10 December 1998 GST/HST Interpretation HQR0000646 - Marine Navigation Services (MNS) Fees

Dear Mr. XXXXX

I refer to XXXXX letter of April 9, 1997 (with attachments), and my telephone conversation with XXXXX on November 23, 1998, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to MNS fees supplied by Fisheries and Oceans Canada to unregistered non-residents. On April 23, 1997, XXXXX was advised that the letter had been allocated to the Governments Unit, Public Services Bodies and Government Division, for response. The letter has been reallocated to the Border Issues Unit, General Operations and Border Issues Division. The delay in responding to XXXXX letter is regrettable.

The following information was provided in previous correspondence and meetings with officers of your department and this department:

•   On June 1, 1996, the Canadian Coast Guard (CCG) began to charge fees for the use of marine navigation aids and other marine navigation services. These fees are referred to collectively as "MNS fees".

The aids are the buoys, beacons, lighthouses, LORAN-C, racons and other structures and devices installed, built or maintained by or on behalf of the CCG to assist the navigation of ships. The services include vessel traffic services and information provided by CCG radio stations. These fees are imposed pursuant to the Financial Administration Act and the Marine Navigation Services Fees Regulations.

•   For purposes of the aids to navigation fee, Canada has been divided into three regions - the West, the Central-Laurentian and the Atlantic. Each region has its own fee structure. In the West region XXXXX the foreign flag fee is based on the gross registered tonnage (GRT) of the ship, plus a minimum fee per call in Canadian waters. Canadian ships are charged a flat fee per year plus a fee per GRT of the vessel. In the Central-Laurentian and Atlantic regions, the fee for foreign flag ships is based on the number of tonnes loaded and unloaded, with a maximum of 50,000 tonnes. In the latter two regions, transshipped cargo would only be charged on one leg of the trip. Cruise ships pay a flat fee per port call to a maximum of three in a 30-day period and all foreign flag ships pay a fee per GRT to a maximum of once per month. Canadian ships are charged an annual fee based on the GRT of the ship.

•   The MNS fees apply only to commercial shipping. The fees do not apply to state ships used for non-commercial purposes, fishing vessels, pleasure craft and ferries operated by the province of Newfoundland. The fees do not apply to locations north of 60 degrees north latitude, in Hudson Bay, James Bay, Lake Athabaska, Ungava Bay and several remote ports. In addition, vessels transiting Canadian waters going to or from U.S. destinations without stopping at a Canadian port are not subject to the fees.

Interpretations Requested

1. Are fees for MNS supplied to non-Canadian ships subject to the GST/HST at 0% (i.e., zero-rated)?

2. Why is it that in some cases the owner of the non-Canadian ship would be liable for the GST/HST on the invoice, yet the determination of that liability depends entirely on the status of the operator of the ship?

3. After the owner of the non-Canadian ship pays the invoice on which the GST is charged, how can this owner get reimbursed in light of the fact that the owner is not registered for GST/HST purposes? Can the owner of the non-Canadian ship claim a GST/HST refund?

4. Why can't the shipping agents fill out the declaration form on behalf of the recipient of the MNS?

Interpretations Given

1. Schedule VI, Part V, section 2 to the Excise Tax Act (Act) zero-rates:

"A supply of property or a service (other than a supply of real property by way of sale) made to 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, where the property or service is acquired by the person for consumption, use or supply

(a) where the person carries on a business of transporting passengers or property to or from Canada or between places outside Canada by ship, aircraft or railway, in the course of so transporting passengers or property;

(b) in the course of operating a ship or aircraft by or on behalf of a government of a country other than Canada; or

(c) in the course of operating a ship for the purpose of obtaining scientific data outside Canada or for the laying or repairing of oceanic telegraph cables."

Therefore, provided the supply of MNS is made to a non-resident person who is not registered for GST/HST purposes at the time the supply is made, and the other requirements of the provision are met, the supply may be zero-rated. On the other hand, if the non-resident person is registered for GST/HST purposes, the supply of the MNS will be subject to either the GST at 7% if the service is deemed to be made in a non-participating province or the HST at 15% if service is deemed to be made in a participating province.

2. In order for the zero-rating provisions of Schedule VI, Part V, section 2 to apply, the recipient of the supply of the MNS (i.e., the person to whom the supply of the MNS is made) must be an unregistered non-resident. The recipient of the supply of the MNS would, in all likelihood, be the operator of the ship. The operator of the ship may, or may not be, the owner of the ship.

For example, assume that the owner of a ship is a leasing corporation located in Geneva, Switzerland that is not registered for GST/HST purposes. The operator of the ship is a registered non-resident cruise line located in Miami, Florida, U.S.A. Although the owner of the ship is an unregistered non-resident, it is the operator of the ship that is the recipient of the supply of the MNS. Therefore, as the recipient is registered, the supply of the MNS is subject to either the GST at 7% or the HST at 15%.

3. If the recipient of the supply is not registered for GST/HST purposes, and the requirements of Schedule VI, Part V, section 2 are met, the supply of the MNS would be zero-rated. On the other hand, if the recipient of the supply is an unregistered non-resident, but the requirements for zero-rating are not met, e.g., the non-resident is not engaged in the business of transporting passengers or property to or from Canada or between places outside Canada (such as a leasing company), the supply of the MNS would be subject to tax, with no provision for a rebate.

4. When a shipping agent acts on behalf of a non-resident client, the agent has all the rights and privileges of the client that the agent is representing (within the agency agreement). However, because Canadian shipping agents can represent both GST/HST registered and unregistered clients, it is recommended that your department obtain a declaration from the shipping agent when zero-rating the supply of the MNS services. This is a not a legislative requirement but is recommended for your department's protection. Suggested wording should include a statement which indicates that the ship is being operated by a non-resident person who is not registered for GST/HST purposes and that the requirements for zero-rating under Schedule VI, Part V, section 2 are met. It would, also, be useful if the shipping agent included a statement to the effect that your department will be advised if any change in the status of its clients occurs.

The foregoing comments represent our general views with respect to the subject matter of your letter. Unannounced or future amendments to the Act may result in changes to this interpretation. These comments are not rulings and, in accordance with the guidelines set our in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Department with respect to a particular situation.

Enclosed for your information are Chapters 4.5.1 (Exports - Determining Residence Status) and 4.5.3 (Exports - Services and Intellectual Property) of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 952-6743.

Yours truly,

Garry L. Ryhorchuk
Senior Rulings Officer
Border Issues Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate

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