27 October 2000 GST/HST Interpretation 8255/HQR0001861 - GST Application on Telecommunication Line Charges

Dear XXXXX:

Thank you for your facsimile of June 22, 1999, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your telecommunication operations.

XXXXX is registered for GST/HST purposes. Its subsidiaries are telecommunication service providers. One of the supplies XXXXX makes is the lease of dedicated telecommunications lines to others for their own use or for further resupply;

For example, a customer may lease a set of telecommunications lines for a fixed monthly fee. The lines may cross into USA, between Montreal, Québec and New York City (New York). A customer may be a resident or a non-resident and may be a GST/HST registrant or not.

Interpretation Requested

XXXXX would like confirmation of its understanding of the GST application to dedicated telecommunications line charges when only part of the line is located in Canada and the customer may or may not be resident and/or GST registrant.

XXXXX understands that:

GST would only be applicable on a prorated basis of the gross charge between the two points on the portion located in Canada based on mileage; appropriate prorated GST is applicable if the charge is to a Canadian resident or a non-resident who is GST registered; GST is not applicable if the charge is to a non-registered non-resident and non-GST registered and is in the telecommunication business; appropriate prorated GST is applicable if the customer is a non-Canadian resident and non-GST registered and is not in the telecommunication business.

Interpretation Given

The GST only applies to the Canadian portion of a dedicated telecommunications line that is supplied by a telecommunication service provider who is a registrant. The amount of the consideration relating to the Canadian portion should be calculated on a direct line distance basis between the two Canadian end points. This may be measured based on mileage.

GST/HST will not apply to any of the charge for the supply of a dedicated telecommunications line if it is zero-rated. Specifically, section 22.1 of Part V of Schedule VI of the Excise Tax Act (ETA) zero-rates a supply of a telecommunication service made by a registrant who carries on a business of supplying such services to a non-resident person who is not a registrant and who carries on such a business. However, this zero-rating provision does not apply to a supply of a telecommunication service where the telecommunication is emitted and received in Canada. Also, with respect to the specific questions posed in your letter, this provision does not zero-rate the supply of a dedicated telecommunications line made to a resident, a non-resident who is a registrant or a non-resident non-registrant who does not carry on the business of supplying telecommunications services.

We would also like to provide you with information about the application of the HST which applies at a harmonized rate of 15% to taxable (other than zero-rated) supplies made in the participating provinces of Nova Scotia, New Brunswick or Newfoundland. HST may apply to the taxable supply of a dedicated telecommunication line to the extent that it is supplied in a participating province.

Under subsection 136.4(2) of the ETA, the supply of granting access to a dedicated telecommunications line for transmitting telecommunications between two provinces is considered to be a separate supply of a service in each of those two provinces as well as in any other provinces between the two provinces. The consideration for the deemed supply in each province is calculated based on the proportional distance over which the telecommunication would be transmitted in the province if the telecommunication were transmitted solely by means of cable and related telecommunications facilities located in Canada that connected, in a direct line, the transmitters for emitting and receiving the telecommunications. The distance for purposes of this rule is a distance measured in Canada and should therefore not include any distance in the US. Again, the distance may be measured based on mileage.

The rule under subsection 136.4(2) of the ETA would also apply to a dedicated circuit, frequency, channel, partial channel or other means of sending or receiving a telecommunication but not a satellite channel.

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) 957-8223.

Yours truly,

Carolle Mercier
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate