25 November 2002 GST/HST Ruling 37260 - Web Site Hosting

Dear XXXXX:

Thank you for your letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a supply of Web site hosting.

Based on your letter and your telephone conversation of XXXXX, with XXXXX Tax Services office, we understand that XXXXX is a GST/HST registrant located in XXXXX, which specializes in developing & hosting interactive Web site applications for businesses. All activities undertaken by XXXXX related to the establishment and maintenance of the Web sites are performed from its office in XXXXX. However, the Web sites may be hosted on servers located outside of Canada. Until recently, XXXXX has been providing Web site hosting to businesses located in Canada, but it has recently entered into a contract to provide Web site hosting to a non-resident client.

Interpretation Requested

Is XXXXX required to collect GST/HST on the supply of Web site hosting to non-resident clients?

Interpretation Given

The Canada Customs and Revenue Agency (CCRA) considers the provision of Web site hosting to be a supply of a service for purposes of the Excise Tax Act (ETA).

Pursuant to paragraph 142(1)(g) of the ETA, a service, other than a service in relation to real property, is deemed to be made in Canada if the service is, or is to be, performed in whole or in part in Canada. For example, a supplier located in Canada may host Web sites on servers located outside of Canada, but may perform certain tasks (e.g., programming, maintenance) from its office in Canada. As a result of the performance of these tasks in Canada, the supply is deemed to be made in Canada.

A supply of a Web site hosting service that is deemed to be made in Canada is taxable for purposes of the GST/HST at a rate of 7% (or 15% where the supply is made in a participating province, i.e., Nova Scotia, New Brunswick, Newfoundland and Labrador) on the value of the consideration for the supply unless the supply is zero-rated (taxed at 0%).

Supply in a Participating Province

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. A supply is deemed to be made outside the province in any other case. Note, a supply that is made in Canada, but that is not made in a participating province is deemed to be made in a non-participating province.

Section 3 of Part IX of Schedule IX to the ETA provides that, notwithstanding any other Part of this Schedule, a supply of a property or service is made in a province if the supply is prescribed to be made in the province. Subsection 10(1) of the Place of Supply (GST/HST) Regulations provides, in part, that when a particular supplier makes a supply of a computer-related service and there is to be one final recipient of the service who acquires it under an agreement either with the particular supplier or another supplier, the supply is considered to be made in a particular province if there is a single ordinary location in the province at which the final recipient avails itself of the service, and either:

•   the particular supplier maintains information sufficient to determine that location, or

•   it is the normal business practice of the particular supplier to obtain information sufficient to determine that location.

In any other case, the supply is made in a particular province if the mailing address for the recipient of the supply is in that province.

For purposes of the Place of Supply (GST/HST) Regulations, a "computer-related service" includes "... a service involving the electronic storage of information and computer-to-computer transfer of information". A supply of Web site hosting is considered to be a computer-related service.

Therefore, where a single final recipient of a Web site hosting service provided by XXXXX does not avail itself of the service at a single ordinary location or where the conditions above with respect to information are not met, the determination of the place of supply is based on the mailing address of the recipient. For example, if the mailing address of the recipient of a taxable (other than zero-rated) supply of Web site hosting is in one of the participating provinces (e.g., New Brunswick), the supply by XXXXX is made in New Brunswick and subject to the HST at a rate of 15%. If the mailing address of the recipient of XXXXX supply of Web site hosting is in a non-participating province, the supply is subject to the GST at a rate of 7%, unless the supply is zero-rated.

There are special rules for situations that involve multiple final recipients. These rules as well as other information on the tax treatment of supplies of property and services made by electronic means can be found in the enclosed GST/HST Technical Information Bulletin B-[0]90 - GST/HST and Electronic Commerce.

Zero-rated Supply

Where a supply of a Web site hosting service is made by XXXXX to a non-resident person, that service may be zero-rated for purposes of the GST/HST. Section 7 of Part V of Schedule VI to the ETA sets out the conditions under which a supply of a service that is made to a non-resident person is considered to be zero-rated. In respect of Web site hosting, such a service is zero-rated if the supply is made to a non-resident person other than to a non-resident individual who is in Canada at any time when the individual has contact with the supplier in relation to the supply, or where the supply is rendered to a non-resident individual while that individual is in Canada.

For zero-rated supplies made to non-resident persons, it is incumbent upon GST/HST registrants to maintain satisfactory evidence that the customer is indeed a non-resident person. For more on this topic, please find enclosed a copy of GST/HST Memoranda Series, Section 4.5.1, Exports - Determining Residence Status, which provides information on determining the residency status of persons to whom supplies are made. For your perusal, we have also enclosed a copy of GST/HST Memoranda Series, Section 3.4, Residence.

The foregoing comments represent our general view 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) 952-8530.

Yours truly,

Dwayne Moore
Electronic Commerce Unit
General Operations and Border Issues Division
Canada Customs and Revenue Agency