16 January 2002 GST/HST Interpretation 37138 - Tax Status of Brokerage Services

Dear XXXXX:

Thank you for your facsimile of August 27, 2001 (with attachments) addressed to Mr. Ed Gauthier and forwarded to me for reply, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to brokerage services.

The following facts were presented in your facsimile:

Scenario 1

•   A non-resident company located in the United States (U.S. Co) sells goods to purchasers, resident in Canada on a duty paid and delivered basis.

•   U.S. Co contracts with a Canadian Customs broker (Broker) to arrange clearance through Canada Customs on their behalf and pay any import duty and/or GST applicable.

•   The Broker charges a brokerage fee to U.S. Co for the service of preparing and submitting the B3 entry.

•   The Broker has no other involvement (other than preparing and submitting the B3 and paying any duties and taxes for U.S. Co) with the ordering, purchasing or payment for the goods being imported.

Scenario 2

•   A non-resident imports goods into Canada for supply to Canadian purchasers. A Broker is engaged to act on behalf of the non-resident with respect to the importation of the goods into Canada.

•   The non-resident person is not registered for GST/HST purposes.

•   The Broker charged the non-resident the 7% GST in respect of the brokerage services provided.

Interpretation Requested

Scenario 1

•   What is the tax status of brokerage services supplied to a non-resident person in respect of "import movements" as described in scenario 1?

Scenario 2

•   Is it possible to credit a U.S. company the GST the Broker charged in respect of the supply of brokerage services for goods imported into Canada in the situation described in scenario 2?

Interpretation Given

Scenario 1

You were inquiring as to whether brokerage services may be considered to be agency services. The Canada Customs and Revenue Agency ("CCRA") issued a draft policy, P-182, Determining the Meaning of "Agent" and "Agency", on June 23, 1995, which identifies those factors that may be used to determine the likelihood of agency. The policy states that, in general terms, the question of agency deals with the relationship between parties when one person (the agent) is authorized to act for another person (the principal).

While determining whether an agency relationship exists is always dependent upon the facts of a particular situation, the CCRA generally considers a person providing brokerage services to be acting as an agent with respect to actions taken on behalf of a client in arranging for the release of goods or in fulfilling other obligations under the laws relating to Customs, in respect of the importation of goods.

The tax status of a supply of services, including a supply of brokerage services, depends on where the supply is made and on the status of the person to whom the supply is being made. A supply of brokerage services is deemed to be made in Canada pursuant to paragraph 142(1)(g) of the Excise Tax Act ("the Act") where the service is, or is to be, performed in whole or in part in Canada. If the service is supplied to a resident, the supply is subject to GST at rate of 7% or HST at a rate of 15% if the supply is made in a participating province. Note that a supply of brokerage services is considered to be made in a participating province if the goods are situated in such a province at the time of their release under the provisions of section 4 of the Place of Supply (GST/HST) Regulations.

If the supply of brokerage services is made to a non-resident, the supply may qualify for zero-rated status (subject to tax at 0%) under section 5 of Part V of Schedule VI to the Act.

Section 5 of Part V of Schedule VI to the Act, provides for the zero-rating of a supply made to a non-resident person of a service of acting as an agent of the person, where the service is in respect of

(a) a supply to the person that is included in any other section of Part V of Schedule VI to the Act; or

([b]) a supply made outside Canada by or to the person.

Consequently, a supply of brokerage services related to the importation of goods and supplied to a non-resident client will be zero-rated under section 5 of Part V of Schedule VI to the Act provided that the supply of agency services is in respect a supply made outside Canada by the non-resident supplier. The rules for determining whether a supply is considered to be made in Canada are found in subsection 142(1) of the Act. For example, where goods are delivered or made available in Canada to the recipient, the supply will be considered to be made in Canada. In the scenario you described, since the goods are being supplied by the non-resident person on a delivered in Canada basis, the brokerage services relating to the importation of the goods into Canada are subject to tax at either 7% or 15%, if the non-resident is either registered for GST/HST purposes or required to be registered.

Where a non-resident person is not registered and is not required to be registered, subsection 143(1) of the Act provides that a supply of goods or services made by such a non-resident is considered to be made outside Canada. Consequently, in the case where the non-resident person is not registered and is not required to be registered, the supply of brokerage services relating to an importation of goods by such a person is zero-rated under the provisions of section 5 of Part V of Schedule VI to the Act, irrespective of where the goods are delivered or made available.

Where brokerage services are supplied to a non-resident person in respect of an "export movement" of goods from Canada, the supply of agency services made to a non-resident would qualify for zero-rated status if the supply of the goods to the non-resident is a zero-rated supply under the provisions of Part V of Schedule VI to the Act or if the supply is considered to be made to the non-resident outside Canada. For example, under the provisions of subsection 142(2) of the Act, a supply of goods by way of sale is considered to be made outside Canada if the goods are delivered or made available outside Canada to the recipient.

Scenario 2

As noted above, the supply of brokerage services in relation to an importation of goods qualifies for zero-rated status under the provisions of section 5 of Part V of Schedule VI to the Act, where the services are in respect of a supply of the goods by the non-resident person that is considered to be made outside Canada. A supply of goods by a non-resident person who is not registered and is not required to be registered for GST/HST purposes is considered to be made outside of Canada. While it is clear that the non-resident person was not registered in the situation described in scenario 2, it is not clear whether the person was required to be registered for GST/HST purposes.

If the non-resident was not required to be registered for GST/HST purposes, the supply of brokerage services would qualify for zero-rated status under the provisions of section 5 of Part V of Schedule VI to the Act. A Broker who has charged or collected GST in error in respect of such services may make an adjustment or refund of the tax under the provisions of section 232 of the Act.

If the non-resident was required to be registered, then the supply of brokerage services, in respect of goods that were imported and considered to be supplied in Canada by the non-resident, is subject to tax at 7% or 15% if the supply is made in a participating 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) 952-6743.

Yours truly,

Cheryl R. Leyton
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate