11 September 2002 GST/HST Interpretation 30777 - Tax Status of Advertising on a Web Site

Dear XXXXX:

Thank you for your letter of XXXXX sent by facsimile, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the purchase of advertising on your web site.

Although you originally posed a number of questions, for which you required responses, as per our telephone conversation on XXXXX, the only question for which you now require a response concerns the sale of advertising on your web site.

The following facts were provided in your letter.

•   XXXXX is a non-resident, who is registered for the GST/HST XXXXX

•   XXXXX publishes maps and books, which are sold to both wholesalers and retailers. The retail business is conducted almost exclusively over the Internet.

•   XXXXX sells advertising on its web site, located on a server outside Canada, to businesses, such as RV parks, including residents of Canada.

•   Any updates or changes to the web site are done on the web site outside Canada.

Interpretation Requested

Is the supply of advertising on a web site, to a Canadian business, subject to the GST?

Interpretation Given

The term advertising is not defined in the Excise Tax Act ("the Act"), however, the Canada Customs and Revenue Agency (CCRA) has provided an explanation at to what is generally considered to be an advertising service in Memoranda Series 4.5.3, Exports - Services and Intellectual Property. The explanation in Section 4.5.3 refers to a service of creating a message and a service directly related to the communication of such a message. Further, the message must be oriented towards soliciting business, attracting donations, or calling public attention in the form of an information notice, a political announcement or other similar communication.

There are occasions where the person communicating a message will not be the same person creating or supplying the message. Generally, the person supplying the broadcast or communication service will be in possession of the message or will have received sufficient information as to the content of the message prior to the supply of the service to know that the message is in the nature of advertising. In these situations, the supply of the broadcast or communication service will be considered to be a supply of an advertising service.

The provision of a spot on a web site, containing an advertisement for a business resident in Canada, is considered to be a service of communicating a message. The supply of communicating a message is considered to be an advertising service if the person broadcasting or communicating the message has sufficient information prior to the supply of the service to know that the message is in the nature of advertising.

Based on the above, XXXXX is providing an advertising service to a Canadian resident. The tax status of the supply depends on whether the supply of the advertising service is made in Canada. A taxable (other than zero-rated) supply of a service made in Canada is subject to GST at a rate of 7% (15% HST when made in a participating province: Nova Scotia, New Brunswick or Newfoundland). Pursuant to paragraph 142(1)(g) of the Act, a supply of a service is deemed to be made in Canada if the service is, or is to be, performed in whole or in part in Canada. Whether a service is performed in Canada is a question of fact to be determined on a case by case basis. Where any activity related to the performance of a service is undertaken in Canada, the supply of the service is considered to be made in Canada. As discussed, paragraph 142(2)(g) of the Act provides that a supply is deemed to be made outside Canada if the service is, or is to be, performed wholly outside Canada. Therefore, if the supply of the advertising service is, performed entirely outside Canada, it will be considered to be supplied outside Canada and will not be subject to GST.

Finally, we note for your information that if a supply of advertising made to a non-resident person who is not registered for GST/HST purposes is made in Canada, that supply will nevertheless be zero-rated under section 8 of Part V of Schedule VI to the Act. The supply of advertising to a non-resident who is registered may still be zero-rated under section 7 of Part V of Schedule VI to the Act, provided none of the exclusions apply, such as where the supply is made to an individual who is in Canada at any time when the individual has contact with the supplier in relation to the supply. GST/HST Memoranda Series Section 4.5.3, Exports - Services and Intellectual Property is enclosed for your additional information regarding supplies of advertising to non-residents.

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.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6743.

Yours truly,

Cheryl R. Leyton
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate