23 January 2003 GST/HST Ruling 37297 - On-line Consultations on Health Matters 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 of on-line consultations on health matters made via the Internet.

Statement of Facts

Our understanding of the facts is based on the information contained in your facsimile, my telephone conversation XXXXX with your accounting manager, XXXXX, and a copy of the sample contract and other background documents he submitted to XXXXX.

1. XXXXX ("the Company") is located in Canada and is registered for purposes of the GST/HST XXXXX.

2. The Company operates a Web site whereby clients worldwide are able to access XXXXX physicians and consultants (all hereinafter referred to as "consultants") XXXXX who prescribe treatments for various health ailments.

3. A client seeking treatment for a particular ailment registers with the Company's Web site XXXXX. The client can access names and biographies of consultants maintained on the site.

4. The client selects a consultant that specializes in the treatment of his/her particular ailment. The client can either e-mail the consultant using the on-line e-mail program available on the site, or book a live on-line chat session with the consultant (a chat room session is 1/2 hour in duration, and more than one session can be booked in succession). There is no fee payable by the client for any communication by e-mail, but there is a consultation fee payable to the Company for the on-line chat session.

5. The consultation fee is a composite of two amounts: the amount that the consultant charges the Company for his/her time (specified in a separate agreement between each consultant and the Company), and an amount that the Company adds as a mark-up which it retains to cover its costs and as profit. The client is not aware of the make-up of the consultation fee.

6. Normally, the consultant prescribes proprietary herbal medicines or supplements (hereinafter referred to as "supplements") for the client as treatment for his/her ailment. The client orders the supplement from the Company's Web site and pays an amount to the Company for that supplement. In addition, supplements may be purchased from the Web site by a client without prior consultation with a consultant.

7. The amount payable for the supplement is posted on the Company's Web site. Similar to the consultation fee, the amount is composed of two parts: the cost of the supplement specified by the consultant in his/her agreement with the Company, and an amount the Company adds as a mark-up to cover its costs and as profit. The client is not aware of the make-up of the amount charged for the supplement.

8. The supplement is prepared by the consultant in XXXXX. The supplement is delivered, or made available, by the consultant to the Company outside of Canada. The Company arranges for a shipper to pick-up the prepared supplement from the consultant and deliver it to a central agency in XXXXX.

9. The supplement is subsequently delivered or made available by the Company to the client outside of Canada. The Company arranges for the supplement to be sent to the client by courier on behalf of the client.

10. Courier charges for the shipment of the supplement are incurred directly by the client. The courier company clears the supplement through Customs; paying any applicable taxes and duties on behalf of the client who is the importer of record. These costs are then recovered by the courier from the client.

11. Every consultant is required to sign a contract with the Company. The contract governs the provision of the consultation services and supplements as well as the payment of fees by the Company to the consultants.

12. The sample contract submitted for our review contains provisions which speak to the nature of the relationship between the parties, the responsibility of each under the contract, the billing and invoicing procedures, as well as the duration of the contract and any rights arising upon termination of the contract.

13. In XXXXX the sample contract it states that the "... XXXXX"[.] Furthermore, the contract provides that nothing contained in the contract shall be construed to create the relation of principal and agent or employer and employee, between the Company and the consultant.

14. XXXXX the agreement sets out the responsibilities of the Company to the consultant and vice-versa, including the following:

XXXXX

•   XXXXX

•   XXXXX

•   XXXXX

•   XXXXX

•   XXXXX

•   XXXXX

•   XXXXX

•   XXXXX

15. XXXXX the contract sets out the terms for billing and payment:

•   XXXXX

•   XXXXX

16. All of the activities carried on in Canada by the Company (e.g., maintenance of the Web site and platform for on-line consultations) in performing the consultation service are carried out in XXXXX.

Ruling Requested

Is the Company required to charge the GST/HST on either the consultation fees or the amounts charged for supplements that are payable to the Company by its clients.

Ruling Given

Based on the facts set out above, we rule that:

1. The Company's supplies of consultation services are taxable supplies made in Canada and are subject to the GST at 7% when provided to residents of Canada and zero-rated (i.e., taxable at 0%) when supplied to non-residents pursuant to section 23 of Part V of Schedule VI to the Excise Tax Act (the "ETA"); and

2. The Company's supplies of supplements are supplies made outside Canada and therefore the Company is not required to collect the GST/HST in respect of these supplies.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Explanation

Pursuant to subsection 123(1) of the ETA, a " recipient of a supply of property or a service means ... where consideration for the supply is payable under an agreement for the supply, the person who is liable under the agreement to pay that consideration ... ."

It is our opinion that the Company is the recipient of the consultation services and the supplements pursuant to its agreement with the consultant. That is, the Company is liable under the agreement between it and the consultant to pay consideration in respect of consultations performed and supplements provided by the consultant to the Company during a particular calendar month.

Furthermore, the Company, in turn, is making supplies of consultation services and supplements to the clients. The Company invoices the clients for the consultation services and supplements, the invoiced amounts include the initial cost (i.e., the amount charged by the consultant) and a mark-up that the Company adds to offset its expenses and to retain as profit.

Subsection 142(1) of the ETA deems a supply of a service (other than a service in relation to real property) to be made in Canada if "... the service is, or is to be, performed in whole or in part in Canada." The Company is carrying out activities (e.g., maintenance of the Web site and platform for on-line consultations) in Canada that are part of the provision of its consultation services. The fact that these activities are carried out in Canada means that consultation services provided by the Company are performed in whole or in part in Canada. As such, the supply of the consultation services by the Company to the clients are taxable supplies that are made in Canada.

A supply of a taxable service that is deemed to be made in Canada is subject to the GST at the rate of 7% or the HST at a rate of 15% if the service is made in a participating province (i.e., Nova Scotia, New Brunswick, or Newfoundland and Labrador). Based on the information provided, consultation services supplied by the Company to the clients are not considered to be made in a participating province. Therefore, the Company will only be required to charge the GST at a rate of 7% on its supplies of consultation services, even where a client is located in a participating province, unless the supply is zero-rated.

Consultation services supplied by the Company to non-resident clients are zero-rated (i.e., taxed at a rate of 0 %) under section 23 of Part V of Schedule VI to the ETA. Under this provision, a supply of an advisory, professional or consulting service made to a non-resident person is zero-rated provided the supply is not specifically excluded. Note, none of the exclusions apply to the consulting services provided by the Company. It is the supplier's responsibility to verify that the service is provided to a non-resident person. For more information, we have enclosed section 4.5.1, Exports - Determining Residence Status of the GST/HST Memoranda Series.

The supplies of the supplements by the Company are considered to be supplies of tangible personal property (TPP). Pursuant to subsection 142(2) of the ETA, a supply of TPP made by way of sale is deemed to be made outside Canada, where the property is, or is to be, delivered or made available outside Canada to the recipient of the supply. Given that the facts indicate that the supplements are delivered or made available by the Company to the clients outside Canada, the supplies of the supplements are deemed to be made outside Canada. As such, the Company is not required to collect the GST/HST on the supplies of the supplements to its clients. Note, where the supplements are imported into Canada by clients, these clients will be required to pay the GST/HST on the supplements at the time of importation.

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 & Border Issues Division
Excise and GST/HST Rulings Directorate