2000 GST/HST Interpretation 31345 - PROPOSED LAW/REGULATION Confirmation of Proposed Amendment to Subsection 179(2)

Dear XXXXX

Thank you for your facsimile letter of May 23, 2000 concerning the application of the proposed amendments to the drop-shipment rules (s. 179 of the Excise Tax Act) announced in the Budget of February 28, 2000.

Statement of Facts

A non-resident company (K Co.) that is not registered for GST/HST, will ship goods (computer components) into Canada to be stored at a warehouse operated by (V Co.), a registrant.

V Co. will act as the importer of record and pay the applicable GST upon importation of the goods into Canada.

V Co., under an agreement with K Co., will store the goods in a warehouse until they are requested by a Canadian manufacturer, (C Co.), which is registered for GST.

Upon request, V Co. will deliver the goods to C Co. for use in their manufacturing operations.

C Co. will issue a drop-shipment certificate pursuant to ss. 179(2) of the Act, to V Co. at the time physical possession of the goods is transferred to it by V Co.

K Co. is not a "consumer" as defined in s. 123(1) of the Excise Tax Act (Act).

Interpretation Requested

To confirm that under the proposed amendment, to the drop-shipment rules under ss. 179(2) of the Act, tax will not apply to the supply of storage services by V Co. to K Co. in the above circumstances and that V Co. will be entitled to claim an Input Tax Credit (ITC) in respect of the Division III tax paid on importation of the goods into Canada.

Interpretation Given

Based on the information provided we are pleased to provide you with the following interpretation.

The supply of the storage services by V Co. to K Co. in the circumstances described would be deemed to be a supply made outside Canada under the proposed amendments to ss. 179(2) of the Act and consequently not subject to GST/HST.

V Co. would, under ss. 169(2) of the Act, be entitled to an ITC for the tax paid under Division III of the Act, at the time of importation, provided all of the other conditions under s. 169 of the Act are met.

The foregoing comments represent our general views with respect to the proposed amendment to the Excise Tax Act as it relate to the subject matter of your letter. Any change to the wording of the proposed amendment or any future 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.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-4294.

Yours truly,

Francine Ménard
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate