18 November 2002 GST/HST Interpretation 38637 - Application of GST/HST to supplies to non-residents

Dear XXXXX:

Thank you for your facsimile to the XXXXX GST/HST Rulings Centre of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your company's supplies. Your facsimile was forwarded to us for a response and we apologize for the delay in replying to your enquiry.

XXXXX is situated in XXXXX and supplies Web site hosting, Web site design, and advertising to both residents and non-residents. Approximately XXXXX of XXXXX's clients are non-residents (specifically, U.S. residents). For its U.S. clients, XXXXX utilizes the services of a billing company located in the U.S. to issue its invoices. The invoices and the payments are in U.S. dollars.

In XXXXX, you estimated that XXXXX's annual revenues could soon exceed $30,000 per year. XXXXX is not registered for GST/HST purposes.

The above information was obtained from your incoming facsimile and your telephone conversation with XXXXX, of the XXXXX GST/HST Rulings Centre, on XXXXX.

Interpretation Requested

You asked if XXXXX is required to be registered for purposes of the GST/HST. You have also requested clarification on the tax status of XXXXX's supplies of Web site hosting, Web site design and advertising to its non-resident clients.

Interpretation Given

Is XXXXX required to be registered for purposes of the GST/HST?

Pursuant to subsection 240(1) of the Excise Tax Act (ETA), every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to be registered for purposes of the GST/HST. Based on the information provided, XXXXX's supplies of Web site hosting, Web site design and advertising are taxable supplies that are made in the course of XXXXX's commercial activities in Canada.

The exceptions to the general rule under subsection 240(1) of the ETA are where:

(a) the person is a "small supplier";

(b) the only commercial activity of the person is the making of supplies of real property by way of sale other than in the course of a business; or,

(c) the person is a non-resident person who does not carry on business in Canada.

A "small supplier" generally refers to a person whose total revenues from worldwide taxable supplies in the preceding four consecutive calendar quarters or in a single calendar quarter are $30,000 or less. This threshold of $30,000 includes the consideration for supplies that are taxed at a rate of 0% and taxable supplies of associates; however, exempt supplies and certain other supplies are not included in determining a person's requirement to register. A qualifying small supplier, who is not engaged in a taxi business, is not required to be registered for the GST/HST but may voluntarily register to be able to claim input tax credits (ITCs) provided that the small supplier is engaged in a commercial activity in Canada. To assist you in understanding the small supplier rules, we have enclosed a copy of section 2.2, Small Suppliers of the GST/HST Memoranda Series.

Therefore, the revenues generated by XXXXX and any of its associates in making taxable supplies to both resident and non-resident clients would be used to determine whether XXXXX is required to be registered under subsection 240(1) of the ETA. If XXXXX's revenues from its taxable supplies and those of its associates are $30,000 or less, it may choose to remain in a non-registered status; however, once the total value of the consideration for the taxable supplies exceeds $30,000, it is no longer a small supplier and XXXXX is a registrant for GST/HST purposes and required to be registered under subsection 240(1) of the ETA.

Tax status of Web site hosting, Web site design and advertising

The supplies of Web site hosting, Web site design and advertising are considered to be supplies of services for GST/HST purposes.

A taxable (other than zero-rated) supply of a service made in Canada is subject to the GST at the rate of 7% or HST at the rate of 15% [where made in a participating province - Nova Scotia, New Brunswick and Newfoundland and Labrador]. A taxable supply of a service that is zero-rated is taxed at the rate of 0%.

Pursuant to paragraph 142(1)(g) of the ETA, a supply of 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. Conversely, paragraph 142(2)(g) of the ETA deems such a supply of a service to be made outside Canada if the service is, or is to be, performed wholly outside Canada. If a supply of a service is deemed to be made outside Canada, it is not subject to the GST/HST. From the information provided, XXXXX's services are deemed to be made in Canada as part of the activities carried out by XXXXX in performing its services are carried out in Canada.

Once it has been established that a taxable supply is made in Canada, further analysis must be done to determine where in Canada the supply is made - in a participating province or in a non-participating province (the rest of Canada) unless the supply is zero-rated (see the following page).

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.

Web site design and advertising

Under Part V of Schedule IX to the ETA, generally, a service is considered to be supplied in a particular province if all or substantially all [90% or more] of the "Canadian element" of the service is performed in that province. In this Part, the "Canadian element" of a service means the portion of the service that is performed in Canada. For example, if the portion of an advertising service or a Web site design service that is performed in Canada is performed entirely in XXXXX, the supply of the advertising service or the Web site design service is considered to be made in XXXXX and subject to the GST at the rate of 7%, even if the recipient of the service is located in a participating province, unless the supply is zero-rated.

Web site hosting

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's 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. More information regarding these rules may be found in the enclosed Technical Information Bulletin B-[0]90 - GST/HST and Electronic Commerce.

Zero-rated services

The general zero-rating provision concerning the export of a service is found in section 7 of Part V of Schedule VI to the ETA. This section zero-rates the supply of a service made to a non-resident person unless it is excluded by paragraphs 7(a) through 7(h) of this section. For example, a supply of a service made to a non-resident person is excluded from zero-rating under this section when the non-resident person is an individual who is in Canada at any time when the individual has contact with the supplier in relation to the supply of the service, or, when the service is rendered to an individual while that individual is in Canada. Section 4.5.3, Exports - Services and Intellectual Property of the GST/HST Memoranda Series is enclosed and provides further information with respect to the exclusions in section 7 of this Part. XXXXX's services of Web site hosting and Web site design supplied to non-residents may be zero-rated under this section provided that the services do not fall within the aforementioned exclusions.

In addition to the general zero-rating provision, section 8 of Part V of Schedule VI to the ETA specifically zero-rates the supply of an advertising service that is made to a non-resident person who is not registered for purposes of the GST/HST at the time the service is performed. If the non-resident person is registered, this section would not apply and the criteria under section 7 of this Part would have to be met for the supplier to zero-rate a supply of an advertising service.

It is the supplier's responsibility to verify that the recipient is a non-resident and, with regards to section 8 of Part V of Schedule VI to the ETA, is not registered for purposes of the GST/HST. For your information, we have enclosed GST/HST Memoranda Series section 4.5.1, Exports - Determining Residence Status. Appendix A of this Memorandum describes the documentation that the Canada Customs and Revenue Agency (CCRA) will generally accept as proof that the recipient of the supply is not resident in Canada and Appendix B describes the documentation that the CCRA will usually accept as proof that a person is a non-resident and not registered for purposes of the GST/HST.

Foreign Currency

In your facsimile, you indicated that XXXXX's U.S. clients pay in U.S. dollars. Section 159 of the ETA will apply such that the value of consideration for the supply shall be computed on the basis of the value of the U.S. dollars in Canadian currency on the day the tax is payable, or on such other day as is acceptable to the Minister. By virtue of subsection 168(1) of the ETA, tax is generally payable by the recipient on the earlier of the day the consideration for the supply is paid and the day the consideration for the supply becomes due. As indicated, the Minister may accept alternative days for computing the value of the consideration for a supply in Canadian currency. For more information on these days, please refer to the enclosed copy of GST Memorandum 300-7-10 Foreign Currency. A copy of Policy Statement P-222 - Acceptable Exchange Rate Sources for Converting the Value of Consideration Expressed in Foreign Currency to a Value of Canadian Currency for Purposes of Section 159 of the Excise Tax Act is also enclosed for your reference. As such, when determining whether XXXXX has exceeded the small supplier's threshold, XXXXX's revenues in U.S. funds should be converted into Canadian currency.

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.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-8806.

Yours truly,

Marjorie Stevens
Electronic Commerce Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate