23 October 2000 GST/HST Interpretation 24883 - GST/HST Status of the Supply of an Internet Auction Service

Dear XXXXX:

Thank you for your letter of November 18, 1998, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of auction services made electronically through the Internet. Your request has been transferred from the Pacific Technical Interpretation Services Centre to the Border Issues Unit of the General Operations and Border Issues Division of the Excise and GST/HST Rulings Directorate for response.

The following information was taken from your letter, your client's web site and subsequent telephone conversations between myself and XXXXX of your firm:

•   Your client, XXXXX (CANCO) is in the business of supplying appraisal and auction services in Canada. CANCO is registered for GST/HST purposes with business number XXXXX.

•   CANCO supplies auction services to vendors and purchasers by operating an electronic auction service through its web site. The web site is stored on a web server that is situated in a non-participating province (XXXXX) with the web address, XXXXX.

•   CANCO provides vendors and purchasers with a site to sell their tangible personal property (TPP). In all circumstances the vendors and purchasers have no contact with each other.

•   The TPP remains with the vendor until the supply to the purchaser is concluded. At that time either the vendor or CANCO will arrange for the delivery of the TPP to the purchaser.

•   Vendors pay an annual fee to list items on the auction site with an additional monthly service fee per item listed. Vendors are also charged a set commission on the value of the items sold. Vendors are given registered agent status on the site for no charge. A person with registered agent status is entitled to receive a commission paid by CANCO on all sales and purchases made by referred purchasers or vendors.

•   There are two ways for a person to be given registered agent status, by either becoming a vendor or by requesting such status and paying an annual fee to CANCO. Registered agents are given a commission based on the value of the TPP purchased or sold by vendors and purchasers it has referred to the auction web site.

•   A buyers premium of XXXXX of the purchase price is applied on each purchase.

•   To list an item, the vendor must register with CANCO either through the internet or by telephone. For the item to be listed, the vendor must sign and adhere to the terms of the Sellers Contract, provide picture or images of the item, create a literal description of the item, and provide a retail price they wish to sell the item for.

•   To purchase an item a purchaser must register with CANCO either electronically through the internet or by telephone. Once registered, the purchaser can bid on any item listed. With each item listed on the web site there is a corresponding "make an offer" link that allows the purchaser to submit a bid. Whether the bid is considered acceptable depends on whether the bid price exceeds the vendor's pre-authorized minimum acceptable price. If the offer is rejected the purchaser is advised immediately. When a purchaser submits an acceptable offer both the system administrator and the vendor receive an electronic mail message stating that someone has made an offer and the item is noted as being sold. When an offer is accepted CANCO will notify the purchaser of the offer price, and commission plus the costs of freight and insurance for delivery from the vendor to the purchaser plus any applicable tax. The purchaser must then wire the accepted amount of money to CANCO's trust/escrow account.

•   CANCO has not been given and has no legal authority to bind the vendor to completing any specific transaction.

•   Once CANCO receives payment from the purchaser, the vendor is required to send the TPP to the purchaser using either FedEx or UPS. CANCO chooses the courier service to ensure buyer/seller confidentiality and anonymity. Once the item is received by the purchaser they have 48 hours in which to examine it to verify that it is consistent with the item description given by the vendor. Where the item is rejected by the purchaser within the allotted time frame, the item is returned to the seller and the funds are refunded to the purchaser. Where accepted, the funds are forwarded to the vendor.

Interpretation Requested

What is the GST/HST status of the supplies made by CANCO?

Interpretation Given

Every recipient of a taxable supply made in Canada is required to pay GST/HST in respect of the supply at the rate of 7% (15% where the supply is deemed to be made in a participating province) on the value of the consideration for the supply unless the supply is zero-rated (taxed at 0%). The three participating provinces are Nova Scotia, New Brunswick, and Newfoundland.

Section 142 of the Excise Tax Act (the "Act") is the general provision used to determine whether a supply is deemed to be made inside or outside Canada. Specifically, paragraphs 142(1)(g) and 142(2)(g) of the Act are the relevant provisions for the supply of a service other than a service in relation to real property. Paragraph 142(1)(g) of the Act deems a supply of a service to be made in Canada if the service is performed in whole or in part in Canada. Conversely, a service that is performed wholly outside Canada is deemed to be made outside Canada pursuant to paragraph 142(2)(g) of the Act. Based on the information provided it is clear that all services performed by CANCO are performed at its place of business in the province of XXXXX (a non-participating province). The services are therefore deemed to be made in Canada and are subject to GST at 7%, HST at 15% or are zero-rated.

In order to determine whether the HST applies to the supply of services by CANCO the place of supply with respect to a province must be determined. For this determination, the relevant provisions of the Act are section 144.1 and Part V of Schedule IX to the Act. Section 144.1 provides that a supply is deemed to be made in a province if it is made in Canada and is, under the rules set out in Schedule IX, made in the province. Section 144.1 also states that a supply made in Canada that is not made in a participating province is deemed to be made in a non-participating province. Paragraph 2(a) of Part V of Schedule IX to the Act deems a supply of a service to be made in a province if all or substantially all of the Canadian element of the service is performed in that province. Considering the fact that the service supplied by CANCO is performed exclusively in the province of XXXXX the service is deemed to be made in that province. Therefore, where the supply of the service is not zero-rated, it is subject to GST at 7%.

CANCO is considered by the Canada Customs and Revenue Agency (CCRA) to be supplying a service of arranging for, procuring or soliciting orders for supplies by or to its purchaser and vendor clients. The annual and monthly posting fees and sales commissions charged by CANCO to the vendor are considered by the CCRA to be consideration for the supply of a service of arranging for, procuring or soliciting orders for supplies made by the vendor. Section 5 of Part V of Schedule VI to the Act zero-rates the supply of a service of this nature when made to a non-resident person provided the service is in respect of a supply to the person that is included in any other section of Part V of Schedule VI to the Act or in respect of a supply made outside Canada by or to the person. Where CANCO supplies the service in respect of a supply made by their client (the vendor) outside Canada, the supply of CANCO's service is zero-rated. The service supplied to the purchaser (the consideration for which is recorded as the "buyers premium") may also be zero-rated pursuant to section 5 of Part V of Schedule VI to the Act provided the purchaser is not resident in Canada and the supply by the vendor is made outside Canada or the supply by the vendor is zero-rated pursuant to any of the provisions in Part V of Schedule VI to the Act. GST/HST Memoranda Series - Chapter 4.5.2 Exports - Tangible Personal Property has been enclosed to provide further information regarding the zero-rating of a supply of TPP.

As it is the responsibility of the supplier to ensure the appropriate amount of GST/HST is collected and remitted GST/HST Memoranda Series - Chapter 4.5.1 Exports - Determining Residence Status has been provided for your perusal. This memorandum provides examples of what the CCRA considers acceptable evidence that a recipient is not resident in Canada.

With respect to the supply by CANCO of Registered Agent Status for an annual fee, the CCRA considers this supply to be a supply of a right. The supply of which is deemed to be made in Canada pursuant to subparagraph 142(1)(c)(i) as the intangible personal property (IPP) may be used in whole or in part in Canada. As the place of supply of the IPP is in the province of XXXXX (a non-participating province) and there is no provision zero-rating the supply, it is subject to GST at 7%.

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 Canada Customs and Revenue Agency 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) 952-8812.

Yours truly,

Jeff Frobel
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate