Telephone No.: (613) 957-8224
Fax No.: (613) 990-1233
File No.: 11680-1(cav)
HQR 0000288
s. 142
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Subject:
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GST Status of Rechargeable Calling Cards
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Dear XXXXX
I refer to your letter dated July 26, 1996 to the XXXXX requesting a ruling on the GST status of recharged calling cards. Your letter has been forwarded to me for response. I wish also to refer to our telephone conversation of September 23, 1996 in which you agreed my response will cover only those recharge services provided to residents. The GST application of such services provided to a non-resident will be forthcoming upon clarification of proposed legislation from the Department of Finance.
I am unable to provide you with a ruling respecting rechargeable calling cards as the proposed sections relating to telecommunication services referred to in this letter have not, as yet, been passed into law. Alternatively, I will issue an interpretation on how the GST applies to these supplies.
My understanding of the facts is as follows:
1. XXXXX is a XXXXX licenced long distance debit reseller. It provides long distance debit services to individuals across Canada and foreign markets.
2. The majority of sales are made in Canada.
3. XXXXX also provides these cards to non-residents in XXXXX and other foreign markets.
4. Customers purchase calling cards from distributors or retailers and are charged appropriate tax.
5. Customers make long distance calls using up prepaid value of cards.
6. Customers who have purchased these cards contact XXXXX customer service department to recharge their calling card XXXXX[.] You are requesting clarification as to what criteria should be used by XXXXX to determine if the XXXXX recharge sale is subject to GST.
Prior to April 24, 1996, and based on the definition of telecommunication in subsection 35(1) of the Interpretations Act, the supply of the recharged card would not be a provision of a telecommunication service between the Purchaser XXXXX and its customer.
The recharged calling card is a supply of intangible personal property (i.e., the right to use/access a telecommunication service). Paragraph 142(2)(c) of the Excise Tax Act (ETA) deems a supply of intangible personal property to be made outside Canada if the property may not be used in Canada or the property relates to a service to be performed wholly outside Canada. Where these conditions are met, the recharged card would not attract Division II tax.
Alternatively, where the card may be used in Canada, the supply would be deemed to be made in Canada and taxable at 7 per cent.
The foregoing comments represent our general views respecting legislation in effect prior to April 24, 1996, with respect to the subject matter of your letter. 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.
Effective April 24, 1996, the supply of a recharged debit card would be the provision of a telecommunication service pursuant to proposed paragraph (b) of subsection 123(1) of the ETA, definition of 'telecommunication service', which reads:
(b) making available for such emission, transmission or reception telecommunications facilities of a person who carries on the business of supplying services referred to in paragraph (a)
It is the Department's opinion that the Purchaser is making available to the customer the telecommunication facilities of XXXXX[.] Effective April 24, 1996, the proposed place of supply provisions respecting telecommunication services would deem the recharge service to be made in Canada based on paragraph 142.1(2)(a), which reads as follows:
(a) in the case of a telecommunication service of making telecommunications facilities available, the facilities or any part thereof are located in Canada;
'Telecommunications facility' as defined in proposed 123(1) states:
'telecommunications facility' means any facility, apparatus or other thing(including any wire, cable, radio, optical or other electromagnetic system, or any similar technical system, or any part thereof) that is used or is capable of being used for telecommunications.
As stated above and in reference to the definition of paragraph (b) of the proposed definition of telecommunication service under subsection 123(1) of the ETA, the Purchaser is making available to the customer XXXXX telecommunication facility which is located in Canada. Accordingly, the place of supply of recharging of a debit card will always be in Canada. Where this service is provided to a resident after April 23, 1996, it would be taxable at 7 per cent.
The foregoing represents our general views with respect to the proposed amendments to the ETA relating to the subject matter of your letter. These comments are not rulings and, in accordance with the the guidelines set out in Section 1.4 of the GST Memoranda Series, do not bind the Department with respect to a particular situation.
I wish to point out that the Department's position where a third party collects amounts as or on account of tax for the supplier (Provider), is that both parties [(]XXXXX and Provider) are obligated to include the amounts in their net tax calculations until one of them actually accounts for the amounts and remits any net tax remittable. The remittance by one of the parties discharges the liability of both.
Should you require further clarification, please do not hesitate to contact me at (613) 957-8224.
Yours sincerely,
Carol Ann Villeneuve
Policy Officer
Border Issues Unit
General Operations and Border Issues Division
GST Rulings and Interpretations
Policy and Legislation Branch
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