XXXXX
Marcel Boivin
A/Manager
Border Issues
HST/GST Rulings and Interpretations Directorate
I refer to XXXXX E-Mail of March 16, 1998 to Garry Ryhorchuk in which she raised concerns about the above noted subject.
Background
More specifically, XXXXX submitted that, the supply of a prepaid telephone card is a supply of a telecommunication service of "making available ... telecommunications facilities of a person who carries on the business ..." pursuant to paragraph (b) of the definition of telecommunication service in subsection 123(1) of the Excise Tax Act (the "Act"). The issues raised relate to where those facilities are made available, for the purpose of the HST place of supply rules contained in paragraph 2(a) of Part VIII of Schedule IX to the Act, when:
• a card is supplied by the distributor; and
• the cardholder calls a 1-888 number to have the card recharged.
For example, a person purchases a prepaid long distance calling card from a BC distributor of the BC phone company. The person uses the card mainly to make long distance calls to BC while travelling in other provinces. While in New Brunswick the cardholder calls the 1-888 number to recharge the card.
XXXXX noted that, for the purposes of paragraph 2(a) of Part VIII of Schedule IX to the Act, if all the facilities are not ordinarily located in a province, we have to determine the place of supply based on the address where the invoice is sent. However, the telephone company would not be in a position to know the address of the cardholder.
Comments
"Telecommunication service" is defined, in part, in subsection 123(1) of the Act as follows: "making available for such emission, transmission or reception telecommunications facilities of a person who carries on the business ...".
"Telecommunications facility" is defined in subsection 123(1) of the Act as follows: "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".
Effective April 24, 1996, the supply of a prepaid long distance telephone card is a supply of a "telecommunication service" as this term is defined in subsection 123(1) of the Act.
As a result, where the calling card is initially supplied by a distributor, the distributor is making available to the cardholder telecommunications facilities and as such a telecommunication service is supplied to the cardholder.
In addition, where the cardholder dials a 1-888 number to contact the BC phone company's customer service department or a switch board system to recharge the card, the BC phone company is equally making available telecommunications facilities to the cardholder. Again, a telecommunication service is supplied to the cardholder.
Since at least part, if not all, of the facilities of the BC phone company are located in Canada, paragraph 142.1(2)(a) of the Act would deem the supply of the initial card and the subsequent recharge of the card to be made in Canada as this provision of the Act only requires that, as a minimum, part of the facilities be located in Canada.
For GST/HST purposes, the place of supply of a telecommunication service that consists of making telecommunications facilities available, like a supply of a prepaid phone card, will be deemed to be in a province pursuant to paragraph 2(a) of Part VIII of Schedule IX to the Act if:
(i) all of the facilities are ordinarily located in the province, or
(ii) where all the facilities are not ordinarily located in the province, the invoice for the supply of the service is sent to an address in the province.
Where a telephone card is supplied in a particular province, it is the Department's position that all of the telecommunications facilities are ordinarily located in the province where the telephone card is sold. As such, the supply of the telecommunication service is made in the province where the card is provided to the cardholder. When the cardholder dials a 1-888 number to contact the phone company to recharge the telephone card, it is our view that all of the telecommunications facilities are ordinarily located in the province where the cardholder is calling from to recharge the card. As a result, the phone company will charge 15% tax when the cardholder dials the 1-888 number from a phone that is located in a participating province.
I hope that the above information will be of assistance to you. Should you require further information about the subject-matter, please feel free to contact Fernand Koutsimouka at (613) 957-8223.
Legislative References: ss. 123(1), 142.1(1), (2), 144.1, s. 2/Part VIII/Sch. IX
HQ letters: File HQR0000328, XXXXX HQR0000379, XXXXX HQR0000288, XXXXX HQR0000657, XXXXX HQR0001127
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