9 January 2003 GST/HST Interpretation 40148 - Supplies Delivered 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 delivered via the Internet. Your facsimile was sent to XXXXX and was forwarded to us for a response. We apologize for the delay in replying to your request.

From your letter and Web sites XXXXX, it is our understanding that XXXXX has developed software that allows a customer to set up an online store. XXXXX hosts the software on its servers located in XXXXX. A customer may access one of these two Web sites and sign up as a new user. The customer may then proceed through the steps XXXXX to create an online store and to provide XXXXX with information required for customer billing purposes. After the customer has completed the steps XXXXX, the customer can log back into the software and add products and manage and receive orders.

The customer does not receive any discs and does not download any software. The software is accessed via the Internet and it allows the customer to change prices, add inventory and print reports from any computer with Internet access. XXXXX XXXXX will offer XXXXX a portal service that will provide XXXXX with the ability to create, maintain and conduct limited business through electronic commerce sites. XXXXX also receive a basic listing on the XXXXX. XXXXX

Interpretation Requested

Is XXXXX required to charge GST on supplies of the shopping portal to non-resident customers?

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.

Although all of the information is stored on XXXXX servers and the customer may use XXXXX software to add products and manage and receive orders, the supply XXXXX is essentially the provision of space on its Web sites that allows the customer to place product information to solicit business for the customer. Based on the information provided, this supply is considered to be a service directly related to the communication of a message. As such, the supply XXXXX is considered to be a supply of an advertising service for purposes of the ETA.

Every recipient of a taxable supply made in Canada is required to pay GST/HST in respect of the supply at the GST rate of 7% (or the HST rate of 15% where the supply is deemed to be made in a participating province) on the value of the consideration for the supply unless the supply is zero-rated (i.e., taxed at 0%). The three participating provinces are Nova Scotia, New Brunswick and Newfoundland and Labrador.

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. Conversely, paragraph 142(2)(g) of the ETA deems such a supply of a service 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.

Based on the information provided, the advertising service provided XXXXX is performed in whole, or in part in Canada. The supply would, therefore, be deemed to be made in Canada.

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 purposes of the GST/HST at the time the service is performed. It should be noted that when the non-resident person is registered, this section would not apply. However, where a non-resident person is registered for purposes of the GST/HST at the time the service is performed, the service may still be zero-rated under the provisions of 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 non-resident person is excluded from zero-rating under this section when the non-resident person 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 advertising service is rendered to an individual while that individual is in Canada. The exclusions to section 7 of Part V of Schedule VI to the ETA 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 is not registered for GST/HST purposes. For your information, we have enclosed section 4.5.1, Exports - Determining Residence Status of the GST/HST Memoranda Series for your review. The documentation that the CCRA will generally accept as proof that the recipient of the supply is not resident in Canada is described in Appendix A of this Memorandum and Appendix B describes the documentation that the CCRA will usually accept as proof that a person is a non-resident and not registered for purposes of the GST/HST.

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 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