27 January 2003 GST/HST Interpretation 35795 - Supply of Web Site Related Services

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 (the Company) of Web site hosting, Web site design and domain name registration. We apologize for the delay in responding to your request.

Based on the information provided, we understand that:

The Company is located in XXXXX and makes supplies to both residents and non-residents of Canada.

The Company does not retain ownership of the Web sites that it designs.

The supply of domain name registration consists of registering the requested domain names of the Company's customers on their behalf with an accredited domain name registrar. There is no transfer of property rights by the Company to its customers with respect to this supply. A single all-inclusive fee is charged for the service.

Interpretation Requested

You have requested how the GST/HST applies to the supplies made by the Company described above, particularly where those supplies are made to non-residents.

Interpretation Given

Based on the information provided, the supplies of Web site hosting, Web site design and the registering of domain names are considered by the Canada Customs and Revenue Agency (CCRA) to be supplies of services for GST/HST purposes.

A taxable (other than zero-rated) supply of a service that is made in Canada is taxable at the GST rate of 7% or the HST rate of 15% if it is made in the participating province of Nova Scotia, New Brunswick and Newfoundland and Labrador.

Pursuant to paragraph 142(1)(g) of the Excise Tax Act (the ETA), a supply of a service is deemed to be made in Canada if the service is, or is to be, performed in whole or in part in Canada. Conversely, paragraph 142(2)(g) of the ETA deems a supply of a service to be made outside Canada if the service is, or is to be, performed wholly outside Canada. A supplier is not required to collect GST/HST in respect of a supply of a service that is deemed to be made outside Canada.

Whether a service is performed in whole or in part in Canada is a question of fact. A supply of a service is performed at least in part in Canada, and therefore deemed made in Canada, if:

•   the service requires a person to perform a task (i.e., the supplier acts through one or more of its employees), and the person performing or physically carrying out the task is situated in Canada at the time the activity is done;

•   the service includes operations performed by a supplier's equipment (e.g., computer equipment), and the equipment is located in Canada;

•   the supply involves doing something to or with a recipient's equipment by accessing it from a remote location, and the recipient's equipment is located in Canada (however, this does not apply to a service wholly performed outside Canada, where the results are subsequently delivered electronically to a recipient's computers in Canada, e.g., a programming service carried out at the supplier's location outside Canada and e-mailed to a recipient in Canada); or any activity related to the performance of the service is undertaken in Canada.

A supply of a service that is made in Canada may qualify for zero-rating under section 7 of Part V of Schedule VI to the ETA if the supply is made to a non-resident person, provided none of the exclusions of the provision apply. For example, the supply of a service made to a non-resident is excluded from zero-rating under section 7 if the service is rendered to an individual while that individual is in Canada or if the supply is made to an individual who is in Canada at any time when the individual has contact with the supplier in respect of the supply. GST/HST Memoranda Series section 4.5.3, Exports - Services and Intellectual Property is enclosed and provides further information with respect to the exclusions in section 7 of Part V of Schedule VI to the ETA.

It is the supplier's responsibility to verify that the recipient is a non-resident person and to ensure that all of the zero-rating criteria are met. For your information, we have enclosed GST/HST Memoranda Series section 4.5.1, Exports - Determining Residence Status. Appendix A of this Memorandum describes the documentation that the CCRA will generally accept as proof that the recipient is not resident in Canada.

If you are in fact acting as an agent on behalf of your customers with respect to the service of registering domain names, this service would be excluded from zero-rating under section 7 as described above but may qualify for zero-rating under section 5 of Part V of Schedule VI to the ETA. Section 5 zero-rates a supply made to a non-resident person of a service of acting as an agent of the person in respect of a supply to the person that is zero-rated as an export or a supply made outside Canada by or to the person. For instance, if you were to act as an agent of a non-resident customer in obtaining a zero-rated supply of domain name registration or such a supply that is deemed to be made outside Canada, your agent service would be zero-rated.

Whether a person is considered and treated for GST/HST purposes as an agent is based on fact and the principles of law. Generally, the essential qualities of an agency relationship are the consent of both the principal and the agent, the authority of the agent to affect the principal's legal position, and the principal's control of the agent's actions. Based on the information provided, it is unclear to what extent, if any, the Company is acting as an agent on behalf of its customers. A review of all relevant facts and agreements between the parties would be required to make a definitive determination regarding this issue. The enclosed Draft Policy Statement P-182, Determining The Meaning of "Agent" and "Agency" (Draft) provides further information regarding the relevant factors that the CCRA will rely on to determine whether an agency relationship between parties exists in a particular case.

In summary, although the various supplies of services made by the Company are deemed to be supplied made in Canada where they are performed in whole or in part in Canada, the supplies may still qualify for zero-rating if they are made to non-resident customers and all other conditions are met.

Where a taxable (other than zero-rated) supply of a service is deemed made in Canada based on the previously explained place of supply rules, it is necessary to determine the particular province in which the supply is made to determine whether GST at 7% or HST at 15% applies.

Section 144.1 of the ETA deems a supply to be made in a province if it is made in Canada and is, under the rules set out in Schedule IX to the ETA, made in the province. Section 144.1 also provides that a supply made in Canada that is not made in a participating province is deemed to be made in a non-participating province. Paragraph 2(a) of Part V of Schedule IX to the ETA deems a supply of a service to be made in a province if all or substantially all (i.e., 90% or more) of the Canadian element ("Canadian element" of a service means the portion of the service that is performed in Canada.) of the service is performed in that province. Therefore, if the Canadian element of your supply of Web site design or domain name registration is performed entirely in XXXXX, that service is deemed supplied in XXXXX and consequently subject to GST at a rate of 7%.

Section 3 of Part IX of Schedule IX to the ETA provides that, notwithstanding any other Part of Schedule IX, a supply of property or a service is made in a province if the supply is prescribed to be made in the province. A supply of Web site hosting is such a supply as it is considered to be a supply of a "computer-related service". A "computer-related service" is defined in part under section 1 of the Place of Supply (GST/HST) Regulations to mean a service involving the electronic storage of information and computer-to-computer transfer of information.

Subsection 10(1) of the Regulations provides, in part, that when there is to be a single final recipient of a supply of a computer-related service made by a particular supplier, and the recipient acquires the supply under an agreement with the particular supplier or another supplier, the supply is made in a particular province if the final recipient avails itself of the service at a single ordinary location in that province, and either:

•   the particular supplier maintains information sufficient to determine that location; or

•   it is the normal business practice of the particular supplier to obtain information sufficient to determine that location.

If any one of the above criteria is not met, the supply of the Web site hosting service will be made in a particular province if the mailing address of the recipient of the supply is in that province.

For purposes of the Regulations, a "final recipient" in respect of a Web site hosting service means a person who is the recipient of the Web site hosting service and who acquires it otherwise than for the purpose of supplying it to another person. Generally, where consideration for a supply is payable under an agreement for the supply, the person who is liable under the agreement to pay that consideration is the recipient of the supply.

Therefore, where a single final recipient of a Web site hosting service provided by you does not avail itself of the service at a single ordinary location or where the conditions above with respect to information are not met, the determination of the place of supply is based on the mailing address of the recipient. For example, if the mailing address of the recipient of a taxable (other than a zero-rated) supply of Web site hosting is in one of the participating provinces, such as Nova Scotia, the supply is made in Nova Scotia and subject to HST at 15%. If the mailing address of the recipient is in a non-participating province, such as Alberta, the supply is subject to the GST at 7%, unless the supply is zero-rated.

With respect to cases involving multiple recipients, there are special rules that apply which are explained in the enclosed Technical Information Bulletin B-090, GST/HST and Electronic Commerce.

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) 952-8810.

Yours truly,

Patrick McKinnon
Manager
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate