30 August 2002 GST/HST Interpretation 33574 - Photo Images Downloaded Via the Internet

Dear XXXXX:

Thank you for your letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of photo images that are downloaded via the Internet. Your letter was sent to the XXXXX Tax Services Office and has been forwarded to us for a response. We apologize for the delay in providing you with this response.

Our understanding is that XXXXX purchased photo images from a company in the U.S. XXXXX downloaded the images via the Internet and used the images for advertising materials that appeared locally (i.e., the images were used exclusively in XXXXX commercial activities). The U.S. supplier did not charge GST/HST in respect of the supplies of the images.

Interpretation Requested

Is the GST/HST applicable to the supplies of the photo images?

Interpretation Given

Supplies of photo images that are downloaded via the Internet are considered by the Canada Customs and Revenue Agency (CCRA) to be supplies of intangible personal property (IPP) for GST/HST purposes. A taxable supply (other than a zero-rated supply) of IPP made in Canada is subject to the GST at the rate of 7% or HST at the rate of 15% if the supply is made in a participating province. (The three participating provinces are Nova Scotia, New Brunswick and Newfoundland and Labrador.)

A supply of IPP that is not related to real property, tangible personal property or a service is deemed to be made in Canada by virtue of subparagraph 142(1)(c)(i) of the Excise Tax Act (the "Act") if the IPP may be used in whole or in part in Canada. The expression "may be used" in subparagraph 142(1)(c)(i) is interpreted to mean "allowed to be used". The supplies of the photo images that are downloaded via the Internet by XXXXX are made in Canada since the images may be used in whole or in part in Canada.

However, subsection 143(1) of the Act overrides subparagraph 142(1)(c)(i) and deems a supply of personal property (including IPP) or a service made in Canada by a non-resident person to be made outside Canada, unless

•   the supply is made in the course of a business carried on in Canada;

•   at the time the supply is made, the non-resident is registered for GST/HST purposes; or

•   the supply is the supply of an admission in respect of a place of amusement, a seminar, an activity or an event where the non-resident did not acquire the admission from another person.

Therefore, where a non-resident person who is not registered for the GST/HST and who does not carry on business in Canada, makes a supply of IPP, such as a supply of a photo image that is downloaded via the Internet, the supply is not made in Canada. As such, XXXXX is not required to pay GST/HST in these circumstances. However, where the non-resident is registered or the supply is made in the course of a business carried on in Canada by the non-resident otherwise than as a small supplier, XXXXX will be required to pay the GST/HST in respect of the supplies of the photo images that are made in Canada.

Without further information regarding the activities of the non-resident, we are unable to confirm whether XXXXX is required to pay tax in respect of the above transaction. Pages 27 to 31 of the enclosed Technical Information Bulletin B-090, GST/HST and Electronic Commerce provide further information regarding the registration of non-residents.

It should be noted that if, upon audit, it is determined that XXXXX was required to pay tax in respect of the supplies of the photo images, there would generally be no assessment and no penalty and interest implications for XXXXX in respect of these supplies. The amount of tax that could be assessed would be offset by the available input tax credit that XXXXX as a GST/HST registrant who acquired the photo images for use exclusively in its commercial activities would have been entitled to claim had the tax been properly charged.

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 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) 954-7931.

Yours truly,

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