27 January 2003 GST/HST Interpretation 43219 - Application of GST/HST to Products for Export

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) and the XXXXX products delivered to XXXXX that is destined for XXXXX located overseas.

Facts Scenario

A ship's chandler submits a purchase order to a Canadian XXXXX manufacturer for XXXXX. The ship's chandler is billed for the order and XXXXX is delivered by XXXXX manufacturer directly to XXXXX.

As part of its regular business, the ship's chandler typically orders XXXXX for delivery to its Customs Bonded Warehouse (CBW) for future sale to ship's stores. The shipment of product to XXXXX represents a new line of business that the ship's chandler would like to develop.

XXXXX.

Interpretation Requested

We understand that the Excise Duties and Taxes Division of our Directorate and Customs will address the other issues in your request. We are only addressing the following issues regarding the application of GST/HST:

1. The meaning of purchaser vs. recipient for GST/HST purposes.

2. Application of GST/HST to the supply of XXXXX products made by XXXXX manufacturer to the ship's chandler where:

•   XXXXX products are delivered by XXXXX manufacturer to XXXXX and are loaded by XXXXX in military transport planes for direct shipment to overseas points.

•   The XXXXX products are delivered by the XXXXX manufacturer to a CBW (either XXXXX CBW or the ship's chandler's CBW) and designated for delivery as ship's stores.

Interpretation Given

Generally, every recipient of a taxable supply made in Canada is required to pay tax in respect of the supply calculated at the GST rate of 7% (or HST rate of 15% if the supply is made in the participating provinces of Nova Scotia, New Brunswick and Newfoundland and Labrador) on the value of the consideration for the supply. There is no tax payable where the supply is exempt or where it is taxable at a rate of 0% (zero-rated).

Under paragraph 142(1)(a) of the Excise Tax Act (ETA), a supply of tangible personal property (e.g. XXXXX products) by way of sale is deemed to be made in Canada if the goods are delivered or made available in Canada to the recipient of the supply. Part V of Schedule VI to the ETA zero-rates, in certain circumstances, the supply of goods sold for export.

For GST/HST purposes, the "recipient" of a supply is generally the person who is liable to pay consideration for the supply. The definition of the term "recipient" for GST/HST purpose is found in section 123 of the ETA.

In the scenario described above, there are two supplies being made: a supply of XXXXX products by the XXXXX manufacturer to the ship's chandler, and a re-supply of the same products by the ship's chandler to XXXXX. Both supplies are deemed to be made in Canada and are subject to GST/HST.

The ship's chandler is the recipient of the supply made by the XXXXX manufacturer, whether the XXXXX products are delivered directly to XXXXX or to the ship's chandler, as it is the ship's chandler who orders the XXXXX products from the XXXXX manufacturer and who is liable to pay the manufacturer. XXXXX is the recipient of the supply made by the ship's chandler.

A supply of excisable goods (e.g. XXXXX products) sold for export is zero-rated under the conditions outlined in section 3 or section 12 of Part V of Schedule VI to the ETA.

Section 3 currently provides that a supply of an excisable good is zero-rated where the recipient exports the good in bond. (Please note that there is a proposed amendment to this section. The proposed amendment provides that a supply of an excisable good is zero-rated "if the recipient exports the good without the payment of duty in accordance with the Excise Act or the Excise Act, 2001". It is scheduled to become effective when the new Excise Act, 2001 is implemented.)

Section 12 provides that a supply of tangible personal property is zero-rated if the supplier

(a) ships the property to a destination outside Canada that is specified in the contract for carriage of the property;

(b) transfers possession of the property to a common carrier or consignee that has been retained, to ship the property to a destination outside Canada, by

(i) the supplier on behalf of the recipient, or

(ii) the recipient's employer; or

(c) sends the property by mail or courier to an address outside Canada.

In the scenario described above, the supply by the XXXXX manufacturer to the ship's chandler would be subject to GST/HST and would not be zero-rated. Section 3 is not applicable as the XXXXX products are not exported in bond, and section 12 is not applicable as the XXXXX manufacturer does not ship the property to a destination outside Canada and does not transfer possession of the property to a common carrier that has been retained by the XXXXX manufacturer to ship the property to a destination outside Canada.

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) 954-4291.

Yours truly,

B. Mulinda
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate