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
5th floor, Tower A, Place de Ville T
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 230511
Dear [Client]:
Subject: GST/HST interpretation
Non-resident vendor selling digital products or services
Thank you for your correspondence of [mm/dd/yyyy], concerning the registration requirements for a non-resident vendor selling digital products or services online and the application of the goods and services tax/harmonized sales tax (GST/HST) to these products or services. 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.
We understand your client is a non-resident, supplying digital products or services though […][digital platforms and websites]. Your client also sells advertising on their website through a Canadian agent. Your client is not registered for GST/HST at this time.
INTERPRETATION REQUESTED
1. When determining if a supplier should be registered under the simplified GST/HST registration regime, what is included in the threshold amounts, and for what periods?
2. Does GST/HST apply to supplies of digital advertising displayed on a non-resident website if the supplier is registered under either the simplified or regular GST/HST registration regimes?
3. Does GST/HST apply to supplies of intellectual property, such as the copyright to dramatic and musical works?
4. What supplies are taxable and non-taxable under the simplified and regular GST/HST registration regimes?
5. What are the payment and reporting periods for a person registered under the simplified and regular GST/HST registration regimes?
INTERPRETATION GIVEN
As of July 1, 2021, digital economy businesses, including digital platform operators, may have potential GST/HST obligations. This means non-resident businesses may have new obligations, including registering, charging and collecting the GST/HST. Additional information on the digital economy measures may be found at GST/HST for digital economy businesses.
Interpretation 1
Generally, the requirement to register for a simplified GST/HST account is based on the total taxable supplies made by a specified non-resident supplier in Canada. More specifically, subsection 211.12(2)provides that a specified non-resident supplier is required to register for GST/HST purposes, under the simplified registration regime, if their threshold amount exceeds $30,000 in specified supplies made to specified Canadian recipients in a twelve-month period beginning on or after July 1, 2021. Supplies made prior to July 1, 2021 are not included in the calculation of this threshold amount. In addition, zero-rated supplies or supplies made through a specified distribution platform are not included in this threshold amount.
Subsection 211.1(1) provides the definitions that are relevant to the simplified GST/HST regime. Under that provision, a “specified non-resident supplier” is defined as a non-resident person that does not make supplies in the course of business carried on in Canada and that is not registered under Subdivision D of Division V (the regular GST/HST registration regime). A “specified supply” generally includes a taxable supply of intangible personal property (IPP) that may be used in Canada or a service that may be consumed or used in whole or in part in Canada, while a “specified Canadian recipient” means a person whose usual place of residence is located in Canada and who has not provided to the supplier, or distribution platform operator, proof of being registered under the regular GST/HST registration regime. Finally, a “specified distribution platform” means a digital platform through which a person facilitates the making of specified supplies by a specified non-resident supplier or facilitates the making of qualifying tangible personal property supplies by a person that is not registered under the regular GST/HST registration regime.
Interpretation 2
The supply of advertising is characterized as the supply of a service. A supply of a service is deemed to be made in Canada where the service is, or is to be, performed in whole or in part in Canada pursuant to paragraph 142(1)(g). If the supply of the advertising is made in Canada, the supply would generally be taxable under section 165 at the applicable GST/HST rate and a supplier registered under the regular GST/HST registration regime would be required to charge tax on these supplies. Similarly and pursuant to section 165, a specified non-resident supplier registered under the simplified GST/HST registration regime would be required to charge tax on these supplies (known as specified supplies under the digital economy measures) if they are made to specified Canadian recipients as these supplies are deemed to be made in Canada pursuant to section 211.14.
When the supply of a service is made to a non-resident, it may be a zero-rated supply under Part V of Schedule VI where certain conditions are met. 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 under the regular GST/HST regime at the time the service is performed.
Interpretation 3
A supply of intellectual property, such as a copyright, made by electronic means is characterized as a supply of IPP. Paragraph 142(1)(c) provides that a supply of IPP is deemed to be made in Canada if the property may be used in whole or in part in Canada. The expression "may be used" is interpreted to mean "allowed to be used." In other words, a supply of IPP could be considered to be made in Canada even if it is not actually used in Canada. The fact that the supply may be made to a recipient who is outside Canada has no bearing on whether the supply is made or deemed to be made in Canada.
If the place of supply is deemed to be in Canada, the supply would be taxable under section 165 at the applicable GST/HST rate and a supplier registered under the regular GST/HST registration regime would be required to charge tax on these supplies. Similarly and pursuant to section 165, a specified non-resident supplier registered under the simplified GST/HST registration regime would be required to charge tax on these supplies (also known as specified supplies under the digital economy measures) if made to specified Canadian recipients as these supplies are deemed to be made in Canada pursuant to section 211.14.
If intellectual property is supplied to a non-resident who is not registered under the regular GST/HST registration regime at the time the supply is made, it may be zero-rated pursuant to section 10 of Part V of Schedule VI. Further, if a supply of IPP, other than intellectual property, is supplied to a non-resident who is not registered under the regular GST/HST regime at the time the supply is made, it may be zero-rated under section 10.1 of Part V of Schedule VI if none of the exclusions listed in that provision apply.
Interpretation 4
Subsection 123(1) defines a taxable supply as “a supply that is made in the course of a commercial activity”. Generally, all supplies of property or services made in Canada are taxable supplies and subject to GST/HST unless they are specifically listed in Schedule V, which lists exempt supplies. Supplies that are listed in Schedule VI are zero-rated, which are still considered to be taxable supplies, but subject to the GST/HST at the rate of 0%.
The tax rate applicable to a supply of a service or IPP would be dependant on the facts of each case; for example, the supply of a copyright that may be used in and outside Canada could, if certain conditions are met, be zero-rated if the recipient is a non-resident who is not registered under the regular GST/HST regime. For additional information see the Canada Revenue Agency (CRA) webpage GST/HST and e-commerce, GST/HST Info Sheet GI-034 Exports of Intangible Personal Property and GST/HST Guide RC4022 General Information for GST/HST Registrants.
Interpretation 5
The rules regarding reporting periods for a person who is registered under the simplified GST/HST registration regime are found in section 211.18. In accordance with subsection 211.18(1), a simplified GST/HST registrant is required to file a return, by way of electronic filing, for each reporting period within one month after the end of a reporting period. A reporting period for a person registered under the simplified GST/HST registration regime is a calendar quarter in accordance with subsection 211.18(2).
Under the regular GST/HST registration regime, a person may, pursuant to subsection 245(2), elect to have either a monthly, quarterly or annual reporting period, depending on the person’s threshold amount (generally, the total revenue from the person’s taxable supplies made in Canada in the immediately preceding fiscal year or in all preceding fiscal quarters ending in a fiscal year) as determined in accordance with section 249. If a person does not select a reporting period, the CRA will assign a reporting period that requires the least frequent filing of GST/HST returns available based on the person’s threshold amount. The reporting period assigned to a person will remain until the person makes an election to change it, or the person’s threshold amount exceeds the maximum permitted for that period. Additional information may be found in GST/HST Guide RC4022.
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 interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (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 905-706-7621. 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 or by fax to 1-418-566-0319.
Sincerely,
Philippa Howard
Senior Rulings Officer
Border Issues Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate
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