16 October 1998 GST/HST Interpretation HQR0001302 - GST on Imported Capital Equipment

                                                                        GST/HST Rulings and Interpretations
 Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Road
Vanier, Ontario
XXXXX                                                                                 K1A 0L5

Dear XXXXX

This letter is in response to your facsimile transmission of August 26, 1998, to Mr. I. Bastasic concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the importation of capital equipment. All references are to the Excise Tax Act (the "Act") unless otherwise noted.

Our understanding of the facts is as follows:

1. you have received an inquiry from a Japanese company which is considering setting up a manufacturing facility in Canada for the purpose of carrying on business in Canada; and

2. the XXXXX company may import some capital equipment from Japan into Canada for installation at its proposed facility.

Interpretation Requested

1. Whether the XXXXX company will be required to pay GST/HST on the importation into Canada of the capital equipment; and, if so,

2. Whether the XXXXX company can claim an input tax credit for the GST/HST required to be paid.

Interpretation Given

Based on the foregoing information, we provide the following interpretation.

Generally, a person who is liable under the Customs Act to pay duty on imported goods or who would be liable if the goods were subject to duty, is required to pay the 7% GST on the value of the goods at the time of importation (section 212).

On April 1, 1997, the harmonized sales tax (HST) replaced the 7% goods and services tax (GST) and the provincial sales tax (PST) in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%. To the extent that supplies are taxable supplies (which are not zero-rated), tax must be collected at the harmonized rate.

Consequently, in addition to the 7% tax above, goods imported into a province with a harmonized sales tax may attract an additional tax of 8%, depending on the particular facts surrounding the importation. More information regarding the application of the GST/HST to importations may be found in the GST/HST Guide - "Doing Business in Canada- GST/HST Information for Non-Residents".

As such, the XXXXX company will be required to pay GST/HST on the importation into Canada of the capital equipment.

A company that either is registered or that is required to be registered under the Act is a registrant under the Act. If the XXXXX company is a GST/HST registrant then it will be entitled to claim an input tax credit for the GST/HST required to be paid on the importation into Canada of the capital equipment from XXXXX for installation at the proposed facility, provided that the equipment is imported for consumption, use, or supply in the course of its commercial activities.

Should this XXXXX company wish to obtain further information on the issue of registration or any other GST/HST issue, it is suggested that it contact our XXXXX Tax Services Office at XXXXX[.] This office is also responsible for the actual registration.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Department with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series as well as the GST/HST Guide - Doing Business in Canada.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-2560.

Yours truly,

Richard Aronoff
Border Issues Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate