12 September 2000 GST/HST Interpretation 32024 - Section 252.41 - Rebate to a Non-Resident Recipient of Installation Services

This is in reference to your E-Mail message of July 14, 2000 in which you request that I respond to some of the issues raised by XXXXX, in their July 10, 2000 Memorandum to you, regarding the application of section 252.41 of the Act; non-resident rebate respecting installation services.

Background

The XXXXX has been receiving a number of general rebate claims — either XXXXX (ss. 252.41(2)) or XXXXX (ss. 252.41(1)) — made pursuant to section 252.41 of the Act, XXXXX:

-    What is the definition of the term "installation service" and what does it include or not include.

-    Does GST charged on qualifying installation services have to have been "paid" before a type 11 rebate can apply, and can the installer charge the GST and show a credit note on the same invoice.

-    Can the installation services be subcontracted out to several third parties and still qualify (under section 252.41 of the Act).

On the first issue relating to the meaning of "installation service", subsection 252.41(1) provides, in part, that the unregistered non-resident who supplies tangible personal property, on an installed basis, to a particular person and who is the recipient of a taxable supply made in Canada of a service of installing in real property located in Canada the tangible personal property, so that it can be used by the particular person, the unregistered non-resident is eligible for the rebate of the tax paid in respect of the installation service. Also, in paragraph 252.41(1)(b), the particular person is deemed to have received from the non-resident supplier a taxable supply of the installation service that is separate from and not incidental to the supply of the tangible personal property.

The word "installing", as underlined above, is the progressive tone of the verb to "install", conjugated in the present tense (i.e., that the action or condition is going on, etc.). Therefore, it would be useful to first consider the meaning of the verb "install". The courts have interpreted the term "install" on a few occasions. For instance in Haley v. S.S. Comox (1921), the word "install" means, generally, to place or set up in position for service or use-although it may have a special or wider meaning in certain trades.

The new Shorter Oxford Dictionary (1993) gives a definition of "install" to mean the placing of an apparatus or system in position for service or use. From this it follows that the Oxford definition parallels the meaning given in the Haley case, which in both instances does not, in and by themselves, shed much light on whether the act of installing encompasses a gambit of other services that would be functionally connected to the installation services.

However, in the Haley case it is stated that the definition of the term "install" may have a wider meaning in certain trades. Take for instance the installation of underground electrical cables or a sewer system, where the contractor may hire subtrades, such as a civil engineer, a drilling and blasting company, or rent additional equipment for excavation purposes, all of which activities would occur prior to the actual installation of the cables or sewer system. In such a situation, it could be argued that we should look beyond the actual action of installing the property, in order to interpret the implicit meaning of the term "install", as it relates to section 252.41 of the Act. However, it could also be said that where a registered Canadian contractor has an agreement with an unregistered non-resident to install tangible personal property in real property situated in Canada, all of the services or property that the installation contractor would acquire would necessarily have to be connected with the installation of the tangible personal property.

For purposes of section 252.41, in determining whether a particular service or property is connected with an installation service, one should consider if the property or service has been acquired specifically to carry out the installation service or to carry out some other activity not at all related to the installation service, (i.e., for the purpose of carrying on some other unrelated activity). For example, a contractor, who must travel some distance to the location where the installation of the tangible personal property will occur, acquires lodging and meals at a local hotel. Would this cost be connected with the installation service? The answer is yes. On the other hand, where the same contractor acquires services for his personal use while at the out-of-town location, other than food and lodging, etc., such an expense would not be connected to the installation service.

Services and property acquired by the contractor for use during the course of the installation service, are considered eligible expenses for purposes of section 252.41, whether these expenses are billed to the unregistered non-resident on a single invoice or billed separately by the contractor, such as progress billing — itemizing the expenses incurred weekly, monthly, etc.

Should the unregistered non-resident acquire a separate supply of a service from someone else, distinct from the installation service, and after the completion of the installation service, the purpose of the other supply of a service would not be directly connected to the installation service. Therefore, this other supply would not come within the ambit of section 252.41 of the Act.

Consideration, perhaps, should be given to P-195R, rebate for artistic works for export, which provides guidelines as to whether a non-resident would be eligible for a rebate pursuant to subsection 252(2), and which may shed some light on what type of supplies acquired by the non-resident would be considered as acquired for consumption or use exclusively in the production of the artistic work. Within this policy statement we make use of an "exclusive" test, because of the term used in subsection 252(2) (e.g., for consumption or use exclusively in the production). The test relates to whether all or substantially all (at least 90%) of the property or service is consumed or used in the course of the production of the artistic work. Notwithstanding the "exclusive" test, the above policy statement states that any determination as to whether property or a service is reasonably necessary or essential to the production of the work should be objectively made and looked at through the eyes of the non-resident producer submitting the claim.

Decision

The same principle as adopted in the above policy statement should also be adopted in reference to subsection 252.41(1). Therefore, only inputs acquired by the registered installer that are essential or have a direct functional relationship with the installation of the tangible personal property on the real property, will be eligible for a rebate to the unregistered non-resident recipient of the installation services.

On the second issue of whether the tax charged, by the registered installer to the unregistered non-resident recipient, must be paid before a type 11 rebate under subsection 252.41(1) can apply, the answer is yes. Subsection 252.41(1) is quite clear in that the unregistered non-resident must have paid the tax charged by the registered installer before the rebate can apply.

Under subsection 252.41(2), however, the unregistered non-resident is not required to have paid the tax to the registered supplier of the installation services for the latter to credit in favour of the unregistered non-resident the amount of the rebate. Therefore, the registered installer who has an agreement with the unregistered non-resident recipient that provides for subsection 252.41(2) to be applicable, the installer may show a credit note in favour of the non-resident on the same invoice where the tax is being charged.

Turning now to the issue of whether section 252.41 would still apply even if the registered installer subcontracts for the installation service with another installer, the answer is yes. It is always the initial agreement for the supply that takes precedence, regardless if the supplier of the property of service contracts with a third party to undertake the performance of the supply.

Daniel E.B. Chamaillard
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate