12 March 2003 GST/HST Interpretation 41768 - Entitlement to Input Tax Credits (ITCs)

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the scenario described in your letter.

You have indicated that a GST/HST-registered, non-resident supplies goods to its Canadian customers and acts as the importer of record with respect to the importation of the goods. The invoice shows a price "free on board" (FOB) the warehouse in the U.S.A. plus freight and delivery. However, the contract of sale for the goods contains the provision that XXXXX which is in Canada.

The non-resident is required to ship the goods to its customers and will either hire a third party carrier, which it is liable to pay, and, where there is a particularly large order, the registrant will use its corporate-owned trucks as part of the shipping process.

Prices for the goods are shown and paid for in Canadian currency.

You have further indicated that it is your understanding that the goods are delivered and made available in Canada. It is therefore your view that the goods are supplied in Canada, that the supplier is required to collect tax on the supply of the goods and that that supplier would be entitled to claim an ITC for the tax it pays on the importation of the goods.

Interpretation Requested

You have requested confirmation of your understanding that the non-resident supplier would be entitled to claim an ITC for the Division III tax it has paid with respect to the importation of the goods.

Interpretation Given

As you know, subsection 142(1) of the Excise Tax Act (the Act) provides that a supply by way of sale of tangible personal property is considered to be made in Canada if the property is, or is to be, delivered or made available in Canada to the recipient of the supply. The determination of where goods are considered delivered or made available is based on the applicable sale of goods legislation and all relevant facts and circumstances.

Based on the information provided, the goods appear to have been supplied by the registrant in Canada. Although the customer invoice reflects a price for goods "FOB warehouse" plus freight and delivery, the terms of the agreement for sale appear to be more indicative of an FOB Canada term.

As noted in your letter, where the goods are consequently considered supplied in Canada, the non-resident registrant is required to collect Division II tax applicable to the value of the consideration for the supply of the goods.

In this case, the non-resident registrant, acting as the importer of record, would be entitled to claim ITCs under subsection 169(1) of the Act in respect of the Division III tax paid on the importation of the goods supplied in the course of its commercial activities.

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) 957-8220.

Yours truly,

Kevin W. Smith
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate