8 May 2002 GST/HST Interpretation 37042 - Supply of Telecommunication Services

Dear XXXXX:

Thank you for your facsimile of August 7, 2001, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) with respect to the supply of telecommunication services. We apologize for the delay in our response.

Please note that all legislative references are to the Excise Tax Act and regulations thereunder, unless otherwise specified.

You have previously written to the Provincial Treasury of XXXXX and were informed in writing that XXXXX would charge their XXXXX provincial revenue (sales) tax on any telecommunication service that is billed to a XXXXX subscriber on the GST included amount. Please note that we are unable to comment with respect to the XXXXX provincial tax referred to in your facsimile.

Interpretation Requested

You would like to know if the provincial portion of the HST applies to a long distance telephone call made from City A in XXXXX to City B in XXXXX XXXXX, but billed to a subscriber in XXXXX. If the HST is applicable, you would also like to know if there is a statute or policy that allows for a tax reimbursement since XXXXX also collects its tax, and whether it is the customer or telephone company who is reimbursed in such a case.

Interpretation Given

The supply of a long distance telephone call is a supply of a "telecommunication service" pursuant to paragraph (a) of the definition included in subsection 123(1). A "telecommunication service" is defined, in part, as a service of emitting, transmitting or receiving signs, signals, writing, images or sounds or intelligence of any nature by wire, cable, radio, optical or other electromagnetic system, or by any similar technical system.

Generally, the GST/HST applies to the consideration paid or payable for taxable supplies that are made in Canada, or deemed to be made in Canada, unless a legislative provision specifically exempts the supply. Section 165 imposes on every recipient of a taxable supply the obligation to pay tax in respect of that supply. Taxable supplies, other than zero-rated supplies, made in Canada are subject to the GST at a rate of 7% when made in a non-participating province, and to the HST at the rate of 15% when made in a participating province (New Brunswick, Nova Scotia, or Newfoundland and Labrador).

When looking at place of supply rules, we must first determine whether the telecommunication service is being provided in Canada by looking at section 142.1. Paragraph 142.1(2)(b) provides that the telecommunication service is considered to be supplied in Canada when the telecommunication is both emitted and received in Canada or is either emitted or received in Canada and the billing location is in Canada. Given that the telecommunication service in your example is emitted and received in Canada, the telecommunication service is considered to be supplied in Canada.

Once the supply has been deemed to be made in Canada, we must then determine if the supply is made in a participating province. 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. Furthermore, a supply is deemed to be made outside the province in any other case and a supply made in Canada that is not made in any participating province is deemed to be made in a non-participating province.

Pursuant to paragraph 2(b) of Part VIII of Schedule IX, a supply of a telecommunication service, other than a service of making telecommunications facilities available or of granting sole access to a telecommunications channel, is considered to be made in a particular province if

•   the telecommunication is both emitted and received in that province;

•   the telecommunication is either emitted or received in that province, and the billing location for the service is located in that province; or

•   the telecommunication is emitted in the province and received outside the province, and the billing location for the service is not in a province where the telecommunication is emitted or received.

Therefore, where a long distance telephone call is made from City A in XXXXX XXXXX to City B in XXXXX and billed to a subscriber in XXXXX, the HST will apply to the call pursuant to paragraph 2(b) of Part VIII of Schedule IX as the call is both emitted and received in XXXXX, a participating province.

In this circumstance, there is no statute or policy allowing for a tax reimbursement for the provincial component of the HST in respect of the long distance telephone call.

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)952-9588.

Yours truly,

Doris Rist
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate