27 October 2000 GST/HST Interpretation 30388 - GST/HST Status of Supplies Made Through the Internet

Dear XXXXX:

Thank you for your facsimile dated March 7, 2000, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies made to non-residents through the Internet.

Interpretation Requested

You request an interpretation regarding the GST/HST status of the following supplies:

1. The supply of auto repair help information made electronically through the internet where the non-resident recipient downloads the information from the supplier's web site. The information may not be resold by the non-resident and is non transferable. The information supplied is an existing work which may in some circumstances be copyrighted. In consideration for the supply the recipient makes payment electronically by credit card.

2. The auto repair help noted in question 1 above where the information is supplied and mailed to the non-resident in a printed (tangible) format.

3. The auto repair help noted in question 2 where the printed copy is supplied to a non-resident recipient who intends to sell the information for profit.

4. What is the GST/HST status of the supply of a telephone help line service regarding automobile repair where the information/advice is provided verbally by telephone to a non-resident? In consideration for the supply the non-resident makes payment by providing a credit card number and verbal authorization.

5. Please explain the difference between "intangible products or service" and tangible products or services. And how the GST would be charged in either one.

6. Is it correct to assume the GST would apply on all of the above if the recipient is resident in Canada?

7. What is the GST/HST status of the supply of advertising services provided to a non-resident where the advertisement is placed on a web site stored on a web server located in Canada?

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.

The following interpretations will address the questions in the order in which they are presented in the interpretation request:

Interpretation 1

The supply described in this interpretation request is considered by the Canada Customs and Revenue Agency (CCRA) to be a supply of intangible personal property (IPP) for purposes of the Excise Tax Act (the "Act").

A supply of IPP is deemed to be made in Canada pursuant to paragraph 142(1)(c) of the Act if the IPP may be used in whole or in part in Canada. Alternatively, where the IPP may not be used in Canada the supply is deemed to be made outside Canada pursuant to paragraph 142(2)(c) of the Act. Subsection 143(1) of the Act overrides the rules in section 142 to deem a supply made by a non-resident person to be made outside Canada unless the supply is made in the course of a business carried on in Canada, or, at the time the supply is made the person is registered for GST/HST purposes. A supply made outside Canada is not subject to GST/HST.

With respect to the supply in question, there does not appear to be any restrictions regarding where the IPP may be used. Where there are no restrictions it will always be the case that the IPP may be used in Canada.

A supply of IPP made or deemed to be made in Canada is subject to GST/HST at 7%, 15%, or zero-rated. Section 10 of Part V of Schedule VI to the Act is the only zero-rating provision for the supply of IPP made in Canada to a non-resident recipient. This section is only relevant in circumstances that involve the supply of IPP that is intellectual property or the supply of IPP that is a right to use intellectual property.

A taxable supply of IPP that is not zero-rated is subject to HST at 15% if deemed to be made in a participating province or subject to GST at 7% if deemed to be made in a non-participating province. Whether a supply of IPP made in Canada is made in a participating or non-participating province is determined by applying the rules in section 144.1 of the Act and 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 to the Act, 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.

The place of supply rules for a supply of IPP not related to real property, tangible personal property or services are provided for in paragraphs 2(d) and 3(d) of Part III of Schedule IX to the Act. Subparagraph 2(d)(i) of Part III of Schedule IX to the Act states that a supply of IPP is considered to be made in a province if all or substantially all of the Canadian rights in respect of the IPP can be used only in the province. "Canadian rights" refers to that part of the IPP that can be used in Canada (section 1 of Part III of Schedule IX to the Act). Where there are no restrictions regarding which province or groups of provinces the IPP can be used, subparagraph 2(d)(i) and paragraph 3(d) of Part III of Schedule IX are not applicable.

Subparagraph 2(d)(ii) of Part III of Schedule IX to the Act states that a supply of IPP will be considered to be made in a province if the place of negotiation of the supply is in the province, and the property can be used otherwise than exclusively outside the province. Section 1 of Part I of Schedule IX to the Act defines the "place of negotiation" of a supply to be "... the location of the supplier's permanent establishment at which the individual principally involved in negotiating for the supplier the agreement for the supply ordinarily works ...". Where there are no restrictions regarding the province in which the right can be used it will always be the case that the right can be used otherwise than exclusively outside the province where the place of negotiation occurred. Therefore, where it is determined that the place of negotiation of the supply of the IPP is in a non-participating province XXXXX, subparagraph 2(d)(ii) deems the supply to be made in that province and subject to GST at 7%.

Interpretation 2

The supply of a printed (hard copy) version of the automobile help information is considered to be a supply of tangible personal property (TPP). Generally, the supply of TPP other than for export, is subject to GST at a rate of 7% where the TPP is delivered or made available to the recipient in Canada. The supply of TPP is subject to HST at 15% where delivered or made available to the recipient in a participating province. A supply of TPP is zero-rated pursuant to section 12 of Part V of Schedule VI to the Act where the supplier sends the property by mail or courier to an address outside Canada.

Interpretation 3

The characterization and GST/HST status of this supply does not differ from the response provided in interpretation 2. Whether the recipient uses the information for commercial or non-commercial purposes has no impact on the GST/HST status of the supply.

Interpretation 4

The supply of a telephone help line service where the information/advice is provided verbally through telephone lines is characterized by the CCRA as a supply of a service. Generally, a supply of a service is deemed to be made in Canada and subject to GST/HST where the service is performed in whole or in part in Canada. Section 7 of Part V of Schedule VI to the Act zero-rates the supply of such a service when made to a non-resident person provided none of the exclusions of the provision apply. The supply of this service to a non-resident is zero-rated provided it is not rendered to an individual while that individual is in Canada or made to an individual who is in Canada at any time when the individual has contact with the supplier in relation to the supply. It is the supplier's responsibility to verify that the recipient is a non-resident and to ensure all the remaining zero-rating criteria are satisfied.

Interpretation 5

The characterization of these supplies and the resulting GST/HST implications have been addressed in the relevant interpretations.

Interpretation 6

All of the supplies outlined in these interpretations are subject to GST/HST at either 7% or 15% when made to a person resident in Canada depending upon whether they are deemed to be made in a participating or non-participating province.

Interpretation 7

An advertising service supplied to a non-resident person is zero-rated pursuant to section 8 of Part V of Schedule VI to the Act provided the non-resident is not registered for GST/HST purposes at the time the service is performed. The CCRA has provided an explanation of what it generally considers to be an advertising service in GST/HST Memoranda Series 4.5.3 Exports - Services and Intellectual Property. This Memorandum is enclosed for your consideration.

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

Jeffrey A. Frobel
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate