23 September 2002 GST/HST Interpretation 42342 - Internet Access

Dear XXXXX:

Thank you for your facsimile concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a supply of Internet access.

From your facsimile and our telephone conversations, our understanding of the situation is as follows:

•   An Internet Service Provider (ISP) located in Canada supplies Internet access to a Canadian company's subsidiary located in the U.S;

•   The Canadian company's subsidiary in the U.S. is not registered for GST/HST purposes;

•   The ISP bills the Canadian company in U.S. dollars for the supply of the Internet access provided by the ISP to the subsidiary; and

•   The server that enables connection to the Internet is located in the U.S.

Interpretation Requested

Is the ISP required to account for the GST/HST on the supply of the Internet access provided to the Canadian company's subsidiary in the U.S. and billed to the Canadian company?

Interpretation Given

Subsection 123(1) of the Excise Tax Act (the "Act") defines a "telecommunications facility" to be "... any facility, apparatus or other thing (including any wire, cable, radio, optical or other electromagnetic system, or any similar technical system, or any part thereof) that is used or is capable of being used for telecommunications".

A "telecommunication service" is defined in subsection 123(1) of the Act as follows:

"(a) the service of emitting, transmitting or receiving signs, signals, writing, images or sounds or intelligence of any nature by wire, cable, radio, optical or other electromagnetic system, or by any similar technical system, or

(b) making available for such emission, transmission or reception telecommunications facilities of a person who carries on the business of supplying services referred to in paragraph (a)."

Access to the Internet is a telecommunication service that involves making available telecommunications facilities.

Section 142.1 of the Act sets out the place of supply rules for determining when a supply of a telecommunication service is made in Canada. Pursuant to paragraph 142.1(2)(a) of the Act, a telecommunication service that consists of making available telecommunications facilities is deemed to be made in Canada where the facilities or any part thereof are located in Canada.

Based on the information provided and assuming that, as well as the server, all other facilities, or any part thereof, that are used or are capable of being used to enable connection to the Internet are located outside Canada, the Internet access supplied by the ISP to the Canadian company's subsidiary is not deemed to be a supply made in Canada pursuant to subparagraph 142.1(2)(a) of the Act. The supply is considered to be made outside Canada and, therefore, not subject to Division II tax as this tax applies only to taxable supplies made in Canada. It is important to note that this applies only where none of the ISP's facilities, or any part thereof, that are located in Canada are used to enable the connection to the Internet under any circumstances.

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