Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 200417
Business Number: […]
Dear […]:
Subject: GST/HST RULING
Advertising and marketing services
Thank you for your faxes, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) on consideration received for supplies of advertising and marketing services.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
Based on the information provided in your faxes, we understand the following:
1. […] (the Client) is a sole proprietor and is registered for GST/HST purposes.
2. We are in receipt of third party authorization.
3. The Client produces and uploads videos to […][the Internet].
4. The Client has entered into a number of agreements where revenues are earned for advertisements and for brand and product integration within the videos.
5. The agreements provided for our consideration are described below. In addition, you have indicated the Client may enter into similar agreements in the future with various parties that may be resident or non-resident of Canada.
Agreement 1
6. You have provided a copy of […][Agreement 1]..
7. [NonResACo] is a non-resident of Canada that is not registered for GST/HST purposes.
8. [NonResACo ] uses the Client’s videos to attract advertisers/views to raise awareness of the advertiser’s products and services.
9. […].
10. Relevant terms of […][Agreement 1]:
a. The agreement is between the Client […] and [NonResACo ].
b. […].
c. […][direct quote from Agreement 1].
d. […][information about payments].
e. […][Responsibilities of the parties].
Agreement 2
11. On [mm/dd/yyyy], the Client entered into [Agreement 2] with […][NonResBCo].
12. [NonResBCo] […][provides services under Agreement 2] in areas such as advertising opportunities in exchange for a percentage of ad revenue […].
13. [NonResBCo] is a non-resident of Canada and is not registered for GST/HST purposes.
14. The Client is paid by [NonResBCo] for the services supplied to [NonResACo] under […][Agreement 1].
15. Relevant terms of [Agreement 2] are as follows:
[…][direct quotes from Agreement 2]
Agreement 3
16. On [mm/dd/yyyy], the Client entered into an agency agreement with […] (the Agent). The term of the agreement is identified as [mm/dd/yyyy] to [mm/dd/yyyy].
17. The Agent is a non-resident and is not registered for GST/HST purposes.
18. The Agent seeks out brands that are interested in appearing in the Client’s videos. In some cases, the brands are based in the US and in some cases, the brands are based in Canada.
19. None of the agreements with a particular brand have been provided for our review.
RULINGS REQUESTED
You would like to know the following:
1. Is the supply of an advertising service to [NonResACo] under […][Agreement 1] subject to GST/HST and if so, at what rate?
2. Is the payment received [under Agreement 2] from [NonResBCo] as agent of the Client, in respect of the supply of an advertising service to [NonResACo] by the Client subject to GST/HST and if so, at what rate?
3. If the Client enters into an agreement with a Canadian agent, would a payment received from a Canadian agent of the Client, in respect of the supply of an advertising service to [NonResACo] by the Client be subject to GST/HST and if so, at what rate?
4. Is the payment received from the Agent of the Client, in respect of the supply of services to a brand by the Client subject to GST/HST and if so, at what rate?
5. Would a supply of a service made directly by the Client to a Canadian based brand (without an agent) be subject to GST/HST and how would the applicable rate of GST/HST be determined?
RULINGS GIVEN
Based on the facts set out above, we rule that
1. The supply of an advertising service to [NonResACo] under [Agreement 1] is zero-rated (subject to GST/HST at the rate of 0%).
2. The payment received [under Agreement 2] from [NonResBCo] as agent of the Client, in respect of the supply of an advertising service […] made to [NonResACo] [under Agreement 1] by the Client is zero-rated (subject to GST/HST at the rate of 0%).
3. If the Client enters into an agreement with a Canadian agent, a payment received from a Canadian agent of the Client, in respect of the supply of an advertising service […][made under Agreement 1] to [NonResACo] by the Client would be zero-rated (subject to GST/HST at the rate of 0%).
A ruling provides the Canada Revenue Agency's (CRA) position on specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person, and where all of the relevant facts and supporting documentation have been presented in writing. The CRA reserves the right not to issue a ruling where it considers that one would not be appropriate. In this case, we are unable to issue a written ruling for requests 4 and 5, as the information provided is insufficient to provide a determination. Therefore, we are issuing an interpretation, which is a general explanation of the applicable provisions and how the legislation would apply. The interpretation portion of this letter will follow the explanation of the rulings given.
EXPLANATION
Generally, most supplies of goods and services that are made in Canada are taxable supplies subject to the GST/HST unless they are specifically identified as exempt. Taxable supplies include zero-rated supplies (taxed at 0%) which are listed in Schedule VI. Exempt supplies are not subject to the GST/HST and are listed in Schedule V.
Advertising
A supply made by electronic means is characterized as an advertising service where it consists of creating a message (and a service directly related to the communication of such a message) where the message is oriented towards soliciting business or attracting donations, calling public attention in the form of an information notice, political announcement, or other similar communication. An example is provided in Example 11 of GST/HST Technical Information Bulletin B-090, GST/HST and Electronic Commerce.
Based on the facts provided the supplies made by the Client to [NonResACo], as described above, are considered to be supplies of advertising services for GST/HST purposes.
Paragraph 142(1)(g) deems a supply of a service 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 Act deems a supply of a service to be made outside Canada if the service is, or is to be, performed wholly outside Canada.
Under certain conditions, supplies made in Canada to non-resident persons may be zero-rated under Part V of Schedule VI. In particular, section 8 of Part V of Schedule VI zero-rates (taxes at 0%) a supply of a service of advertising made to a non-resident person who is not registered for GST/HST purposes at the time the service is performed.
If the non-resident recipient is registered for GST/HST at the time the advertising service is performed, the service may still be zero-rated under the general zero-rating provision for the export of services found in section 7 of Part V of Schedule VI to the Act. Section 7 of Part V of Schedule VI to the Act zero-rates a supply of a service when made to a non-resident person provided none of the following exclusions of the provision apply:
(a) a service made to an individual who is in Canada at any time when the individual has contact with the supplier in relation to the supply;
(a.1) a service that is rendered to an individual while that individual is in Canada;
(b) an advisory, consulting or professional service;
(c) a postal service;
(d) a service in respect of real property situated in Canada;
(e) a service in respect of tangible personal property that is situated in Canada at the time the service is performed;
(f) a service of acting as an agent of the non-resident person or of arranging for, procuring or soliciting orders for supplies by or to the person;
(g) a transportation service; or
(h) a telecommunication service.
The supply made by the Client to [NonResACo], as described above, is characterized as a service of advertising for GST/HST purposes and is zero-rated.
GST/HST Memorandum 4.5.3, Exports – Services and Intellectual Property, provides additional information on the zero-rating provisions for exported services.
It is the supplier’s responsibility to verify that the recipient is a non-resident and to ensure that all of the remaining zero-rating criteria are satisfied. For more information, please refer to GST/HST Memorandum 4.5.1, Exports – Determining Residence Status. Appendix A of this memorandum describes the documentation that the CRA will generally accept as proof that the recipient is not resident in Canada.
INTERPRETATION GIVEN
Where a taxable supply of a service is made in Canada and the zero-rating provisions described above to not apply, the supply is subject to GST at 5% when it is made in a non-participating province and is subject to HST at the applicable rate when it is made in a participating province. The participating provinces are Ontario, Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland and Labrador.
Whether a supply made in Canada is made in a participating province or non-participating province is determined by section 144.1 and Schedule IX, and where applicable, the New Harmonized Value-added Tax System Regulations (the Regulations). Section 144.1 provides that a supply is deemed to be made in a province if it is made in Canada and is, under the rules set out in Schedule IX, made in the province. Further, under section 144.1, a supply made in Canada that is not made in any participating province is deemed to be made in a non-participating province.
Section 3 of Part IX of Schedule IX 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 under the Regulations.
Under the Regulations, different provincial place of supply rules exist with respect to general services, services in relation to real or tangible personal property and other specific types of services. Generally, we must first consider whether any specific place of supply rule applies in a particular situation. When the more specific place of supply rules for services do not apply, then it is the general place of supply rule for services in section 13 of Division 3 of Part 1 of the Regulations that applies.
Generally, for a service that is in the nature of advertising section 13 of the Regulations described below would apply. For further information on when a specific place of supply rule could apply, please refer to GST/HST Technical Information Bulletin B-103, Harmonized Sales Tax – Place of supply rules for determining whether a supply is made in a province (B-103).
Where the supplier is able to obtain an address in Canada of the recipient, subsection 13(1) of the Regulations generally provides that, subject to sections 14 to 17 of the Regulations, a supply of a service is made in a province if, in the ordinary course of business of the supplier, the supplier obtains an address in the province that is
(a) if the supplier obtains only one address that is a home or a business address in Canada of the recipient, the home or business address in Canada obtained by the supplier;
(b) if the supplier obtains more than one address described in paragraph (a), the address described in that paragraph that is most closely connected with the supply; or
(c) in any other case, the address in Canada of the recipient that is most closely connected with the supply.
Where the supplier is not able to obtain an address in Canada of the recipient, subsection 13(2) of the Regulations provides that, subject to subsection (1) and sections 14 to 17, a supply of a service is made
(a) in a participating province if the Canadian element of the service is performed primarily in participating provinces and
(i) an equal or greater proportion of the Canadian element of the service is not performed in another participating province, or
(ii) if subparagraph (i) does not apply, the tax rate for the participating province is the highest among the participating provinces for which no greater proportion of the service is performed in another participating province; and
(b) in a non- participating province if the Canadian element of the service is not performed primarily in participating provinces.
For more information on determining the province of supply, please refer to GST/HST Technical Information Bulletin B-103.
Obligations and entitlements for GST/HST registrants
Generally, subsection 221(1) requires that every person who makes a taxable supply must, as agent of Her Majesty in right of Canada, collect the tax payable by the recipient in respect of the supply.
Subsection 222(1) deems an amount collected by a person as or on account of tax to be held in trust for Her Majesty in right of Canada until the amount is remitted to the Receiver General or withdrawn under subsection 222(2). Subsection 222(2) provides that an amount may be withdrawn from that trust if the person can offset the amount by an input tax credit (ITC) or other deduction in the net tax calculation of the same reporting period of a GST/HST return filed by the person. A GST/HST registrant is generally eligible to claim ITCs for the GST/HST paid or payable on expenses to make its taxable supplies.
In conjunction with subsection 221(1), subsection 225(1) provides that a person is required to collect tax in respect of any taxable supplies (other than zero-rated supplies) made by the person and account for any tax collectible or collected by the person when determining the person's net tax for a particular GST/HST reporting period of the person.
The net tax for a reporting period is generally the difference between the tax collectible or collected during the reporting period (and all other amounts that must be added to the net tax for the reporting period) and any ITCs that are claimed in the return for the reporting period as well as any other amounts that may be deducted from that net tax and are deducted in the return.
Under subsection 228(1), the person is required to report in a return the net tax for the person's reporting period covered by that return. Where the person's net tax is a positive amount, subsection 228(2) requires the person to remit that amount to the Receiver General, generally not later than the last day for filing the return in question.
Please refer to GST/HST Memorandum 3.1, Liability for Tax, for more information.
A GST/HST registrant who makes taxable supplies, which includes zero-rated supplies, is generally eligible to claim on its GST/HST returns certain GST/HST expenses the registrant incurs, referred to as ITCs.
More specifically, under section 169, ITCs are generally claimable by the registrant to the extent (expressed as a percentage) a property or service was acquired, imported or brought into a participating province for consumption, use, or supply in the course of the registrant's commercial activities (which includes making zero-rated supplies).
Additionally, the registrant must have adequate documentary evidence that the tax was paid or payable, the ITCs must be claimed within the allowable time limits, and the claim must be reasonable under the circumstances.
GST/HST Memorandum 8.1, General Eligibility Rules, and GST/HST Memorandum 8.2, General Restrictions and Limitations, provide additional details on ITCs.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA's interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 902-450-8311. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Allison Fraser
Senior Rulings Officer
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
Email this Content