1999 GST/HST Interpretation HQR0001917 - PROPOSED LAW/REGULATION Technical Interpretation Request with respect to Schedule VI, Part V, Paragraph 1 of the Excise Tax Act R.S.C. 1985 Chap. E-15 (the "Act") and Section 212 of the Act

Dear XXXXX

Thank you for your letter of July 28, 1999 (with attachments) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the purchase, export and importation of a ship.

Statement of Facts

The facts as stated in your letter are as follows:

1. The Vendor is a company incorporated in Canada XXXXX[.]

2. The Purchaser is a company incorporated and resident outside of Canada.

3. The ship is registered in the XXXXX[.]

4. The Vendor transfers the entire interest in the ship to the Purchaser (the supply).

5. The Purchaser has the intention of exporting the ship at the time the supply is made.

6. The Purchaser exports the ship within two weeks after the ship is delivered to the purchaser.

7. The ship is not acquired by the Purchaser for consumption, use or supply in Canada before the exportation of the ship.

8. After the supply is made and before the Purchaser exports the ship, the ship is not further processed, transformed or altered in Canada except to the extent reasonably necessary or incidental to its transportation.

In some circumstances:

1. More than one year after the ship is exported from Canada, it is returned for repairs or modifications.

2. The Purchaser intends to export the ship once the repairs or modifications are completed.

Interpretation Requested

Specifically you have requested answers to the following questions:

1. Would the supply of the ship attract GST in the circumstances outlined above and if the ship is exported within two weeks does this meet the requirements to zero-rate the export?

2. Would the importation of the ship at a later date for repairs or modifications attract GST?

Interpretation Given

Based on the information provided above, I shall respond to each of your questions as posed:

1. Would the original transfer of the ship attract GST in the circumstances outlined above and if the ship is exported within two weeks does this meet the requirements to zero-rate the export?

If the Purchaser of the ship is not a consumer then the supply may be zero-rated under section 1 of Part V of Schedule VI to the Act providing all the terms and conditions of the section including the requirements for documentary proof of export in paragraph 1(d) of the section are met.

With respect to the time factor for exporting the ship, the issue would be whether in the circumstances two weeks would be considered "a reasonable time period" for the exportation of this type of property. A reasonable period of time would be the time that a person of ordinary diligence and prudence would use under similar circumstances. If two weeks is considered reasonable in the circumstances at hand, the Department would allow two weeks for the export of the ship.

2. Would the importation of the ship for repairs or modifications attract GST?

Repairs and modification are regarded as separate processes under the Excise Tax Act.

With respect to the importation of the vessel for repair, Section 3(d) of the Non-Taxable Imported Goods (GST) Regulations provides for goods imported for the sole purpose of maintenance, overhaul or repair of those goods in Canada.

The importation is not taxable provided that

(i) neither title to nor beneficial use of the goods is intended to pass, or passes to a person in Canada while the goods are in Canada, and

(ii) the goods are exported as soon after the maintenance, overhaul or repair is completed as is reasonable having regard to the circumstances surrounding the importation and where applicable to the normal business practice of the importer.

Therefore, providing the terms and conditions outlined in this section of the Regulations are met the vessel may be imported for repairs on a non-taxable basis.

On the other hand, the importation of the ship for modification purposes would ordinarily be taxable under section 212 of the Excise Tax Act. If the importer is a registrant he/she may be entitled to claim an input tax credit in respect of the tax paid on the importation, under the provisions of section 169(2) of the Excise Tax Act.

However, if the ship is imported by a registrant, who is supplying a manufacturing service to a non-resident person and it is subsequently exported without being used in Canada, it may qualify for non-taxable status under the Exporters of Processing Services (EOPS) program. However, the importer must meet the terms and conditions outlined in the EOPS Program. The proposed amendments relating to the EOPS program are currently outlined in detail in TIB069 (copy attached).

The foregoing comments represent our general views with respect to the proposed amendment(s) to the Excise Tax Act as it(they) relate(s) to the subject matter of your letter. Any change to the wording of these proposed amendments or any future 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.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-4294.

Yours truly,

Roy McKain
Senior Rulings Officer
Border Issues Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate
Policy and Legislation Branch

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