13 September 2002 GST/HST Interpretation 35353 - Services Supplied to Non-resident

Dear XXXXX:

Thank you for your letter 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 supply. Your request was transferred to us for response and we apologize for the delay in replying to your enquiry.

You are a GST/HST-registered computer programmer and you have a non-resident client. You work out of your home in XXXXX by connecting to the non-resident's servers in the USA via the Internet. The program you are working on will be run on the non-resident's servers.

Interpretation Requested

You have requested clarification on the tax status of your supply of computer programming to the non-resident.

Interpretation Given

The supply of computer programming is considered to be a supply of a service for purposes of the Excise Tax Act (ETA), provided the supplier does not retain any property rights in respect of the programming.

A taxable (other than zero-rated) supply of a service is subject to the GST at the rate of 7% or HST at a 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 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. Therefore, as you indicated that you perform your service in XXXXX, your supply is deemed to be made in 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.

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" (In Part V of Schedule IX to the ETA, the "Canadian element" of a service means the portion of the service that is performed in Canada.) of the service is performed in that province. For example, if the portion of the service that is performed in Canada is performed entirely in XXXXX, the supply is considered to be made in XXXXX and would be subject to the GST at the rate of 7%, unless the supply is zero-rated.

The next step is to ascertain whether there are any zero-rating provisions that may apply to a taxable supply of a service made to a non-resident.

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.

It is the supplier's responsibility to verify that the recipient of a supply is a non-resident person 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 is not resident in Canada.

Based on the above information, your supply of computer programming to the non-resident is zero-rated under section 7 of Part V of Schedule VI to the ETA provided that none of the exclusions of that provision apply and you do not retain any property rights in respect of the programming.

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 copies of section 1.4 of Chapter 1 of the GST/HST Memoranda Series and Technical Information Bulletin B-090 GST/HST and Electronic Commerce.

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