20 March 2001 GST/HST Interpretation 34268 - REQUEST GST/HST Tax Status of the Supply of Services Through the Internet

Dear XXXXX:

Thank you for your letter of December 6, 2000, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of the services described below.

Your request has been transferred from the XXXXX Region to the Border Issues Unit of the General Operations and Border Issues Division of the Excise and GST/HST Rulings Directorate for response.

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. We are pleased to issue you an interpretation which will elaborate on how the GST/HST applies to the questions raised in your letter

The following information was taken from your letter, our subsequent discussions and your web site (XXXXX): XXXXX (CANCO) is a bank certified processor of credit card transactions. CANCO is an electronic commerce service provider. CANCO links merchants selling products and services and customers willing to buy them with financial institutions that transfer funds allowing the transactions to take place through the Internet. CANCO processes Mastercard, VISA, American Express on behalf of any Canadian and most American merchant card issuers. Although CANCO has employees who operate sales offices out of their homes in cities across Canada, all the services performed by CANCO are performed out of its head office situated in XXXXX.

CANCO derives its revenues from supplying the following services:

•   Setup fee - A one-time fee charged to set up an account.

•   Monthly account fee - A monthly service fee charged to maintain the status of the account. This service includes: real-time transaction processing, WebPOS terminal, batch processing, and recurring billing services.

•   Merchant accounts discount - A charge based on a percentage of credit card dollar volume processed.

•   Shopping Cart fees - A monthly fee charged for using CANCO's shopping cart services.

•   Various fees charged per transaction or instance (for some customers some of the services listed below may be included in the monthly account fee):

•   Transaction processing.

•   Pre-authorized transactions.

•   Electronic funds transfer between financial institutions.

•   Transaction and sales analysis.

•   Fraud screening.

•   Address correction.

•   Inventory management.

•   Demographics information.

Interpretation Requested

What is the GST/HST tax status of the supply of the services described above?

Interpretation Given

In your submission you state that you feel that your services are of a financial nature. Although they may be, to be considered a financial service that is exempt from GST/HST the services must fall within the definition of a financial service in subsection 123(1) of the Excise Tax Act (the "Act") and be exempt by virtue of Part VII of Schedule V to the Act. Based on the information provided in your submission and found on your web site, the services CANCO supplies are not considered to be financial services for purposes of the Act. The Canada Customs and Revenue Agency (CCRA) considers the services supplied by CANCO to be taxable supplies of services.

A taxable supply of a service made in Canada is generally subject to GST/HST at the rate of 7% (15% when made in a participating province: Nova Scotia, New Brunswick or Newfoundland) on the value of the consideration for the supply unless the supply is zero-rated (taxed at 0%). Considering that CANCO currently performs all the services from its offices in the province of XXXXX, the services it performs are deemed to be made in a non-participating province and subject to GST at 7% where they are not zero-rated. As a registrant, CANCO is required to collect tax on its supply of services. CANCO is required to account for the tax in its net tax for the reporting period in which the tax was collected or became collectible, whichever is earlier, and to remit any resulting net tax by the due date of the return for that reporting period.

The relevant zero-rating provision for a taxable supply of a service is section 7 of Part V of Schedule VI to the Act. This section is the general zero-rating provision for the supply of a service made to a non-resident. The supply of the services described in your submission are zero-rated when supplied to a non-resident provided none of the exclusions in section 7 apply.

Section 7 of Part V of Schedule VI to the Act has been reproduced below for your information:

A supply of a service made to a non-resident person, but not including a supply of

(a) a service made to an individual who is in Canada at any time when the individual has contact with the supplier in relation to the supply;

(a.1) a service that is rendered to an individual while that individual is in Canada;

(b) an advisory, consulting or professional service;

(c) a postal service;

(d) a service in respect of real property situated in Canada;

(e) a service in respect of tangible personal property that is situated in Canada at the time the service is performed;

(f) a service of acting as an agent of the non-resident person or of arranging for, procuring or soliciting orders for supplies by or to the person;

(g) a transportation service; or

(h) a telecommunication service.

Based on our analysis of the supplies described above, none of the exclusions in section 7 of Part V of Schedule VI to the Act apply. Therefore, where CANCO supplies any or all of these services to a non-resident person the supplies are zero-rated. For additional information regarding this zero-rating provision GST/HST Memoranda Series Chapter 4.5.3 Exports - Services and Intellectual Property is attached. CANCO must verify and maintain evidence that the recipient is not resident in Canada for the supply to be treated as a zero-rated supply. GST/HST Memoranda Series Chapter 4.5.1 Exports - Determining Residence Status has been enclosed for your review. Appendix A of this Memorandum describes the documentation that the CCRA will generally accept as proof that a person is not resident in Canada.

CANCO, being a GST/HST registrant may, in determining its net tax, claim input tax credits (ITCs) in respect of the GST/HST paid or payable on purchases or expenditures to the extent that they are for consumption, use or supply in the course of their commercial activities. The net tax for a reporting period is generally the difference between the tax collectible or collected during the reporting period (and all other amounts that must be added to the net tax for the reporting period) and any ITCs that are claimed in the return for the reporting period as well as any other amounts that may be deducted from that net tax and are deducted in the return.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the 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 CCRA 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) 952-8812.

Yours truly,

Jeffrey A. Frobel
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate