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.
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[Addressee]
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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
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Case Number: 149984
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Business Number: […]
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February 18, 2013
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Subject:
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GST/HST RULING
[…] [Carrying on Business in Canada] – Requirement to be Registered
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Thank you for your letter of [mm/dd/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your client, […] ([…] [TourCo]).
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
Statement of Facts
We understand that:
1. [TourCo] is a non-resident of Canada. It is registered for GST/HST purposes and is not a small supplier under section 148 of the ETA. [TourCo] does not believe that it is required to be registered for GST/HST purposes and wishes to de-register.
2. [TourCo] […] operates "tour packages" (as that term is defined in the ETA) […].
3. […].
4. Sample Terms and Conditions between [TourCo] and its customers for [yyyy] were attached to your submission.
5. […].
6. [TourCo] has no office and no other permanent establishment in Canada. [TourCo] has a presence in Canada through its employees that come to Canada from time to time.
7. For some of the tour packages that it operates, a […] [Employee] employed by [TourCo] enters Canada along with the tour. The [Employee]'s role is generally to ensure that the tour operates smoothly.
8. […]. For other tour packages that it organizes, [TourCo] subcontracts with a related Canadian company or an unrelated local company to provide […]. [TourCo] and all local companies have independent service contracts with [TourCo] and are not agents of [TourCo].
9. […] [Describes role of Employees]:
- […]
10. […]
11. In excerpts of the guided tours literature for […] tours that you provided to us and indicated is provided to passengers, the [Employee]'s role is described in a limited manner. You also provided us with the terms and conditions of the […] tours. […].
12. The tours are generally described, in the […] brochure […], as guided tours that have [Employees] that are available throughout the tours, […].
13. […]
14. You provided representative samples of itineraries for […] tours in your submission.
15. […]
16. From [yyyy] to [yyyy], [TourCo] employees spent approximately […]% of their total work days in Canada. In your submission, you indicated that the [Employees] were in Canada for […] days in [yyyy], […] in [yyyy], and […] in [yyyy].
17. You have indicated that the cost of […], comprised an insignificant fraction of the cost of the tour per passenger during the [yyyy] to [yyyy] period. […]
18. [TourCo] has a Canadian bank account in order to pay Canadian suppliers in Canadian currency and for the [Employee] to access Canadian currency to cover any unexpected costs that may arise in Canada, […].
19. The Canadian bank account is generally replenished by [TourCo] through transfers from its […][foreign] bank account on an "as needed" basis.
Ruling Requested
You would like to know whether [TourCo] is required to be registered for GST/HST purposes under subsection 240(1).
Ruling Given
Based on the facts set out above, we rule that [TourCo] is required to be registered for GST/HST purposes pursuant to subsection 240(1).
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
Explanation
As explained below, based on the facts [TourCo] is carrying on business in Canada for GST/HST purposes and consequently, is required to be registered for GST/HST purposes pursuant to subsection 240(1).
Pursuant to subsection 240(1), every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to be registered for GST/HST purposes unless:
(a) the person is a small supplier;
(b) the only commercial activity of the person is the making of supplies of real property by way of sale otherwise than in the course of a business; or
(c) the person is a non-resident person who does not carry on any business in Canada.
Based on the facts, the only exception in subsection 240(1) that would be relevant in this case would be the exception in paragraph 240(1)(c).
GST/HST Policy Statement P-051R2, Carrying on Business in Canada (P-051R2), sets out factors and principles to be considered in determining whether a non-resident is carrying on business in Canada for GST/HST purposes. As indicated in the policy statement, the determination is a question of fact requiring consideration of all relevant facts. The factors to consider in determining whether a non-resident is, for GST/HST purposes, carrying on business in Canada in a particular situation include:
- the place where agents or employees of the non-resident are located;
- the place of delivery;
- the place of payment;
- the place where purchases are made or assets are acquired;
- the place from which transactions are solicited;
- the location of assets or an inventory of goods;
- the place where the business contracts are made;
- the location of a bank account;
- the place where the non-resident's name and business are listed in a directory;
- the location of a branch or office;
- the place where the service is performed; and
- the place of manufacture or production.
In your letter, you state that in your view [TourCo] does not have a significant presence in Canada and is therefore not carrying on business in Canada for GST/HST purposes, because only three of the factors listed in P-051R2 are present.
As indicated in P-051R2, the importance or relevance of a given factor in a specific case depends on the nature of the business activity under review and the particular facts and circumstances of each case. Furthermore, the determination of whether a non-resident is carrying on business in Canada for GST/HST purposes does not involve the mechanical application of a numerical test that is simply based on whether a specific number of the above factors are present in any given case. Rather, the determination requires judgment in establishing the importance of each factor in light of the type of supply that is being made in the context of the relevant facts.
To illustrate this point, P-051R2 then refers to the significance of the various factors with respect to the supply of tangible personal property by way of lease and the supply of a service. Specifically, in the case of tangible personal property by way of lease, the factors that are typically of greater importance include the place where the property is acquired by the non-resident lessor and the place where it is delivered to the lessee, while in the case of a supply of a service, factors that are typically of greater importance include the place where the service is performed and the place where the employees of the non-resident are located.
P-051R2 further states that in general, a non-resident must have a significant presence in Canada to be considered to be carrying on business in Canada, and specifically indicates in this regard that generally, isolated transactions carried on in Canada as part of a business that is carried on by a non-resident person outside Canada may not result in the person being considered to be carrying on business in Canada for GST/HST purposes, given that the factors would usually not be met to a sufficient degree.
[TourCo] supplies "tour packages", which are defined under subsection 163(3) of the ETA to mean "…a combination of two or more services, or of property and services, that includes transportation services, accommodation, a right to use a campground or trailer park, or guide or interpreter services, where the property and services are supplied together for an all-inclusive price…". As stated in GST/HST Memorandum 27.1, Calculating the GST/HST on Tour Packages, a "tour package" is a supply of a service. Consequently, the factors in P-051R2 that will be most relevant in determining whether [TourCo] is carrying on business in Canada for GST/HST purposes are the place where the services are performed and where [TourCo] employees are located in performing those services.
Based on the information provided, [TourCo] is making supplies of services that are regularly performed in Canada by its employees (over [#] separate supplies in each of the years 2009, 2010 and 2011, with over [#] employee-days in each of those years). These factors, along with the location of a bank account in Canada, are significant and sufficient for [TourCo] to be considered to be carrying on business in Canada for GST/HST purposes.
Pursuant to paragraph 142(1)(g) of the ETA, 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. Because the taxable services supplied by [TourCo] are partly performed in Canada, the supplies of those services are deemed to be made in Canada.
You have also referred in your letter to other situations consisting of Example 21 of P-051R2 and a headquarters ruling to support your position that [TourCo] is not carrying on business in Canada. However, unlike the facts in those situations, employees of [TourCo] (the [Employees]) are in fact regularly in Canada to perform the services that it supplies. As a result, these other situations are not relevant to [TourCo's] situation as described in the facts.
In further support of your conclusion that [TourCo] is not carrying on business in Canada and not required to be registered, you have argued that single supplies of tour packages are being made where the element provided by the [Employees] loses any "separate identity for fiscal purposes" and thus should be disregarded for the purposes of characterizing the supplies. You further state that the services provided by the [Employees] are merely a component of a single supply of a tour package and do not have any independent character. In support of this position, you state that the cost of the [Employees'] services is minimal relative to the cost of the tour package, and that the customers have no interest in purchasing the [Employees'] services. You also refer to Example 11 of P-051R2, where the installation in Canada of machinery by the employees of a non-resident manufacturer and supplier of machinery delivered in Canada was not sufficient for a conclusion that the supplier was carrying on business in Canada.
In Example 11 of P-051R2, the recipient of the supply intends to receive installed machinery, such that the services provided by the supplier are ancillary to the supply of tangible personal property. In the case of the single supply of a guided tour package by [TourCo], the provision of a[n] [Employee] is identified as part of the supplies of the services that are tour packages. Purchasers of a guided tour package are therefore expecting a[n] [Employee] to accompany them on their tours. In addition, the [Employees] are expected by [TourCo] to […] [describes role of Employees]. The presence of the [Employee] is therefore an integral and significant part of the escorted tour packages […] [operated] by [TourCo]. As a result, Example 11 of P-051R2 is not relevant to [TourCo] situation as described in the facts.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-4291. 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,
Geoff Macmillan
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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