25 June 2002 GST/HST Interpretation 31968 - Web Hosting Services

Dear XXXXX

Thank you for your letter received XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your operations. Please accept our apology for the delay in responding to your letter.

At issue is the tax status of the supply of Web hosting services.

The following facts were presented in your letter.

XXXXX is resident in Canada and is registered for GST/HST purposes.

XXXXX leases a web server in the United States to host your customers' web sites.

XXXXX charges their customers a monthly rental fee for hosting their web site on this server to cover some of the costs.

XXXXX does not pay GST on the monthly lease payments.

Interpretation Requested

Should XXXXX charge their customers GST/HST pursuant to subsection 221(1) of the Excise Tax Act ("the Act") on the rental fee paid to XXXXX in consideration of the supply of web site hosting services?

Interpretation Given

The supply of Web site hosting is considered to be a supply of a service for purposes of the Act.

A supply of a taxable service deemed to be made in Canada is subject to GST at the rate of 7% (15% HST when made in a participating province: Nova Scotia, New Brunswick or Newfoundland) unless the supply is zero-rated (taxed at 0%).

Paragraph 142(1)(g) of the Act deems a supply of a service to be made in Canada if the service is, or is to be, performed in whole or in part in Canada. Whether the server hosting the Web site is situated outside Canada, where any activity related to the performance of the service supplied by XXXXX is undertaken in Canada, the service is considered to be performed at least in part in Canada and consequently deemed to be made in Canada. Conversely, paragraph 142(2)(g) of the Act deems a supply of a service to be made outside Canada if the service is, or is to be, performed wholly outside Canada.

With respect to the supply of the leasing of the server to XXXXX, in addition to the previously explained rule in section 142 of the Act, the supply of a service (or personal property) made in Canada can also be deemed to be made outside Canada if it is made by a non-registered non-resident person and is not made in the course of a business carried on in Canada.

Section 7 of Part V of Schedule VI to the Act zero-rates a supply of a service when made to a non-resident person provided none of the exclusions of this provision apply. For example, the supply of a service to a non-resident is zero-rated provided it is not rendered to an individual while that individual is in Canada or made to an individual who is in Canada at any time when the individual has contact with the supplier in relation to the supply. It is the supplier's responsibility to verify that the recipient is a non-resident and to ensure that all of the remaining zero-rating criteria are satisfied. If the supply of web hosting services is provided to a non-resident person, then the supply may qualify for zero-rating under this provision. For your information, please find enclosed GST/HST Memoranda Series Section 4.5.1, Exports - Determining Residence Status. Appendix A of this Memorandum describes the documentation that CCRA will generally accept as proof that the recipient is not resident in Canada. Also enclosed is GST/HST Memoranda Series Section 4.5.3, Exports - Services and Intellectual Property.

Where the supply is made in Canada and is not a zero-rated supply, a further analysis with respect to the province in which the supply is made or deemed to be made is necessary to determine the appropriate rate of tax. Whether a supply of a service made in Canada is made in a participating or non-participating province is determined by applying the rules in section 144.1 and Schedule IX to the Act. Section 144.1 of the Act 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 to the Act, made in 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.

Section 3 of Part IX of Schedule IX to the Act provides that, notwithstanding any other Part of Schedule IX, a supply of property or a service is made in a province if the supply is prescribed to be made in the province. Section 10 of the Place of Supply (GST/HST) Regulations prescribes the place of supply. This section provides that, when a particular supplier makes a supply of a computer related service and there is one final recipient of the service, who acquires it under an agreement either with the particular supplier or another supplier, the supply is considered to be made in a particular province if there is a single ordinary location at which the recipient avails itself of the service, and:

•   the particular supplier maintains information sufficient to determine that location; or

•   it is the normal business practice of the particular supplier to obtain information sufficient to determine that location.

Failing this, the supply will be made in a particular province if the mailing address of the recipient of the supply is in that province.

For purposes of the Place of Supply (GST/HST) Regulations, a "computer-related service" means a service involving the electronic storage of information and computer-to-computer transfer of information. With respect to computer-related service, a "final recipient" means a person who is the recipient of a supply of the service who acquires it otherwise than for the purpose of supplying it to another person.

Therefore, if the final recipient of a taxable (other than zero-rated) Web site hosting service is located in a particular participating province, the supply is deemed to be made in that province and consequently subject to HST at 15%. If the recipient of the supply is located in a non-participating province, the supply is deemed to be made in that province and consequently subject to GST at 7%.

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