5 May 2000 GST/HST Interpretation 25969 - Ruling Request Regarding the GST/HST Status of the Supply of Advertising and Other Services

Dear XXXXX

Thank you for your facsimile of September 14, 1999, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of advertising services and other services. Your request has been transferred from the XXXXX to the Border Issues Unit of the General Operations and Border Issues Division for response.

In accordance with GST/HST Memoranda Series Section 1.4, an application ruling can only be issued with reference to a clearly defined fact situation of a particular registrant. Rulings are issued upon request and where the taxpayer has presented all the relevant facts such as the nature of the transactions undertaken, detailed descriptions of services or property involved, the parties involved in all transactions and relevant documentation such as invoices, contracts and other pertinent agreements. Where all the relevant facts are not provided, an interpretation may be issued. We are pleased to issue you an interpretation which will elaborate on how the GST/HST applies to the questions raised in your letter.

The following information was taken from your letter, web sites and our telephone conversations:

•   You have registered the following business names XXXXX[.]

•   The sole proprietorship, XXXXX [i]s not currently registered for GST/HST purposes.

•   XXXXX[.] You will sell advertising space on this web site to your clients. These clients may or may not be resident in Canada.

•   XXXXX[.] You will sell advertising space on this web site to your clients. On some occasions you may also design these advertisements on behalf of your clients. These clients may or may not be resident in Canada. You will not take an ownership interest in the goods and services advertised on your web site. Where your clients do not have the necessary equipment and facilities you may take orders and accept payment on their behalf. In all cases it is the client who is supplying the good or service. You will only charge your client for the placement of the advertisement, there will not be any separate charges for accepting payment on their behalf.

•   You will operate XXXXX to assist product retailers in fulfilling their Internet orders. You will lease space in two warehouses for that purpose, XXXXX[.] You will provide storage services to your clients at either of the two locations and will charge a per unit fee for the distribution services you perform.

Interpretation Requested

1. What is the GST/HST status of the supply of advertising space on a web site, and the service of developing web page advertisements?

2. What is the GST/HST status of the supply of a storage service where the service is performed, and the warehouse is situated XXXXX[.] What is the GST/HST status of the supply of distribution services where the services are performed outside Canada?

3. What is the GST/HST status of the supply of a storage service where the service is performed, and the warehouse is situated in XXXXX[.] What is the GST/HST status of the supply of distribution services where the services are performed XXXXX[.]

Interpretation Given

Based on the information provided we provide the following interpretations:

Interpretation 1

The term advertising is not defined in the Excise Tax Act (the "Act"), however, the Canada Customs and Revenue Agency (the "CCRA") has provided an explanation of what it generally considers to be an advertising service in Memoranda Series section 4.5.3 Exports - Services and Intellectual Property. The explanation in the Memoranda Series refers to a service of creating a message and a service directly related to the communication of such a message. The message must be oriented towards soliciting business, attracting donations, or calling public attention in the form of an information notice, a political announcement or other similar communication.

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 (taxable at 0%). The three participating provinces are Nova Scotia, New Brunswick, and Newfoundland.

The provision of advertising space on a web page, or the development of a web page advertisement is considered to be a supply of an advertising service for purposes of the Act. The supply of an advertising service made in Canada is zero-rated pursuant to section 8 of Part V of Schedule VI to the Act provided it is supplied to a non-resident who is not registered for GST/HST purposes at the time the service is performed. A supplier must verify and maintain evidence that the recipient is not resident in Canada and is not registered for GST/HST purposes in order to zero-rate the supply as described above. GST/HST Memoranda Series Chapter 4.5.1 Exports - Determining Residence Status has been enclosed for your review. Appendix B of this Memoranda describes the documentation that the CCRA will generally accept as proof that the customer is both a non-resident and is not registered.

Where all or substantially all of the "Canadian element" of the advertising service is performed in a non-participating province XXXXX and the service is not zero-rated, it is taxable at 7% on the value of the consideration for the supply. The "Canadian element" of a service is defined in section 1 of Part V of Schedule IX to the Act to mean the portion of the service that is performed in Canada.

To assist you in the determination of whether you are required to register or whether you wish to register voluntarily for GST/HST purposes, GST/HST Memoranda Series Chapters 2.1, 2.2, and 2.3 have been enclosed.

Interpretation 2

The supply of a storage service is deemed to be made outside Canada and not subject to GST/HST provided the service is, or is to be performed wholly outside Canada. The same is true for the supply of a product distribution service provided the service is performed wholly outside Canada. Supplies that are made or deemed to be made outside Canada are not subject to GST/HST.

Interpretation 3

Generally, the supply of a service that is not in relation to real property is deemed to be made in Canada if the service is performed in whole or in part in Canada. A supply of a service that is made in Canada is deemed to be made in the province where all or substantially all (greater than 90%) of the "Canadian element" of the service is performed. As the storage and distribution services are performed entirely in a participating province XXXXX the supply is deemed to be made in that province. Therefore, provided the supply of the service is not zero-rated or deemed to be made outside Canada pursuant to the "Drop Shipment" provisions in section 179 of the Act, the supply will be deemed to be made in the non-participating province where the service is performed and taxable at a rate of 7% on the value of the consideration for the supply. As the services in question are in respect of tangible personal property (TPP) situated in Canada at the time the supply is performed, there are no provisions in Schedule VI to the Act that would zero-rate the supply.

For your information, section 179 of the Act deems certain supplies, such as services in respect of TPP provided by a registrant to a non resident who is not registered for GST/HST purposes to be made outside Canada and not subject to GST/HST under Division II provided all the requirements of the provision are met.

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 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) 952-8532 or the Technical Interpretation Services Unit of your local CCRA office XXXXX[.] Yours truly,

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