23 October 1998 GST/HST Ruling HQR0001226 - Importation of Prescribed Publications and Software

                                                                        GST/HST Rulings and
Interpretations
Place Vanier, Tower C, 9th Floor
25 McArthur Avenue
Vanier, Ontario K1A 0L5

Dear XXXXX

I refer to your letter of June 15, 1998, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of prescribed publications and related software, which can be stored on CD-ROM or 3.5" floppy disk, by your client, XXXXX to residents of Canada.

Statement of Facts

•   XXXXX is a GST/HST registered non-resident located in XXXXX[.]

•   XXXXX supplies books containing study lessons to aid in the preparation for various educational examinations, such as XXXXX[.]  Each book has an I XXXXX[.]  The books are considered to be "prescribed tangible personal property" for purposes of section 143.1 of the Excise Tax Act (Act) and the Publications Supplied by a Non-Resident Registrant Regulations.

•   XXXXX also supplies software packages (software) which provide access to practice tests relating to the study lessons contained in the books. The software is stored on a CD-ROM or floppy disk. The software is mass produced and is sold outright. The value of the software exceeds $20 Canadian.

•   Currently XXXXX sells the books to Canadian residents and ships the books via air mail to its Canadian customers.

•   As a GST/HST registrant selling prescribed publications, the supplies of which are deemed to be made in Canada pursuant to section 143.1, XXXXX collects the GST/HST from its Canadian customers and includes its GST/HST number on the label affixed to each shipment of books. Accordingly, the books may be released to Canada Post for delivery without being held for payment of the GST/HST and the Canada Post handling fee.

Proposed Transactions

XXXXX intends to expand its shipments of software to Canadian residents. The software will be shipped by mail and may be sent alone, or together with a book in a single shrink-wrapped package (combined package). XXXXX will charge a single price for a combined package.

Rulings Requested

1. The combined package to be supplied by XXXXX to its Canadian customers be treated as "prescribed tangible personal property" in its entirety and taxed only under Division II of the Act.

2. Software shipped alone via mail by XXXXX to its Canadian customers be treated as "prescribed tangible personal property" and taxed under Division II, and not Division III, of the Act.

Rulings Given

Based on the facts set out above, the following rulings are provided:

1. The combined package, consisting of a printed book containing study lessons and a CD-ROM or a floppy disk containing practice tests relating to the study lessons, that will be supplied by XXXXX to its Canadian customers, is not prescribed tangible personal property for purposes of section 143.1 and the Publications Supplied by a Non-Resident Registrant Regulations or Schedule VII, section 7.1 to the Act. The combined package will, therefore, be subject to Division III tax at the time of importation.

2. Software shipped alone via mail by XXXXX to its Canadian customers is, also, not prescribed tangible personal property for purposes of section 143.1 and the Publications Supplied by a Non-Resident Registrant Regulations or Schedule VII, section 7.1. This "off-the-shelf" software will also be subject to Division III tax at the time of importation.

These rulings are subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by these rulings provided that none of the above issues is currently under audit, objection or appeal, that there are no relevant changes in the future to the Act or to departmental interpretative policy, and that you have fully described all necessary facts and transactions for which you requested a ruling.

Rationale

1. An item (sometimes referred to as a "multi-media item") that consists of a book and another product (e.g., a record, cassette or disk) packaged together and sold together for an all-inclusive price is generally considered to be a new product. This decision is consistent with previous decisions on similar issues relating to such combined products.

For example, the Tariff Board of Canada (Tariff Board Appeal 1927) decided that a combined product consisting of a book sold together with a record in an attached sleeve was not exempt from the former federal sales tax because the combined product was not a printed book. Please refer to Walt Disney Music (Canada) Ltd. v D/MNR C&E 6 C.E.R. 148 [1983], 3501 ETC 9 T.B.R. 72. This decision was subsequently affirmed by the Federal Court of Appeal (Walt Disney Music (Canada) Ltd. v. D/MNR C&E [1984] 2802 ETC).

Paragraph 3(b) of the Publications Supplied by a Non-Resident Registrant Regulations does state that "an audio recording that relates to a publication referred to in paragraph (a) and that accompanies that publication when it is submitted to the Canada Post Corporation or a customs officer" is considered to be prescribed property. However, software on a CD-ROM or a floppy disk is not an audio recording.

2. The Act does not contain a definitions for "book" or "printed book". These words are ordinary words in every-day use and are to be interpreted as understood in common language.

"Printed books" need not be bound but they must be books. Books, generally, are put together with saddle or side stitching (stapling), gluing, case or press binding, plastic or loose-leaf binding (with lacing ties, ring or post binders, "mill" or brad-type fasteners, etc.). "Printed books" may contain printed words, printed pictures, diagrams, symbols or other visual aids, including music and Braille. To be classified as a "book", the text should be continuous and complete from page to page, chapter to chapter, section to section, etc. Generally, the pages of a printed book are numbered.

From the above, it is clear that software on a CD-ROM or a floppy disk is not a book and is, therefore, not prescribed tangible personal property.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 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

NCS Subject Code:                 11645-2