25 June 2002 GST/HST Interpretation 32284 - Application of GST/HST to a Dating Service and a Social Club

Dear XXXXX:

Thank you for your letter of XXXXX (with covering sheet), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a dating service and a social club supplied to residents and non-residents. We apologize for the delay in responding to your enquiry.

XXXXX a GST/HST-registered corporation that is situated in XXXXX provides a specialized dating service (the Dating Service) to interested individuals.

A potential client usually meets, in person, with a representative of XXXXX. During the interview, the potential client completes a questionnaire and either supplies a full-length photograph or has one taken. This information is used to produce the client's profile. While clients usually register for the Dating Service in person at XXXXX location in XXXXX, when a client is not physically in XXXXX at the time they register, an alternative method, such as telephone, facsimile or mail, may be used.

To find a date, a client must either manually look through a binder of profiles of other clients, or contact XXXXX by e-mail, mail or telephone for information on suitable dates. If one client has indicated that they are interested in meeting another client, XXXXX contacts the second client, supplies them with a profile of the first client and responds to the second client's questions about the first client.

The rates for the Dating Service are for either a six-month or one-year period. If the potential client pays the one-year fee they also obtain a free membership to XXXXX social club. When registering for the Dating Service, the potential client is required to make a down payment, along with the applicable taxes. The balance of the amount is due only when a mutually agreed-upon introduction occurs.

All of XXXXX services in relation to the Dating Service are supplied in XXXXX.

In addition to the Dating Service, XXXXX also operates a social club in XXXXX (the Social Club) that is for people who want to meet new people and participate in various activities or events. Membership includes access to the club and allows the members to attend events in the XXXXX area that are planned by the Social Club, such as bingo nights or comedy nights.

The above information was obtained from your letter of XXXXX, our conversation XXXXX, and from XXXXX.

Interpretation Requested

You have asked for clarification on the application of GST/HST to the Dating Service. Dating Service clients may be residents of an HST-participating province (Nova Scotia, New Brunswick, or Newfoundland and Labrador), residents of a non-participating province (i.e., the rest of Canada), or non-residents and may not be in XXXXX when they register for the Dating Service.

You have also asked about the application of GST/HST XXXXX supply of membership to the Social Club.

Finally, you have requested confirmation that XXXXX is able to set its rates as it chooses and may charge non-residents a different price from residents. You have also asked for confirmation that it is free to charge its non-resident members in a currency other than the Canadian dollar (e.g., US dollars).

Interpretation Given

Based on the information provided, the Dating Service is considered to be a supply of a service and membership in the Social Club is considered to be a supply of intangible personal property for purposes of the Excise Tax Act (ETA). Each supply will be addressed separately.

Supply of a Service

A taxable (other than zero-rated) supply of a service made in Canada is subject to GST at the rate of 7% or HST at the rate of 15% [where the supply is made in a participating province]. A supply that is zero-rated is taxed at a rate of 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.

The general zero-rating provision concerning the export of services 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 the dating service described, made to a non-resident unless it is excluded by paragraphs 7(a) through 7(g) (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 this section. For example, a supply of a dating 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 service is rendered to an individual while that individual is in Canada.

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 is not resident in Canada. Also enclosed is GST/HST Memoranda Series Chapter 4.5.3, Exports - Services and Intellectual Property.

A taxable supply of a service made in Canada that is not zero-rated under the provisions outlined above is subject to the GST at 7% or the HST at 15% (where made in a participating province).

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 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 is considered to be supplied in XXXXX.

In summary, a supply of a service would be deemed to be made in Canada if the service is to be performed in whole or in part in Canada, and deemed to be made in a non-participating province, such as XXXXX, if all or substantially all of the service is performed in that province. As a result, if the service is taxable (other than zero-rated), it will be subject to the GST at a rate of 7%.

Supply of Intangible Personal Property

A taxable (other than zero-rated) supply of intangible personal property made in Canada is subject to the GST at a rate of 7% or to HST at a rate of 15% if it is made in a participating province. As stipulated in paragraph 142(1)(c) of the ETA, a supply of intangible personal property is deemed to be made in Canada if the intangible personal property may be used (meaning "allowed to be used") in whole or in part in Canada.

The supply of, or the right, licence or privilege to use, intangible personal property that is intellectual property is zero-rated under section 10 of Part V of Schedule VI to the ETA when supplied to a non-registered non-resident person. Intellectual property includes an invention, patent, trade secret, trademark, trade name, copyright, or industrial design. As a membership is not intellectual property, it would not be zero-rated under this section.

A taxable (other than zero-rated) supply of a membership that is deemed to be made in Canada is subject to the GST at a rate of 7% or HST at a rate of 15% if supplied in a participating province. Again, section 144.1 of the ETA works in conjunction with the rules set out in Schedule IX to the ETA to determine the province in which the supply is made.

For intangible personal property, the general rule is that the place of supply depends on where the "Canadian rights" (Section 1 of Part III of Schedule IX to the ETA defines "Canadian rights", in respect of intangible personal property, to mean that part of the intangible that can be used in Canada. ) given by the intangible may be used. Generally, the supply of intangible personal property is made in a particular province if all or substantially all (90% or more) of the Canadian rights may be used only in that particular province. For example, if intangible personal property may be used only in XXXXX, the supply is considered to be supplied in XXXXX.

Consideration (Under the ETA, "consideration" includes any amount that is payable for a supply by operation of law. When referring to the price of a supply, the legislation refers to "consideration", therefore, for purposes of this letter, we shall use the legislative term.) and Currency[.]

XXXXX is entitled to set its own price and is able to stipulate payment in a currency other than in Canadian currency. Pursuant to section 159 of the ETA, when the consideration for a supply is expressed in foreign currency (e.g., US dollars), the value of the consideration shall be calculated based on the value of the foreign currency in Canadian currency. The determination of the value of the consideration in Canadian currency is made on:

1. the day that GST/HST is payable; or

2. such other day as is acceptable to the Minister.

Consideration expressed in a foreign currency must, therefore, be converted into Canadian currency using either the exchange rate on the day GST/HST is payable or on such other day as is acceptable to the Minister.

GST/HST becomes payable on the earliest of the day on which consideration is paid or becomes due. Consideration generally becomes due on the earliest of the day on which the supplier first issues an invoice for the supply, the date of the invoice and the day the recipient is required to pay the consideration pursuant to an agreement in writing.

The following days are also acceptable for determining the value of the consideration for a supply in Canadian currency: the day the consideration for the supply is paid, the day the foreign currency was acquired and the average rate of exchange for the month in which tax is payable. Enclosed for your further information is GST Memorandum 300-7-10 - Foreign Currency.

NOTE

In your letter, you indicated that you were planning on charging 15% for clients of the Dating Service if the client was a resident of a participating province. If you have charged to or collected from a client an amount as or on account of tax in excess of the tax collectible (for example, charged or collected 15% HST where 7% GST was applicable), you may, under subsection 232(1) of the ETA, within two years after the date the amount was charged or collected,

a) where the excess amount was charged but not collected, adjust the amount of tax charged; and

b) where the excess amount was collected, refund or credit the excess amount to that other person.

A supplier that adjusts, refunds or credits such an amount must issue a credit note for the amount to the purchaser within a reasonable time containing prescribed information. The supplier may then claim a corresponding net tax deduction in its net tax for the reporting period in which the credit note is issued, to the extent that the amount has been included in the supplier's net tax for a reporting period. For more information on the prescribed information to be included in a credit note, see page 36 of the enclosed GST/HST guide, General Information for 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 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.

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
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate