30 October 2003 GST/HST Interpretation 42753 - Tax Status of Advertising

Please note that the following documents, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ces documents, bien qu'exacts au moment émis, peuvent ne pas représenter la position actuelle de l'Agence.

Dear XXXXX

Thank you for your letter XXXXX (with attachments) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of certain services provided by XXXXX to the XXXXX.

The following information was provided in your letter.

•   XXXXX is a resident corporation engaged primarily in the business of creating, editing and publishing XXXXX magazines. XXXXX is registered for purposes of the GST/HST.

•   XXXXX is a non-resident corporation engaged exclusively in the business of XXXXX. XXXXX does not have a permanent establishment in Canada, does not carry on business in Canada and is not registered for GST/HST purposes.

•   XXXXX entered into an agreement with XXXXX to create, edit and publish a XXXXX magazine XXXXX XXXXX. Under the terms of the agreement, XXXXX is responsible for creating all of the editorial and photography necessary to publish the magazine. Upon completion, XXXXX will deliver the formatted contents of the magazine via diskette to a third party printer in Canada. The third party printer is an un-related Canadian corporation that is registered for GST/HST purposes.

•   Under the terms of the agreement between the third party printer and XXXXX, the third party printer is responsible for printing the XXXXX magazines and distributing the magazine to customers of XXXXX[.] Approximately XXXXX% of the XXXXX magazines created by XXXXX and printed by the third party printer will be placed on the shelves of XXXXX XXXXXin Canada for distribution to XXXXX[.]

All of the XXXXX magazines created by XXXXX and mailed by the printer will be mailed to an address in Canada according to a pre-determined mailing list. XXXXX

•   For their services, XXXXX will charge XXXXX a fee for creating the XXXXX magazine XXXXX XXXXX. Specifically, XXXXX will charge XXXXX a fee for editorial and a fee for photography and artwork. The third party printer will charge XXXXX a separate fee for the printing and distribution of the magazine.

•   The magazine XXXXX is created by XXXXX for the XXXXX in Canada. The magazine is designed to provide XXXXX and XXXXX that are XXXXX. The magazine contains feature articles on XXXXX as well as XXXXX.

Interpretation Requested

Whether the services provided XXXXX qualify as zero-rated advertising services, as outlined in section 8 of Part V of Schedule VI to the Excise Tax Act ("the Act")?

Interpretation Given

A taxable (other than zero-rated) supply made in Canada is subject to GST at 7%, or HST at 15% if made in a participating province (New Brunswick, Nova Scotia and Newfoundland and Labrador.

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.

An advertising service is generally considered by the CCRA to be a supply of a service of creating a message oriented towards soliciting business, attracting donations, or calling public attention in the form of an information notice, a political announcement or other similar communication by any means including oral, written, or graphic statements and representations disseminated by any means. An advertising service also consists of a service directly related to the communication of such a message (e.g., air time on a broadcasting service, space in a publication) where the communication service is supplied as part of the supply of a message, or the person providing the communication service can demonstrate that, at the time the supply is made, the service is in relation to the supply of a message.

There are occasions where the person broadcasting or communicating a message will not be the same person creating or supplying the message. Generally, the person supplying the broadcast or communication service will be in possession of the message or will have sufficient information as to the content of the message prior to the supply of the service to know that the message is in the nature of advertising. In these situations, the supply of the broadcast or communication service will be considered to be a supply of an advertising service.

Section 8 of Part V of Schedule VI to the Act zero-rates a supply of an advertising service that is made to a non-resident person who is not registered for purposes of the GST/HST at the time the service is performed. It is the supplier's responsibility to verify that the recipient is a non-resident and, as the case may be, not registered for GST/HST purposes. Appendix A of GST/HST Memoranda Series section 4.5.1, Exports - Determining Residence Status, describes the documentation that the CCRA will generally accept as proof that the recipient of the supply is not resident in Canada and Appendix B describes the documentation that the CCRA will usually accept as proof that a person is a non-resident and not registered for purposes of the GST/HST

Based on the information provided, XXXXX is making a supply of an advertising service to XXXXX by creating a message oriented towards XXXXX XXXXX. Therefore, where the advertising service, supplied by XXXXX is supplied in Canada, it is zero-rated pursuant to section 8 of Part V of Schedule VI to the Act.

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