30 March 2000 GST/HST Interpretation 30320 - Application of the GST to Goods Imported for Processing and Then Exported

Dear XXXXX

Thank you for your facsimile letter of March 3, 2000 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to goods imported by a non-resident non-registrant person for processing in Canada by a non-profit organization. As you are aware, on November 1, 1999, Revenue Canada became the Canada Customs and Revenue Agency (CCRA).

Statement of Facts

A non-resident importer who is not a GST/HST registrant, imports goods into Canada exclusively for packaging and return to the USA.

Packaging is performed in Canada by a non-profit organization that provides work for the handicapped.

Interpretation Requested

Is GST/HST payable on goods imported into Canada by a non-resident non-registrant where the goods are being processed for export by a non-profit organization?

Interpretation Given

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

Where the non-resident non-registrant imports its own goods into Canada to have a service performed on the goods GST/HST is payable on the importation.

The tax paid by the non-resident non-registrant importer may be recovered through the ITC process by reference to section 180 of the Excise Tax Act (Act), if the non-profit organization engaged by the non-resident non-registrant to do the packaging in Canada is a GST/HST registrant and has satisfactory evidence to substantiate the claim.

Section 180 of the Act provides for situations where tax is paid by a non-resident person who, not being a registrant, cannot claim an ITC in respect of the tax paid. This section permits a flow through of the credit to the registrant. However, there are certain conditions which must be met. The property must be used in Canada by or on behalf of the non-resident person or the registrant must be acquiring the property for the purpose of making a supply of a commercial service in respect of the property to the non-resident person. The non-resident non-registrant must have paid GST/HST on the importation. However, because the non-resident is not a registrant, an ITC may not be claimed for the tax. In such a case, as long as the non-resident provides the registrant with satisfactory evidence that GST/HST was paid on the goods at the time of importation, the registrant may be considered to have paid that tax and thus be able to claim the ITC to the same extent as would have been the case if the registrant had been the importer of record.

Tax is payable in respect of imported goods unless there is a specific provision in the legislation to allow non-taxable status to the importation. The drop shipment rules in section 179 of the Act, do not provide for GST/HST exemption or for non-taxable status on the importation of goods.

While the drop shipment rules do not apply to these importations, I would like to draw your attention to a tax relief measure outlined in Technical Information Bulletin (B-069), copy attached, which may apply to the goods and the process in question. This provision deals with the Goods and Services Tax Treatment of Imports by Exporters of Processing Services (EOPS). It provides relief from the payment of the GST/HST in respect of goods and materials imported for processing and subsequent export. Some of the conditions outlined in the program are that:

1. the processor must be a GST/HST registered person and an application for an import certificate must be made prior to the importation of the goods;

2. the GST/HST-registered processor must be the importer, and must not have a proprietary interest in the imported goods or the processed products;

3. the drop shipment rules do not apply to the program (scenarios where a supply is deemed to be made outside Canada, even though the goods are physically in Canada are not covered by the program);

4. the GST/HST-registered person cannot be closely related to the non-resident person on whose behalf the processing is being done;

5. the import certificate issued by CCRA is valid for a period of three years and must be obtained prior to the initial importation;

6. the exportation of the processed goods or materials must occur within four years from the day on which the goods were accounted for under section 32 of the Customs Act, by exportation it is meant that the goods or materials are physically exported from Canada.

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 CCRA 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, or wish to find out if the non-profit organization qualifies for the EOPS program, please do not hesitate to contact your local Tax Services Office XXXXX[.]

Yours truly,

Roy McKain
Senior Rulings Analyst
Border Issues Unit
General Operations and Border Issues Division Division
GST/HST Rulings and Interpretations Directorate