10 February 1999 GST/HST Interpretation HQR0001548 - Supply of Software to a Non-resident

Dear XXXXX

I refer to your facsimile messages of January 7, 1999, and January 19, 1999 (XXXXX XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of software to a non-resident.

The following information was provided in your letter:

•   A Canadian software developer will develop custom computer software for the specific purposes of a non-resident company located in the United States.

•   The Canadian software developer will make a supply of a licence to use the custom computer software pursuant to a negotiated software development and licence agreement.

•   The non-resident company is not registered for GST/HST purposes.

Interpretation Requested

Is the supply of the custom computer software by way of licence considered to be a supply of a right to use intellectual property? If it is, does this supply qualify for zero-rating under the provisions of Schedule VI, Part V, section 10 to the Excise Tax Act (Act) when supplied to an unregistered non-resident?

Interpretation Given

The supply of a licence to use custom computer software is considered to be a supply of a right to use intellectual property (i.e., intangible personal property).

If the intangible personal property may be used in whole or in part in Canada, the supply will be deemed to be made in Canada under the provisions of subparagraph 142(1)(c)(i) of the Act. If the supply is made to a non-resident person who is not registered for GST/HST purposes at the time the supply is made, the supply may be zero-rated (i.e., subject to Division II tax at the rate of 0%) under the provisions of subsection 165(3) of the Act and Schedule VI, Part V, section 10.

However, if the intangible personal property may not be used in Canada (e.g., the right to use the custom computer software is restricted to the United States), the supply will be deemed to be made outside Canada under the provisions of subparagraph 142(2)(c)(i) of the Act. As a result, the supply will not be subject to the taxes under Division II.

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

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
Technical Officer
Border Issues Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate