11645-3-4/11640-3/11995-1(sjm)
Ss. 123(1); Sch VI, Part V, sec. 5
XXXXX August 21, 1995
Dear XXXXX
This is in reply to your facsimile transmission of July 11, 1995, addressed to Susan Mailer of the GST Imports Unit. You have inquired as to the application of the Goods and Services Tax (GST) to customs brokerage services and the freight transportation costs for shipment of foreign mail order goods to Canada.
For easy reference, I will outline each question, followed by our response. Specifically, you have asked the following questions:
Question 1
Technically, the Canadian consumer is the customer of the broker (based on a decision by Customs that the only importer of casual/consumer goods can be the importer at Customs), yet we [the customs broker] are accounting to, and have a contractual obligation to the U.S. shipper. The U.S. shipper may or may not be a GST registrant. What is the GST status of the customs brokerage services that we provide in this case?
Response
Section 5 of Part V of Schedule VI to the Excise Tax Act (ETA) zero-rates a supply made to a non-resident person of a service of acting as an agent of that person, to the extent that the service is in respect of
(a) a supply to that person that is included in any other section of this Part; or
(b) a supply made outside Canada by or to that person.
For purposes of Part V of Schedule VI to the ETA, the Department will consider a person dealing with a non-resident to be providing the services of an agent based on general legal principles. An agent includes a person who is authorized to bring another party for whom the person acts (i.e., the principal) into contractual relations with third parties.
Whether a person will be considered an agent of another person is a question of fact.
The onus is on the parties involved in any transaction to determine whether an agency relationship exists. Customs brokers are generally considered agents for purposes of section 5 of Part V of Schedule VI to the ETA.
A broker's services could be zero-rated when performed in relation to tangible personal property that is being imported on behalf of an unregistered non-resident who fulfills the conditions set out in subsection 143(1) of the ETA. Specifically if the non-resident is not carrying on business in Canada and is not registered for purposes of the GST, and the other conditions in section 5 of Part V of Schedule VI are met, the supply of the broker's services to the non-resident may be zero-rated.
Question 2
The broker also arranges (controls) the total freight movement, the broker is invoiced by the carrier and then accounts to the U.S. shipper for those amounts. Would the brokerage service be considered incidental to the international freight transportation service, and as such, be non-taxable?
Response
It must first be determined if the customs broker is arranging the freight movement as an agent or has assumed liability for the transportation.
Section 12 of Part VII of Schedule VI to the ETA zero rates a supply of a service of acting as an agent for a non-resident person who is not registered under Subdivision d of Division V of Part IX of the Act at the time the supply is made, to the extent that the service is in respect of a supply to that person of a freight transportation service that is included in section 6, 7, 8, 9, or 10.
Therefore, if a customs broker acts as an agent, in respect of an inbound or outbound freight transportation service for a non-resident person who is not registered for GST purposes, the supply would be zero-rated. However, freight forwarders and others who present themselves as carriers and assume liability as carriers are subject to the same rules as all other carriers, i.e., their supplies of domestic freight services are taxable, while their international freight services are zero-rated.
As was previously noted in the reply to question 1, GST is relieved on the provision of brokerage services only as they are provided for in section 5 of Part V of Schedule VI to the ETA.
Question 3
Customs brokers are currently in the process of changing the wording of certain "power of attorney" agreements. Although ownership of the goods transfers in the United States, the U.S. shipper often arranges for delivery of the goods to the customer's door in Canada, pays the carrier (for which they are reimbursed by the Canadian customer) for delivery service, and assumes responsibility for and files claims for carrier losses and damages that may occur to the goods enroute to the customer's door. Should the power of attorney also indicate that the shipper is collecting funds for this service (shipping and brokerage) as "an agent" of the customer in Canada?
Response
As was previously discussed in the response to Question 1, services provided in Canada are generally taxable unless there is a specific relieving provision that zero-rates the service. In these cases, a service may only be zero-rated to the extent that the supply of the imported property or service is in respect of a supply made by or to a non-resident. When determining who is considered to have received a supply, you may wish to refer to the definition of "recipient" contained in section 123(1) of the ETA as follows:
"recipient" of a supply of property or a service means
(a) where consideration for the supply is payable under an agreement for the supply, the person who is liable under the agreement to pay that consideration, ...
Also, as was discussed in Question 2, certain international freight forwarding services provided by an agent to an unregistered non-resident client where the service is to purchase an otherwise zero-rated freight transportation service for the client are zero-rated under section 12 of Part VII of Schedule VI.
Question 4
Customs brokers often provide a "return service" on behalf of the U.S. cataloger/Canadian customer of receipt, verification of the goods for forwarding to the shipper when the goods are returned by the customer. Would this service be subject to GST? Or, would it be considered incidental to the exportation of the goods?
Response
It is a question of fact as to whether the customs broker is providing a different service than as a customs broker when they provide such return services. In conjunction with the information provided in Question 2, it must be determined whether the return service is included in customs brokerage service, or whether it is something else — like a freight transportation service.
You may wish to consider whether or not these services are part of a "freight transportation service", which means a particular service of transporting tangible personal property and, for greater certainty, includes
(b) any other property or service supplied to the recipient of the particular service by the person who supplies the particular service, where the other property or service is part of or incidental to the particular service, whether there is a separate charge for the other property or service, ...
It is true that when a "carrier", as defined in the legislation, is providing ancillary services such as short-term storage and packing, these services fees will take the same status as the basic freight charge whether they are itemized separately or not.
If the services are not those of acting as an agent of the non-resident, or are not part of a freight transportation service, the services are subject to the GST at 7%. The services are in respect of tangible personal property that is situated in Canada at the time the service is performed. The services are, therefore, excluded from zero-rating by virtue of paragraph 7(e) of Part V of Schedule VI.
The foregoing comments represent our general views with respect to the subject matter of your letter. Unannounced, proposed or future amendments to the legislation may result in changes to our interpretation.
These comments are not rulings and, in accordance with the guidelines set out in Chapter 1.4 of the GST Memoranda Series, do not bind the Department with respect to any particular situation.
Should you have further questions on issues relating to freight transportation services, please contact Ms. Enikö Vermes, Manager, Health Care, Goods and Services at (613) 954-5127. For information on the GST status of certain exported services please contact Mr. Randy Nanner at (613) 952-8810. For any other information, feel free to contact Susan Mailer at (613) 952-9579.
H. L. Jones
Director
General Applications Division
GST Rulings and Interpretations
Policy and Legislation Branch
Revenue Canada
Doc: 2317 (GENL)
| c.c.: |
S. J. Mailer
Imports Unit (copy to circulate)
E. Vermes / A. Belyea
R. Nanner / G. Ryhorchuk
XXXXX |
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