12 August 1998 GST/HST Interpretation HQR0001260 - Delivery of Software by Mail

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

I refer to your letter of July 9, 1998, addressed to Mr. Roy McKain, and our telephone conversation on July 30, 1998, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to computer software shipped to Canada by mail.

The following information was provided in your letter:

•   The vendor, a U.S. company that is not resident in Canada, sells "canned" (i.e., pre-written, non-customized) computer software.

•   The U.S. company is registered for the GST/HST because it is engaged in other commercial activity in Canada, unrelated to these "mail order" sales.

•   Canadian customers receive direct mail offers containing information about a product which is being offered for sale.

•   Orders for the products are placed with a third party company located in the U.S. During our telephone conversation, you advised that the third party company neither purchases or sells the software but is merely acting as a clearing house for the orders.

•   Orders may be placed via an 800 telephone number, via the mail or via fax.

•   Deliveries are mailed to Canadian customers - the product is wrapped, addressed to the Canadian customer and placed in the U.S. postal system by the U.S. vendor.

•   The Canadian customer acts as the importer of record when the product arrives at a Canadian post office.

•   Many Canadian customers are individual consumers who are not registered for GST/HST purposes and who are not purchasing the software under circumstances in which an input tax credit would be available to them.

Interpretation Requested

When property is delivered by mail, at what point is it considered to have been "delivered or made available" to the recipient? Because the Canadian customer acts as the importer of record, you feel that this is an indication that the supply is being made in the United States. In addition, if the U.S. vendor agrees that in the event of the product being lost or damaged in the mail, the U.S. vendor will replace it at no additional charge to the Canadian purchaser (i.e., the vendor retains risk of loss of the property), does this affect the determination as to the place of supply?

Interpretation Given

The fact that the Canadian purchaser of the software acts as the importer of record for Customs purposes is not relevant when determining the place of supply by way of sale of tangible personal property. The importer of record is merely the name on the Canada Customs import entry coding form.

When tangible personal property (TPP), such as "canned" software, is sold and is shipped by mail from a place outside Canada to a place in Canada, the place where the TPP is delivered or made available may be outside Canada. When determining the place of supply for TPP shipped from outside Canada, it is necessary to refer to the terms of the contract. If the contract is silent, the place of supply may be outside Canada provided this principle is consistent with the law of the sale of goods in the jurisdiction in which the contract is concluded.

The fact that the vendor retains risk of loss for the TPP until such time as it is received in good order by the vendor's customer in Canada could be an indication that the supply is being made in Canada. However, as stated above, it will be necessary to refer to the contract or, alternatively, the law of the sale of goods for a specific determination.

If the supply of the TPP is deemed to be made outside Canada under the provisions of paragraph 142(2)(a) of the Excise Tax Act (Act), the supply is not subject to the taxes imposed under Division II of the Act.

However, if the supply is deemed to be made in Canada pursuant to paragraph 142(1)(a) of the Act, reference must be made to section 144.1 of the Act, Schedule IX, Part II, section 3 to the Act for a determination as to the province in which the supply is made. If the supply is deemed to be made in a participating province, the U.S. company will be required to charge and collect the HST at 15%. If the supply is deemed to be made in a non-participating province, the U.S. company will be required to charge and collect the GST at 7%.

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 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.

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:                 11680-1