File #: 11690-8(glr)
s. 221.1, 232, 240, 261
Sch. VI/V/1
Telephone #: (613) 954-8585
I refer to your memorandum of April 27, 1995, addressed to Mr. Mitch Bloom, and Mr. Garry Ryhorchuk's E-mail message to you of January 2, 1996, concerning the renewal of export certificates and whether or not the non-resident persons requesting renewal of the certificates qualify to be registered for Goods and Services Tax (GST) purposes. Please accept my apologies for the delay in this response.
The following facts were provided in your memorandum:
• On January 1, 1991, persons who were licensed under the Softwood Lumber Products Export Charge Act were allowed to register for GST purposes and were automatically granted authority to use export certificates under the GST where the conditions outlined in subsection 221.1(2) of the Excise Tax Act (Act) were met.
• Many of these lumber exporters are now requesting renewal of authority to use the export certificates.
• A large percentage of these exporters are non-resident companies whose sole activity in Canada is to purchase lumber from mills or reload centres for use or supply in their business in XXXXX[.] These exporters make no supplies in Canada and have no physical presence in Canada.
• Your office has taken the position that these non-resident companies are not eligible to be registered for the GST because they are neither carrying on business in Canada [paragraph 240(1)(c) of the Act] or engaged in a commercial activity in Canada [paragraph 240(3)(a) of the Act].
• When a request for renewal of authority to use export certificates is received in your office, your staff are first confirming whether these non-resident companies are eligible to be registered for GST purposes. Where these companies are not eligible, their GST registration numbers are being cancelled and the companies are being advised to use the export provisions of Schedule VI, Part V, section 1 to the Act.
You have requested confirmation that these non-resident companies are not carrying on business in Canada nor are they engaged in a commercial activity in Canada.
Whether or not a person is carrying on business in Canada or engaged in a commercial activity in Canada can only be determined on a case-by-case basis based on the facts of that case. However, if the non-resident companies are only engaged in purchasing lumber from Canadian suppliers for export, and are not making any supplies in Canada, they are not required to register under the provisions of subsection 240(1) of the Act, nor can they voluntarily register under the provisions of paragraph 240(3)(a). Therefore, it appears that these non-resident companies were registered in error at the time of implementation of the GST.
However, if these non-resident companies who in the ordinary course of carrying on business outside Canada regularly solicit orders for the supply of tangible personal property for delivery in Canada, the companies can voluntarily register under the provisions of paragraph 240(3)(b) of the Act. As stated previously, whether or not this requirement is met can only be determined on a case-by-case basis. Non-resident companies purchasing lumber in Canada for export would not meet this criteria.
Although the decision to cancel the registration of these non-resident companies appears to be technically correct, I would like to point out the possible negative implications of this action.
There will be an increased administrative burden on the Canadian suppliers, as well as their non-resident customers, because the Canadian suppliers will now require actual proof of export for each supply of lumber in order to substantiate zero-rating under Schedule VI, Part V, section 1. As you know, lumber shipped to reload centres is, in certain instances, consolidated for export. Therefore, it may be difficult to determine when a specific supply left Canada. If the documentation is not readily available, the Canadian suppliers will probably charge the GST. Once the documentation is available, the non-resident companies would then either have to file a rebate claim under the provisions of section 261 of the Act of request a refund or credit from their suppliers under the provisions of section 232 of the Act in order to recover the tax.
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If you have any questions or require further information, please contact Mr. Ryhorchuk at (613) 952-6743 or Mr. Randy Nanner at (613) 952-8810.
H.L. Jones
Director
General Applications Division
GST Rulings and Interpretations
Policy and Legislation Branch
| c.c.: |
R. Nanner GAD #: 1261(REG)
G. Ryhorchuk
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