax Act, it has always been Revenue Canada's mandate to deliver its programs fairly and equally, and at the same time striving to maintain a level playing field for all its clients through audits and responsible enforcement. Regarding the GST, I can confirm that Revenue Canada has not authorized any person other than the person who has paid the tax (in this case, the consumer) to claim a rebate of the GST.
7. Canadian law clearly states that it is the Canadian recipient who is entitled to claim a rebate of that amount of GST paid upon importation of the product into Canada. I asked if the Canadian consumer could assign the right to claim a rebate to the mailer. You were certain that a Canadian consumer has no privilege to assign the entitlement to claim a rebate to the company they return a product to.
The Financial Administration Act, a federal piece of legislation governing the return of monies that had been paid to the government of Canada (hereinafter referred to as Crown debt), specifically prohibits the assignment of the Crown debt to someone other than the person entitled to receive the money, except where specifically provided for in the Assignment of Crown Debt Regulations. I can confirm that there are no existing provisions in these regulations that would provide for assignment of this rebate.
8. Companies that sell product from the U.S. via television are under the same rules.
Companies that sell their products from outside Canada via television, or any other means of communication are subject to the same rules and provisions of the Excise Tax Act, as a companies who sells their goods through catalogue advertising.
This opinion is given subject to the general limitations and qualifications set forth in GST Memorandum 1.4 - Goods and Services Tax Rulings - dated September, 1994 issued by the Department of National Revenue, Excise/GST. Also, this information is based upon the Excise Tax Act and regulations thereunder in their present form and do not take into account the effects of any proposed or future amendments thereto.
Should you have further questions related to the administration of the GST, I would invite you to direct those questions to:
XXXXX
Sincerely,
H.L. Jones
Director
General Tax Policy
Policy and Legislation
Revenue Canada
Doc: XXXXX
c.c.: XXXXX
G. Ryhorchuk
M. Bloom
Imports Unit
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