10 February 2003 GST/HST Interpretation 37725 - Tax Status of Advertising Services

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your operations. Your letter was received by the Vancouver GST/HST Rulings Centre and forwarded to us for a response. We apologize for the delay in replying to your request.

From the information contained in your letter and from our telephone conversation we understand that you operate a Web site on which you include text and image links that allow users of your site to access the Web sites of various suppliers. When a user links to a supplier's Web site and performs some activity on that site (e.g., register or purchase) you are credited for that activity and receive payment (in the form of either a fee or commission) from a non-resident, who is not registered for GST/HST purposes. The non-resident monitors the flow of traffic to the suppliers' Web sites as a result of the links placed on your Web site. We understand that you have no direct contact with any of the suppliers; all requests to place links on your Web site are made by the non-resident, who provides you with the links. We understand that you are currently not registered for purposes of the GST/HST.

Interpretation Requested

Is GST/HST applicable on the fees payable to you for activities resulting from the placement of links on your Web site.

Interpretation Given

The term "advertising" is not defined in the Excise Tax Act (ETA). However, the Canada Customs and Revenue Agency (CCRA) has provided an explanation as to what is generally considered to be an advertising service for GST/HST purposes in section 4.5.3, Exports - Services and Intellectual Property of the GST/HST Memoranda Series, a copy of which is enclosed for your review. The explanation in this section refers to a service of creating a message and a service directly related to the communication of such a message. Further, the message must be oriented towards soliciting business, attracting donations, or calling public attention in the form of an information notice, a political announcement or other similar communication.

There are occasions when the person 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 received 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.

In your case, you are essentially providing space on a Web site for text or image links that are intended to solicit business for other suppliers. Based on the information provided, this supply is considered to be a service directly related to the communication of a message. As such, your supply to the non-resident is considered to be a supply of an advertising service for purposes of the ETA.

A supply of a service, other than a service in relation to real property, is deemed to be made in Canada if the service is, or is to be, performed in whole or in part in Canada. Given that you are carrying out activities (e.g., maintenance of your Web site) in Canada that are part of the provision of the advertising service to the non-resident, your supply of the advertising service is performed in whole or in part in Canada. Therefore, your supply of the advertising service is deemed to be made in Canada.

A supply of an advertising service that is made in the course of a commercial activity is a taxable supply for GST/HST purposes. Based on the information provided, it appears that you are providing the advertising service in the course of a commercial activity. Therefore, your supply of the advertising service to the non-resident person is a taxable supply.

When a supplier makes a taxable supply of a service that is deemed to be made in Canada, the supplier is required to collect the GST at the rate of 7% (or the HST at 15%, where the supply is deemed to be made in the participating province of Nova Scotia, New Brunswick or Newfoundland and Labrador) on the value of the consideration for the supply unless the supply is zero-rated (i.e., a supply taxed at a rate of 0%). A supply of an advertising service that is made in Canada, to a non-resident person who is not registered for purposes of the GST/HST, is a zero-rated supply pursuant to section 8 of Part V of Schedule VI to the ETA. As such, your supply of the advertising service to the non-resident person is taxed at 0%.

It is the supplier's responsibility to verify that the recipient of a supply is a non-resident person and not registered for purposes of the GST/HST. For your information, we have enclosed GST/HST Memoranda Series section 4.5.1, Exports - Determining Residence Status. Appendix B of this Memorandum describes the documentation that the CCRA will generally accept as proof that the recipient is not resident in Canada and not registered.

It should be noted that every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada must register for the GST/HST except where, among other things, the person is a small supplier. Generally, a person qualifies as a small supplier during any calendar quarter and the following month if the total value of the consideration for world-wide taxable supplies, including zero-rated supplies, made by the person (or an associate of the person at the beginning of the particular calendar quarter) that became due, or was paid without becoming due, in the previous four calendar quarters does not exceed $30,000.

There is an exception to this rule. Generally, a person ceases to be a small supplier at any time in a calendar quarter if the total value of the consideration that becomes due, or is paid without having become due, in that quarter for world-wide taxable supplies made by the person, or an associate of the person at the beginning of the calendar quarter, exceeds $30,000. In this case, the person ceases to be a small supplier immediately before the consideration becomes due or is paid for the particular taxable supply that puts the person over the $30,000 threshold. Both of these calculations exclude consideration attributable to the sale of goodwill of a business, supplies of financial services, and supplies by way of sale of capital property. Small suppliers may voluntarily register for the GST/HST. For more information on small suppliers, voluntary registration, and required registration, please refer to the enclosed guide General Information for GST/HST Registrants.

Please note that if the total consideration payable to you by the non-resident in respect of the advertising services exceeds $30,000 Canadian in any four consecutive calendar quarters or in any one calendar quarter, you will be required to register for GST/HST purposes. In this case, registration is required even if you are only making zero-rated supplies.

Generally, a GST/HST registrant is eligible to claim input tax credits (ITCs) for the GST/HST paid or payable on goods and services acquired or imported by the registrant for consumption, use or supply in its commercial activities. These ITCs permit the registrant to recover the GST/HST paid or payable on goods and services to the extent that it relates to taxable (including zero-rated) supplies of goods and services made by the registrant. As such, if you are registered for the GST/HST, you may be entitled to claim ITCs to recover any GST/HST paid or payable in the course of providing the zero-rated advertising services. For more information on ITCs, please refer to the enclosed guide, General Information for GST/HST Registrants.

We have also enclosed for your perusal, the GST/HST Technical Information Bulletin B-090, GST/HST And Electronic Commerce. This bulletin provides further information on the application of GST/HST to supplies made by electronic means.

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) 952-8530.

Yours truly,

Dwayne Moore
Electronic Commerce Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate