3 April 1998 GST/HST Interpretation HQR0001023 - Internet services

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

Dear XXXXX

I refer to your letter of May 30, 1997, sent to the XXXXX Tax Services Office and our conversation of February XXXXX 1998, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to internet services. XXXXX[.]

Interpretation Requested

In your submission, you ask the following questions:

Q1. Does the Department consider the provision of internet access to be a telecommunication service? Is this solely because the service includes the ability to send electronic messages to others who are also connected to the internet? If the service were made up solely of the ability to access the internet to view data and retrieve information, would that type of service be considered to be a telecommunication service? Would our answer change if the service allowed an order to be placed for goods/services as part of the internet service?

Q2. If a person who had no physical presence in Canada loaded a web page on a server owned by a third party in Canada, and the web page gave either product information or a facility to place an order for goods or services, would this presence require that the owner of the web page become registered for GST? Would our answer be dependent on where the person passed ownership of the goods or provided the services ordered via the web page? Would our answer change if the person actually owned the server on which their web page was loaded?

Q3. What type of information does the Department make available on the internet, and at what address?

Interpretation Given

Question Q1

Subsection 123(1) of the Excise Tax Act (Act) defines "telecommunication service" as follows:

(a) the service of emitting, transmitting or receiving signs, signals, writing, images or sounds or intelligence of any nature by wire, cable, radio, optical or other electromagnetic system, or by any similar technical system, or

(b) making available for such emission, transmission or reception telecommunications facilities of a person who carries on the business of supplying services referred to in paragraph (a);

Under the same provision of the Act, "telecommunications facility" is defined as any facility, apparatus or other thing (including any wire, cable, radio, optical or other electromagnetic system, or any similar technical system, or any part thereof) that is used or is capable of being used for telecommunications.

To obtain access to the internet or avail a space (referred as a web site) in the internet, a "server" (service provider) is required. A server is a facility used for telecommunications and thus, falls under the definition of telecommunications facility as defined above.

The "making available of such a facility (server) for emission, transmission or receiving signs, signals, writing, images or sounds or intelligence of any nature by wire, cable, radio, optical or other electromagnetic system, or by any similar technical system" is regarded as a telecommunication service pursuant to paragraph 123(1)(b) of the Act.

As a result, access to the internet and/or the provision of a web site by server providers are considered to be supplies of telecommunication services pursuant to paragraph 123(1)(b) of the Act, irrespective of whether the service includes the ability to send and/or receive electronic messages, to view and/or retrieve information or to place orders for supplies of goods or services.

Question Q2

If a person who has no physical presence in Canada (a non-resident) loaded a web page on a server owned by a third party in Canada , the person is not required to register for GST by this sole presence, as the person does not make supplies of properties or a services by simply advertising the person's products on a web page. Products can not be delivered through the internet. In addition, the answer will remain the same if the person rather loaded the web page on its own server as opposed to one which is owned by a third party in Canada (Note that, a non-resident person who owns a server in Canada and who provides server services may be supplying "telecommunication services" in Canada as explained Question 1).

Rather, the requirement for registration of the non-resident will follow the normal rules provided in subsection 240(1) of the Act. These rules provide that a non-resident is required to register if the non-resident makes taxable supplies in Canada in the course of "carrying on business in Canada", other than as a small supplier. In addition, the non-resident can be permitted to register under subsection 240(3) of the Act, where the non-resident, in the course of carrying business outside Canada, regularly solicit orders for the supply of tangible personal property for delivery in Canada or has entered into an agreement for the supply of services to be performed in Canada. More information about non-resident registration can be found in the attached chapter 2.5 of the GST Memoranda Series.

Question Q3

Any information (e.g., publications, forms, press releases, etc.) that the Department makes available to the public can be found in the internet at the following address: http:/www.rc.gc.ca.

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

I hope that the above information will be of assistance to you. Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8223.

Yours truly,

Fernand Koutsimouka
A/Rulings Officer
Border Issues Unit
General Operations & Border Issues Division
GST/HST Rulings and Interpretations Directorate

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