30 January 2002 GST/HST Interpretation 33026 - Application of the GST/HST to Delivery Charges

Dear XXXXX:

Thank you for your letter of September 25, 2000, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to delivery charges.

Based on the information provided in your letter and additional information subsequently provided, our understanding of the facts as follows:

A GST/HST registrant located in XXXXX sells goods for delivery across Canada on terms that are "FOB customer's premises".

The goods sold consist of a wide range of consumer products typically found in department stores and are taxable at 7% GST, 15% HST or zero-rated.

In most cases, the goods will be offered for sale through a Web site maintained by the vendor, and the sales will be concluded through this site.

It is foreseen that most customers will be Canadian residents such that delivery will be made to a place in Canada. However, it is likely that some customers will be non-residents of Canada where the delivery of the goods sold will be made to a place outside of Canada.

Shipment will be made either by mail or courier, depending on the size and weight of the item. In some cases, the customer will be able to choose the means of shipment. For example, by paying an additional premium, the customer will be able to select a particular courier to ensure faster delivery.

The goods and their specific price will be itemized separately on the invoice.

The invoice for the goods will normally include a single "delivery" or "handling" charge that does not relate to a specific good shipped, but rather to the entire shipment of goods (the "global charge"), plus an additional charge for each good calculated as a function of the value of each good sold (the "individual charge").

Interpretation Requested

How does GST/HST apply to the "individual charge" and the "global charge"? With respect to the calculation of tax on the "global charge", should the charge be prorated based on the relative values of the goods taking their different tax status into account and, if so, would the answer be different if the value of either the fully taxable or zero-rated goods constituted an insignificant portion of the total (for example, less than 10%)?

Interpretation Given

Individual charge

Based on the information provided, the registrant would be considered to be making multiple supplies of delivered goods to its customers and would not be considered to be making a separate supply of a freight transportation service in respect of the goods. Each "individual charge" would consequently be considered to be consideration for the single supply of the specific good which it is shown as relating to. The charge would consequently be subject to tax at the same rate as the supply of the specific good, be it 0%, 7% GST, or 15% HST.

A taxable (other than zero-rated) supply made in Canada is taxable at the rate of 7% GST (15% HST if it is made in the participating province of Nova Scotia, New Brunswick or Newfoundland).

Under paragraph 142(1)(a) of the Excise Tax Act (ETA), a supply of tangible personal property (TPP) by way of sale 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. Under paragraph 142(2)(a) of the ETA, a supply of TPP by way of sale is deemed to be made outside Canada if the TPP is, or is to be, delivered or made available outside Canada to the recipient of the supply.

Part V of Schedule VI of the ETA zero-rates the supply of TPP in certain circumstances. For instance, under section 12 of Part V of Schedule VI, a supply of TPP is zero-rated if the supplier sends the property by mail or courier to an address outside Canada. We have enclosed for your further information GST/HST Memoranda Series Chapter 4.5.2 Exports - Tangible Personal Property.

Generally, section 144.1 of the ETA 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. Under section 1 of Part II of Schedule IX, a supply by way of sale of TPP is made in a province if the supplier delivers the property or makes it available in the province to the recipient of the supply.

Global charge

As previously indicated, the "global charge" does not relate to the supply of a specific good, but to the shipment of goods as a whole. In this case, the charge would be considered to be for a separate and single supply of a taxable service.

If a service is, or is to be, performed in whole or in part in Canada, it will be deemed under paragraph 142(1)(g) of the ETA, to be supplied in Canada. A supply of a service is deemed to be made outside Canada under paragraph 142(2)(g) if it is, or is to be, performed wholly outside Canada.

Section 7 of Part V of Schedule VI of the ETA zero-rates the supply of a service to a non-resident person provided that none of the exclusions of the provision apply. We have enclosed for your further information GST/HST Memoranda Series Chapter 4.5.3 Exports - Services and Intellectual Property.

Paragraph 2(a) of Part V of Schedule IX to the ETA deems a supply of a service to be made in a province if all or substantially all of the Canadian element of the service is performed in the 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 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)954-9700.

Yours truly,

Donato Licursi
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate