29 January 2003 GST/HST Interpretation 41917 - Supplies Made Via the Internet

Dear XXXXX:

Thank you for your facsimile XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies made by XXXXX via the Internet. Your request was forwarded to us for reply and we apologize for the delay in responding to your request.

From your facsimile, your Web sites (XXXXX) and your telephone conversation XXXXX with Mr. Marcel Boivin and Ms. Anne Kratz of this office, our understanding of the facts is as follows:

•   XXXXX operates as XXXXX and is registered for GST/HST purposes;

•   XXXXX;

•   XXXXX Web sites are hosted on a server located in the U.S.;

•   when XXXXX sign up to access the features of the Web sites, they are given a password and username through which they can access the sites;

•   all of the activities carried out in Canada by XXXXX to make supplies to XXXXX (e.g., maintenance of Web sites and platform for on-line chats) are carried out in XXXXX;

•   the place of negotiation (Section 1 of Part I of Schedule IX to the ETA defines the "place of negotiation" of a supply to be "... the location of the supplier's permanent establishment at which the individual principally involved in negotiating for the supplier the agreement for the supply ordinarily works, or to which that individual ordinarily reports, in the performance of the individual's duties in relation to the activities of the supplier in the course of which the supply is made ...") of the supplies made by XXXXX is in XXXXX;

•   for no charge, XXXXX can register and receive access to the Web site to look for XXXXX, access library resources and information, and post XXXXX;

•   alternatively, XXXXX may pay a monthly membership fee to receive additional features and services such as access to live chat rooms to facilitate XXXXX, tools to build a personal Web page hosted by XXXXX, and interactive contact with XXXXX; and

•   XXXXX offers two options to XXXXX[.]

Option 1

XXXXX can post one XXXXX on the Web site for XXXXX for a set fee.

Option 2

XXXXX can purchase an annual membership which provides members with the right to post unlimited XXXXX on the Web site as well as other features and services such as XXXXX searches, live XXXXX chats, and XXXXX Web pages. A member may choose to only use the XXXXX searches or one of the other features or services made available under the membership and not post any XXXXX. The membership fee varies depending on the number of XXXXX.

XXXXX

Ruling Requested

You have requested a ruling on the tax status of the various supplies described above that are made by XXXXX via the Internet. However, pursuant to section 1.4 of the GST/HST Memoranda Series, a copy of which is enclosed, a ruling can only be issued where clearly defined facts are established. Rulings are issued upon request where the client has presented all the relevant facts such as the nature of the transactions, detailed descriptions of services or property involved, the parties to the transactions and relevant documentation such as invoices, contracts and other pertinent agreements. Where all the relevant facts are not provided, an interpretation may be issued. We are pleased to provide you with the following interpretation.

Interpretation Given

Supplies of single XXXXX postings under Option 1 made by XXXXX via the Internet to XXXXX are considered by the Canada Customs and Revenue Agency (CCRA) to be supplies of advertising services for GST/HST purposes. Supplies of memberships made by XXXXX via the Internet to XXXXX under Option 2 and to XXXXX are considered to be supplies of intangible personal property. We will discuss advertising services and memberships separately.

Advertising services

The term "advertising" is not defined in the Excise Tax Act (ETA). However, the CCRA has provided an explanation as to what is generally considered to be an advertising service for GST/HST purposes in the enclosed section 4.5.3, Exports - Services and Intellectual Property of the GST/HST Memoranda Series. The explanation refers to a service of creating a message and a service directly related to the communication of such a message. In addition, 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 where 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.

Based on the information provided, the supply of a single XXXXX posting made by XXXXX to XXXXX is considered to be a supply of a service directly related to the communication of a message. Given that XXXXX is providing the space to the XXXXX to enable the XXXXX to call public attention to the message that a XXXXX is available, the supply is considered to be an advertising service for GST/HST purposes.

Pursuant to paragraph 142(1)(g) 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. From the information provided, the advertising service is performed in whole or in part in Canada. Therefore, the supply by XXXXX of a single XXXXX posting is deemed to be made in Canada.

A taxable supply (other than a zero-rated supply) of an advertising service made in Canada is subject to the GST at the rate of 7% or HST at the rate of 15% where the supply is made in a participating province (The three participating provinces are Nova Scotia, New Brunswick and Newfoundland and Labrador.). An advertising service that is zero-rated is taxed at a rate of 0%.

Based on the information provided, the supply of a single XXXXX posting by XXXXX is not made in a participating province. As such, XXXXX is only required to collect GST at the rate of 7% on its supplies of single XXXXX postings, even where the XXXXX is located in a participating province, unless the supply is zero-rated.

Section 8 of Part V of Schedule VI to the ETA zero-rates a supply of an advertising service that is made to a non-resident person who is not registered for GST/HST purposes at the time the service is performed. It should be noted that when the non-resident is registered, this section would not apply. However, the advertising service may still be zero-rated under section 7 of Part V of Schedule VI to the ETA. This section zero-rates a supply of a service, such as advertising, made to a non-resident unless it is excluded by paragraphs 7(a) through 7(h) of that section. For example, a supply of an advertising service made to a registered non-resident is not zero-rated when the non-resident is an individual who is in Canada at any time when the individual has contact with the supplier in relation to the supply of the service, or, when the service is rendered to an individual while that individual is in Canada. The exclusions to section 7 are discussed in paragraphs 18-23 of the aforementioned section 4.5.3 of the GST/HST Memoranda Series.

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

In summary, if the recipient of XXXXX supply of a single XXXXX posting is a non-resident, it is necessary to determine if the non-resident is registered for the GST/HST. If the non-resident is not registered, the supply is zero-rated (i.e., taxed at a rate of 0%). If the non-resident is registered, the supply is zero-rated under section 7 of Part V of Schedule VI to the ETA unless it is excluded by paragraphs 7(a) through 7(h). If the supply is excluded by one of these paragraphs, XXXXX supply of the single XXXXX posting to the registered non-resident is subject to the GST at the rate of 7%.

Memberships

Pursuant to subsection 123(1) of the ETA, "membership" for GST/HST purposes "... includes a right granted by a particular person that entitles another person to services that are provided by, ... the particular person and that are not available ... for the same fee or charge, to persons to whom such a right has not been granted ..." Based on the information provided, it appears that the right granted by XXXXX that entitles XXXXX to services and advanced features on the Web site that are not available to others who have not been granted the right meets the definition of "membership" for GST/HST purposes. As such, XXXXX supplies of memberships are supplies of intangible personal property (IPP) for purposes of the ETA.

Pursuant to subparagraph 142(1)(c)(i) of the ETA, a supply of IPP that is not related to real property, tangible personal property or a service is deemed to be made in Canada if the IPP may be used, i.e., allowed to be used, in whole or in part in Canada. Where there are no restrictions regarding the place of use of the IPP, generally, it is considered that the IPP may be used in Canada. For example, where the membership agreement does not specifically restrict the use of the membership to the XXXXX location, or otherwise, the supply of the membership by XXXXX is considered to be made in Canada. However, if the agreement states that the XXXXX may only use the membership in a specific location (e.g., access to the features or services offered through the Web sites can only be obtained from computers located at the XXXXX place of business) and that location is outside Canada, the supply would be considered to be made outside Canada. As such, a non-resident person would not be required to pay the GST/HST in respect of a membership where the use is specifically restricted in the membership agreement to use outside Canada as the supply would be deemed to be made outside Canada.

Given that there is no indication in the information provided that the place of use of a membership supplied by XXXXX is restricted in any manner, it is assumed for purposes of this interpretation that there are no such restrictions. As such, the memberships supplied to XXXXX are considered to be made in Canada as the memberships may be used in Canada. A taxable supply of a membership made in Canada is subject to the GST at the rate of 7% or HST at the rate of 15%. There are no provisions in the ETA that would zero-rate XXXXX supply of a membership. As such, XXXXX supply of a membership to a non-resident XXXXX XXXXX is subject to GST at 7% as the membership may be used in Canada.

It is necessary to determine if the supply of the membership is made in a participating or non-participating province. In this situation, the place of supply rules differ depending on whether the recipient of the membership is an individual (e.g., XXXXX) or a person other than an individual such as a corporation. It should be noted that where the XXXXX is a non-resident, whether an individual or not, XXXXX supply of the membership is subject to GST at 7% as indicated above.

Member is resident of Canada and not an individual

In this case, the supply of the membership is considered to be made in a particular province pursuant to subparagraph 2(d)(ii) of Part III of Schedule IX to the ETA if the place of negotiation is in the province and the membership may be used otherwise than exclusively outside the province. Where there are no restrictions regarding the province in which the membership may be used, it will always be the case that it may be used otherwise than exclusively outside the province where the place of negotiation occurs. Given that the place of negotiation is in XXXXX and there are no restrictions with respect to the place of use of the membership, XXXXX supply of the membership is made in XXXXX and subject to the GST at 7% regardless of the location of the member. For example, XXXXX is required to collect GST at 7% in respect of a supply of a membership made to XXXXX who is a corporation located in New Brunswick.

We have enclosed a copy of Technical Information Bulletin B-078, Place of Supply Rules Under the HST, which provides additional information on determining whether a supply is made in a particular province. For example, if the membership agreement restricted the use of the membership to XXXXX location in Nova Scotia, the supply of the membership would be deemed to be made in Nova Scotia and subject to HST at 15%.

Member is a resident of Canada and an individual

Pursuant to section 6 of the Place of Supply (GST/HST) Regulations, where a supply of a membership is made to an individual and the Canadian rights ("Canadian rights" in respect of IPP means that part of the property that can be used in Canada) in respect of the membership may be exercised otherwise than exclusively in one province, the supply is made in a particular province if the mailing address of the individual is in that province. Where there are no restrictions regarding the province in which the membership may be used, it will always be the case that the membership may be used otherwise than exclusively in one province.

Therefore, where XXXXX supply of a membership is made to XXXXX who is an individual and the individual's mailing address is in a participating province, the supply will be subject to HST at 15%. Otherwise, the supply of the membership is subject to GST at 7%.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, 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 the GST/HST Memoranda Series, do not bind the CCRA 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) 954-7931.

Yours truly,

Anne Kratz
Electronic Commerce Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate