2 August 2001 GST/HST Interpretation 32561 - Application of GST/HST to a Supply of Natural Gas

Dear XXXXX

Thank you for your letter of August 28, 2000 sent to our XXXXX office concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your operations. The letter was forwarded to us for direct response to you. We apologize for the delay in responding to your inquiry.

The following information was taken from your letter:

XXXXX is not resident in Canada and is registered for GST/HST purposes.

XXXXX is in the business of purchasing and selling natural gas.

XXXXX previously exported all natural gas purchased in Canada.

XXXXX now re-sells in Canada some of the natural gas it purchases in Canada.

XXXXX does not know at the time of purchase which portion of a particular purchase will be sold in Canada, but they estimate that the majority of the natural gas that XXXXX purchases in Canada in a given year will be exported.

Interpretation Requested

XXXXX would like to acquire on a zero-rated basis all natural gas purchased in Canada and then self-assess on the portion of the natural gas sold in Canada.

Interpretation Given

Generally, a supply of natural gas made by a supplier to a registered recipient may be zero-rated under section 15.2 of Part V of Schedule VI to the Excise Tax Act (the Act) if, among other conditions, the recipient provides the supplier with a declaration in writing (export declaration) that the recipient intends to export the gas by means of a wire, pipeline or other conduit in specific circumstances. These circumstances are that the recipient export the natural gas as soon as is reasonable after the gas is delivered to the recipient, that the gas is not acquired by the recipient for consumption, use or supply in Canada before the recipient exports the gas and, that after the supply is made and before being exported, the gas is not, subject to certain exceptions, further processed, transformed or altered in Canada.

In order to provide an export declaration under section 15.2 of Part V of Schedule VI to the Act, the recipient must, from the outset, clearly be intending to export the natural gas that is being supplied. If at the time a supply is made the purchaser does not intend to export the natural gas, then the purchaser should not provide a declaration stating that the gas is intended for export. A further condition for zero-rating a supply under section 15.2 of Part V of Schedule VI to the Act is that the supplier must not have known, and must not have reasonably been expected to have known, at or before the latest time at which tax would have become payable in respect of the supply, that the purchaser would not export the gas.

Consequently, XXXXX would not be entitled to provide an export declaration to a supplier in respect of a supply, if a portion of the supplied gas is intended for sale in Canada. There is no provision under the Act that would allow XXXXX, in such circumstances, to acquire the supply on a zero-rated basis and to self-assess tax on the portion of the natural gas sold in Canada, or to provide an export declaration based on a percentage of its estimated annual exports to its total sales.

Please note that where a registrant receives a zero-rated supply of natural gas intended for export and a taxable supply of natural gas that is not zero-rated because it is intended for sale in Canada, the fact that the gas purchased for export may be mixed with the gas purchased for supply in Canada does not affect the entitlement to purchase natural gas using an export declaration, provided that evidence is maintained that the quantity purchased for export is the same as the quantity exported.

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.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 942-4291.

Yours truly,

B. Mulinda
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate