6 May 1999 GST/HST Interpretation HQR000158 - Application of GST/HST to Supplies of Internet Access, Internet Hosting and Webpage Design to Indians

Dear XXXXX

Thank you for your letter of January 25, 1999 (with attachments) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to XXXXX supplies of internet access, website hosting or rental and webpage design.

Interpretation Requested

We understand that XXXXX is an XXXXX[.] Internet services are provided via telephone lines and customers generally receive this service by connecting their computers to telephone lines in their homes. However, internet services are not specifically required to be delivered to a particular address, as userids and passwords for connecting computers can be used from any area.

Specifically, XXXXX provides three types of supplies to its customers: internet access, website rental or hosting, and webpage design and updating. Internet access is a supply of a service that allows clients to connect to, and explore, the internet using XXXXX server. Access to the internet allows clients to access other people's websites. A supply of website rental, or the hosting of a website, consists of providing clients with addresses for, and links to, their own website, thereby allowing other people to access the clients' webpages. Finally, webpage design involves the creation by XXXXX of the graphics of a webpage for a client, that is then placed at the client's website address for access by others.

You are inquiring as to the tax status of these supplies when provided to Indians.

Interpretation Given

Revenue Canada's administrative policy concerning the application of tax to purchases by Indians and Indian bands is summarized in Technical Interpretation Bulletin B-039R GST Administrative Policy: Application of GST to Indians ("TIB B-039R"). The treatment of purchases by Indians under the Goods and Services Tax/Harmonized Sales Tax ("GST/HST") is consistent with the Indian Act under which the personal property of an Indian or an Indian band situated on a reserve and their interests in reserve lands are not subject to tax. A copy of TIB B-039R is enclosed for your reference.

Under subsection 123(1) of the Excise Tax Act ("ETA") a "telecommunication service" includes the making available for such emission, transmission, or reception telecommunication facilities of a person who carries on the business of supplying the services 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. Therefore, providing access to the internet and hosting or rental of website space are considered to be supplies of telecommunication services.

As telecommunication services, the provision of access to the internet and website rental to an Indian individual will be relieved of tax if the supplies are provided at a location on reserve. The location where these supplies are provided will be considered to be on reserve when the Indian individual who is the recipient of the supplies is ordinarily located on a reserve when accessing the internet. However, if you do not maintain sufficient information to determine the location of the user and it is not your usual business practice to obtain information sufficient to determine the location of the user, the location of the supplies will be considered to be on reserve if the address of the Indian individual who is the recipient of the supplies is on reserve.

While the supply of webpage design services is a service, it is not a telecommunication service. Supplies of webpage design services are relieved of GST/HST where the services are performed totally on reserve for an individual who is an Indian. A service of providing webpage design is considered by the Department to be performed at the location of the supplier. Therefore, the service of providing webpage design services will be considered to be performed totally on reserve where the location of the supplier is on a reserve.

You must maintain adequate documentation that the supply of the services was made to an Indian, as registered under the Indian Act. Revenue Canada will accept as adequate evidence a notation on the invoice or other sales document which is retained by the vendor, of the nine or ten digit registry number or the band name and family number (commonly referred to as the band number/treaty number).

In addition, please note that the supply of services, including telecommunication services, to an Indian band or band empowered entity may be relieved of tax where the services are acquired, on or off reserve, by a band or band empowered entity for band management activities and a certificate attesting to this fact is provided to the supplier. The supplier must maintain a copy of the certificate as documentary evidence. TIB B-039R, a copy of which is enclosed for your reference, provides more information concerning this matter, including the form of the certificate to be provided. The TIB B-039R also outlines when an entity is considered to qualify as a "band" or "band empowered entity".

Note also that the supply of telecommunication services are not relieved of GST/HST where the recipient is a corporation.

When a supply of a service is provided to an Indian, Indian band or band empowered entity under circumstances where the supply is relieved of tax, the result is that the supplier does not collect the amount of tax due. This treatment does not change the tax status of the supply provided. The supplier continues to be eligible for input tax credits to the extent that goods and services are acquired for use or consumption in its commercial activities.

In the circumstances where the conditions for tax relief are not met, tax on the services of internet access, website space rental and website maintenance must be collected at the rate of either 7% or 15%. On April 1, 1997, the harmonized sales tax replaced the goods and services tax and the provincial sales tax in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized rate of 15%.

The foregoing comments represent our general views with respect to the subject matter of your letter. 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, a copy of which is enclosed for your reference, do not bind the Department with respect to a particular situation.

Should you require clarification on the above matter, please contact me at (613) 952-4157 or Ken Syer at (613) 954-7957.

Yours truly,

Kristine A. Allen, B.A., LL.B.
Technical Analyst
Educational Services and Indians Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate