30 December 2002 GST/HST Interpretation 37937 - Web Site Design, Web Site Hosting and Domain Name Registrations

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 Web site design, Web site hosting and domain name registrations. Your facsimile was sent to XXXXX XXXXX and forwarded to us for a response. We apologize for the delay in responding to your request.

From your letter and our telephone conversation XXXXX, it is our understanding that you are a sole proprietor and that you are registered for GST/HST purposes. You provide resident and non-resident clients with Web site design, Web site hosting, and domain name registrations. You do not retain ownership of the Web site designs. All your activities related to designing a Web site, hosting a Web site and registering a domain name are carried out XXXXX. However, the server that hosts the Web sites is located in the U.S.

With regard to domain names, you no longer use the same registrar that you referred to in your facsimile and no longer receive a refund cheque from that registrar. Currently, you bill your client the amount charged by another registrar for the registration of a domain name and indicate an additional amount for XXXXX on your invoice to your client in respect of registering the domain name for the client. This other registrar may be either a resident of Canada or of the U.S.

Interpretation Requested

You wish to know if you are required to charge the GST/HST on supplies of Web site design, Web site hosting, and domain name registration when made to clients that are either residents or non-residents of Canada.

Interpretation Given

Based on the information provided, your supplies of Web site design, Web site hosting and domain name registration are considered by the Canada Customs and Revenue Agency (CCRA) to be supplies of services for GST/HST purposes. We will discuss domain name registration later in this letter.

Pursuant to paragraph 142(1)(g) of the Excise Tax Act (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. Conversely, paragraph 142(2)(g) of the ETA deems a supply of a service, other than a service in relation to real property, to be made outside Canada if the service is, or is to be, performed wholly outside Canada. If a supply of a service is deemed to be made outside Canada, it is not subject to the GST/HST.

Given that all of the activities carried out by you in designing a Web site or hosting a Web site (e.g., programming and maintenance activities) are carried out in Canada, your Web site design and Web site hosting services are deemed to be made in Canada. A supply of a service that is made in the course of a commercial activity in Canada is taxable for GST/HST purposes at the rate of 7% [15% where the supply is made in a participating province (The three participating provinces are Nova Scotia, New Brunswick and Newfoundland and Labrador.)] unless the supply is zero-rated (i.e., taxable at the rate of 0%).

Section 7 of Part V of Schedule VI to the ETA zero-rates a supply of a service made to a non-resident provided none of the exclusions in paragraphs (a) to (h) of the provision apply. For example, the supply of a service made to a non-resident is excluded from zero-rating under this section when the service is rendered to an individual while that individual is in Canada or when 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. "Individual" is defined in subsection 123(1) of the ETA to mean a "natural person" and would include sole proprietorships, trade-persons and professionals acting on their own account. A copy of GST/HST Memoranda Series section 4.5.3, Exports - Services and Intellectual Property is enclosed and it provides further information with respect to the exclusions in section 7 of Part V of Schedule VI to the ETA. Your Web site design and Web site hosting services supplied to non-residents are zero-rated under section 7 of Part V of Schedule VI to the ETA provided that the services do not fall within the above-referenced exclusions.

Please note that it is the supplier's responsibility to verify that the recipient is a non-resident 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.

Where the supply is made in Canada and is not a zero-rated supply, a further analysis with respect to the province in which the supply is made is necessary to determine the appropriate rate of GST/HST. For this determination, the relevant provisions of the ETA are section 144.1 and Part V of Schedule IX to the ETA.

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 of the service is performed in that province. "Canadian element" of a service means the portion of the service that is performed in Canada. Given that all of the portion of a Web site design service that is performed by you in Canada is performed entirely in XXXXX, the supply of the service is subject to the GST at the rate of 7% even if the recipient is located in a participating province.

With respect to your supply of a Web site hosting service, this service is considered to be a supply of a "computer-related service" for purposes of the place of supply rules. The definition of a "computer-related service" is in section 1 of the Place of Supply (GST/HST) Regulations (the "Regulations") and is defined to mean, in part, a service involving the electronic storage of information and computer-to-computer transfer of information. In this case, section 3 of Part IX of Schedule IX to the ETA together with section 10 of the Regulations are the relevant provisions for determining whether the supply of Web site hosting is made in a particular province.

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.

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 (such as Web site hosting) 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. 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 as defined in subsection 123(1) of the ETA.

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.

There are special rules for situations that involve multiple recipients. More information regarding these rules may be found in the enclosed Technical Information Bulletin B-090, GST/HST and Electronic Commerce.

With respect to the registering of domain names, different rules apply depending on whether you are acting as an agent and whether the registrar has to charge GST/HST in respect of the registration of the domain name.

A registrant may make disbursements for expenses incurred in the course of supplying services to their customers. There are occasions, however, when disbursements for expenses are incurred in the registrant's capacity as agent for a particular customer.

When a registrant makes a disbursement for an expense in the course of supplying services to a customer, GST/HST is charged to the customer on the subsequent reimbursement to the extent that GST/HST is payable on the consideration for the services provided by the registrant. The registrant may be eligible to claim an input tax credit (ITC) in respect of the tax paid or payable in respect of the expense provided the conditions for claiming an ITC are met.

However, where a registrant incurs an expense when acting as an agent for a particular customer, no GST/HST is charged on the subsequent reimbursement of the expense and the registrant is not eligible to claim an ITC in respect of the tax paid or payable in respect of the expense. Instead, the customer would reimburse the registrant for the amount of the expense including any tax paid on its behalf. In addition, the customer may be eligible to claim an ITC provided the conditions for claiming an ITC are met.

The enclosed Draft Policy Statement P-182, Determining The Meaning of "Agent" and "Agency" (Draft) addresses the issue of agency. As stated in P-182, the question of agency deals with the relationship between parties when one person (the agent) is used by another (the principal) to perform certain tasks on its behalf. For GST/HST purposes, the CCRA's position is that a person is an agent acting on behalf of another person if the person is an agent at law. It is a question of fact whether an agency relationship exists.

If you are an agent, we consider the registrar to have supplied the registration of the domain name to your customer, and you, as the agent, to have made a supply of services XXXXX to your customer. Therefore, the registrar is responsible for charging and remitting any GST/HST that may apply to the registration of the domain name. You have to charge and account for GST/HST on your service of acting as an agent provided to your customer XXXXX unless the supply of your service is zero-rated. You are not required to account for any GST/HST paid to the registrar by you on behalf of the customer in your GST/HST return. To determine if your service of acting as an agent is taxed at 7% or 15%, please review the discussion above with respect to Web site design.

The service of acting as an agent of a non-resident person is excluded from zero-rating under the provisions of section 7 of Part V of Schedule VI to the ETA. However, section 5 of Part V of Schedule VI to the ETA zero-rates the supply made to a non-resident person of a service of acting as an agent of the person in certain circumstances. Specifically, the service is zero-rated if it is in respect of either a supply to the non-resident that is zero-rated elsewhere in Part V of Schedule VI to the ETA or a supply made outside Canada by or to the non-resident. Therefore, if the domain name registration supplied by the registrar to the non-resident customer is zero-rated or is deemed to be made outside Canada, then your service of acting as agent on behalf of your non-resident customer will be zero-rated.

Where you are not acting as an agent on behalf of your customer in respect of the domain name registration, GST/HST will apply to the total of the consideration you charge your customer XXXXX XXXXX in the same manner as previously described for the supply of your Web site design services. In addition, you may be eligible to claim an ITC for any GST/HST paid by you in respect of the domain name registration provided that the conditions for claiming an ITC are met.

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) 954-7931.

Yours truly,

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