28 March 2003 GST/HST Interpretation 36966 - Application of the GST/HST to the Supply of Dark Fibre

Dear XXXXX:

This is in response to a letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of dark fibre. For your convenience, I have attached a copy of XXXXX letter.

XXXXX

The query was whether the supply of dark fibre constituted, for GST/HST purposes, a supply of real property, a supply of tangible personal property or the supply of a telecommunication service.

Paragraph (a) of the definition of a "telecommunication service", in subsection 123(1) of the Excise Tax Act (ETA) states that a telecommunication service is "the 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". Paragraph (b) of the definition states that it is the "making available for such emission, transmission or reception telecommunications facilities of a person who carries on the business of supplying services referred to in paragraph (a)".

A "telecommunications facility" is defined as "any facility, apparatus or other thing (including any wire, cable, radio, optical or other electromagnetic system, or any similar technical system, or any part thereof) that is used or is capable of being used for telecommunications".

CCRA considers that dark fibre is capable of being used for the purpose of transmitting a signal and is a "telecommunications facility" as defined in subsection 123(1) of the ETA.

To the extent that the nature of a supply is an exclusive right to use applicable strands of fiber optic cable over a pre-determined route for a fixed period of time (i.e., made otherwise than by way of sale), the CCRA considers that the supplier is "making available a telecommunications facility". Such a supply would be treated as supply of a "telecommunication service" provided it is made by a person who carries on the business of supplying services 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". As a result, when a supply is of a "telecommunication service", as defined in subsection 123(1) of the ETA, the rules specific to telecommunication services will apply to such a supply. For example, there are special rules pertaining to the zero-rating and the place of supply of "telecommunication services".

Nothing in the definition of "telecommunication service" deems such a supply to be either a supply of a service or of property for GST/HST purposes. Consequently, the characterization of the supply of a "telecommunication service" as a supply of property or service will follow the normal rules of characterization and, absent a provision specific to telecommunication services, the normal rules would apply.

Therefore, if a given "telecommunication service" is a supply of making available dark fiber, such a supply would be deemed, pursuant to subsection 136(1) of the ETA, to be a supply of the dark fiber itself provided that the supply is made by way of lease, licence or similar arrangement. To the extent that the fiber is affixed to or embedded in land (such as when it is buried underground), and is designed to stay there for its useful purpose, such fiber may be considered to be real property for GST/HST purposes. However, such a determination would be made on a case-by-case basis in accordance with the definition of real property in subsection 123(1) of the ETA and CCRA's interpretative policy as well as statute law; contract law; common law or the Civil Code of Quebec; and leading jurisprudence of fixtures v. chattels, where applicable. The sale of a "telecommunications facility" is not considered to be a supply of a telecommunication service. If there was a sale of dark fibre, then we would consider the sale to be a sale of real property, subject to the considerations noted above.

We understand that the supplies of IRUs are often made pursuant to contracts which have characteristics of both a sale and a lease. Each contract must therefore be examined on its own merits to be characterized appropriately. The position of the CCRA in respect of leases is that a contract that characterizes itself as a lease is to be considered as such.

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) 952-8815.

Yours truly,

Raymond Labelle
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

Att.