16 August 2002 GST/HST Interpretation 32713 - Internet Radio Station

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 supplies made by an Internet radio station. Your request was transferred to us for response. We apologize for the delay in replying to your enquiry.

XXXXX (the Company) is currently in a deregistered status for purposes of the GST/HST and operates an Internet radio station that promotes independent musicians (the Clients) from around the world. It is our understanding that the Company is a small supplier.

When a Client submits a sample of their music to the Company, they include a photo and a biographical summary and the Company may edit this biographical information before posting it on its Web site. These biographical pages are usually posted on the Company's Web site free of charge for a two-month period, however, the Company reserves the right to charge a Client a fee for this service.

In addition to playing the music submitted by its Clients and displaying the biographical information, the Company sells CDs and also supplies both banner and audio advertising on its Web site for a fee.

Interpretation Requested

You have requested information on the tax status of the Company's three supplies when supplied to residents and non-residents: 1) the posting of the biographical pages, 2) the CDs, and 3) the banner and audio advertising.

Interpretation Given

Based on the information provided, the supply of posting the biographical information on the Company's Web site and the supply of banner and audio advertising are considered to be supplies of advertising services for purposes of the Excise Tax Act (ETA) and the supply by way of sale of a CD is considered to be a supply of tangible personal property (TPP). As you may be aware, a small supplier who is not registered for GST/HST is not required to account for the GST/HST on its taxable supplies.

A supply of an advertising service

A taxable (other than zero-rated) supply of an advertising service made in Canada by a GST/HST registrant 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 an advertising service that is zero-rated is taxed at 0%.

Pursuant to paragraph 142(1)(g) of the ETA, 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. Paragraph 142(2)(g) of the ETA deems 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.

Based on the information provided, the services are performed in Canada, therefore the supplies by the Company of advertising services are 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 a service is performed entirely in XXXXX, the supply of the service is considered to be made in XXXXX. For your reference, we have enclosed a copy of GST/HST Technical Bulletin - B-078: Place of Supply Rules under the HST.

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

Section 8 of Part V of Schedule VI to the ETA zero-rates a 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. It should be noted that when the non-resident person is registered, this section would not apply. However, where a non-resident person is registered for purposes of the GST/HST at the time the service is performed, the service may still be zero-rated under the general zero-rating provision concerning the export of services that is found in section 7 of Part V of Schedule VI to the ETA. This section zero-rates a supply of a service, such as banner or audio advertising, made to a non-resident unless it is excluded by paragraphs 7(a) through 7(h) (The exclusions to section 7 of Part V of Schedule VI to the ETA are discussed in paragraphs 18-23 of the enclosed chapter 4.5.3, Exports - Services and Intellectual Property of the GST/HST Memoranda Series.) of that section. For example, a supply of an advertising 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 advertising service is rendered to an individual while that individual is in Canada.

It is the supplier's responsibility to verify that the recipient is a non-resident and is not registered for GST/HST purposes. For your information, we have enclosed GST/HST Memoranda Series chapter 4.5.1, Exports - Determining Residence Status. Appendix A of this Memorandum describes the documentation that 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 CCRA will usually accept as proof that a non-resident is not registered for purposes of the GST/HST. Also enclosed is GST/HST Memoranda Series chapter 4.5.3, Exports - Services and Intellectual Property which provides further information with respect to the zero-rating of advertising services.

A supply of TPP

Pursuant to paragraph 142(1)(a) of the ETA, a supply by way of sale of TPP is deemed to be made in Canada if the TPP is, or is to be, delivered or made available in Canada to the recipient of the supply. A supply by way of sale of TPP is deemed to be made outside Canada, under paragraph 142(2)(a) of the ETA if the TPP is, or is to be, delivered or made available outside Canada. If the supply by way of sale of TPP is deemed to be made outside Canada, it is not subject to the GST/HST.

If TPP that is supplied by way of sale is deemed to be made in Canada, it may be zero-rated as an export under section 1 or section 12 of Part V of Schedule VI to the ETA.

Section 12 of Part V of Schedule VI to the ETA zero-rates a supply of TPP [other than a continuous transmission commodity that is being transported by means of a wire, pipeline or other conduit] where the supplier:

(a) ships the TPP to a destination outside Canada that is specified in the contract for carriage of the TPP;

(b) transfers possession of the TPP to a common carrier or consignee that has been retained by the supplier on behalf of the recipient or by the recipient's employer to ship the TPP to a destination outside Canada; or

(c) sends the property by mail or courier to an address outside Canada.

Section 1 of Part V of Schedule VI to the ETA allows for zero-rating of TPP (other than an excisable good such as beer or tobacco) made to a recipient who intends to export the TPP provided:

1. the recipient is not the consumer [If the recipient is a consumer, the supply would have to meet the zero-rating provisions under section 12 of this Part.];

2. the recipient exports the TPP as soon as is reasonable, taking into account the circumstances surrounding the exportation and the recipient's usual business practices;

3. the TPP is not acquired by the recipient for consumption, use or supply in Canada prior to export;

4. the TPP is not further processed, transformed or altered in Canada by the recipient except to the extent reasonably necessary or incidental for its transportation; and

5. the supplier maintains satisfactory evidence of the exportation of the TPP by the recipient.

An additional condition applies where the TPP is a continuous transmission commodity.

When TPP is zero-rated as an export, the supplier must maintain satisfactory evidence that it has been sent outside Canada. We have enclosed a copy of chapter 4.5.2 Exports - Tangible Personal Property of the GST/HST Memoranda Series that discusses these zero-rating provisions and the documentary requirements.

When a taxable (other than a zero-rated) supply of TPP by way of sale is made in Canada, it is subject to the tax at 7% or 15% where made in a participating province. Again section 144.1 of the ETA works in conjunction with Schedule IX to the ETA to determine the particular province in which the supply is been made.

As stipulated in section 1 of Part II of Schedule IX to the ETA, a supply by way of sale of TPP is made in a province if the supplier delivers the TPP or makes it available in the province to the recipient of the supply. For example, if a Quebec resident purchases TPP while on vacation in Newfoundland and Labrador, and takes possession of it at that time, the TPP is delivered in a participating province (Newfoundland and Labrador) and HST (at 15%) will apply.

Where TPP is delivered by mail or courier or by a common carrier, section 3 of Part II of Schedule IX to the ETA must be examined. Under this section, TPP is deemed to be delivered in a particular province, and not to any other province, if the supplier ships it to a destination in that particular province that is specified on the shipping contract for the TPP, or otherwise transfers possession of the TPP to a common carrier or consignee retained by the supplier on behalf of the recipient to ship it to such a destination in the particular province. For example, a supplier in Ontario sells TPP to a recipient in New Brunswick. The supplier uses its own truck, hires a common carrier, or retains a common carrier on behalf of the recipient, to deliver the TPP to the recipient. The supply would be regarded as having been made in New Brunswick and thus subject to the HST. TPP is also deemed to be delivered in a particular province if the supplier sends it by mail or courier to an address in the particular province. For example, a supplier in Ontario sells TPP to a recipient resident in Nova Scotia but mails it (at the request of the recipient) to an address in Manitoba; the supply of TPP would be subject to GST at 7% as the TPP is delivered to Manitoba, a non-participating province.

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 CCRA 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 and our most recent 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