19 August 1997 GST/HST Interpretation HQR0000675 - The Application of the Harmonized Sales Tax (HST) to Operations

Dear XXXXX

Thank you for your letter of April 25, 1997, concerning the application of the Harmonized Sales Tax (HST) to your client's operations.

In your letter you described the following situation:

 XXXXX a registrant with its head office located in XXXXX entered into an agreement with Her Majesty the Queen XXXXX on May 15, 1992 for the supply of the XXXXX

The agreement required XXXXX to design, construct, equip, test, trial, deliver and sell twelve XXXXX that are complete in all respects and are ready for service.

The XXXXX are to be delivered in XXXXX

The Contract provides that XXXXX shall not deliver the XXXXX until they have met the performance requirements of the specifications and successfully completed all tests and trials as required under the contract.

Your analysis of the Contract concludes that:

The Contract is for the single supply of tangible personal property.

 XXXXX are in fact a single supply of XXXXX and not a separate supply of services.

Training, spare parts, insurance, quality control, etc. are in XXXXX opinion, an integral part of the supply of the 12 XXXXX and are not separate supplies.

You believe that the HST, place of supply rule for tangible personal property applies; therefore, any amounts to be paid pursuant to the Contract (as of April 1, 1997) are an integral part of the consideration to be paid by XXXXX for the remaining XXXXX to be delivered. Accordingly, the consideration payable starting April 1, 1997, for XXXXX to be delivered after that date in XXXXX is subject to the 15% HST.

Interpretation Requested

You have requested confirmation that the supply is a single supply and the place of supply is in XXXXX

Interpretation Given

Considering the limited information that you provided, the following assumptions are made:

1. The insurance expense referred to in your letter is incurred by XXXXX for coverage during the period the XXXXX are being constructed.

2. The spare parts and the XXXXX are delivered together in the participating province.

Policy paper P-077 outlines a framework to be used in determining whether, in such situations, a supplier is making a single supply, or is making a series of separate (hereafter referred to as "multiple") supplies.

Single supply or multiple supplies analysis is invariably a question of fact. The goal is to ascertain the presence of either a "single supply" or "multiple supplies," by looking at the degree to which various elements are interconnected, the extent of their interdependence and intertwining, and whether each is an integral part or component of a composite whole.

A single supply will invariably include a number of constituent elements properties and or services supplied together (often, but not necessarily, for a single amount).

The policy is to be applied on a case-by-case basis. A determination made in a particular fact situation may not necessarily be valid in similar cases if the facts are not the same. Even if two suppliers provide the same combination of goods and or services, one might make a single supply and the other make multiple supplies, if the two suppliers impose different conditions on the provision of those goods and or services.

The clauses of the contracts or the conditions governing the supplies in each circumstance can help determine if it is a single or multiple supply

To determine whether a person makes a single supply or multiple supplies, the following factors are listed in draft Policy Paper P-077:

1. Whether some elements are inputs or themselves supplies;

2. The provisions or the terms of the agreement, contract or invoice;

3. The number of suppliers and or recipients, and

4. A series of specific questions.

In the case of XXXXX there is a contract for the supply; therefore, factor number two would be relevant to our analysis.

2. Provisions of the contract or agreement and terms of an invoice from draft P-077 states the following:

"Where supplies are made pursuant to an invoice, contract or agreement (written or verbal), the specific provisions/terms of the invoice, contract or agreement must be analyzed in detail to determine whether the invoice, contract or agreement itself explicitly provides that a single supply or multiple supplies are made. The intent of the parties must be considered when evaluating the invoice, contract or agreement, taking into account the form the documentation takes, the circumstances under which the transaction was concluded, as well as the supplier's usual business practices."

It clearly states within the contract that XXXXX shall not deliver the XXXXX until they have met the performance requirements of the specifications and successfully completed all tests and trials as required under the contract. The supply includes properties and services that are contingent on one another.

 XXXXX does not appear to be in the business of supplying insurance. The insurance expenses invoiced that are directly related to the period of construction during the time the XXXXX were built would appear to be a cost of XXXXX which is being recovered from XXXXX Consequently, XXXXX does not seem to be supplying insurance to XXXXX and that are delivered at the same time as the XXXXX do not seem to be material in nature and perhaps can be considered incidental to the supply of XXXXX

In our view, the contract seems to be for a single supply of tangible personal property. Training, spare parts, insurance, quality control, etc. related to the twelve XXXXX appear to be constituent elements of the supply.

Section 1 of Part II of Schedule IX to the Excise Tax Act (ETA) states:

Subject to section 3 of Part VI, a supply by way of sale of tangible personal property is made in a province if the supplier delivers the property or makes it available in the province to the recipient of the supply.

The XXXXX are tangible personal property. The province that they are to be delivered in is XXXXX . The place of supply for the XXXXX in this case is XXXXX therefore, subject to the HST at 15%.

The provincial component of the HST does not apply to a taxable sale of tangible personal property made in a participating province under an agreement in writing entered into on or before April 1, 1997 where the property is delivered or ownership of the property is transferred to the purchaser before April 1, 1997, regardless of when the consideration is paid or becomes due. Subsection 352(1) of the ETA refers to "on or before the announcement date" which was October 23, 1996. Proposed Amendment changes the wording to "before the implementation date" being April 1, 1997. The XXXXX delivered prior to April 1, 1997 will only be subject to GST. However any XXXXX transferred or the ownership transferred after the announcement date that are delivered in the participating provinces will be subject to HST.

The foregoing comments represent our general views with respect to the subject matter of your letter. 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 GST Memoranda Series (1.4), do not bind the Department with respect to a particular situation.

If you require additional information, please feel free to contact the undersigned below at (613) 952-8532.

Yours truly,

Leslie White
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate