3 May 1996 GST/HST Interpretation 11645-1[2] - The Application of GST to Duties Collected Under the Duty Deferral Program and Whether There Would be an Entitlement to ITCs if GST Were Applicable

This letter is in response to your e-mail message dated March 13, 1996 addressed to Susan Mailer requesting our opinion as to the application of GST to duties collected under the duty deferral program and whether there would be an entitlement to ITCs if GST were applicable.

As I understand the situation, when goods have been imported and the duties payable on those goods have been deferred under the duties relief program, there may be a requirement under the XXXXX agreement for duties to be paid subsequent to the importation (and re-exportation) of the goods. Your questions are whether GST would apply to these duties payable after the importation (and re-exportation), the entitlement to claim ITCs for any GST paid under this scenario, and the implications if the goods enter a bonded warehouse and are further processed while in the bonded warehouse to the extent that they are subject to the XXXXX restriction.

Section 212 of the Excise Tax Act (ETA) provides the legislative authority for the imposition of GST on imported goods. This section provides that every person who is liable to pay duty under the Customs Act, or would be so liable if duty were applicable, is liable to pay GST equal to 7% of the value of the goods. Section 213 of the ETA, however, relieves from tax those goods listed in Schedule VII to the ETA. Section 8 of Schedule VII provides for the non-taxable importation of prescribed goods in prescribed circumstances. The regulations made pursuant to this section are the Non-Taxable Imported Goods (GST) Regulations (NTIGR) and they outline the situations where goods may also be imported on a non-taxable basis. Copies of the legislative references and the regulations are attached for your information.

Unless the goods being imported, and on which the duties which have been deferred are being paid, qualify for non-taxable importation under one of the relieving provisions in either Schedule VII or the NTIGR, GST will apply to the duties payable under the duties deferral program.

If the duties being deferred remain payable at the time of importation but the payment is deferred, GST would be applicable to the duties and be payable at time of importation. However, if the duties being deferred have been remitted and are not payable at the time of importation, then no GST would be payable on the duties portion at that time. When it is determined that some, or all, of the duties deferred are payable, GST will apply to the duties if the GST was not collected at the time of importation. In this case, the goods are subject to duties under the Customs Act even though they were initially provided duties relief under the Customs Tariff, and there is no relieving provision for the GST. Therefore, GST would apply to the duties collected in these circumstances.

To determine whether there is an entitlement to claim ITCs for the GST paid on imported goods, the requirements for claiming ITCs must be met. These requirements are that the goods were imported by the claimant, that the claimant paid the tax at time of importation, that the claimant is a registrant, the goods are for use in the claimant's commercial activity and that there is sufficient documentation to support the claim for the ITCs. If the claimant meets all the criteria, then the claimant is entitled to claim ITCs for the GST paid.

Finally, you question the GST ramifications for the goods if the goods are entered into a bonded warehouse for further processing and then exported without being released from Customs control. Section 144 of the Excise Tax Act states that goods that have been imported but have not been released before the goods are supplied (e.g. delivered or made available to the recipient of the supply), would be considered to have been supplied outside Canada. Accordingly, GST would not apply to the supply of goods while they remain in the bonded warehouse. If the goods are subsequently exported from the bonded warehouse, no tax would be applied as there is no liability to pay duties on the goods under the Customs Act.

I trust this information will address your concerns in this matter. If you require further information, please contact Gwen Preston at (613) 952-8530.

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

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DOMUS #: 2810 (gen)