25 June 1999 GST/HST Interpretation HQR0001807 - PROPOSED LAW [Application of the GST/HST to Supplies of Tangible Personal Property]

Dear XXXXX

I refer to your facsimile message of May 14, 1999, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) XXXXX to and by your client, XXXXX[.]

The following information was provided in your message:

[1.] XXXXX purchases XXXXX from suppliers in Canada exclusively for export to foreign buyers.

2[.] XXXXX is not responsible for forming any XXXXX purchased in Canada.

3. All formed XXXXX purchased by XXXXX is loaded on vessels at the XXXXX and exported to overseas buyers immediately without further processing, transformation or alteration in Canada.

4. All XXXXX purchased by XXXXX is loaded in rail cars and exported immediately to buyers in XXXXX without further processing, transformation or alteration in Canada.

5. Title XXXXX passes from XXXXX [o]verseas buyers immediately after the vessel leaves Canadian territorial waters. Delivery of XXXXX is deemed to coincide with the passing of title.

6. Title to XXXXX passes from XXXXX immediately after the rail cars leave Canada. Delivery of XXXXX deemed to coincide with the passing of title XXXXX[.]

7. Neither XXXXX is acquired by XXXXX purposes of consumption, use or supply in Canada prior to export.

8. Bills of Lading and waybills or manifests are retained to evidence the export XXXXX from Canada and to show that the vessels and rail cars move directly from the loadpoint in Canada to a foreign destination.

In your message, which is dated XXXXX, you stated that you were requesting a GST/HST ruling. However, the facsimile cover page, which is dated XXXXX contains a statement to the effect that you have revised your ruling request of XXXXX and are now requesting that a GST/HST interpretation letter be issued.

Interpretations Requested

1. The supplies of XXXXX XXXXX to its overseas and U.S. buyers are deemed under paragraph 142(2)(a) of the Excise Tax Act (Act) to have been made outside Canada because the XXXXX is delivered or made available outside Canada.

2. The supplies of XXXXX Canada for export to overseas and U.S. buyers are zero-rated under Schedule VI, Part V, section 1 to the Act.

Interpretation Given - Request #1

Based on the information provided, the supplies by XXXXX to U.S. buyers and XXXXX to overseas buyers may be deemed to be made outside Canada under the provisions of paragraph 142(2)(a) of the Act. As a result, the supplies would not be subject to the taxes imposed under Division II of the Act.

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

Rationale

Policy Statement P-078R states that for purposes of paragraphs 142(1)(a) and 142(2)(a) of the Act, "delivered" refers to those situations where delivery of the tangible personal property (TPP) under the applicable provincial legislation is effected by actual delivery. "Made available" refers to those situations where delivery of the TPP under the applicable provincial legislation is effected by constructive delivery (i.e., actual physical possession of the TPP is not transferred to the recipient of the supply yet delivery is recognized as having been intended by the parties and as sufficient in law.

From the information provided, the supplies of XXXXX are being made outside Canada by XXXXX the overseas and U.S. buyers (e.g., constructive delivery of XXXXX occurs after the vessels leave Canadian territorial waters or after the rail cars leave Canada and enter the United States).

Interpretation Given - Proposed Law - Request #2

The supplies of XXXX XXXXX may qualify for zero-rating (i.e., subject to the GST/HST at 0%) under the provisions of Schedule VI, Part V, section 1 to the Act provided, of course, that all of the conditions for zero-rating are met.

The foregoing comments represent our general views with respect to the proposed amendments to the Act as they relate to the subject matter of your message. Any change to the wording of these proposed amendments or any future 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/HST Memoranda Series, do not bind the Department with respect to a particular situation.

Rationale

On August 7, 1998, the Honourable Paul Martin, Minister of Finance, announced draft proposals to amend to the Act. Included in the draft proposals were amendments relating to Schedule VI, Part V, section 1 to the Act. These proposed amendments, which apply to property supplied after October 1998, are included in the Notice of Ways and Means Motion tabled in the House of Commons on June 4, 1999, by the Honourable Allan Rock, Minister of Health, on behalf of Mr. Martin.

Effective November 1, 1998, Schedule VI, Part V, section 1 to the Act is proposed to read as follows:

"A supply of tangible personal property (other than an excisable good) made by a person to a recipient (other than a consumer) who intends to export the property where

(a) in the case of property that is a continuous transmission commodity that the recipient intends to export by means of a wire, pipeline or other conduit, the recipient is not registered under Subdivision d of Division V of Part IX of the Act;

(b) the recipient exports the property as soon after the property is delivered by the person to the recipient as is reasonable having regard to the circumstances surrounding the exportation and, where applicable, to the normal business practice of the recipient;

(c) the property is not acquired by the recipient for consumption, use or supply in Canada before the exportation of the property by the recipient;

(d) after the supply is made and before the recipient exports the property, the property is not further processed, transformed or altered in Canada except to the extent reasonably necessary or incidental to its transportation; and

(e) the person maintains evidence satisfactory to the Minister of the exportation of the property by the recipient or, if the recipient is authorized under subsection 221.1(2) of the Act, the recipient provides the person with a certificate in which the recipient certifies that the property will be exported in the circumstances described in paragraphs (b) to (d)."

Schedule VI, Part V, paragraph 1(a) to the Act is not applicable in this instance because XXXXX not a continuous transmission commodity. From the information contained in your message, the provisions of paragraphs 1(b), 1(c) and 1(d) will be met. Therefore, provided that XXXXX suppliers maintain proof of export of XXXXX the conditions of paragraph 1(e) will also be met. As a result, the supplies of XXXXX to XXXXX may be zero-rated.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-7959.

Yours truly,

J.A. Venne
Director
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate
Policy and Legislation Branch