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.
GST/HST Rulings Directorate
Place de Ville, Tower A, 5th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 222719
Business Number: […]
Dear [Client] :
Subject: GST/HST RULING
GST/HST INTERPRETATION
Supplies of digital marketing services made to a non-resident
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the supplies of digital marketing services made to a non-resident. We apologize for the delay in this response.
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 letter and our telephone conversations on [mm/dd/yyyy], we understand the following:
1. You are a sole proprietor operating as […][CanCo]
2. You are registered for GST/HST purposes.
3. You are in the business of providing consultancy services comprised of digital advertising, digital marketing, content marketing strategy and social media services.
4. Currently you have no clients in Canada. Your clientele are non-residents of Canada and located [...][outside of Canada].
5. Your services are performed entirely in Canada online from your location in Ontario.
6. As an example of the agreements pertaining to your services, you provided extracts from a sample contract […] (the Agreement) that [CanCo] entered into with one of your clients, […][NRCo].
7. You (identified in the Agreement as the Consultant) entered into that Agreement with [NRCo] to provide digital marketing support to [NRCo]’s clients as instructed by [NRCo]. [NRCo] is located [...][outside of Canada], as are their clients. Also, neither [NRCo] nor their clients were in Canada when your services were performed. You carried on these activities by electronic means.
8. Furthermore, you have indicated that though all your services are digital in nature, no Canadian businesses or consumers are directly or indirectly targeted online with any of your services.
9. You directed our attention to the following provisions of the above referenced Agreement:
- […][Describes the service conditions].
- […][Outlines the scope of the services]
- […]
- […][Describes pricing and payment conditions].
10. You indicated that you do not create any content for[NRCo]’s clients. The content is provided by [NRCo]’s clients. You review the content and provide advice to [NRCo] ’s clients on how to refine the content. You also provide advice in respect of social media marketing plans such as outlining how often to publish on each social media platform, defining target audiences, and creating a content calendar.
11. You provide training services on digital marketing and social media to [NRCo]’s clients through Zoom.
12. You also provide consultancy services (Services) to other clients (Customers). All your Customers are located outside Canada. The Services are of a similar nature as those provided to [NRCo] or their clients and may differ depending on the needs of your Customers. Further, the Customers have the option to acquire the service separately. Consideration is generally paid based on a monthly fee or a one-time fee.
RULING REQUESTED
You would like to know whether:
1) your supplies of services to [NRCo] pursuant to the Agreement are considered zero-rated advertising services, pursuant to section 8 of Part V of Schedule VI; and
2) whether your other supplies of Services made to non-resident Customers are zero-rated.
RULING GIVEN
Based on the facts set out above, we rule that the supply of services made by [CanCo] to [NRCo] is not zero-rated as a supply of advertising services under section 8 of Part V of Schedule VI.
As noted in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, a ruling provides the Canada Revenue Agency’s (CRA) position on specific provisions of the legislation as they relate to a clearly defined fact situation of a particular person, supported by relevant documentation. As the circumstances are such that all of the pertinent facts cannot be established at this time, we are unable to provide a ruling with respect to your other supplies of Services made to non-resident Customers because specific information has not been provided. We have therefore provided an interpretation which can be found following the Explanation section.
EXPLANATION
In general, supplies of property or services made in Canada are taxable supplies and are subject to the GST/HST, unless they are specifically identified as exempt. Schedule V of the ETA lists exempt supplies, which are not subject to the GST/HST. Schedule VI of the ETA lists zero-rated supplies, which are considered to be taxable supplies, but are subject to the GST/HST at the rate of 0%.
Place of supply – Services
Prior to determining if the GST/HST applies to a particular transaction, it is necessary to establish whether the supply is made in or outside Canada. For purposes of the GST/HST, the general rules for determining whether a supply is made in or outside Canada are set out in section 142.
With respect to a supply of service, paragraph 142(1)(g) provides that a supply of a service 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) deems a supply of a service to be made outside Canada if the service is, or is to be, performed wholly outside Canada.
[CanCo]’s supply of services to [NRCo] is deemed to be made in Canada as the services are wholly performed in Canada pursuant to paragraph 142(1)(g).
Zero-rated advertising services under section 8 of Part V of Schedule VI
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 a supply of a service of advertising made to a non-resident person who is not registered for purposes of the GST/HST at the time the service is performed.
The term “advertising” is not defined in the ETA; however, as described in GST/HST Memorandum 4-5-3, Exports - Services and Intellectual Property, the CRA generally considers an advertising service to be:
(a) a service of creating a message oriented towards soliciting business, attracting donations, or calling public attention in the form of an information notice, a political announcement or other similar communication by any means including oral, written, or graphic statements and representations disseminated by any means, including,
(i) in a newspaper or other publication,
(ii) on radio or television,
(iii) in a notice, handbill, sign, catalogue, or letter, and
(iv) on a billboard or on real property; and
(b) a service directly related to the communication of such a message (e.g., air time on a broadcasting service, space in a publication) where,
(i) the communication service is supplied as part of the supply of a message as defined in paragraph (a) above, or
(ii) the person providing the communication service can demonstrate that, at the time the supply is made, the service is in relation to the supply of a message as defined in paragraph (a) above.
In your case, you do not create the written digital content for [NRCo]’s clients and are not involved in posting the Ads on the social media platform. You are essentially providing advice on creating high quality social media content and marketing plan. Based on our understanding of the facts presented, [CanCo] is not providing a service of creating a set specific advertising message, within the meaning of an advertising service as described under paragraph (a) above. The supply is also not considered to be a service directly related to the communication of a message; therefore, paragraph (b) above does not apply.
As such, your supply of services to [NRCo] is not considered to be a supply of an advertising service and cannot benefit from the zero-rating provision provided for under section 8 of Part V of Schedule VI.
INTERPRETATION GIVEN
There are other zero-rating provisions that may apply to zero-rate [CanCo]’s supply of services to [NRCo] as well as [CanCo]’s supply of Services made to Customers. A supply of a service made to a non-resident person may be zero-rated under Sections 7 or 23 of Part V of Schedule VI.
Section 7 of Part V of Schedule VI is a general provision designed to zero-rate exports of services supplied to non-residents subject to certain exclusions.
More specifically pursuant to section 7 of Part V of Schedule VI, a supply of a service made to a non-resident person may be zero-rated, but not including a supply of
(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.
One of the exclusions is the supply of an advisory, consulting, or professional service. Although such a service is excluded under paragraph (b) of section 7, that supply may nonetheless be zero-rated under section 23 of Part V of Schedule VI.
Section 23 of Part V of Schedule VI zero-rates a supply of an advisory, professional or consulting service made to a non-resident person, but not including a supply of
(a) a service rendered to an individual in connection with criminal, civil or administrative litigation in Canada, other than a service rendered before the commencement of such litigation;
(b) a service in respect of real property situated in Canada;
(c) a service in respect of tangible personal property that is situated in Canada at the time the service is performed; or
(d) 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.
The terms “advisory”, “professional”, and “consulting” are not defined in the ETA. The CRA has set out in GST/HST Memorandum 4.5.3, Exports – Services and Intellectual Property what generally constitutes an advisory, consulting or professional service for purposes of section 23 of Part V of Schedule VI.
The CRA generally interprets an advisory service to mean a service of giving an opinion, or counsel, or of recommending a plan or course of action, while a consulting service refers to a service of providing information, instruction or expert advice; a consultant generally provides services relating to a field of specialized knowledge or training. An advisory or consulting service may address business, management, marketing, data processing, public relations, or other issues or problems faced by the client. However, such service is not considered to include any work that might be undertaken or performed as a result of the plans or recommendations accepted by the client or the advice provided to the client.
A professional service is generally defined in terms of the individual providing the service and refers to a service provided by an individual whose vocation or occupation requires special, usually advanced, education and skills. For purposes of section 23 of Part V of Schedule VI, the service may be provided by a member of a professional association, a professional corporation or a similar body, which is recognized by a statute in at least one province or territory or by one federal body, and which enforces standards of professional practice as well as a code of ethics.
The determination of whether the supply of a service to a non-resident is an advisory, consulting or professional service is based on a question of fact. If the supply of a service made to a non-resident is not an advisory, consulting or professional service or is otherwise excluded under paragraphs (a) to (d) of section 23, it may still be zero-rated under section 7 of Part V of Schedule VI provided none of the other exclusions of section 7 apply.
With respect to the above zero-rating provisions, it is the supplier's responsibility to verify that the recipient of a supply is a non-resident and is not registered for GST/HST purposes prior to zero-rating the supplies.
Please refer to Appendix A of GST/HST Memorandum 4.5.1, Exports – Determining Residence Status, for additional information. Appendix B of this Memorandum describes the documentation that the CRA will usually accept as proof that the recipient is a non-resident person and not registered for purposes of the GST/HST.
DISCLAIMER
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the CRA is bound by the ruling given in this letter provided that: none of the issues discussed in the ruling 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 905-706-8742. Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Teresa Lau
Senior Rulings Officer
Digital Economy Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate
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