16 August 2002 GST/HST Interpretation 33017 - Videos on the Internet

Dear XXXXX:

Thank you for your facsimile of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supplies of videos viewed over the Internet. Your facsimile was sent to the XXXXX and has been forwarded to us for a response. We apologize for the delay in providing you with this response.

It is our understanding from your facsimile, our telephone conversations and your Web site XXXXX that you supply job search videos for viewing over the Internet. Customers pay in U.S. dollars by credit card and obtain the right to view a chosen video on XXXXX aspects of the job search process for a period of XXXXX hours. Prices range from XXXXX XXXXX for each video viewed. The videos are not available for downloading. In addition, you have packaged the content of the videos into a CD ROM and a workbook that are presented in a binder. These binders are marketed only in Canada and are either hand-delivered or sent by courier to the recipient in Canada.

Interpretation Requested

You wish to know the tax status of the videos and the binder containing the CD ROM and the workbook. You also wish to know how to charge the GST/HST on the U.S. dollar payments received for the supply of the videos. If GST/HST is payable by your customers, you ask if there is double taxation (i.e., cascading of tax) in this case since you are paying GST/HST on goods and services acquired to produce the videos. Furthermore, you would like to know if there is any tax relief for your type of business.

Interpretation Given

Based on the information provided, the supply of viewing a video over the Internet is considered to be a supply of intangible personal property (IPP) and the supply of the binder containing the CD ROM and the workbook is considered to be a supply of tangible personal property (TPP). We will discuss the GST/HST treatment of IPP and TPP separately.

A taxable (other than a zero-rated) supply of property or a service made in Canada is subject to the GST/HST at the rate of 7% or 15% if the supply is made in a participating province (The three participating provinces are Nova Scotia, New Brunswick and Newfoundland and Labrador.).

Intangible Personal Property

Subparagraph 142(1)(c)(i) of the Excise Tax Act (the "Act") deems a supply of IPP to be made in Canada if the IPP may be used in whole or in part in Canada. The supply of viewing a video is deemed to be made in Canada pursuant to subparagraph 142(1)(c)(i) of the Act as the supply may be used in whole or in part in Canada. The fact that the supply may be made to a recipient who is outside Canada at the time the supply is made does not have an impact on the determination of whether the supply of IPP is made in Canada.

Where the supply of viewing a video is made in Canada, a further analysis with respect to the province in which the supply is made is necessary to determine the appropriate rate of GST/HST. Where a taxable supply that is not zero-rated is deemed to be made in a participating province, the supply will be subject to the HST at the rate of 15%. Where the supply is determined to be made in a non-participating province, it will be subject to the GST at the rate of 7%.

Whether a supply of IPP made in Canada is made in a participating province or a non-participating province is determined by section 144.1 of the Act and Schedule IX to the Act. Section 144.1 provides that a supply is deemed to be made in a province if it is made in Canada and is, under the rules set out in Schedule IX, made in the province. In any other case, the supply is deemed to be made outside the province. Section 144.1 also states that a supply made in Canada that is not made in a participating province is deemed to be made in a non-participating province.

The place of supply rules for a supply of IPP not related to real property, TPP or services are provided for in paragraphs 2(d) and 3(d) of Part III of Schedule IX to the Act. Subparagraph 2(d)(i) of Part III of Schedule IX to the Act states that a supply of IPP is considered to be made in a province if all or substantially all (i.e., 90% or more) of the Canadian rights in respect of the IPP can be used (i.e., are allowed to be used) only in the province. "Canadian rights" refers to that part of the IPP that can be used in Canada (section 1 of Part III of Schedule IX to the Act). As it appears that the viewing of a video is not restricted in any manner to any specific province or group of provinces, subparagraph 2(d)(i) and, similarly, paragraph 3(d) of Part III of Schedule IX would not be applicable.

