28 September 2001 GST/HST Interpretation 34150 - Internet Services

Dear XXXXX:

Thank you for your letter of January 9, 2001 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the operations of your client. Your request has been transferred from the XXXXX to the Border Issues Unit of the General Operations and Border Issues Division for response. We regret the delay in responding.

We understand from your letter and from our conversation of August 10, 2001 that you have a client who is in the business of designing web pages. Your client also wants to provide web hosting services. The servers that will provide the hosting are located in the United States and your client understands that she will not be charged GST on the rental. Your client will pass this cost on to her clients who are located in Canada without any mark-up. Your client's business is in Canada and is registered for GST purposes. We also understand that your client does not have any questions with respect to other supplies she provides.

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. I am pleased to issue you an interpretation which will elaborate on how the GST/HST applies to the supply described in your letter.

Interpretation Requested

You would like to know the tax status of the supply of web hosting that your client provides to her customers that are located in Canada.

Interpretation Given

Based on the information provided, we offer the following interpretation:

Web site hosting is considered by the Canada Customs and Revenue Agency (CCRA) to be a supply of a service for purposes of the Excise Tax Act (ETA). Based on the information provided your client would be considered to be making supplies of web-hosting services even when such services are re-supplied without a mark-up. Pursuant to paragraph 142(1)(g) of the ETA, a supply of a service is deemed to be made in Canada if the service is performed in whole or in part in Canada. Where the service being supplied is performed wholly outside Canada your client would not be required to charge and collect GST in respect of the supply. A supply of a service where any part of the service is performed in Canada is considered to be made in Canada, and is taxable for GST/HST purposes at the rate of 7% (15% where the supply is made in a participating province: Nova Scotia, New Brunswick, or Newfoundland) unless the supply is zero-rated.

The web hosting services provided by your client to her customers resident in Canada are taxable at the rate of 7% or 15% in the participating provinces where your client performs any part of the service in Canada. The fact that the server is located outside Canada does not by itself change the tax status of the supply. The tax status of the supply is not affected if your client decides to add a mark-up prior to billing her customers.

Section 7 of Part V of Schedule VI to the Act zero-rates a supply of a service when made to a non-resident person provided none of the exclusions of the provision apply. For example, the supply of a service to a non-resident is zero-rated provided it is not rendered to an individual while that individual is in Canada or made to an individual who is in Canada at any time when the individual has contact with the supplier in relation to the supply. It is the supplier's responsibility to verify that the recipient is a non-resident and to ensure that all of the remaining zero-rating criteria are satisfied. A service of web hosting provided by your client to her customers who are not resident in Canada qualifies for zero-rating under this provision. For your information, we have enclosed GST/HST Memoranda Series Chapter 4.5.1 Exports - Determining Residence Status. Appendix A of this Memorandum describes the documentation that Canada Customs and Revenue Agency (CCRA) will generally accept as proof that the recipient is not resident in Canada. Also included is GST/HST Memoranda Series Chapter 4.5.3, Exports - Services and Intellectual Property.

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 Canada Customs and Revenue 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) 954-5124.

Yours truly,

Gabrielle Nadeau
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate