28 October 2002 GST/HST Interpretation 36605 - Tax Status of Information Supplied Via the Internet

Dear XXXXX:

Thank you for your facsimile of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to information supplied via the Internet. Your facsimile was sent to XXXXX and has been forwarded to us for a response. We apologize for the delay in answering your request.

Our understanding of the situation from your request and your Web site XXXXX is as follows:

•   you supply information relating to the XXXXX industry;

•   the information supplied is stored on your Web site and is transmitted by e-mail, File Transfer Protocol, and other Internet formats;

•   the server on which the information is stored is currently located in Canada;

•   for a fee, subscribers to the Web site may access news stories, articles, XXXXX legislation and regulations, forms, surveys and reference material related to XXXXX XXXXX;

•   subscribers do not acquire any ownership rights in respect of the software programs and information stored on the Web site; and

•   subscribers may print and make photocopies of certain information subject to certain restrictions.

Interpretation Requested

Does the GST/HST apply to supplies of subscriptions to a Web site as described above when the supplies are made to persons who are not resident in Canada?

Interpretation Given

The supply of a right to access and use a repository of information as well as the software programs required to search and retrieve information from the repository is considered to be a supply of intangible personal property (IPP) for purposes of the Excise Tax Act (the "Act").

Subparagraph 142(1)(c)(i) of the the Act deems a supply of IPP, that is not related to real property, tangible personal property or a service, to be made in Canada if the IPP may be used in whole or in part in Canada. The expression "may be used" is interpreted to mean "allowed to be used". In other words, a supply of IPP could be considered to be made in Canada even if it is not actually used in Canada. Where there are no restrictions regarding the place of use of the IPP (i.e., from where the information may be accessed), it is generally considered that the IPP may be used in Canada. As such, your supply of the right to access the information over the Internet is deemed to be made in Canada pursuant to subparagraph 142(1)(c)(i) of the Act as the supply may be used in whole or in part in Canada. The fact that the supply may be made to a recipient who is outside Canada at the time the supply is made has no impact on the determination of whether the supply of IPP is made in Canada. The location of the server on which the information is stored also has no bearing on the determination of whether the supply of IPP is made in Canada.

Every recipient of a taxable supply made in Canada is required to pay GST/HST in respect of the supply at the rate of 7% [or 15% when the supply is made in a participating province (The three participating provinces are Nova Scotia, New Brunswick and Newfoundland and Labrador.)] on the value of the consideration for the supply unless the supply is zero-rated (taxed at 0%). In this case, there are no provisions in Schedule VI to the Act that would zero-rate your supply of a right to access information whether the supply is made to a resident or non-resident of Canada.

Where the supply of a right to access information is made in Canada, a further analysis with respect to the province in which the supply is made is necessary.

Whether a supply of IPP is made in a participating or non-participating province is determined by section 144.1 of the Act and Schedule IX to the Act. Section 144.1 provides that a supply is deemed to be made in a province if it is made in Canada and is, under the rules set out in Schedule IX, made in the province. In any other case, the supply is deemed to be made outside the province. Section 144.1 also states that a supply made in Canada that is not made in a participating province is deemed to be made in a non-participating province.

The place of supply rules for a supply of IPP not related to real property, tangible personal property or services are provided for in paragraphs 2(d) and 3(d) of Part III of Schedule IX to the Act. Pursuant to subparagraph 2(d)(i) of Part III of Schedule IX to the Act, a supply of IPP is considered to be made in a province if all or substantially all (i.e., 90% or more) of the Canadian rights ("Canadian rights" refers to that part of the IPP that may be used in Canada (section 1 of Part III of Schedule IX to the Act).) in respect of the IPP may be used only in the province. As it appears that your supply of the right to access the information is not restricted in any manner to any specific province or group of provinces, subparagraph 2(d)(i) and, similarly, paragraph 3(d) of Part III of Schedule IX would not be applicable.

Pursuant to subparagraph 2(d)(ii) of Part III of Schedule IX to the Act, a supply of IPP will be considered to be made in a province if the place of negotiation of the supply is in the province and the IPP may be used otherwise than exclusively outside the province. Where there are no restrictions regarding the province in which the information may be accessed, it will always be the case that the information may be accessed otherwise than exclusively outside the province where the place of negotiation occurs. Section 1 of Part I of Schedule IX to the Act defines the "place of negotiation" of a supply to be "... the location of the supplier's permanent establishment at which the individual principally involved in negotiating for the supplier the agreement for the supply ordinarily works ...". Based on the information provided and the fact that your permanent establishment is in XXXXX, it appears that the place of negotiation is in the province of XXXXX. As the place of negotiation of the supply of the right to access the information is in XXXXX, subparagraph 2(d)(ii) of Part III of Schedule IX to the Act deems the supply to be made in that province and, therefore, subject to the GST at the rate of 7%. This is the case even if the recipient or the user of the right to access the information is located in a participating province.

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) 954-7931.

Yours truly,

Anne Kratz
Electronic Commerce Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate