4 July 2001 GST/HST Interpretation 34132 - Supplies Over the Internet

Dear XXXXX:

Thank you for your facsimile of January 10, 2001 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your operations. Your request has been transferred from the Southern Ontario Region 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 June 21, 2001 that XXXXX is a sole proprietorship. XXXXX provides software development and consulting services to a non-registered, non-resident client. In particular, you have a client in XXXXX. The custom software is delivered through the Internet and is the property of the client thereafter.

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 supplies described in your letter.

Interpretation Requested

You wish to know the tax status of the supplies of custom software and consulting services you provide to your client in XXXXX.

Interpretation Given

Based on the information provided we offer the following interpretation:

Programming from scratch a custom solution where the client owns the software upon completion, is considered to be a supply of a service for GST/HST purposes. Pursuant to paragraph 142(1)(g) of the Excise Tax Act (the Act), a supply of a service is deemed to be made in Canada if the service is performed in whole or in part in Canada. A supply of a service made in Canada, 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.

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 developing custom software for a non-resident 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 B of this Memorandum describes the documentation that CCRA will generally accept as proof that the recipient is not resident in Canada and is not registered for GST/HST purposes.

With respect to consulting services, section 23 of Part V of Schedule VI to the Act zero-rates a supply of an advisory, professional or consulting service made to a non-resident person but excludes a supply of a service enumerated in paragraphs (a) to (d) of that section. Specifically, a service in respect of tangible personal property that is situated in Canada at the time the service is performed is excluded from the zero-rating provision by paragraph 23(c) of Part V of Schedule VI to the Act. Generally, advising a client on its software needs would not be excluded from the zero-rating provision. GST/HST Memorandum Series Chapter 4.5.3 Exports - Services and Intellectual Property has also been enclosed for your review.

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) 954-5124.

Yours truly,

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