3 December 2002 GST/HST Interpretation 42217 - Place of Supply of Services

Dear XXXXX:

We are writing in response to your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to XXXXX services.

You have a Quebec company sign contracts with companies in New Brunswick for the services of XXXXX. The Quebec company hires the services of sub-contractors to perform the work in New Brunswick.

Interpretation Requested

You understand that the Quebec company must charge HST to the New Brunswick client for the services rendered. However, as a sub-contractor, registered for GST/HST purposes and located in XXXXX, you invoice the Quebec company for your share of the services rendered. You have requested whether you should charge GST to the Quebec company or charge HST as the service was rendered in New Brunswick?

Interpretation Given

A taxable (other than zero-rated) supply of a service made in Canada is subject to the GST at a rate of 7% or HST at a rate of 15% if made in the participating province of Nova Scotia, New Brunswick, or Newfoundland and Labrador.

Pursuant to paragraph 142(1)(g) of the Excise Tax Act (ETA), a supply of a service is deemed to be made in Canada if the service is, or is to be, performed in whole or in part in Canada. Conversely, if a supply of a service is, or is to be, performed wholly outside Canada, the service is deemed to be made outside Canada.

Section 144.1 of the ETA deems a supply to be made in a province if it is made in Canada and is, under the rules set out in Schedule IX to the ETA, made in the province; but the supply is deemed to be made outside the province in any other case. Also, a supply made in Canada that is not made in a participating province is deemed to be made in a non-participating province.

To determine whether the supply of your services is made in a participating province and consequently subject to HST at 15%, paragraphs 2(a) of Part V of Schedule IX to the ETA deems a supply of a service to be made in a province if all or substantially all (90% or more) of the "Canadian element" (Pursuant to section 1 of Part V of Schedule IX, the "Canadian element" of a service is the portion of the service that is performed in Canada.) of the service is performed in that province. Therefore, if the consulting services that you are supplying are performed all or substantially all in the participating province of New Brunswick, the supply is deemed made in that province and you are consequently required to collect HST at 15% from the Quebec company who is the recipient (Generally, under subsection 123(1) of the ETA, the "recipient" of a supply of a service means, where consideration for the supply is payable under an agreement for the supply, the person who is liable under the agreement to pay that consideration.) of that supply. As you can see, based on this rule, the province in which the recipient of your supply is located (the province of Quebec in this case) is not the determinative factor, but rather the province in which your service is performed.

Where all or substantially all of the Canadian element is not performed in a particular province as described above, the supply of the service may also be considered to be made in the particular province, pursuant to paragraph 2(b) of Part V of Schedule IX, if the place of negotiation for the supply is in the province, and all or substantially all of the service is not performed outside that province.

Pursuant to section 1 of Part I of Schedule IX, the "place of negotiation" of a supply means the location of the supplier's permanent establishment (Subsection 132.1(2) of the ETA defines a permanent establishment for purposes of the place of supply rules set out in Schedule IX. Generally, the meaning of permanent establishment is as defined in various provisions of the Income Tax Regulations under the Income Tax Act, based on the type of person.) at which the individual principally involved in negotiating an agreement for the supplier ordinarily works or to which that individual ordinarily reports in the performance of his or her duties relating to the supplier's activities in the course of which the supply is made. "Negotiating" includes the making or acceptance of an offer.

As you can see, the place of supply of your services to the Quebec company would not be deemed to be made in New Brunswick under paragraph 2(b) if the place of negotiation of that supply is in XXXXX.

Finally, for your information, although the word "performed" is not defined in the GST/HST legislation, the place where a service is performed is traditionally the place where the person physically doing the work is situated. Whether a service is performed in whole or in part in Canada or a particular province is a question of fact. Each supply in respect of a service must be examined on a case-by-case basis to determine whether that service is performed in whole or in part in Canada or a province. However, a supply of a service is performed at least in part in Canada or a particular province, as the case may be, if:

•   the service requires a person to perform a task (i.e., the supplier acts through one or more of its employees), and the person performing or physically carrying out the task is situated in Canada or the province at the time the activity is done;

•   the service includes operations performed by a supplier's equipment (e.g., computer equipment), and the equipment is located in Canada or the province;

•   the supply involves doing something to or with a recipient's equipment by accessing it from a remote location, and the recipient's equipment is located in Canada or the province; or,

•   any activity related to the performance of the service is undertaken in Canada or the province.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, 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) 952-8810.

Yours truly,

Patrick McKinnon
Manager
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate