30 June 1995 GST/HST Interpretation 11645-3-4/11650-1/11685-9 - Mail Order Goods / Cataloguers - Draft letter to

I acknowledge receipt of your letter of June 5, 1995, addressed to Susan Mailer, Manager of the GST Imports Unit, which was received in our office on June 13, 1995, regarding the above-noted subject. You have asked us to review your draft response to this client, and provide comments.

As you know, the subject of the importation of foreign mail order goods and the Goods and Services Tax (GST) has recently received some attention as a result of the arrival in Canada of several direct sellers from the U.S.A. These companies have, directly and through their Canadian customs broker, solicited the views of various departmental representatives as to the application of GST to their various transactions. As you can appreciate, each company has structured its transactions slightly differently, so it is difficult to provide a patent response in each case. There are, however, some responses that have been provided in the past, and to which I will refer.

It is important to acknowledge the facts of your particular case. For ease of reference, I will repeat them here:

1. A U.S. mail order company imports into Canada several thousand individually addressed packages of mail order items on an annual basis. In order to account for the goods, they sign an agency agreement with a Canadian customs broker to submit an entry to clear the goods in the name of the non-resident company. The non-resident company accounts for the goods, but, ... is not considered the "importer" by Customs under the Customs Act. Customs has recently deemed the importer to be the Canadian purchaser (consignee) of the goods, not the non-resident company who "accounts" for the goods on the B3 Customs Accounting Document.

2. A U.S. mail order company imports into Canada several thousand individually addressed packages of mail order items on an annual basis. The goods enter Canada via a licensed Canadian customs broker who is responsible for obtaining release of the goods and accounting for the goods on a B3 Customs Accounting Document. According to the release documents and the accounting document, the importer is the Canadian purchaser/consignee. ...

You have been asked to respond to the following:

A. Under any circumstances, could the non-resident mail order company file for and obtain a GST refund directly, or an ITC for the GST paid on importation, for goods exported and returned to the U.S. company?

B. Under any circumstances, could the Canadian customs broker file for and obtain a GST refund directly or an ITC for the GST paid on import, for goods exported and returned to the U.S. company?

C. If a non-resident who carries on business in Canada and makes taxable supplies in Canada becomes a GST registrant, would they be entitled to a direct GST refund or ITC for the GST paid on import, for goods exported and returned to the U.S. company? Is there a difference if the non-resident is a voluntary registrant only, and is not required under the legislation to register for the GST?

D. (Note: We Have No Comments On Your Reply To This Question)

E. If a non-resident becomes a GST-registrant, accounts for the goods with Customs, collects the GST at the time a Canadian order is placed and pays the GST at time of import, is the Canadian importer entitled to a refund of the GST if goods are exported to the U.S. under the conditions stated above: or is the non-resident GST registrant entitled to a refund or ITC?

Our Comments:

It is important to first distinguish the nature of the importation. In that regard, Canada Customs have made a distinction between commercial and casual goods. While the ramifications of this distinction are primarily for customs purposes, it is also important to note that this could aid us in making the determination as to whether a shipment is imported with the intention of being supplied in the course of the commercial activities of the GST registrant.

If the mail order company is clearing the goods owned by that company at time of importation as commercial shipments, then as importer and owner, they are 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 in this scenario cannot benefit from the remission relief available under the Postal or Courier Imports Remission Orders.

If, on the other hand, 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.

Entitlement to claim ITCs

It is also important to note that it is simply not sufficient to state that "if a person is a GST registrant, an ITC is available". 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.

Under the general conditions for claiming ITCs, the mail order company must meet all the requirements before it can include the eligible amount of ITCs on its GST return for that period. Further, as a registrant, it 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. The mail order company 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.

Place of Supply

In analyzing a particular scenario, it is essential to first determine if the sales by 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, supplies made in Canada by a GST registrant would be subject to Division II tax. Therefore, under these circumstances, the mail order companies should charge and collect Division II tax on the supplies made to the Canadian customers in Canada.

Accordingly, your responses provided to questions A, C, and E should be clarified to accommodate the above-noted facts.

Rebate Entitlement

Customs have advised us that they generally consider the GST paid on imported "casual" mail order goods to be paid by the recipient of the goods, generally a consumer. In these cases, the mail order company or the customs broker, are merely providing a service of pre-collecting the GST on behalf of the recipient.

Likewise, the provisions for a rebate of the Division III GST paid on returned goods under section 215.1 of the ETA entitles only this "person" to the rebate. This is generally applied for on customs form B2G, Customs Informal Adjustment Request, which is process at the Customs Casual Refund Centres. A copy of this form is attached for your reference.

Revenue Canada is constantly striving to improve its processes, to reduce the administrative burden and the cost of compliance. The Department is developing a process that will allow customs brokers, with power of attorney, to act on behalf of individual Canadian importers of casual mail order low value goods, to submit refund claims in electronic format, showing the duties and taxes to be refunded to each importer. Brokers will have to maintain records to support these claims, for subsequent audit by Revenue Canada. This streamlined process will substantially reduce paper burden and the present cost of processing B2G Informal Adjustment Requests.

Although the refund cheques will still be issued in the name of the individual importers, the cheques will be sent to the broker, who, having the power of attorney, can deposit them in the broker's account, similar to the current practice for commercial shipments. This will permit a one-step refund process, allowing the mail order company to refund the purchase price plus the duties and GST. The automated B2G process may be considered an interim alternative solution. Other solutions may also result from the formal consultations on customs processing of mail order low value imports that will begin soon.

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 provision. 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.

Should you have further questions, please contact Susan Mailer, at (613) 952-9579.

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

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