Subparagraph 2(d)(ii) of Part III of Schedule IX to the Act states that a supply of IPP will be considered to be made in a province if the place of negotiation of the supply is in the province and the IPP can be used (i.e., is allowed to be used) otherwise than exclusively outside the province. Where there are no restrictions regarding the province in which the videos may be viewed, it will always be the case that the videos may be viewed otherwise than exclusively outside the province where the place of negotiation occurs. Section 1 of Part I of Schedule IX to the Act defines the "place of negotiation" of a supply to be "... the location of the supplier's permanent establishment at which the individual principally involved in negotiating for the supplier the agreement for the supply ordinarily works ...". Based on the information provided and the fact that your permanent establishment is in XXXXX, it appears that the place of negotiation is in the province of XXXXX. As the place of negotiation of the supply of viewing the video is in XXXXX, subparagraph 2(d)(ii) of Part III of Schedule IX to the Act deems the supply to be made in that province and, therefore, subject to the GST at the rate of 7%.

There are no provisions in Schedule VI to the Act that would zero-rate (i.e., tax at a rate of 0%) the supply of viewing a video over the Internet.

Tangible Personal Property

Paragraph 142(1)(a) of the Act deems a supply of TPP 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. Pursuant to section 1 of Part II of Schedule IX to the Act, if the TPP is delivered or made available in a non-participating province, the supply of the TPP will be made in that province and, therefore, subject to the GST at the rate of 7%. However, if the TPP is delivered or made available to the recipient of the supply in a participating province, the supply of the TPP will be subject to the HST at the rate of 15%

Section 3 of Part II of Schedule IX to the Act deems TPP to have been delivered in a particular province where the supplier ships the property, or transfers possession of the property to a common carrier or consignee engaged by the supplier on behalf of the recipient to ship the property, to a specified destination in the particular province that is specified in the shipping contract. In addition, section 3 of Part II of Schedule IX to the Act deems the TPP to have been delivered in a particular province where the supplier sends the property by mail or courier to an address in the particular province.

Foreign Currency

The customer pays for the supply of viewing the video in U.S. dollars. Section 159 of the Act will apply such that the value of the consideration for the supply shall be computed on the basis of the value of the U.S. dollars in Canadian currency on the day the tax is payable, or on such other day as is acceptable to the Minister. Tax is generally payable by the recipient on the earlier of the day the consideration for the supply is paid and the day the consideration for the supply becomes due by virtue of subsection 168(1) of the Act. In the case under consideration, the payment to view the video is actually made just prior to the recipient viewing the video and is not payable before that time. Therefore, the tax will be payable at the time the payment is made and should be calculated on the value of the consideration in Canadian currency on that day. As indicated earlier, the Minister may accept alternative days for computing the value of the consideration for a supply in Canadian currency. For more information on these days, please refer to the enclosed copy of GST Memorandum 300-7-10 Foreign Currency. A copy of Policy Statement P-222 Acceptable Exchange Rate Sources for Converting the Value of Consideration Expressed in Foreign Currency to a Value in Canadian Currency for Purposes of Section 159 of the Excise Tax Act" is also enclosed for your reference.

In addition, for your information, subsection 223(1) of the Act requires a registrant making taxable supplies (other than zero-rated supplies) to indicate to the recipient, either in prescribed manner or in the invoice or receipt issued to, or in an agreement in writing entered into with, the recipient in respect of the supply,

(a) the consideration paid or payable by the recipient for the supply and the tax payable in respect of the supply in a manner that clearly indicates the amount of the tax; or

([b]) that the amount paid or payable by the recipient for the supply includes the tax payable in respect of the supply.

With respect to the issue of tax cascading, the GST/HST is a multi-stage tax under which business outputs are taxed at each stage of the production-distribution process. To avoid any incidence of tax on business inputs, an input tax credit (ITC) mechanism is available. By virtue of subsection 169(1) of the Act, where a person acquires or imports property or a service or brings it into a participating province, the person may claim an ITC for GST/HST paid or payable to the extent, expressed as a percentage, the property or service is for consumption, use or supply in the course of the person's commercial activities and providing all of the conditions of this subsection and for claiming an ITC are met. As a result, no tax relating to business inputs is imbedded in the price charged to the customer. For your information, we have enclosed a copy of the guide entitled General Information for GST/HST Registrants.

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.

If you require information on the general operation of the GST/HST, please contact GST/HST Rulings at your local Tax Services Office at 1-800-959-8287

Yours truly,

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

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