5 June 2003 GST/HST Interpretation 41495[2] - Outbound Postage and Handling Service Charges

Dear XXXXX:

Thank you for your letter XXXXX and your facsimiles of XXXXX to our XXXXX Tax Services Office and the facsimile XXXXX to our office concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to outbound postage and handling services. Your request was transferred to us for response. We apologize for the delay in providing you with this interpretation.

The following information and scenarios were provided in your letter, facsimiles and our telephone conversations:

1) XXXXX (the Company) is a registrant XXXXX. The Company's website XXXXX indicates that it is in the business of XXXXX

a) XXXXX

b) XXXXX

c) XXXXX

2) The Company has many locations in Canada from which it distributes statements and other documents (Items) by mail, on behalf of its clients, directly to their customers;

3) The Company charges a fee for postage and handling for each Item distributed by mail based on the unit price charged by XXXXX plus a mark-up;

4) The Company currently applies GST/HST on all postage and handling charges, regardless of where the Items are delivered;

5) A number of Items are mailed to addresses located outside Canada;

6) The sum of each billing line related to US or foreign postage and handling always exceeds $5;

7) The Company invoices its clients monthly and each billing line indicates the quantity of an Item delivered multiplied by the unit price. Each billing line details the Item's weight, whether the Item's destination is foreign or domestic, and the item's unit mailing price;

8) The Company records the volume of mail for distribution from its various distribution hubs and enters the data in XXXXX. The XXXXX are then forwarded for approval to XXXXX. An invoice is issued to the Company on a regular basis (monthly) based on the approved amounts indicated on the XXXXX. All the documents, including invoices, provided by XXXXX indicate a bulk volume for domestic mail and a bulk volume for foreign mail broken down per weight category;

9) XXXXX do not charge the Company the GST/HST on the postage and handling charges related to Items delivered outside of Canada;

10) The Company has submitted two sample invoices, which provide details on XXXXX.

(a) XXXXX include:

i) Printing of Statements;

ii) Insertion/enclosure of Statement related documents and/or client information materials;

iii) Mail preparation;

iv) Delivery or electronic presentation of statements to the designated distribution point; and

v) Sourcing and warehousing of stationery.

(b) XXXXX includes:

i) Mail preparation (e.g., application of postage);

ii) Delivery or electronic presentation of statements to the designated distribution point.

11) The first invoice, Invoice No. XXXXX, has 19 pages and is dated XXXXX (for the period of XXXXX to XXXXX). The charges in question are on pages 8 and 9 of the invoice and the nature of the charges refer to XXXXX of the XXXXX business unit.

(a) Invoice No.XXXXX is divided by category: XXXXX.

(b) All charges are totaled together on the final page of the invoice under the billing line XXXXX.

12) The second invoice, Invoice No. XXXXX, has two pages and is dated XXXXX (for the period of XXXXX to XXXXX). The charges in question on this invoice do not reflect any actual processing work other than the administrative duties of collecting statements of mail from the Company's client or from a mailing house for delivery. The client is billed by the company for the postage and handling .

(a) Invoice No.XXXXX reflects various domestic, US and foreign postage and handling charges subdivided by weight.

(b) All charges are totaled together on the final page of the invoice under the billing line XXXXX.

13) The services described in fact No. 10 XXXXX may be supplied either individually or as a group. For instance, the company is at times hired to apply postage on Items produced by another person and to subsequently deliver the Items to XXXXX for delivery.

As discussed, we are unable to issue a ruling with regard to your general enquiry as rulings can only be issued with regard to a clearly defined fact situation of a particular person. However, we are pleased to provide you with the following interpretation.

Interpretation Requested

1) You would like clarification regarding the applicability of GST/HST on outbound postage and handling services related to the XXXXX.

2) You are also requesting details about the $5 threshold set out in section 6 of Part VII of Schedule VI to the ETA. Specifically you would like to know if a postage and handling charge is zero-rated where the unit price is under $5 but where the total billing line (Quantity x Unit Price) exceeds $5.

3) Lastly, where GST/HST has been incorrectly charged and remitted what is the proper procedure to obtain a refund/adjustment?

Interpretation Given

Applicability of GST/HST on outbound postage and handling services related to XXXXX.

A supply of a freight transportation service in respect of the transportation of an Item from a place in Canada to a place outside Canada is zero-rated (taxed at 0%) where the value of the consideration for the supply is $5 or more pursuant to section 6 of Part VII of Schedule VI.

The definition of a freight transportation service in subsection 1(1) of Part VII of Schedule VI to the ETA provides that a freight transportation service means a particular service of transporting tangible personal property and, for greater certainty, includes

(a) a service of delivering mail, and

(b) any other property or service supplied to the recipient of the particular service by the person who supplies the particular service, where the other property or service is part of or incidental to the particular service, whether there is a separate charge for the other property or service, but does not include a service provided by the supplier of a passenger transportation service of transporting an individual's baggage in connection with the passenger transportation service.

Where the facts demonstrate that the Company is contracted to supply the service of applying postage to an Item that is prepared by another person, and the company subsequently delivers the Item to XXXXX for distribution XXXXX, the Company would be considered to be supplying a freight transportation service. Where the Company provides handling services e.g. loading, unloading, etc. with the postage, the handling services would be considered part of the freight transportation service if they are reasonably necessary for or incidental for the Item's transportation. For your information, enclosed please find two policy statements that address this issue Policy P-159R Meaning Of The Phrase "Reasonably Regarded As Incidental" and Policy P-160 Meaning Of The Phrase "Where A Particular Property Or Service Is Supplied Together With Any Other Property Or Service".

With this said, where the Company is contracted to supply postage and handling (or just postage for that matter) as part of XXXXX e.g., printing of statements, enclosure of the statements, insertion of other documents, and postage and handling, it is likely that the Company is supplying a single supply of a processing service. In such a case, the postage and handling is considered an input into the overall processing service and would take on the same tax status as the service, notwithstanding the destination of the Item. Generally, a service is taxable at 7% or 15% if it performed in whole or in part in Canada.

CCRA Policy P-077R - Single and Multiple Supplies provides factors and guidelines to consider in determining whether a supply is a single supply or multiple supplies. According to this policy, the single supply/multiple supplies analysis is invariably a question of fact. Therefore, to determine whether a transaction comprises a single supply or multiple supplies, one should analyze its form and substance. Such an analysis should focus on the interrelationships among the various constituent elements to determine whether each element is autonomous or an integral part of a composite whole. For your reference, a copy of Policy Statement P-077R - Single and Multiple Supplies is enclosed.

Is Postage and Handling zero-rated where the unit price is under $5 but where the total billing line (Quantity x Unit Price) exceeds $5.

It is the CCRA's position that where the service is a freight transportation service, commercial Items are identified on a single XXXXX or an invoice, are all destined for outside Canada (international outbound freight), and are being mailed from a single shipper/customer, the CCRA will consider that to be a single supply of an outbound freight transportation service. Where the total consideration for that supply is $5 or more, the supply will be zero-rated as per section 6 of Part VII of Schedule VI to the ETA.

A freight transportation service from inside Canada to outside Canada will be zero-rated as per section 6 of Part VII of Schedule VI to the ETA if it is in respect of the transportation of tangible personal property where the total consideration of that freight transportation service is $5 or more even if the XXXXX or an Invoice that has both domestic and international destined freight transportation services.

Where GST/HST has been charged and remitted in error, what is the proper procedure to correct the error?

You requested additional information concerning tax collected and remitted in error. Please note that subsection 225(1) of the ETA requires any amounts collected in a reporting period as tax in error to be included in a person's net tax for the reporting period.

However, subsection 232(1) of the ETA provides that where a person has charged or collected an excess amount as or on account of tax, it may refund or credit the excess amount to its customer. A supplier has up to two years from the day the excess amount was charged or collected to make the refund or adjustment. Where the supplier chooses to take this action, then pursuant to subsection 232(3) of the ETA, the supplier must, within a reasonable time, issue a credit note to the recipient for the amount of the refund or credit unless the recipient issues a debit note containing prescribed information for the amount. The credit or debit note must contain the information required pursuant to the Credit Note and Debit Note Information (GST/HST) Regulations (copy enclosed). Generally, this will include the following information:

1. A statement or other indication that the document in question is a credit note or a debit note;

2. The name or trading name and Business Number of the Company or that of an intermediary;

3. The name or trading name of the recipient or the name of the recipient's agent or representative;

4. The date the note was issued; and

5. The amount of the adjustment, refund, or credit of tax for which the note is issued.

If the Company adjusts, refunds or credits an amount as or on account of tax to a customer under subsection 232(1) of the ETA, the Company may only claim a deduction, for the amount as or on account of tax adjusted, refunded or credited, in the reporting period of the Company in which the credit is issued or the debit note is received. A customer that claimed an ITC or a rebate for the amount adjusted, refunded or credited is required to add the amount in calculating the customer's net tax, or to repay the amount of the rebate.

If the Company does not refund or credit the amounts it collected as tax in error from its customers, the customers may apply for a rebate under section 261 of the ETA. Section 261 provides that where a person pays or remits an amount as or on account of tax, net tax, penalty or interest that is later found not to be payable or remittable, the person may claim a rebate of that amount within two years from the day the amount was paid or remitted. Thus, in the event that this situation arises, the Company could advise its customers who have paid an amount as tax in error to apply for a rebate using application GST189, General Application for Rebate of Goods and Services Tax (GST)/Harmonized Sales Tax (HST). The time limit to apply for such a rebate is two years after the day the amount was paid by the person.

In the case where the Company decides not to adjust, refund or credit the amount as or on account of tax to a customer, the Company is not entitled to claim a deduction for the amount, and the customer is not required to add the amount to its net tax nor repay a rebate.

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