30 March 2000 GST/HST Interpretation 30482 - Input Tax Credit on Importations

Dear XXXXX

Thank you for your letter of March 16, 2000, concerning the entitlement to input tax credit (ITC) in relation to the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) in the following circumstances.

Statement of Facts

Your client is a Canadian manufacturer of high technology devices, who intends to engage in the following transaction, in chronological order:

1. Issue a blanket purchase order and import parts from supplier(s) outside of Canada - the client will act as importer of record.

2. The client is a GST/HST registrant and resident in Canada. The supplier is not a GST/HST registrant and is not resident in Canada.

3. The client's authorized customs broker will act as the client's agent in paying all applicable duties and taxes (including the GST/HST) at time of importation. The client's customs broker will be reimbursed by the client for the GST/HST at the end of each month.

4. The imported parts will be transported to a third party warehouse and remain there until the client issues a "pull" order. Until the "pull" order occurs, title to the imported parts remains with the supplier. The client does not carry the risk for the inventory while it is in the warehouse.

5. The client is invoiced and pays the supplier after the client issues a "pull" order.

Interpretation Requested

a) Is the client entitled to an input tax credit ("ITC") regarding all of the imported goods in the reporting period following importation but prior to receipt of the goods (subject to correction in future reporting)?

b) If not, is the client entitled to an ITC regarding the goods received from the third party warehouse in the reporting period following receipt?

Interpretation Given

Based on the information provided and the questions asked, we are pleased to provide you with the following interpretation:

Your client is not entitled to claim an ITC in either of the circumstances mentioned above for the tax paid on the imported goods, because, while your client acted as the importer of record, the imported goods were the property of the non-resident and were being imported for consumption, use, or supply in the course of the non-resident's commercial activity. However, section 180 of the Act may allow the recipient of the supply to claim the ITC for the tax paid providing the conditions outlined in the section are met.

Explanation

In order for a person to be eligible to claim an ITC for the tax paid or payable in respect of property, or a service, the following conditions must be met:

1. the property or service must be supplied to or imported by the person;

2. the person must be a GST/HST registrant during the reporting period in which the supply or importation is made;

3. GST/HST must be payable by the person in respect of the supply or importation, or be paid by the person prior to its becoming payable;

4. the property or service must be acquired or imported by the person for the purpose of consumption, use or supply in the course of commercial activities of the person;

5. the person must have obtained sufficient documentary evidence to establish the eligibility for the ITC before the claim is made.

The person who is entitled to claim ITCs under subsection 169(1) of the Act in respect of tax paid or payable under Division III "Tax on Importation of Goods" is the person who caused the goods to be brought into Canada (de facto importer). Generally, that person will be the owner of the goods.

For customs purposes, the term "importer of record" is used to designate the person whose name appears on the Customs accounting document (e.g., the B3). The "importer of record" may be the de facto importer, or another person such as an agent or the non-resident supplier.

The CCRA's position is that entitlement to an ITC rests with the de facto importer of the goods, i.e., the person who caused the goods to be imported. As a rule, the de facto importer will be the person in Canada who ordered the goods from a supplier and to whom the goods were sent. In certain circumstances, however, the de facto importer may be the person outside Canada who arranged for the goods to be imported. In this circumstance, the de facto importer may retain ownership of the goods for the purpose of making a supply in Canada or for demonstration or display.

Where the imported goods are for consumption, use or supply in the course of the commercial activities of the de facto importer, but another person is shown as the importer of record, it is the de facto importer who is entitled to claim the ITC provided the de facto importer has obtained evidence that the importer of record acted as the de facto importer's agent for GST/HST purposes. Reference should be made to Policy Statement 125, (copy attached), "Importer and ITC Entitlement".

A person who reports and clears goods being imported through Customs and pays tax on importation (the importer of record) but who is not the de facto importer, would not be entitled to claim ITCs under subsection 169(1) of the Act, as that person is not considered to have imported the goods. However, the importer of record may be able to recover the tax paid through the provisions of subsection 169(2) of the Act if the conditions described in that subsection are met. In the fact situation mentioned above the conditions are not met because your client is not importing the goods for the purpose of making a taxable supply of a commercial service to the non-resident supplier.

While your client may not be entitled to claim an ITC under the provisions of section 169 of the Act, it should be noted that 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 from the unregistered non-resident person to a registrant. However, there are certain conditions which must be met, namely:

1. The property must be used in Canada by or on behalf of the non-resident person or the particular person (your client) must be acquiring the property for the purpose of making a taxable supply of a commercial service in respect of the property to the non-resident person.

2. The non-resident non-registrant must have paid GST/HST on the importation.

3. In addition, for the provision to apply the non-resident must further provide the registrant with satisfactory evidence that GST/HST was paid on the imported goods.

If all these conditions are satisfied 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 and had actually paid the tax.

In summary, the facts outlined in your letter supports the position that the de facto importer is the non-resident supplier of the goods. This is the person who owns the goods, both prior to and after importation and has assumed risk for goods. Therefore, it is on this person's behalf that your client has decided to act as the importer of record to facilitate the importation of the goods. It is the non-resident supplier who will be making a supply of goods in Canada in the course of their commercial activity to your client. Therefore, it is the non-resident supplier who, if registered would be entitled, to claim the ITC under the provisions of section 169 of the Act and would also be required to collect Division II tax on the supply. If it is established that the tax paid by your client was paid on behalf of (as an agent of) the supplier, the supplier may be able to recover the tax paid by reference to the flow-through provisions of section 180 of the Act.

On April 1, 1997, the harmonized sales tax (HST) replaced the goods and services tax (GST) and the provincial sales tax (PST) in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%., to the extent that they are taxable supplies (which are not zero-rated), tax must be collected at the harmonized rate.

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, please do not hesitate to contact me at 952-4294.

Yours truly,

Roy McKain
Senior Rulings Officer
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate