10 July 2001 GST/HST Interpretation 33715 - Application of the GST/HST to the Importation into Canada of Paper for Further Processing

Dear XXXXX:

Thank you for your facsimile of November 24, 2000 (with attachments), on behalf of your client, XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST). XXXXX Based on the information submitted, the following are the relevant facts regarding the importation into Canada of paper for further processing.

•   XXXXX, located in XXXXX, is a U.S. corporation that is not registered for the GST/HST.

•   XXXXX. XXXXX purchases paper for its U.S. customer, XXXXX located in XXXXX. XXXXX is not registered for the GST/HST.

•   XXXXX buys paper from two mills XXXXX - Canada through their warehouse in the U.S. and XXXXX USA. XXXXX purchases the paper from XXXXX FOB mill-delivered and XXXXX ships the paper to XXXXX printer in Canada. XXXXX invoices XXXXX when the paper leaves the mill in the U.S. XXXXX tracks and facilitates the transfer of paper to and from the printer as part of its XXXXX to its customer XXXXX.

•   The paper is processed into advertising flyers in Canada by a printer in XXXXX. The processing service in respect of the paper is provided to XXXXX by the printer.

•   The processed paper or flyers are exported to XXXXX within two weeks of the paper entering Canada. The advertising flyers are distributed through local newspapers throughout the eastern seaboard states.

•   XXXXX is the importer of record in respect of the importation into Canada of the paper and authorizes XXXXX to file the customs entries on behalf of XXXXX. XXXXX reimburses XXXXX for the payment of duties and taxes.

Interpretation Requested

To summarize, XXXXX has requested the following interpretation.

1. Is XXXXX entitled to register voluntarily pursuant to subsection 240(3) and, in particular, subparagraph 240(3)(b)(i) of the Act?

2. Does section 180 of the Act apply in this case to allow a "flow-through" of ITCs to the registered printer in respect of the Division III tax paid by XXXXX at time of importation?

Interpretation Given

Voluntary Registration

Under subparagraph 240(3)(b)(i) of the Act a non-resident person may register for GST/HST purposes where:

•   the non-resident person regularly solicits orders for the supply of tangible personal property ("TPP") for export to, or delivery in, Canada.

Since XXXXX is not making supplies of TPP for export to or delivery in Canada, it is not allowed to register for GST/HST purposes.

Section 180

Section 180 of the Act provides for situations where tax is paid by a non-resident who, not being a registrant, cannot claim an input tax credit (ITC) in respect of the tax paid upon importation. This section permits a flow through of the credit from an unregistered non-resident person to a registrant. However, there are certain conditions which must be met.

1(a) the non-resident person must make a supply of property to the particular person (registrant) and deliver or make the property available in Canada to the registrant before the property is used in Canada by or on behalf of the non-resident person; or

(b) the non-resident person who is not registered must cause physical possession of TPP to be transferred in Canada to a registrant in circumstances where the registrant is 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-registered person 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 of the above conditions are satisfied, the registrant may be considered to have paid the tax. The registrant would then be able to claim an ITC to the same extent as would have been the case if the registrant had been the importer and had actually paid the tax, provided such ITC is claimed within the four year time limit stipulated in paragraph 225(4)(b) of the Act. Note should be taken of the fact that the time limit for claiming ITCs for a reporting period is reduced from four to two years for listed financial institutions and persons or businesses with annual taxable sales of more than $6 million for each of the two previous fiscal years.

In this case, the printer acquires the paper for the purpose of making a taxable supply of a commercial service, in respect of the paper, to XXXXX. If XXXXX is acting as an agent for XXXXX, when the goods are cleared through Canada Customs and XXXXX pays the applicable GST, XXXXX will be considered to have paid the Division III tax. If XXXXX can provide evidence to the printer that Division III tax was paid in respect of the goods by XXXXX, the flow through provisions of section 180 will apply and the printer will be considered to have paid the tax.

XXXXX 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