3 June 1998 GST/HST Interpretation HQR0001127 - Place of Supply of Prepaid Cellular Telephone Cards

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

Dear XXXXX

I refer to your facsimile message of April 3, 1998, addressed to Mr. Randy Nanner, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to prepaid cellular telephone cards (cards) supplied by your client, XXXXX

The following information was provided in your letter:

•   XXXXX intends to sell cards, which work only on the XXXXX cellular system, to dealers.

•   The dealers will resell the cards to end-users. The cards, in some instances, may be sold by retailers other than XXXXX dealers.

•   The cards have a fixed amount of usage time based on the value paid for the card.

•   The card works by entering a code from the card into the cellular phone. Once the code is entered into the system, the prepaid card is useless as a code can only be used once and is good on only the cellular phone on which the code has been entered.

•   Placing or receiving a call (either local or long distance) will reduce the usage time remaining on the cards. The system will track the number of minutes for a call and those minutes are deducted from the total minutes allowed under the card.

•   XXXXX will not send an invoice to the end-user because the end-user has already prepaid for the cellular usage. However, in certain instances, XXXXX anticipates that it may need to send a usage statement such as to address an end-user's concern.

Interpretation Requested

The cards are considered to be a supply of making a telecommunication facility available, rather than a supply of a telecommunication service. The place of supply is, therefore, determined as the place where the card is made available, i.e., the place where the card is supplied/sold.

Interpretation Given

Subsection 123(1) of the Excise Tax Act (Act) states that telecommunication service' means

(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);"

Pursuant to paragraph (b) of the above definition, the supply of a card is considered to be a supply of a telecommunication service.

Subsection 142.1(2) of the Act contains the place of supply rules for a telecommunication service. This subsection reads, in part, as follows:

"Notwithstanding section 142 and subject to section 143, for the purposes of this Part, a supply of a telecommunication service is deemed to be made in Canada where

(a) in the case of a telecommunication service of making telecommunication facilities available, the facilities or any part thereof are located in Canada; and ....."

The supply of the cards will be deemed to be made in Canada under the provisions of paragraph 142.1(2)(a) of the Act.

It must now be determined in which province the supply takes place. Section 144.1 of the Act and Schedule IX, Part VIII to the Act provide the rules for determining the province in which a telecommunication service is supplied. Schedule [IX], Part VIII, section 2 to the Act states, in part, that:

"A supply of a telecommunication service (other than a service referred to in section 3) is made in a province if,

(a) in the case of a telecommunication service of making telecommunication facilities available,

 (i) all of those facilities are ordinarily located in the province, or

 (ii) where not all of those facilities are ordinarily located in the province, the invoice for the supply of the service is sent to an address in the province; ....."

The Department's position is that all the telecommunications facilities being made available are considered to be ordinarily located in the province in which the cards are supplied/sold. Therefore, pursuant to Section 144.1 and Schedule IX, Part VIII, subparagraph 2(a)(i), the place of supply of the cards will be in the province in which the cards are supplied/sold.

For example, if XXXXX is located in a non-participating province and sells the cards to retailers from its office in the non-participating province, the supply of the cards will be subject to the GST at 7% under the provisions of subsection 165(1) of the Act. A retailer located in a non-participating province, selling cards to the end-users, would also charge the GST at 7%. However, a retailer located in a participating province, when selling the cards to the end-users, would charge the HST at 15% pursuant to subsections 165(1) and 165(2) of the Act.

The foregoing comments represent our general views with respect to the subject matter of your message. Unannounced proposed 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

c.c.:      G. Ryhorchuk
            I. Bastasic

Legislative References: Sections 142.1 and 144.1, Schedule IX, Part VIII, section 2

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NCS Subject Code: 11975-1