8 March 1999 GST/HST Interpretation HQR0001521 - Zero-Rating Interlining Provisions

Dear Sirs:

This letter is in response to a request received from XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to transportation services provided to deliver your products to your customers. We apologize for the delay in responding to this request.

Facts Presented

You have provided Revenue Canada with the following facts:

1. XXXXX is a Canadian resident, and is registered for the GST/HST;

2. XXXXX sells its finished product XXXXX. As a result, when these products leave its XXXXX plant for delivery to its customers, it is the customers that have right, title, and ownership to the products, as well as the risk of damage and loss;

3. Previously, a freight forwarding XXXXX finished products in XXXXX and delivered them to XXXXX customers on a collect basis. That is, the customer pays for the costs of the supply of the freight transportation service;

4. XXXXX has its own trucks which are frequently in XXXXX[;]

5. An agreement was reached between XXXXX and XXXXX whereby XXXXX transports its finished products in its own trucks to XXXXX. XXXXX agrees to be charged by XXXXX leg of the journey. XXXXX then transports the products the remainder of the journey and bills the customers for the full cost of transportation from XXXXX to the customer;

6. XXXXX has been charging GST on its invoices to XXXXX for the transportation services provided by XXXXX has been deducting the GST when making its payments to XXXXX[;]

7. In addition to XXXXX uses approximately five other freight forwarding transport companies, with similar arrangements;

8. All of these transport companies have requested that XXXXX not charge the GST/HST on the XXXXX leg of the journey to the customer claiming that this supply is zero-rated;

9. Generally, it is XXXXX customers who decide which transport company to use, whether it be XXXXX or some other. In some instances, however, customers accept XXXXX recommendation; and

10. XXXXX customers are situated throughout XXXXX although mostly in Canada.

Interpretation Requested

Whether the supply of a freight transportation service by XXXXX to XXXXX leg of the freight transportation service is zero-rated pursuant to the interlining provisions contained in section 11 of Part VII of Schedule VI to the Excise Tax Act (the "Act").

Interpretation Given

Based on the information provided, the supply of a freight transportation service by XXXXX leg of the freight transportation service is zero-rated pursuant to the interlining provisions contained in section 11 of Part VII of Schedule VI to the Act. In accordance with subsection 165(3) of the Act, GST/HST applies to this supply at the rate of 0%. This zero-rating applies regardless of whether final the destination of the property being transported is inside or outside of Canada.

Where a person is transporting its own property and transfers possession of that property to a carrier, that person is deemed to be a "shipper" as defined in the Act as opposed to being a carrier, and must disclose this fact to the carrier to whom it provides shipping instructions.

In the present case, however, XXXXX is transporting property to which it does not have title because the property is shipped FOB its plant. Once the property is loaded onto XXXXX trucks, XXXXX is then the carrier of this property, with its customer as the consignee. At no time is XXXXX concurrently a shipper and a carrier, if such a scenario were to occur, upon which the Act would deem XXXXX to be exclusively a carrier (subsection 1(1) of Part VII of Schedule VI to the Act, definition of "shipper").

Pursuant to section 11 of Part VII of Schedule VI to the Act, a supply of a freight transportation service made by a carrier of the property being transported to a second carrier ... where the service is part of a continuous freight movement, and the second carrier is neither the shipper nor the consignee of the property being transported, is zero-rated.

On April 1, 1997, the harmonized sales tax (HST) replaced the goods and services tax (GST) and the provincial sales tax (PST) in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%. Therefore, where a particular freight transportation service is not zero-rated, for purposes of whether the GST or HST applies to the particular transportation service, section 5 of part VI of Schedule IX provides that, subject to Part VII, a supply of a freight transportation service is made in a province if the destination of the service is in a province. Therefore, where a finished product is delivered to a customer on a collect basis, generally, GST or HST applies depending on the province where the customer takes delivery.

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, 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) 954-2560.

Yours truly,

Richard Aronoff
Border Issues Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate