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: 203959
Business Number: […]
[Client]:
Subject: GST/HST RULING and GST/HST INTERPRETATION
Application of GST/HST on funds received from crowdfunding
Thank you for your correspondence of [mm/dd,yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) on funds received from crowdfunding. 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
We understand the facts as follows based on your letter, the crowdfunding website […][the Platform], a telephone conversation with your representative, [Representative], on [mm/dd,yyyy], and our telephone conversation on [mm/dd,yyyy]:
1. […][X is a] company based in [Canada] who created […] (the Goods).
2. […][X] is incorporated as a for-profit entity and registered for GST/HST with Business Number […].
3. Funds necessary for the production of [X]’s Goods were raised through [#] projects (Projects) on the crowdfunding website […] (the Platform).
4. Each project on the Platform is independently created […] by the person or team behind it (i.e. [X]). Each [X] has complete control and responsibility over their projects […][including website, pledge amounts and reward related decisions]. […][Supporters (Y) pledge funds to support X’s project] in exchange for a reward such as a copy of […][a product], a limited edition, or a custom experience related to the project. The Platform is “reward-based”.
5. […][Y may] make pledges […] from around the world […] [and will be] charged the amount of their pledges on their credit card and entitled to the corresponding reward.
6. […][Information about Platform fees and payment processing].
7. […].
8. […] of the terms of use of the Platform creates a contract between [X] and […][Y]. […][X, by] posting a project is making an offer and […][Y, by pledging funds to] the project is accepting [X]’s offer and forming that contract. […].
9. […][Information about X’s responsibility with respect to the payment of Platform fees and applicable taxes].
10. […][The Platform does not accept projects with incentives such as equity, revenue sharing and investment opportunities].
11. [X] ran [..] successful Projects. (Footnote 1) […]. The Projects obtained $[…] in pledges[…] .
12. During our telephone conversation on [mm/dd,yyyy] you said GST/HST was backed out of the pledges from Canadian […][supporters, Y] and remitted to the CRA. You also indicated that the funds received from the crowdfunding Projects was recorded as deferred revenue.
13. […][Information on the Platform about the X’s Project and the fulfillment of rewards].
14. The Goods offered as rewards for the Projects are described as […].
15. The pledge amounts ranged from $[…] to $[…]. […][Description of rewards].
16. […][Quote from website]
.
17. The Goods were manufactured [outside Canada], shipped to the [X]’s fulfillment center [outside Canada] and shipped from [[X]’s fulfillment centre] to […][Y].
18. A sample air waybill […] was provided to us. The air waybill shows that a product was shipped from [X]’s [outside Canada] fulfillment centre to […][Y] in Canada. The shipment term indicated is […][Incoterm A].
RULING REQUESTED
You would like to know the following;
1. Is GST/HST applicable to the funds received for the [#] Projects?
2. If GST/HST is applicable:
a. When does the tax become payable?
b. What tax rate should be applied?
We acknowledge your request for rulings on the above matters. However, 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's) position on specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person. As the circumstances are such that all of the pertinent facts cannot be established at this time, we are unable to rule on some of these issues. Rather, we are providing general information which we trust will be of assistance.
RULING GIVEN
Based on the facts set out above, we rule that:
1. The GST/HST is applicable to the funds pledged for the [#] Projects.
EXPLANATION
Ruling #1:
Generally, all supplies of property and services made in Canada are taxable unless an exemption from the GST/HST applies. Taxable supplies are supplies made in the course of a commercial activity and may be taxable at the rate of 0% (zero-rated supplies), 5%, 13%, or 15% on the value of the consideration for the supply depending on the province in which the supply is made. Zero-rated supplies are included in Schedule VI. Exempt supplies are not subject to the GST/HST and are included in Schedule V.
Subsection 123(1) defines key terms as follow:
“Supply” as the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition.
“Property” to mean any property, whether real or personal, movable or immovable, tangible or intangible, corporeal or incorporeal, and includes a right or interest of any kind, a share and a chose in action, but does not include money.
“Service” to mean anything other than property, money, and anything that is supplied to an employer by a person who is or agrees to become an employee of the employer in the course of or in relation to the office or employment of that person.
“Taxable supply” is a supply that is made in the course of a commercial activity.
“Commercial activity” is defined to include a business carried on by a person except to the extent to which the business involves the making of exempt supplies.
Any property that is not real property is either tangible or intangible personal property. While these terms are not defined by the Act, tangible personal property (TPP) may be viewed as including all objects or things that may be touched or seen, and that are movable at the time the supply is made, other than money.
According to the [Platform’s terms of use], a project cannot offer equity. Investment is not permitted and projects cannot offer incentives like equity, revenue sharing, or investment opportunities. Accordingly, the funds raised by [X] through the Projects are not a capital contribution, loan or gift. [Y] made pledges [to X] and […][Y was] charged for the amount of their pledge and were entitled to a “reward” in return.
[X] is a GST/HST registrant and operates a business that is a commercial activity. [X] raised funds necessary for the production of the Goods sold in the business through reward-based crowdfunding. The Goods provided by [X] for the Projects are taxable supplies of TPP per subsection 123(1).
[…] the Platform provides a funding platform for creative projects. When [X] posts a project on the Platform, they’re inviting [supporters, Y] to form a contract with them. […][By making a pledge to support a project, Y] is accepting [X]’s offer, and forming that contract. The Platform is not a part of this contract – the contract is a direct legal agreement between [X] and [Y]. [X] is solely responsible for fulfilling the promises made in their project. If they’re unable to satisfy the terms of this agreement, they may be subject to legal action by [Y].
As [X] is the supplier it is required to account for the tax in the reporting period of the company on the earlier of the day the consideration is paid or becomes payable.
INTERPRETATION GIVEN
Subsection 223(1) imposes disclosure requirements on a registrant who makes a taxable supply. Essentially, where the tax is charged on a tax-extra basis, the registrant must indicate the total amount of tax payable in respect of the supply. Where the tax is included in the amount charged for the supply, the registrant must indicate that the amount charged includes the tax payable in respect of the supply.
As per section 165, GST/HST is calculated on the value of the consideration for the supply. It is a question of fact whether tax has been added to the value of consideration or if the GST/HST is extra.
[…] the Platform’s terms of use require [X] to pay any taxes associated with the use of the platform.
GST/HST Policy Statement P-118R (P-118R), Assessments on a Tax Extra or Tax Included Basis, may provide you with some guidance as to whether GST/HST should apply to the pledge amounts on a tax-included or tax-extra basis. P-118R provides that the determination of whether a tax-extra or tax-included assessment should be made is a question of fact to be resolved by the auditor based on the facts and the circumstances of the particular situation. Factors such as the invoicing practices, industry practices and supporting documentation will be pertinent and used in the determination.
Place of Supply
The GST (or federal part of the HST) is imposed under subsection 165(1) in respect of taxable supplies that are made in Canada. The provincial part of the HST is imposed under subsection 165(2) in addition to the federal part of the HST in respect of taxable supplies that are made in a participating province.
The general place of supply rules for determining if a supply is made, or deemed to be made, in Canada are found in subsection 142(1) of the ETA. Paragraph 142(1)(a) deems a supply of TPP that is, or is to be, delivered or made available in Canada to the recipient of the supply to be made in Canada.
The general place of supply rules for determining if a supply is made, or deemed to be made, outside Canada are found in subsection 142(2) of the ETA. Paragraph 142(2)(a) deems a supply of TPP that is, or is to be, delivered or made available outside Canada to the recipient of the supply to be made outside Canada.
Section 1 of Part II of Schedule IX provides that a supply by way of sale of TPP is made in a province if the supplier delivers the TPP or makes it available in the province to the recipient of the supply. This rule is generally based on the province in which legal delivery of the TPP occurs. However, section 3 of Part II of Schedule IX further provides that TPP is deemed to be delivered in a particular province by a supplier where the supplier either:
(a) ships the TPP to a destination in that province that is specified in the contract for carriage of the TPP or transfers possession of it to a common carrier or consignee that the supplier has retained on the recipient’s behalf to ship the TPP to the destination; or
(b) sends the TPP by mail or courier to an address in that province.
The place where the TPP is delivered or made available may be determined by reference to the place where the TPP is considered to have been delivered under the law of the sale of goods applicable in that case. However, if delivery terms are specified in a contract, then generally, subject to any evidence to the contrary, the place where the TPP is delivered or made available can be determined by reference to the terms of that contract. When an Incoterm has been used in an agreement/purchase order/contract (not necessarily contained within a specific "delivery" clause) in accordance with its intended circumstances (such as set out under Incoterms 2010 or 2020), that Incoterm will generally, subject to any evidence to the contrary, be used to dictate where the TPP is delivered or made available for the purposes of section 142 of the ETA.
[…][For Incoterm], delivery […] is generally regarded as being at the destination specified after the Incoterm, provided the Incoterm is used in accordance with its intended circumstances. Where the […] Incoterm provides a destination [in a province], the place of supply will generally be at that destination. As a result, [X] would be required to collect the GST/HST at the rate applicable to the province if the Goods are to be delivered or made available to the recipient in Canada. If, however, the supply is deemed to be made outside Canada, GST/HST would not be imposed in respect of the Goods.
Timing of Tax Payable
Under section 133, the entering into of any agreement to supply any property is deemed to be a supply of the property made at the time the agreement is entered into. The provision of the property under the agreement is treated as being a part of the same supply and not as a separate supply. As a result, the tax applies to any advance payment or part payment of the consideration for a supply even if, at the time payment is made, property has not in fact been transferred.
As per subsection 168(1), tax in respect of a taxable supply is payable by the recipient on the earlier of the day the consideration for the supply is paid and the day the consideration for the supply becomes due.
Generally, an advance payment is an amount paid on account of a payment to become due under an obligation and recorded in the supplier's books and records as income. The GST/HST is payable at the time the advance payment is made, pursuant to paragraph 152(1)(c), assuming that the advance payment did not become due at an earlier time. If under a written agreement, a customer is required to make an advance payment equal to 100% of the consideration for property to be supplied in the future, the customer would be required to pay, and the supplier would be required to collect, the GST/HST calculated on the amount at the earlier of the time the advance payment became due under the agreement or was paid.
Consideration is defined under subsection 123(1) and includes any amount that is payable for a supply by operation of law. […][Therefore Y] is required to pay GST/HST on the full consideration payable for the pledge amounts […]. GST/HST is calculated on the pledge amount and not the amount received by [X] after the fees are deducted from the Platform and the payment processor.
During a phone conversation with your representative on [mm/dd,yyyy], it was indicated that the recipients of the rewards are the importers of record and would be responsible for any GST/HST on importation of the Goods under Division III. Your representative expressed concern about double taxation.
The sample air waybill you provided specified […][Incoterm A] as the shipment term, with Canada as the destination country. […].
Pursuant to section 212, every person who is liable under the Customs Act to pay duty on imported goods, or who would be so liable if the goods were subject to duty, must pay GST or the federal part of the HST on the goods calculated at the rate of 5% on the value for duty of the goods. The importer of record of imported goods is generally the person who is liable to pay any duties on the goods under the Customs Act and consequently liable to pay GST or the federal part of the HST on the goods. Therefore, if a [Y] in Canada is the importer of record, they generally would be the person liable to pay the GST/HST under Division III in respect of the importation; however, [X] would be the person liable to pay the GST/HST under Division III if [X] were the importer of record.
Every person who is liable under the Customs Act to pay duty on imported goods, or who would be so liable if the goods were subject to duty, may also be required under subsection 212.1(2) to pay the provincial part of the HST on the goods calculated at the tax rate for a participating province on the value of the goods if the person is resident in that province. However, pursuant to subsection 212.1(3), the requirement to pay the provincial part of the HST does not apply if the goods are accounted for as commercial goods under section 32 of the Customs Act. "Commercial goods" are defined under subsection 212.1(1) to mean goods that are imported for sale or for any commercial, industrial, occupational, institutional, or other like use.
Where the […] Incoterm is used in accordance with its intended circumstances, [Y] would be liable for the GST/HST on the Goods under Division III. If the place of supply of the Goods is in Canada, pursuant to an agreement between the parties, [Y] would also be required to pay GST/HST under Division II to [X]. If [X] were to structure the transaction, however, so that [X] would be the importer of record and liable to pay the Division III tax when the Goods are imported, [X] could be eligible to claim an ITC for the Division III tax paid where certain conditions are met. For additional information regarding the issue of ITCs and imported goods, see GST/HST Policy Statement P-125R: Input Tax Credit Entitlement for Tax on Imported Goods.
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 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 343-553-3972. 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.
Sincerely,
David Phoenix, CPA, CGA
Industry Sector Specialist
Services and Intangibles
General Operations and Border Issues
GST/HST Rulings Directorate
FOOTNOTES
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