12 October 2001 GST/HST Interpretation 34884 - Non-resident Rebate

Dear XXXXX:

Thank you for your letter of February 23, 2001, sent by facsimile, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to goods imported into Canada to be processed and subsequently exported to the United States (U.S.).

The following three case scenarios were presented in your letter, each of which involved a non-resident, who would not be able to be reimbursed for GST paid at time of importation.

Case #1

•   A European (non-resident) client sells XXXXX to clients in both Canada and the U.S. The goods are sold on a free domicile basis (delivered duty paid) where the non-resident is responsible for all duties and taxes.

•   XXXXX were imported in bulk in refrigerated containers and the boxes, trays, inserts, outer boxes, etc. came in flat ordinary containers. The XXXXX were subsequently packaged in Canada by a food processor.

•   The non-resident client arranged for the goods to be imported and possibly retained ownership of the goods.

•   GST was paid on the goods destined for Canada by the non-resident, who sold the finished boxes.

Case #2

•   A non-resident client, who imports goods on a free domicile basis is now confronted with the loss of GST on approximately XXXXX in goods.

•   The goods were cleared in August and September of XXXXX and the goods were delivered to the non-resident's client XXXXX.

•   The Canadian client, to whom the goods were sold, did not send any payment for the goods. XXXXX, your non-resident client elected to recover the goods and XXXXX exported them in XXXXX[.]

Case #3

•   A U.S. Client buys XXXXX from offshore sources, which is processed and finished by a XXXXX firm.

•   As the processor is also a client of your U.S. client, the U.S. client did not want to reveal both his sources and the price he was paying for the goods. The U.S. client, therefore, elected to sell the goods to the processor on a free domicile basis (CIF, duty and GST paid). The invoice to the Canadian processor reflected the price for the whole shipment, even though a portion of the goods was exported to the U.S.

•   The non-resident client arranged for the goods to be imported and possibly retained ownership of the goods.

•   The goods were free of duty and GST was collected at time of entry.

Interpretation Requested

Is there any means by which your non-resident client could recover the GST paid at time of importation on goods subsequently exported from Canada?

Interpretation Given

1. Subsection 252(1)

Subsection 252(1) of the Act provides for a rebate of tax paid on commercial goods where the recipient of the goods is a non-resident person and the goods are for use primarily outside Canada. To be eligible for the rebate, the non-resident person must export the goods within sixty days after they are delivered to the non-resident person. This subsection allows a non-resident to claim a rebate of the GST paid on an acquisition in Canada, it does not provide for a rebate of the GST paid at time of importation.

You also stated that subsection 252(1) of the Act does not take into account the 30, 60 and 90 day terms for the payment of goods reflected by Case #2. As mentioned, the rebate provided for in subsection 252(1) of the Act is not available in respect of tax paid on the importation of goods into Canada. There is, therefore, no entitlement to a rebate under subsection 252(1) of the Act for the tax paid under any of the scenarios. Furthermore, you note that in Case #3, subsection 252(1) of the Act could become a serious deterrent for non-residents to have their goods processed in Canada. Your comments are appreciated, however, as discussed with you, the CCRA does not have the authority to change the wording of a section of the Act. Any change to the wording of subsection 252(1) of the Act would involve a legislative amendment, which falls within the purview of the Department of Finance. Therefore, a copy of your letter and our response will be forwarded to that Department.

2. Subsection 169(2)

Pursuant to subsection 169(2) of the Act, a registrant, who imports goods for a non-resident person, who is not registered for purposes of the GST/HST, for the purpose of making a taxable supply to the non-resident person of a commercial service in respect of the goods, is entitled to an input tax credit ("ITC") equal to the tax paid by the registrant at time of importation.

Commercial service is defined in Policy Statement P-151, The Establishment Of Criteria For Interpreting The Words "Commercial Service" For The Purposes Of Claiming An Input Tax Credit as: performing a manufacturing, production or processing operation on the property; assembling, blending, mixing, cutting to size, diluting, bottling, packaging or repackaging the property or applying coatings or finishes to the property; inspecting, testing, evaluating, repairing or maintaining the property; or recording or storing instructions or data on the property in such manner and form that the instruction or data can be read by data processing equipment.

By definition, packaging and processing are considered to be commercial services. With respect to Case Numbers 1 and 3, the Canadian processor can pay the tax at importation and claim an ITC under subsection 169(2) of the Act because the processor made a taxable supply of a commercial service in respect of the goods.

3. Section 4 of Part V of Schedule VI

If the goods are processed in Canada by a registrant, section 4 of Part V of Schedule VI to the Act may zero-rate the supply of the service of processing. Section 4 of Part V of Schedule VI to the Act applies to a supply made by a registrant in Canada; it does not apply to the importation of goods. This section provides for the zero-rating of a supply of a service in respect of tangible personal property (TPP), and a supply of any TPP supplied by a registrant in conjunction with that service. Although this section would not provide for non-taxable status on the importation of goods by your client, it would relieve your client from paying the GST in respect of the processing services. Furthermore, section 4 of Part V of Schedule VI to the Act only stipulates that the goods must be exported as soon as is practicable after the service is performed.

In order to zero-rate the supply of the service, and any goods supplied in conjunction with the service, under section 4 of Part V of Schedule VI to the Act, the following conditions must be met:

•   the service is in respect of TPP that is ordinarily situated outside Canada;

•   the TPP is temporarily imported for the sole purpose of having the service performed; and

•   the TPP is exported as soon as is practical after the service is performed.

1. Section 180

Section 180 of the Act may be used to recover the tax paid at time of importation. 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 input tax credit (ITC) in respect of the tax paid. This section permits a flow through of the credit to the registrant. Where the non-resident is supplying the property to the registrant, the property must be delivered or made available in Canada to the registrant before it is used in Canada by or on behalf of the non-resident. An unregistered non-resident may also pass on the ability to claim an ITC to a registrant who is taking physical possession of the property for the purpose of supplying a commercial service to the non-resident in respect of the property.

The flow through of the ITC is permitted provided the non-resident paid tax under Division III in respect of the importation of the property and provides evidence to the registrant that the tax has been paid.

Although section 180 of the Act would apply in Case Numbers 1 and 3, this subsection would not apply in Case #2. In fact, there are no means by which the tax paid in Case #2 is recoverable. Furthermore, subsection 180 would only apply if the non-resident importer would be willing to provide the required information to the registrant. We appreciate your concern that there may be situations where the importer does not wish to disclose certain information to the registrant as required by section 180 of the Act.

In addition to section 180, the exporters of processing services (EOPS) and the export distribution centre (EDC) programs provide relief from the payment of the GST/HST at time of importation for goods imported into Canada by a registrant for further processing and export.

2. Exporters of Processing Services (EOPS)

The EOPS program allows for the tax-free importation of goods and materials imported by a registrant for the purpose of processing goods in Canada for a non-resident and subsequent export. For your information, please find enclosed a copy of our Technical Information Bulletin B-069, Goods and Services Tax Treatment of Imports by Exporters of Processing Services.

3. Export Distribution Centre (EDC)

To be eligible under the EDC program, a person must be a registrant engaged exclusively in commercial activities and must satisfy the conditions described in subsection 273.1(7) of the Act. However, as with EOPS, the EDC program is only available where the person importing the goods is a registrant.

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) 952-6743.

Yours truly,

Cheryl R. Leyton
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate