GST/HST Policy Statement P-125R

Date of issue: June 1, 2007

Legislative reference: Sections 169, 180, 212 and proposed section 178.8 of the Excise Tax Act (the Act); sections 4 and 32 and subsection 17(3) of the Customs Act

National coding system file number(s): 11645-3, 11650-1

Effective date: January 1, 1991 for GST, and April 1, 1997 for HST, except for proposed ^{Footnote 1} section 178.8 of the Act, which is proposed to apply to goods imported on or after October 3, 2003, and to goods imported on or before that day that were not accounted for under section 32 of the Customs Act before that day.

Note: This version of P-125 supersedes the version dated March 17, 1994.

Issue

At issue is the determination of whether a person is entitled to an input tax credit (ITC) for the tax ^{Footnote 2} on imported ^{Footnote 3} goods in various circumstances.

Decision

Whether a person is entitled to an ITC for the tax on imported goods is based on the application of various provisions of the Act and requires consideration of all relevant facts. This policy explains the provisions that are relevant in making such a determination and then provides examples that illustrate the application of these provisions in various circumstances (a table summarizing the examples may be found on page 9).

1. General rule – subsection 169(1) of the Act

Subsection 169(1) of the Act sets out the general rule regarding the entitlement of a person to an ITC with respect to tax on acquisitions and importations of goods and services.

Generally, a registrant ^{Footnote 4} is entitled to an ITC with respect to tax on the importation of goods that is paid or payable by the registrant ^{Footnote 5}, if the registrant imports the goods for consumption, use or supply in the course of its commercial activities ^{Footnote 6}.

Subject to the special provisions discussed below, it is only the de facto importer who may be considered to have imported the goods for consumption, use or supply in the course of its commercial activities. The de facto importer is essentially the person who causes the goods to be imported.

As shown by the examples to follow, determining which person is entitled to an ITC in cases involving a supply of imported goods requires consideration of all relevant facts. A key factor in determining who is the de facto importer is the place of supply of the goods. As a general rule, the de facto importer who imports the goods for consumption, use or supply in the course of its activities will be either a recipient of a supply of the goods made outside Canada, or the supplier in the case of a supply of the imported goods made in Canada. This reflects the fact that goods that have already been supplied by a supplier outside Canada may not then be considered to have been imported by the supplier for consumption, use or supply in the course of its commercial activities. It is also consistent with the GST/HST treatment under section 178.8 of the Act that is explained in the next section, subject to certain proposed legislative exceptions allowing for a different tax treatment.

In certain cases, it is clear whether a person is the de facto importer who is entitled to an ITC for the tax on imported goods. For instance, in the case of a non-resident registrant who imports its own equipment to use in supplying taxable services in Canada, it is clear that the non-resident is the de facto importer who is importing the goods for use in the course of its commercial activities.

In other cases, the person who is the de facto importer who is entitled to an ITC for the tax on imported goods is not always as evident, such as where a supply of imported goods is made and the person considered to have imported the goods for consumption, use or supply in the course of its activities is not necessarily the person who imports the goods and is the importer of record. Where a person other than the de facto importer imports goods and is the importer of record, it is only the de facto importer who may be considered to have imported the goods for consumption, use or supply in the course of its activities. In this case, the de facto importer will be considered to have paid the tax on the importation if evidence is maintained that the importer of record paid the tax on behalf of the de facto importer. The de facto importer will be required to obtain a copy of the import documentation from the importer of record in order to satisfy the documentary requirements for claiming the ITC ^{Footnote 7}.

The following sections explain other legislative provisions that can affect whether a person is entitled to an ITC for the tax on the importation of goods in certain circumstances. Generally, these provisions allow a person to become entitled to an ITC in certain circumstances where the person would not otherwise be entitled to an ITC under subsection 169(1) of the Act.

2. Import arrangements – proposed section 178.8 of the Act ^{Footnote 8}

Proposed section 178.8 of the Act, was announced in a Notice of Ways and Means Motion tabled on October 3, 2003, and in a Notice of Ways and Means Motion tabled on November 27, 2006. Proposed section 178.8 applies to goods imported on or after October 3, 2003, and to goods imported before that day that were not accounted for ^{Footnote 9} before that day.

Generally, section 178.8 of the Act is intended to ensure that the legislation better accommodates special import arrangements between businesses where goods are supplied outside Canada. Specifically, it addresses circumstances in which a person is the recipient of a supply made outside Canada of goods that are imported into Canada for that person's consumption, use or supply, but another person such as the supplier, effects the physical importation of the goods and accounts for their importation. In order to satisfy the requirements of subsection 169(1) of the Act, the person who imports the goods and by whom the tax is paid or payable must import the goods for the purpose of consuming, using or supplying the goods in the course of its commercial activities. The supplier who acts as the importer of record of the goods supplied outside Canada neither consumes nor uses the imported goods, and is not a person who may be considered to have imported the goods for supply since the goods will have already been supplied outside Canada.

As previously indicated, where a person other than the de facto importer imports goods and is the importer of record, the de facto importer will nevertheless be considered to have imported the goods for consumption, use or supply in the course of its activities. It should be noted that the activities of the recipient of the imported goods will determine eligibility for any recovery of the tax on the importation. However, in some cases, in the absence of section 178.8 of the Act, the recipient might not otherwise meet all of the conditions for ITC eligibility. As explained in greater detail below, in recognizing that the goods are imported for consumption, use or supply in the course of the activities of the recipient, section 178.8 of the Act is first intended to ensure that the recipient may be entitled to an ITC for the tax on the importation despite the fact that the recipient may not have imported the goods and accounted for their importation. The provision also allows the parties to agree to instead allow the supplier to claim an ITC for the tax on the imported goods and require the supplier to collect tax on the supply.

“Specified supply” – proposed subsection 178.8(1) of the Act

The rules in proposed section 178.8 of the Act only apply where a “specified supply” of goods is made.

A “specified supply” is defined to include a supply ^{Footnote 10} of goods ^{Footnote 11} that are imported after the supply of the goods is made ^{Footnote 12}. For GST/HST purposes, the entering into of an agreement to provide property or a service is deemed to be a supply of the property or service made at the time of the entering into the agreement and the actual provision of the property or service is deemed to be part of that supply ^{Footnote 13}. A supply of goods will therefore qualify as a “specified supply” if the agreement for the supply is entered into before the goods are imported. Therefore, subject to the exception discussed below, the goods must be outside Canada when the agreement for the supply is entered into for a “specified supply” of the goods to be made.

Although the first part of the definition of a “specified supply” includes a supply made in Canada of goods that are subsequently imported (for instance, where the goods are supplied by a non-resident registrant and delivered or made available to the recipient in Canada), it is important to note that the rules in section 178.8 of the Act only apply and are therefore only relevant with respect to a specified supply of goods that is made outside Canada.

A “specified supply” is also defined ^{Footnote 14} to include a supply of goods that have been imported where the supply is deemed ^{Footnote 15} to have been made outside Canada because the goods are delivered or made available in Canada to the recipient before their release ^{Footnote 16}. In this case, the agreement for the supply of the goods does not have to be entered into before the goods are imported in order to be considered a specified supply.

Default rule – proposed subsection 178.8(2) of the Act

Where a specified supply of goods is made outside Canada and the goods are imported by the constructive importer or another person for consumption, use or supply by the “constructive importer” of the goods, subsection 178.8(2) of the Act deems the goods to have been so imported by the constructive importer, and any amount payable as or on account of tax on the importation to have been paid or payable, by or on behalf of the constructive importer and not by or on behalf of any other person.

The “constructive importer” of the goods is the recipient of a specified supply of the goods made outside Canada who has not made a supply of the goods outside Canada before their release. Subsection 178.8(2) of the Act reflects the fact that it is the constructive importer's activities for which the imported goods are immediately destined after they have been supplied outside Canada and that it is therefore those activities that should determine entitlement to an ITC for the tax. By deeming the constructive importer to be the sole importer of the goods and the tax on the importation to be paid or payable solely by the constructive importer, the provision ensures that the constructive importer may be entitled to an ITC regardless of whether another person such as the supplier may have effected the physical importation of the goods and accounted for the importation of the goods.

Although the sole purpose of subsection 178.8(2) of the Act is to address this issue, it does apply to a broader range of situations where this issue does not exist, including where the constructive importer accounts for the importation of the goods. The subsection is therefore cited in the examples that follow as applying in those other situations, notwithstanding the fact that there would never have been any question about whether the recipient who is the constructive importer (and would have been the de facto importer) in those situations was entitled to an ITC for the tax on the importation of the goods.

Although section 178.8 of the Act only becomes effective October 3, 2003, it is important to note that the person who is considered to be the constructive importer under these new rules will generally be a person who would have been considered the de facto importer prior to that date. This is the case in the examples that follow. As a result, the proposed provision does not result in a change with respect to who is entitled to an ITC for the tax on the importation of goods.

The specified supply of goods to which this provision applies may be deemed to be made outside Canada under various place of supply rules. For instance, the supply of goods may be deemed to be made outside Canada because the goods are delivered or made available outside Canada to the recipient of the supply ^{Footnote 17}.

The specified supply of goods may also be deemed made outside Canada where the goods are delivered or made available in Canada to the recipient of the supply, but the supplier is a non-resident person who is not registered and does not carry on business in Canada ^{Footnote 18}. However, subsection 178.8(2) of the Act will not apply in this case if the non-resident pays the tax on the importation of goods. Rather, it is the ITC relief mechanism under section 180 of the Act (ITC for imported goods received from a non-registered non-resident) that is explained in the next section that may apply in this situation.

It is important to note that the rules in section 178.8 of the Act are not intended to interfere with the application of existing ITC relief mechanisms for the tax on imported goods. Therefore, the rules are deemed not to apply in respect of goods imported in circumstances in which subsection 169(2) of the Act (ITC for goods of a non-registered non-resident imported to provide a commercial service) as explained in a later section, or section 180 of the Act apply with respect to the tax on the importation of goods ^{Footnote 19}.

The deeming rules in section 178.8 of the Act generally only apply for ITC purposes ^{Footnote 20} and do not affect a person's liabilities or obligations with respect to the payment of tax on the importation of goods. Therefore, if a person other than the constructive importer, such as the supplier, acts as the importer of record and is liable to pay tax on the importation, that person will continue to be liable for the payment of the tax notwithstanding that the tax is deemed under this provision to be paid or payable by the constructive importer for ITC purposes.

Agreement for alternative treatment – proposed subsections 178.8(3) and (4) of the Act

Although a constructive importer may be entitled to an ITC for the tax on the importation of goods, the constructive importer must first satisfy the relevant ITC documentary requirements in order to be able to claim the ITC in a return ^{Footnote 21}. Where a person other than the constructive importer acts as the importer of record, such as the supplier, the constructive importer must obtain a copy of the necessary import documentation from the supplier in order to satisfy the ITC documentary requirements. However, this may not always be practical.

Subsection 178.8(3) of the Act allows the parties to agree to an alternative GST/HST treatment to the default rule described above in order to avoid the need for the supplier to pass on the import documentation to the constructive importer for purposes of recovering the tax. This alternative treatment is available where:

• a supplier who is a registrant makes a taxable specified supply of goods outside Canada to the constructive importer of the goods, and
• tax on the importation of the goods is paid or payable by the supplier ^{Footnote 22} as a result of the supplier having accounted for the goods.

The supplier and the constructive importer in this case may enter into an agreement at any time in prescribed form containing prescribed information ^{Footnote 23} with respect to the supply and importation of the goods. The effects of entering into the agreement ^{Footnote 24} are as follows:

• The supplier is deemed to have imported the goods for the purpose of supply in the course of its commercial activities ^{Footnote 25} and the tax paid or payable on the imported goods is deemed to be paid or payable on behalf of the supplier and on no other person's behalf ^{Footnote 26}. As a result, the supplier rather than the constructive importer is entitled to an ITC for the tax on the importation.
• The supply of the goods to the constructive importer is deemed to have been made in Canada resulting in the supplier having to collect tax ^{Footnote 27} on the supply. The constructive importer would in turn be entitled to an ITC for the tax on the deemed supply if all of the relevant ITC conditions ^{Footnote 28} are met.

The deemed place of supply in Canada of the goods is generally the place at which the goods are released ^{Footnote 29}. However, if the constructive importer is an individual to whom the goods are shipped to a destination in Canada by another person, the place of supply in Canada for purposes of determining whether GST at 6% or HST at 14% applies is:

• the address to which the goods are sent by mail or courier by the shipper,
• the destination that is specified in the contract for carriage of the goods, or
• the destination at which the shipper has directed a common carrier or consignee retained on behalf of the constructive importer to transfer physical possession of the goods.

Generally ^{Footnote 30}, if the constructive importer at any time pays, or agrees to pay, the supplier an amount in respect of duties or taxes payable ^{Footnote 31} on the goods, that amount is added to the consideration for the supply and tax becomes payable on that additional consideration at that time ^{Footnote 32}.

The registrant and the supplier may enter into the agreement at any time. If the agreement is entered into after the supply and importation of the goods, the effects of entering into the agreement described above will be retroactive as follows:

• The supplier will become retroactively entitled to an ITC for the tax on the importation of the goods and will be retroactively liable for the collection of tax that became payable on the supply that is deemed to have been made in Canada when the agreement for the supply was originally entered into. If the supplier had claimed an ITC for the tax on the importation of the goods, there will be no penalty and interest consequences if the supplier had also collected the tax on the deemed value of the consideration for the supply when it became payable (as if the supply made at that time had in fact been made in Canada and been subject to tax), accounted for it in its net tax and remitted any resulting net tax remittable when required.
• The constructive importer will no longer be entitled to an ITC that it may have claimed for the tax on the importation of goods. If the constructive importer in this case had claimed an ITC for the tax on the importation of the goods, the limitation period for assessing the net tax of the constructive importer is extended to four years after the day the agreement is entered into to take into account the amount of the ITC claimed ^{Footnote 33}.

3. ITC flow-through mechanism – section 180 of the Act

Section 180 of the Act is intended to provide for the flow-through of an ITC to a registrant for unrecoverable tax that is paid by an unregistered non-resident on the importation of goods in certain circumstances ^{Footnote 34}. The provision applies where an unregistered non-resident pays tax on the importation of goods:

• that the non-resident supplies to a registrant and delivers, or makes available, in Canada to the registrant before they are used in Canada by or on behalf of the non-resident, or
• the physical possession of which the non-resident causes to be transferred in Canada to a registrant in order for the registrant to make a taxable supply of a commercial service ^{Footnote 35} in respect of the goods to the non-resident.

Once the non-resident provides the registrant in either of the circumstances described above with satisfactory evidence that the tax has been paid on the importation of the goods ^{Footnote 36}, the registrant is deemed at the time the non-resident paid the tax, to have paid tax ^{Footnote 37} in respect of a supply of the goods to the registrant equal to the tax paid on the importation.

The registrant described above who acquires physical possession of the imported goods to perform a commercial service in respect of the goods is also deemed to have acquired the goods for use exclusively in its commercial activities, resulting in the registrant satisfying all of the conditions to become entitled to an ITC for the tax that the registrant is deemed to have paid.

The registrant described above who is a recipient of a supply of the imported goods made by the non-resident must in fact have acquired the goods for consumption, use or supply in the course of its commercial activities to become entitled to an ITC for the tax that the registrant is deemed to have paid.

Generally, a registrant who acquires physical possession of goods of an unregistered non-resident for the purpose of making a taxable supply of a commercial service in respect of the goods to the non-resident is potentially liable under the drop-shipment rules for the collection of tax on the fair market value of the goods ^{Footnote 38} upon the transfer of the physical possession of the goods to another party. A registrant to whom an unregistered non-resident transfers physical possession of the goods for the sole purpose of storing the goods is deemed not to have acquired physical possession of the goods for purposes of the drop-shipment rules ^{Footnote 39}. However, it is important to note that if the registrant in this case claims an ITC for the tax paid by the non-resident on the importation of the goods as a result of the application of section 180 of the Act (or as a result of subsection 169(2) of the Act, which is explained in the following section), the registrant is considered to have acquired physical possession of the goods and becomes potentially liable under the drop-shipment rules for the collection of tax on the fair market value of the goods.

4. ITC for tax on goods imported for commercial service – subsection 169(2) of the Act

Registrants who make supplies of commercial services in respect of goods to non-residents often act as the importer of record with respect to the importation of the goods. However, such registrants do not satisfy the criteria ^{Footnote 40} for entitlement to an ITC for the tax on the imported goods as they are not considered to have imported the goods for consumption, use or supply in the course of their commercial activities. As a result, subsection 169(2) of the Act ensures that such registrants are entitled to an ITC for the tax on the imported goods.

Subsection 169(2) of the Act applies where a registrant imports goods of ^{Footnote 41} an unregistered non-resident for the purpose of making a taxable supply of a commercial service in respect of the goods to the non-resident and tax in respect of the importation becomes payable or is paid by the registrant during a reporting period of the registrant. In this case, the ITC of the registrant in respect of the goods for the reporting period is deemed to be an amount equal to the tax on the importation.

As previously indicated, the claiming of the ITC in this case by a registrant who has acquired physical possession of the goods for the sole purpose of storing them will result in the registrant becoming potentially liable for the collection of tax on the fair market value of the goods under the drop-shipment rules.

Examples

Note:

• All of the examples involve goods imported on or after October 3, 2003, or goods imported on or before that day and that were not accounted for under section 32 of the Customs Act before October 3, 2003.
• Unless otherwise indicated, the examples involve parties who are involved exclusively in commercial activities and do not involve zero-rated supplies of goods.
• All of the examples involve taxable importations of goods.

Example no. 1 – Sale of goods ^{Footnote 43}

Facts

1. A registered non-resident manufacturer agrees to make a taxable supply of goods by way of sale to a registered resident wholesaler with worldwide operations who will keep the goods as inventory in one of its warehouses throughout the world for sale in the course of its business.

2. Delivery of the goods to the wholesaler occurs at the premises of the manufacturer outside Canada.

3. The manufacturer will keep the goods at its premises until the wholesaler determines where the goods will be sent.

4. A few days after the agreement is entered into, the wholesaler determines that it will keep the goods as inventory in its warehouse in Canada for eventual sale in Canada. The wholesaler hires a carrier to pick up the goods at the premises of the manufacturer and to transport them to its warehouse in Canada.

5. The wholesaler is the importer of record with respect to the importation of the goods.

Decision

The wholesaler is entitled to an ITC for the tax on the importation of the goods.

Rationale

A specified supply of goods is made because the goods are imported after the supply of the goods is made. As a result, the rules in section 178.8 may apply.

The supply of goods made by the manufacturer is deemed to be made outside Canada because delivery of the goods to the wholesaler occurs outside Canada ^{Footnote 44}. As a result, the manufacturer is not required to collect tax in respect of the supply.

The wholesaler is the constructive importer of the goods since the wholesaler is a recipient of a specified supply of the goods made outside Canada who does not make a supply of the goods outside Canada before their release. The goods that are imported for supply by the wholesaler who is the importer of record are deemed to have been so imported, and the tax to have been paid, solely on its behalf ^{Footnote 45}. The wholesaler is therefore entitled to an ITC for the tax on the importation of the goods.

The manufacturer and the wholesaler may not enter into an agreement to provide for an alternative treatment with respect to the supply and importation of the goods ^{Footnote 46} since the manufacturer did not account for the importation of the goods.

Example no. 2 – Sale of goods ^{Footnote 47}

Facts

1. A registered non-resident manufacturer agrees to make a taxable supply of goods by way of sale to a registered resident wholesaler who will keep the goods as inventory for sale in Canada in the course of its business.

2. Delivery of the goods to the wholesaler occurs at the premises of the manufacturer outside Canada.

3. The manufacturer will keep the goods at its premises until the wholesaler determines where the goods will be sent.

4. A few days after the agreement is entered into, the wholesaler determines that it will keep the goods as inventory in its warehouse in Canada for eventual sale in Canada.

5. The wholesaler hires a carrier to pick up the goods at the premises of the manufacturer and to transport them to its premises in Canada.

6. The wholesaler hires a customs broker to prepare and provide the necessary accounting documentation for the importation of the goods.

7. When the customs accounting documents were being prepared by the customs broker, an error was made with respect to the name identified on Customs form B3 as the importer. Instead of the name of the wholesaler, the broker entered the name of an unrelated company, which was the next name on the broker's computerized list of clients.

8. The error could not be corrected prior to the importation because it was not detected until after the unrelated company paid the tax.

Decision

The wholesaler is entitled to an ITC for the tax on the importation of the goods. However, in order to satisfy the documentary requirements for claiming the ITC, the wholesaler must obtain a copy of the customs documentation for the importation of the goods.

Rationale

A specified supply of goods is made because the goods are imported after the supply of the goods is made. As a result, the rules in section 178.8 may apply.

The supply of goods made by the manufacturer is deemed made outside Canada because delivery of the goods to the recipient occurs outside Canada ^{Footnote 48}. As a result, the manufacturer is not required to collect tax in respect of the supply.

Notwithstanding that the wholesaler was not the importer of record, the wholesaler is the constructive importer because the wholesaler is the recipient of a specified supply of the goods made outside Canada who does not supply the goods outside Canada before their release. Therefore, the goods that are imported for supply by the wholesaler are deemed to have been so imported, and the tax to have been paid, solely on behalf of the wholesaler ^{Footnote 49}. The wholesaler is therefore entitled to an ITC for the tax on the importation of the goods. In order to satisfy the documentary requirements for claiming the ITC, the wholesaler must obtain a copy of the customs documentation for the importation of the goods.

The manufacturer and the wholesaler may not enter into an agreement to provide for an alternative treatment with respect to the supply and importation of the goods ^{Footnote 50} since the manufacturer did not account for the importation of the goods.

Example no. 3 – Sale of goods

Facts

1. A registered non-resident manufacturer agrees to make a taxable supply of goods by way of sale to a registered resident who will use the goods in the course of its activities.

2. Delivery of the goods to the registrant recipient occurs at the premises of the manufacturer outside Canada.

3. The manufacturer agrees to arrange for the shipment of the goods from its premises outside Canada to the premises of the recipient in Canada.

4. The recipient is the importer of record with respect to the importation of the goods and pays the tax on the importation of the goods.

Decision

The recipient is entitled to an ITC for the tax on the importation of the goods.

Rationale

A specified supply of goods is made because the goods are imported after the supply of the goods is made. As a result, the rules in section 178.8 of the Act may apply.

The supply of goods made by the manufacturer is deemed made outside Canada because delivery of the goods to the recipient occurs outside Canada ^{Footnote 51}. As a result, the manufacturer is not required to collect tax in respect of the supply.

The registrant is the recipient of a specified supply of the goods made outside Canada who does not supply the goods outside Canada before their release. The recipient is therefore the constructive importer of the goods. The goods that are imported for use by the recipient who is the importer of record are deemed to have been so imported, and the tax to have been paid, solely on its behalf ^{Footnote 52}. The recipient is therefore entitled to an ITC for the tax on the importation of the goods.

The manufacturer and the recipient may not enter into an agreement to provide for an alternative treatment with respect to the supply and importation of the goods ^{Footnote 53} since the manufacturer did not account for the importation of the goods.

Example no. 4 – Sale of goods

Facts

1. A registered non-resident manufacturer agrees to make a taxable supply of goods by way of sale to a registered resident who will use the goods in the course of its activities.

2. Delivery of the goods to the registrant recipient occurs at the premises of the manufacturer outside Canada.

3. The manufacturer agrees to arrange for the shipment of the goods from its premises outside Canada to the premises of the recipient in Canada, to be the importer of record with respect to the importation of the goods and to pay the tax on the importation of the goods.

Decision

The recipient is entitled to an ITC for the tax on the importation of the goods. The recipient may claim an ITC for the tax on the importation of the goods provided the recipient obtains a copy of the import documentation from the manufacturer.

The manufacturer and the recipient may enter into an agreement with respect to the supply and importation of the goods pursuant to which the manufacturer rather than the recipient will be entitled to an ITC for the tax on the importation of the goods and the specified supply of the goods will be deemed to have been made in Canada ^{Footnote 54}. The manufacturer would be required to collect tax ^{Footnote 55} on the supply of the goods and the recipient would be entitled to an ITC for that tax.

Rationale

A specified supply of goods is made because the goods are imported after the supply of the goods is made. As a result, the rules in section 178.8 of the Act may apply.

The supply of goods made by the manufacturer is deemed to be made outside Canada because delivery of the goods to the recipient occurs outside Canada ^{Footnote 56}. As a result, the manufacturer is not required to collect tax in respect of the supply.

The registrant is the recipient of a specified supply of the goods made outside Canada who does not make a supply of the goods outside Canada before their release. The recipient is therefore the constructive importer of the goods. Although the manufacturer is the importer of record and paid the tax on the importation of the goods, the goods that are imported for use by the recipient are deemed to have been so imported, and the tax to have been paid, solely on behalf of the recipient ^{Footnote 57}. The recipient is therefore entitled to an ITC for the tax on the importation of the goods. The recipient may claim an ITC for the tax on the importation of the goods provided the recipient obtains a copy of the import documentation from the manufacturer.

The manufacturer and the recipient may enter into an agreement with respect to the supply and importation of the goods pursuant to which the manufacturer rather than the recipient will be entitled to an ITC for the tax on the importation of the goods and the specified supply of the goods will be deemed to have been made in Canada ^{Footnote 58}. The manufacturer would be required to collect tax ^{Footnote 59} on the supply of the goods and the recipient would be entitled to an ITC for that tax.

Example no. 5 – Lease of good

Facts

1. A registered non-resident manufacturer agrees to make a taxable supply of equipment by way of lease to a resident listed financial institution that will use the equipment exclusively in its exempt activities.

2. Possession of the good is given to the financial institution at the premises of the lessor outside Canada.

3. The lessor agrees to arrange for the shipment of the good from outside Canada to the premises of the financial institution in Canada, to be the importer of record with respect to the importation of the good and to pay the tax on the importation of the good.

Decision

Neither the lessor nor the financial institution is entitled to an ITC for the tax on the importation of the good.

The lessor and the financial institution may enter into an agreement with respect to the supply and importation of the good pursuant to which the lessor will be entitled to an ITC for the tax on the importation of the good and the specified supply of the good will be deemed to have been made in Canada ^{Footnote 60}. The lessor would be required to collect tax on the supply of the good but the financial institution would not be entitled to an ITC for that tax since the good is not acquired by the financial institution for consumption, use or supply in the course of commercial activities.

Rationale

A specified supply of the good is made because the good is imported after the supply is made. As a result, the rules in section 178.8 of the Act may apply.

The non-resident lessor is considered to have made a separate supply of the property for each period to which a lease payment is attributable ^{Footnote 61}. The supplies of the good made by the lessor are deemed made outside Canada because possession of the good is given to the recipient outside Canada ^{Footnote 62}. The lessor is therefore not required to collect tax on any of the lease payments.

The financial institution is the recipient of a specified supply of the good made outside Canada and does not make a supply of the good outside Canada before its release. The financial institution is therefore the constructive importer of the good. Although the lessor is the importer of record and paid the tax on the importation of the good, the good that is imported for use by the financial institution is deemed to have been so imported, and the tax to have been paid, solely on behalf of the financial institution ^{Footnote 63}. However, given that the financial institution has not imported the good for use in the course of commercial activities (it is only involved in exempt activities), it may not claim an ITC for the tax on the importation of the good.

The lessor and the financial institution may enter into an agreement with respect to the supply and importation of the good pursuant to which the lessor will be entitled to an ITC for the tax on the importation of the good and the specified supply of the good will be deemed to have been made in Canada ^{Footnote 64}. The lessor would be required to collect tax on the supply of the good but the financial institution would not be entitled to an ITC for that tax since the good is not acquired by the financial institution for consumption, use or supply in the course of commercial activities.

Example no. 6 – Sale of goods

Facts

1. A non-registrant non-resident manufacturer agrees to make a taxable supply of goods by way of sale to a registered resident who will use the goods in the course of its activities.

2. Delivery of the goods to the recipient occurs at the premises of the recipient in Canada.

3. Pursuant to the agreement for the supply of the goods, the manufacturer will transport the goods to the premises of the recipient in Canada and the recipient will be the importer of record with respect to the importation and pay the tax on the importation.

Decision

The recipient is entitled to an ITC for the tax on the importation of the goods.

Rationale

The supply is a specified supply of goods because the goods are imported after the supply of goods is made. As a result, the rules in section 178.8 may apply.

Since the supply of the goods is made by an unregistered non-resident person who does not carry on business in Canada, the supply is deemed made outside Canada ^{Footnote 65}. As a result, tax will not be collected in respect of the supply.

The registrant is the recipient of a specified supply of the goods made outside Canada and does not make a supply of the goods outside Canada before their release. The recipient is therefore the constructive importer of the goods. The goods that are imported for use by the recipient are deemed to have been so imported, and the tax to have been paid, solely on behalf of the recipient ^{Footnote 66}. The recipient is therefore entitled to an ITC for the tax on the importation of the goods.

The manufacturer and the recipient may not enter into an agreement to provide for an alternative treatment with respect to the supply and importation of the goods ^{Footnote 67} since the manufacturer is not a registrant and did not account for the importation of the goods.

Example no. 7 – Sale of goods

Facts

1. A non-resident non-registrant manufacturer agrees to make a taxable supply of goods by way of sale to a registered resident who will use the goods in the course of its activities.

2. Delivery of the goods to the recipient occurs at the premises of the recipient in Canada.

3. Pursuant to the agreement for the supply of the goods, the manufacturer will transport the goods to the premises of the recipient in Canada, be the importer of record with respect to the importation and pay the tax on the importation.

Decision

The recipient is entitled to an ITC for the tax on the importation of the goods. The recipient may claim an ITC for the tax on the importation of the goods provided the recipient obtains a copy of the import documentation from the manufacturer.

Rationale

The supply is a specified supply of goods because the goods are imported after the supply of the goods is made.

Since the supply of the goods is made by an unregistered non-resident person who does not carry on business in Canada, the supply is deemed made outside Canada ^{Footnote 68}. As a result, tax will not be collected in respect of the supply.

Although a specified supply is made, the rules in section 178.8 of the Act do not apply in this case. Rather, section 180 of the Act applies ^{Footnote 69} as a result of the manufacturer having paid the tax on the importation. Where the manufacturer provides the recipient with a copy of the import documentation, the recipient is deemed to have paid tax in respect of a supply of the goods equal to the tax paid on the importation when the manufacturer paid the tax. The recipient is consequently entitled to an ITC for the tax on the importation of the goods.

Example no. 8 – Sale of goods

Facts

1. A registered non-resident manufacturer imports goods and holds them at its premises in Canada as inventory for sale to both resident and non-resident customers.

2. The manufacturer is the importer of record with respect to the importation of the goods.

3. A few days after the importation of the goods, the manufacturer enters into an agreement to sell the goods to a registered resident wholesaler.

4. The manufacturer will ship the goods to the premises of the wholesaler in Canada.

Decision

The manufacturer is entitled to an ITC for the tax on the importation of the goods.

Rationale

The supply of the goods made by the manufacturer to the wholesaler is not a specified supply since the goods have already been imported and are in Canada when the supply of the goods is made. As a result, the rules in section 178.8 of the Act do not apply.

The supply of the goods by the manufacturer is made in Canada because delivery of the goods to the wholesaler occurs in Canada ^{Footnote 70}. The manufacturer is therefore required to collect tax in respect of the supply of the goods. The wholesaler would be entitled to an ITC for that tax.

The manufacturer who makes a supply of the goods in Canada and is the importer of record is the de facto importer who imports the goods for supply in the course of its commercial activities ^{Footnote 71}. The manufacturer is therefore entitled to an ITC for the tax on the importation of the goods.

Example no. 9 – Sale of goods

Facts

1. A registered non-resident manufacturer agrees to make a taxable supply of goods by way of sale to a registered resident who will use the goods in the course of its activities.

2. Delivery of the goods to the recipient occurs at the premises of the recipient in Canada.

3. Pursuant to the agreement for the supply of the goods, the manufacturer will transport the goods to the premises of the recipient in Canada, be the importer of record with respect to the importation and pay the tax on the importation.

Decision

The manufacturer is entitled to an ITC for the tax on the importation of the goods.

Rationale

The supply is a specified supply of goods because the goods are imported after the supply of the goods is made.

The supply of the goods by the manufacturer is made in Canada because delivery of the goods to the recipient occurs in Canada ^{Footnote 72}. The manufacturer is therefore required to collect tax in respect of the supply of the goods. The recipient would be entitled to an ITC for that tax.

Although a specified supply is made, the rules in section 178.8 of the Act are not relevant in determining who is entitled to an ITC for the tax on the importation of the goods. There is no constructive importer because there is no recipient of a specified supply made outside Canada before the release of the goods.

The manufacturer who is the importer of record is the de facto importer who imports the goods for supply in the course of its commercial activities ^{Footnote 73}. The manufacturer is therefore entitled to an ITC for the tax on the importation of the goods.

Example no. 10 – Sale of goods

Facts

1. A registered non-resident manufacturer agrees to make a taxable supply of goods by way of sale to a registered recipient who will use the goods in the course of its activities.

2. Delivery of the goods to the recipient occurs at the premises of the recipient in Canada.

3. Pursuant to the agreement for the supply of the goods, the manufacturer will transport the goods to the premises of the recipient in Canada and the recipient will be the importer of record with respect to the importation and pay the tax on the importation.

Decision

The recipient is entitled to an ITC for the tax on the importation of the goods.

Rationale

A specified supply of goods is made since the goods are imported after the supply of the goods is made.

The supply of the goods by the manufacturer is made in Canada because delivery of the goods to the recipient occurs in Canada ^{Footnote 74}. The manufacturer is therefore required to collect tax in respect of the supply of the goods. The recipient would be entitled to an ITC for the tax.

Although a specified supply is made, the rules in section 178.8 of the Act are not relevant in determining who is entitled to an ITC for the tax on the importation of the goods. There is no constructive importer because there is no recipient of a specified supply made outside Canada before the release of the goods.

The recipient who acted as the importer of record and consequently has the import documentation to support an ITC claim will be considered the de facto importer who imported the goods for use in the course of its commercial activities. The recipient will therefore be entitled to an ITC for both the tax on the importation of the goods and the tax on the supply of the goods made in Canada.

Example no. 11 – Sale of goods ^{Footnote 75}

Facts

1. A registered non-resident wholesaler enters into an agreement to purchase goods from a non-registrant non-resident manufacturer.

2. The wholesaler subsequently enters into an agreement to make a taxable supply of the goods by way of sale to a registered resident retailer who will supply the goods in Canada in the course of its activities.

3. Delivery of the goods to the wholesaler and to the retailer occurs at the premises of the retailer in Canada.

4. Pursuant to the agreement for the supply of the goods to the retailer, the wholesaler must have the goods shipped from the premises of the manufacturer outside Canada to the premises of the retailer.

5. The wholesaler also agrees to be the importer of record with respect to the importation of the goods and pay the tax on the importation.

6. Pursuant to the agreement for the supply of the goods to the wholesaler, the manufacturer must have the goods shipped from its premises outside Canada to the premises of the retailer in Canada.

Decision

The wholesaler is entitled to an ITC for the tax on the importation of the goods.

Rationale

A specified supply of the goods is made by the manufacturer and the wholesaler since the goods are imported after each of the supplies of the goods is made.

The specified supply made by the wholesaler is made in Canada since delivery of the goods to the retailer occurs in Canada ^{Footnote 76}. The wholesaler is therefore required to collect tax in respect of that supply. The retailer would be entitled to an ITC for the tax.

The specified supply of the goods made by the manufacturer is made outside Canada because it is made by an unregistered non-resident person who does not carry on business in Canada ^{Footnote 77}. As a result, tax will not be collected in respect of that supply.

The wholesaler is the recipient of a specified supply of the goods made outside Canada and does not make a supply of the goods outside Canada before their release. The wholesaler is therefore the constructive importer of the goods. The goods imported for supply by the wholesaler are therefore deemed to have been so imported, and the tax to have been paid, solely on behalf of the wholesaler ^{Footnote 78}. The wholesaler is therefore entitled to an ITC for the tax on the importation of the goods.

The parties may not enter into an agreement to provide for an alternative treatment with respect to the supply and importation of the goods ^{Footnote 79} because there is not a specified supply made outside Canada by a registrant in this case.

Example no. 12 – Sale of goods

Facts

1. A registered non-resident wholesaler enters into an agreement to purchase goods from a non-registrant non-resident manufacturer.

2. The wholesaler subsequently enters into an agreement to make a taxable supply of the goods by way of sale to a registered resident retailer who will supply the goods in Canada in the course of its activities.

3. Delivery of the goods to the wholesaler and to the retailer occurs at the premises of the retailer in Canada.

4. Pursuant to the agreement for the supply of the goods to the retailer, the wholesaler must have the goods shipped from the premises of the manufacturer outside Canada to the premises of the retailer.

5. The retailer agrees to be the importer of record with respect to the importation of the goods and to pay the tax on the importation.

6. Pursuant to the agreement for the supply of the goods to the wholesaler, the manufacturer must have the goods shipped from its premises outside Canada to the premises of the retailer in Canada.

Decision

The retailer is entitled to an ITC for the tax on the importation of the goods.

Rationale

A specified supply of the goods is made by the manufacturer and the wholesaler since the goods are imported after each of the supplies of the goods are made. As a result, the rules in section 178.8 of the Act may apply.

The specified supply made by the wholesaler is made in Canada since delivery of the goods to the retailer occurs in Canada ^{Footnote 80}. The wholesaler is therefore required to collect tax in respect of the supply of the goods. The retailer would be entitled to an ITC for the tax.

The specified supply of the goods made by the manufacturer to the wholesaler is made outside Canada because it is made by an unregistered non-resident person who does not carry on business in Canada ^{Footnote 81}. As a result, tax will not be collected in respect of the supply of the goods.

The wholesaler is the recipient of a specified supply of the goods made outside Canada and does not make a supply of the goods outside Canada before their release. The wholesaler is therefore the constructive importer of the goods. The goods imported for supply by the wholesaler are therefore deemed to have been so imported, and the tax to have been paid, solely on behalf of the wholesaler ^{Footnote 82}. However, the wholesaler, who was not the importer of record, would have to obtain the importation documentation from the retailer to support the claiming of an ITC. Provided the wholesaler does not claim the ITC, the retailer who is the importer of record and thus has the import documentation will instead be considered to have imported the goods for supply in the course of its commercial activities and be entitled to an ITC for the tax on the importation of the goods ^{Footnote 83}. This will avoid the need for the retailer to pass on the import documentation to the wholesaler to support the claiming of an ITC.

The parties may not enter into an agreement to provide for an alternative treatment with respect to the supply and importation of the goods ^{Footnote 84} because there is not a specified supply made outside Canada by a registrant in this case.

Example no. 13 – Sale of goods

Facts

1. A registered non-resident wholesaler enters into an agreement to purchase goods from a non-registrant non-resident manufacturer.

2. The wholesaler subsequently enters into an agreement to make a taxable supply of goods by way of sale to a registered resident retailer who will supply the goods in Canada in the course of its activities.

3. Delivery of the goods to the wholesaler and to the retailer occurs at the premises of the retailer in Canada.

4. Pursuant to the agreement for the supply of the goods to the retailer, the wholesaler must have the goods shipped from the premises of the manufacturer outside Canada to the premises of the retailer.

5. The manufacturer agrees to be the importer of record with respect to the importation of the goods and to pay the tax on the importation.

6. Pursuant to the agreement for the supply of the goods to the wholesaler, the manufacturer must have the goods shipped from its premises outside Canada to the premises of the retailer in Canada.

Decision

The wholesaler is entitled to an ITC for the tax on the importation of the goods. The wholesaler may claim an ITC for the tax on the importation of the goods provided the wholesaler obtains a copy of the import documentation from the manufacturer.

Rationale

A specified supply of the goods is made by the manufacturer and the wholesaler since the goods are imported after each of the supplies of the goods is made.

The specified supply made by the wholesaler is made in Canada since delivery of the goods to the retailer occurs in Canada ^{Footnote 85}. The wholesaler is therefore required to collect tax in respect of the supply of the goods.

The specified supply of the goods made by the manufacturer to the wholesaler is made outside Canada because it is made by an unregistered non-resident person who does not carry on business in Canada ^{Footnote 86}. As a result, tax will not be collected in respect of the supply of the goods.

The wholesaler is the recipient of a specified supply of the goods made outside Canada and does not make a supply of the goods outside Canada before their release. Therefore, the wholesaler is the constructive importer of the goods. However, the rules in section 178.8 of the Act do not apply in this case. Rather, section 180 of the Act applies ^{Footnote 87} as a result of the manufacturer having paid the tax on the importation. Where the manufacturer provides the wholesaler with a copy of the import documentation, the wholesaler is deemed to have paid tax in respect of a supply of the goods equal to the tax paid on the importation when the manufacturer paid the tax. As a result, the wholesaler is entitled to an ITC for the tax on the importation of the goods.

Example no. 14 – Sale of goods

Facts

1. A registered non-resident wholesaler enters into an agreement to purchase goods from a non-registrant non-resident manufacturer.

2. The wholesaler subsequently enters into an agreement to make a taxable supply of goods by way of sale to a registered resident retailer who will supply the goods in Canada in the course of its activities.

3. Delivery of the goods to the wholesaler and to the retailer occurs at the premises of the manufacturer outside Canada.

4. Pursuant to the agreements for the supply of the goods to the retailer and the wholesaler, the wholesaler and the manufacturer respectively agree to arrange for the goods to be shipped from the premises of the manufacturer outside Canada to the premises of the retailer in Canada.

5. The manufacturer further agrees to be the importer of record with respect to the importation of the goods and to pay the tax on the importation.

Decision

The retailer is entitled to an ITC for the tax on the importation of the goods. The retailer may claim an ITC for the tax on the importation of the goods provided the retailer obtains a copy of the import documentation from the manufacturer.

Rationale

A specified supply of the goods is made by the manufacturer and the wholesaler since the goods are imported after each of the supplies of the goods is made.

The specified supplies are deemed to be made outside Canada because delivery of the goods to the recipients occurs outside Canada ^{Footnote 88}. As a result, the manufacturer and the wholesaler are not required to collect tax in respect of the supplies of goods.

The retailer is the recipient of a specified supply of the goods made outside Canada and does not make a supply of the goods outside Canada before their release. The retailer is therefore the constructive importer of the goods. The goods imported for supply by the retailer are therefore deemed to have been so imported, and the tax to have been paid, solely on behalf of the retailer ^{Footnote 89}. As a result, the retailer is entitled to an ITC for the tax on the importation of the goods. The retailer must obtain a copy of the importation documentation from the non-resident manufacturer in order to claim the ITC to which it is entitled.

The parties may not enter into an agreement to provide for an alternative treatment with respect to the supply and importation of the goods ^{Footnote 90} since the wholesaler did not act as the importer of record.

It should be noted that although the supply made to the wholesaler is made by an unregistered non-resident who paid the tax on the importation of the goods, section 180 of the Act is not applicable in this case because delivery of the goods to the wholesaler occurs outside Canada.

Example no. 15 – Sale of goods

Facts

1. A registered non-resident wholesaler enters into an agreement to purchase goods from a non-registrant non-resident manufacturer.

2. The wholesaler subsequently enters into an agreement to make a taxable supply of goods by way of sale to a registered resident retailer who will supply the goods in Canada in the course of its activities.

3. Delivery of the goods to the wholesaler and to the retailer occurs at the premises of the manufacturer outside Canada.

4. Pursuant to the agreements for the supply of the goods to the retailer and the wholesaler, the wholesaler and the manufacturer respectively agree to arrange for the goods to be shipped from the premises of the manufacturer outside Canada to the premises of the retailer in Canada.

5. The wholesaler further agrees to be the importer of record with respect to the importation of the goods and to pay the tax on the importation.

Decision

The retailer is entitled to an ITC for the tax on the importation of the goods. The retailer may claim an ITC for the tax on the importation of the goods provided the retailer obtains a copy of the import documentation from the wholesaler.

The wholesaler and the retailer may enter into an agreement with respect to the supply and importation of the goods pursuant to which the wholesaler rather than the retailer will be entitled to an ITC for the tax on the importation of the goods and the specified supply of the goods will be deemed to have been made in Canada ^{Footnote 91}. The wholesaler would be required to collect tax ^{Footnote 92} on the supply of the goods and the retailer would be entitled to an ITC for that tax.

Rationale

A specified supply of the goods is made by the manufacturer and the wholesaler since the goods are imported after each of the supplies of the goods are made.

The specified supplies are deemed to be made outside Canada because delivery of the goods to the recipients occurs outside Canada ^{Footnote 93}. As a result, the manufacturer and the wholesaler are not required to collect tax in respect of the supplies of goods.

The retailer is the recipient of a specified supply of the goods made outside Canada and does not make a supply of the goods outside Canada before their release. The retailer is therefore the constructive importer of the goods. Therefore, notwithstanding that the wholesaler is the importer of record, the goods imported for supply by the retailer are deemed to have been so imported, and the tax to have been paid, solely on behalf of the retailer ^{Footnote 94}. The retailer is entitled to an ITC for the tax on the importation of the goods. The retailer must obtain a copy of the importation documentation from the wholesaler in order to claim the ITC to which it is entitled.

The wholesaler and the retailer could enter into an agreement with respect to the supply and importation of the goods pursuant to which the wholesaler rather than the retailer would be entitled to an ITC for the tax on the importation of the goods and the specified supply of the goods would be deemed to have been made in Canada ^{Footnote 95}. The wholesaler would be required to collect tax on the supply of the goods and the retailer would be entitled to an ITC for that tax.

Although a supply is made to the retailer by a non-resident who paid the tax on the importation, section 180 of the Act is not applicable in this case since the wholesaler is registered and the goods are delivered to the retailer outside Canada.

Example no. 16 – Sale of goods

Facts

1. A registered non-resident wholesaler enters into an agreement to supply goods to a registered resident retailer who will supply the goods in Canada in the course of its activities.

2. The wholesaler subsequently enters into an agreement to purchase the required goods from a non-registrant non-resident manufacturer.

3. Delivery of the goods to the wholesaler and to the retailer occurs at the premises of the manufacturer outside Canada.

4. Pursuant to the agreements for the supply of the goods to the retailer and the wholesaler, the wholesaler and the manufacturer respectively agree to arrange for the goods to be shipped from the premises of the manufacturer outside Canada to the premises of the retailer in Canada.

5. The wholesaler further agrees to be the importer of record with respect to the importation of the goods and to pay the tax on the importation.

Decision

The retailer is entitled to an ITC for the tax on the importation of the goods. The retailer may claim an ITC for the tax on the importation of the goods provided the retailer obtains a copy of the import documentation from the wholesaler.

Rationale

A specified supply of the goods is made by the manufacturer and the wholesaler since the goods are imported after each of the supplies of the goods is made.

The specified supplies are deemed to be made outside Canada because delivery of the goods to the recipients occurs outside Canada ^{Footnote 96}. As a result, the manufacturer and wholesaler are not required to collect tax in respect of the supplies of goods.

The retailer is the recipient of a specified supply of the goods made outside Canada and does not make a supply of the goods outside Canada before their release. Therefore, the retailer is the constructive importer of the goods. Notwithstanding that the wholesaler is the importer of record, the goods imported for supply by the retailer are therefore deemed to have been so imported, and the tax to have been paid, solely on behalf of the retailer ^{Footnote 97}. The retailer is entitled to an ITC for the tax on the importation of the goods. The retailer must obtain a copy of the importation documentation from the wholesaler in order to claim the ITC to which it is entitled.

The wholesaler and the retailer could enter into an agreement with respect to the supply and importation of the goods pursuant to which the wholesaler rather than the retailer would be entitled to an ITC for the tax on the importation of the goods and the specified supply of the goods would be deemed to have been made in Canada ^{Footnote 98}. The wholesaler would be required to collect tax on the supply of the goods and the retailer would be entitled to an ITC for that tax.

Although a supply is made to the retailer by a non-resident who paid the tax on the importation, section 180 of the Act is not applicable in this case since the wholesaler is registered.

Example no. 17 – Sale of goods

Facts

1. A registered resident wholesaler enters into an agreement to purchase goods from a registered non-resident manufacturer.

2. The wholesaler subsequently enters into an agreement to make a taxable supply of goods by way of sale to a registered resident retailer who will supply the goods in Canada in the course of its activities.

3. Delivery of the goods to the wholesaler and to the retailer occurs at the premises of the manufacturer outside Canada.

4. Pursuant to the agreements for the supply of the goods to the retailer and the wholesaler, the wholesaler and the manufacturer respectively agree to arrange for the goods to be shipped from the premises of the manufacturer outside Canada to the premises of the retailer in Canada.

5. The wholesaler further agrees to be the importer of record with respect to the importation of the goods and to pay the tax on the importation.

Decision

The retailer is entitled to an ITC for the tax on the importation of the goods. The retailer may claim an ITC for the tax on the importation of the goods provided the retailer obtains a copy of the import documentation from the wholesaler.

The wholesaler and the retailer could enter into an agreement with respect to the supply and importation of the goods pursuant to which the wholesaler rather than the retailer would be entitled to an ITC for the tax on the importation of the goods and the specified supply of the goods would be deemed to have been made in Canada ^{Footnote 99}. The wholesaler would be required to collect tax on the supply of the goods and the retailer would be entitled to an ITC for that tax.

Rationale

A specified supply of the goods is made by the manufacturer and the wholesaler since the goods are imported after each of the supplies of goods is made.

The specified supplies are deemed to be made outside Canada since delivery of the goods to the recipients occurs outside Canada ^{Footnote 100}. As a result, the manufacturer and the wholesaler are not required to collect tax in respect of the supplies of goods.

The retailer is the recipient of a specified supply of the goods made outside Canada and does not make a supply of the goods outside Canada before their release. The retailer is therefore the constructive importer of the goods. Therefore, notwithstanding that the wholesaler is the importer of record, the goods imported for supply by the retailer are deemed to have been so imported, and the tax to have been paid, solely on behalf of the retailer ^{Footnote 101}. As a result, the retailer is entitled to an ITC for the tax on the importation of the goods. The retailer must obtain a copy of the importation documentation from the wholesaler in order to claim the ITC to which it is entitled.

The wholesaler and the retailer could enter into an agreement with respect to the supply and importation of the goods pursuant to which the wholesaler rather than the retailer would be entitled to an ITC for the tax on the importation of the goods and the specified supply of the goods would be deemed to have been made in Canada ^{Footnote 102}. The wholesaler would be required to collect tax on the supply of the goods and the retailer would be entitled to an ITC for that tax.

As shown in this example, the fact that the registered wholesaler is a resident does not prevent the rules in section 178.8 of the Act from applying.

Example no. 18 – Sale of goods ^{Footnote 103}

Facts

1. A resident wholesaler who is an unregistered small supplier ^{Footnote 104} enters into an agreement to purchase goods from a non-registrant non-resident manufacturer.

2. The wholesaler subsequently enters into an agreement to make a taxable supply of the goods by way of sale to a registered resident retailer who will supply the goods in Canada in the course of its activities.

3. Delivery of the goods to the wholesaler and to the retailer occurs at the premises of the retailer in Canada.

4. Pursuant to the agreement for the supply of the goods to the retailer, the wholesaler must have the goods shipped from the premises of the manufacturer outside Canada to the premises of the retailer in Canada.

5. The wholesaler agrees to be the importer of record with respect to the importation of the goods and to pay the tax on the importation.

6. Pursuant to the agreement for the supply of the goods to the wholesaler, the manufacturer must have the goods shipped from its premises outside Canada to the premises of the retailer.

Decision

Neither the wholesaler nor the retailer is entitled to an ITC for the tax on the importation of the goods.

Rationale

A specified supply of the goods is made by the manufacturer and the wholesaler since the goods are imported after each of the supplies of the goods is made.

The specified supply made by the wholesaler is made in Canada because delivery of the goods to the retailer occurs in Canada ^{Footnote 105}. However, the wholesaler is not required to collect tax since the wholesaler is not a registrant.

The specified supply of the goods made by the manufacturer to the wholesaler is made outside Canada because it is made by an unregistered non-resident person who does not carry on business in Canada ^{Footnote 106}. As a result, tax will not be collected in respect of the supply.

The wholesaler is the recipient of a specified supply of the goods made outside Canada and does not make a supply of the goods outside Canada before their release. The wholesaler is therefore the constructive importer of the goods. The goods imported for supply by the wholesaler are therefore deemed to have been so imported, and the tax to have been paid, solely on behalf of the wholesaler ^{Footnote 107}. However, the wholesaler is not entitled to an ITC for the tax paid on the importation of the goods because the wholesaler is not a registrant. Also, the wholesaler is not required to collect tax on the supply of the goods to the retailer.

The retailer is not entitled to an ITC for the tax paid on the importation because it is not the constructive importer.

Example no. 19 – Sale of goods

Facts

1. A registered non-resident manufacturer imports goods and places them in a Customs bonded warehouse ^{Footnote 108} as inventory.

2. While the goods are in the warehouse, the manufacturer enters into an agreement to sell the goods to a registered resident wholesaler.

3. Delivery of the goods to the wholesaler occurs in the warehouse and prior to the wholesaler obtaining release of the goods.

4. The wholesaler subsequently pays the tax on the imported goods, obtains release of the goods and removes them from the warehouse for eventual sale in Canada.

Decision

The wholesaler is entitled to an ITC for the tax on the importation of the goods.

Rationale

Although the goods were already imported when the agreement was entered into, the supply qualifies as a specified supply. A specified supply includes a supply of goods that have already been imported but that is deemed made outside Canada because they are delivered or made available to the recipient prior to their release.

Although delivery of the goods supplied by the manufacturer to the wholesaler occurs in Canada, the supply is deemed made outside Canada because delivery of the goods occurred prior to their release ^{Footnote 109}. As a result, the manufacturer is not required to collect tax in respect of the supply of the goods.

The wholesaler is the recipient of a specified supply of the goods made outside Canada and does not make a supply of the good outside Canada before their release. The wholesaler is therefore the constructive importer of the goods. The goods that are imported for supply by the wholesaler are deemed to have been so imported, and the tax to have been paid, solely on behalf of the wholesaler ^{Footnote 110}. As a result, the wholesaler is entitled to an ITC for the tax on the importation of the goods.

The manufacturer and wholesaler may not enter into an agreement with respect to the supply and importation of the goods ^{Footnote 111} since the manufacturer did not account for the importation of the goods.

Example no. 20 – Sale of goods

Facts

1. A registered non-resident manufacturer imports goods and places them in a Customs bonded warehouse ^{Footnote 112} as inventory.

2. While the goods are in the warehouse, the manufacturer enters into an agreement to sell the goods to a registered resident wholesaler.

3. Delivery of the goods to the wholesaler occurs at the premises of the wholesaler in Canada.

4. The manufacturer will ship the goods to the premises of the wholesaler in Canada.

5. When the agreement for the supply of the goods is entered into, the manufacturer agrees to be the importer of record with respect to the importation of the goods.

6. The manufacturer subsequently pays the tax on the imported goods, obtains release of the goods and then has the goods shipped from the warehouse to the premises of the wholesaler in Canada.

Decision

The manufacturer is entitled to an ITC for the tax on the importation of the goods.

Rationale

The supply of the goods made by the manufacturer is not a specified supply since the goods were already imported when the agreement was entered into,. Also, the imported goods are not deemed supplied outside Canada because they were not delivered to the wholesaler prior to their release. As a result, the rules in section 178.8 of the Act do not apply.

Delivery of the goods to the wholesaler occurs after the goods have been released. As a result, the place of supply rule in section 144 of the Act does not apply. The supply of the goods made by the manufacturer is deemed made in Canada since delivery of the goods to the wholesaler occurs in Canada ^{Footnote 113}. As a result, the manufacturer is required to collect tax in respect of the supply of the goods.

The manufacturer who makes a supply of the goods in Canada and is the importer of record is the de facto importer who imports the goods for supply in the course of its commercial activities ^{Footnote 114}. The manufacturer is therefore entitled to an ITC for the tax on the importation of the goods.

Example no. 21 – Commercial service

Facts

1. A registered resident service provider agrees to make a taxable supply of a commercial service to a non-registrant non-resident manufacturer in respect of goods belonging to the manufacturer.

2. The manufacturer ships the goods to the premises of the service provider in Canada.

3. The service provider acquires physical possession of the goods at its premises in Canada.

4. The manufacturer is the importer of record with respect to the importation of the goods and pays the tax on the importation of the goods.

5. Once the service is performed, the service provider transfers physical possession of the goods to a carrier for export to the manufacturer outside Canada.

Decision

The service provider is entitled to an ITC for the tax on the importation of the goods.

Rationale

Where the manufacturer provides the service provider with satisfactory evidence that the tax has been paid on the importation of the goods ^{Footnote 115}, the service provider is deemed under section 180 of the Act to have paid tax ^{Footnote 116} in respect of a supply of the goods to the service provider equal to the tax paid on the importation when the manufacturer paid the tax. The service provider is also deemed to have acquired the goods for use exclusively in its commercial activities. The service provider is therefore entitled to an ITC for the tax that is deemed to have been paid.

It is important to note that the supply of the commercial service would be deemed to be made outside Canada under the drop-shipment rules since physical possession of the goods is transferred to a carrier for export ^{Footnote 117} to the manufacturer after the service is performed ^{Footnote 118}. Generally, unless the goods were exported following the completion of the commercial service, the service provider would be liable under the drop-shipment rules for the collection of tax on the fair market value of the goods ^{Footnote 119} if physical possession of the goods were transferred to another party.

Example no. 22 – Commercial service

Facts

1. A registered resident service provider agrees to make a taxable supply of a commercial service to a non-registrant non-resident manufacturer in respect of goods belonging to the manufacturer.

2. The service provider arranges to have the goods shipped to its premises in Canada.

3. The service provider is the importer of record with respect to the importation of the manufacturer's goods and pays the tax on the importation of the goods.

4. Once the service is performed, the service provider transfers physical possession of the goods to a carrier for export to the manufacturer outside Canada.

Decision

The service provider is entitled to an ITC for the tax on the importation of the goods.

Rationale

Since the service provider is the importer of record with respect to the importation of the goods and paid the tax on the importation, subsection 169(2) of the Act deems the ITC to which the service provider is entitled in respect of the goods to be equal to the tax paid on the importation.

It is important to note that the supply of the commercial service would be deemed to be made outside Canada under the drop-shipment rules since physical possession of the goods is transferred to a carrier for export to the manufacturer after the service is performed ^{Footnote 120}. Generally, unless the goods were exported following the completion of the commercial service, the registrant would be liable under the drop-shipment rules for the collection of tax on the fair market value of the goods ^{Footnote 121} if physical possession of the goods were transferred to another party.

Example no. 23 – Commercial service

Facts

1. A registered resident service provider agrees to make a taxable supply of a commercial service to a non-registrant non-resident wholesaler in respect of goods belonging to the wholesaler.

2. The wholesaler purchases the goods from a non-registrant non-resident manufacturer.

3. Delivery of the goods to the wholesaler occurs at the premises of the manufacturer outside Canada.

4. When the agreement for the supply of the goods to the wholesaler is entered into, the manufacturer agrees to arrange for the shipment of the wholesaler's goods to the premises of the service provider in Canada.

5. The service provider is the importer of record with respect to the importation of the wholesaler's goods and pays the tax on the importation of the goods.

6. Once the service is performed, the service provider transfers physical possession of the goods to a carrier for export to the wholesaler outside Canada.

Decision

The service provider is entitled to an ITC for the tax on the importation of the goods.

Rationale

A specified supply is made by the manufacturer to the wholesaler since the goods are imported after the supply of the goods is made.

The specified supply of the goods made by the manufacturer is deemed to be made outside Canada because delivery of the goods to the wholesaler occurs outside Canada ^{Footnote 122}. As a result, tax is not required to be collected in respect of the supply of the goods.

The wholesaler is the recipient of the last specified supply of goods made outside Canada before their release and would therefore satisfy the definition of a constructive importer ^{Footnote 123} on whose behalf the goods would be solely deemed to have been imported. However, the rules in section 178.8 of the Act do not apply in this case because subsection 169(2) of the Act applies ^{Footnote 124}. Subsection 178.8(9) of the Act ensures that it is the service provider who continues to be considered to have imported the goods and that the rules in section 178.8 of the Act do not interfere with the operation of that ITC relieving mechanism.

Since the service provider is the importer of record with respect to the importation of the goods and paid the tax on the importation, subsection 169(2) of the Act deems the ITC to which the service provider is entitled in respect of the goods to be equal to the tax paid on the importation.

It is important to note that the supply of the commercial service would be deemed to be made outside Canada under the drop-shipment rules since physical possession of the goods is transferred to a carrier for export to the wholesaler after the service is performed ^{Footnote 125}. Generally, unless the goods were exported following the completion of the commercial service, the registrant would be liable under the drop-shipment rules for the collection of tax on the fair market value of the goods ^{Footnote 126} if physical possession of the goods were transferred to another party.

Although the service provider acquired physical possession in Canada of the non-resident's goods in order to perform a commercial service in respect of the goods, section 180 of the Act does not apply in this case since the non-resident did not act as the importer of record of the goods.

Example no. 24 – Commercial service

Facts

1. A registered resident service provider agrees to make a taxable supply of a commercial service to a registered non-resident wholesaler in respect of goods belonging to the wholesaler.

2. The wholesaler purchases the goods from a non-registrant non-resident manufacturer.

3. Delivery of the goods to the wholesaler occurs at the premises of the service provider in Canada.

4. Title to the goods also transfers to the wholesaler once the goods are delivered to the premises of the service provider.

5. Pursuant to the agreement for the supply of the goods to the wholesaler, the manufacturer must have the goods shipped from its premises outside Canada to the premises of the service provider in Canada.

6. The service provider agrees to be the importer of record with respect to the importation of the goods and pays the tax on the importation of the goods.

7. The service provider arranges to have the goods shipped to the wholesaler outside Canada once the service is performed.

Decision

The wholesaler is entitled to an ITC for the tax on the importation of the goods. The wholesaler may claim an ITC for the tax on the importation of the goods provided the wholesaler obtains a copy of the import documentation from the service provider.

Rationale

A specified supply of goods is made by the manufacturer because the goods are imported after the supply of the goods is made.

The supply of the goods by the manufacturer is deemed to be made outside Canada since it is made by an unregistered non-resident person who does not carry on business in Canada ^{Footnote 127}. As a result, tax is not required to be collected in respect of the supply of goods.

The wholesaler is the recipient of a specified supply of the goods made outside Canada and does not make a supply of the goods outside Canada before their release. Therefore, the wholesaler is the constructive importer. The goods that are imported for consumption, use or supply by the wholesaler are deemed to have been so imported, and the tax to have been paid, solely on behalf of the wholesaler ^{Footnote 128}. Therefore, the wholesaler is entitled to an ITC for the tax on the importation of the goods. The wholesaler may claim an ITC for the tax on the importation of the goods provided the wholesaler obtains a copy of the import documentation from the service provider.

Although the service provider is the importer of record of the goods in respect of which it is supplying a commercial service to a non-resident, subsection 169(2) of the Act does not apply in this case since the wholesaler is registered and the goods do not belong to the wholesaler when they are imported. Section 180 of the Act is also not applicable because the wholesaler is registered and did not act as the importer of record with respect to the importation of the goods.

It is important to note that the supply of the commercial service would be zero-rated since the goods that were imported for the sole purpose of having the service performed are exported as soon as is practicable after the service is performed ^{Footnote 129}.

Example no. 25 – Supply of goods

Facts

1. A registered resident manufacturer enters into an agreement to supply manufactured goods by way of sale to a non-registrant non-resident supplier of goods.

2. Pursuant to the agreement, the non-resident provides goods (dies and moulds) that it owns to the manufacturer for use in manufacturing the goods to be supplied to the non-resident. There is no consideration charged to the manufacturer for the use of the goods.

3. The manufactured goods are made from raw materials owned by the manufacturer.

4. When the agreement for the supply of the manufactured goods is entered into, the non-resident agrees to arrange to have the goods shipped from its premises outside Canada to the premises of the manufacturer in Canada. The manufacturer also agrees at that time to be the importer of record with respect to the importation of the goods.

5. The manufacturer transfers physical possession of the manufactured goods to a carrier for export to the non-resident.

Decision

The manufacturer is entitled to an ITC for the tax on the importation of the goods.

Rationale

The non-resident is making a supply to the manufacturer of the use of the dies and moulds. The manufacturer is using the goods to manufacture goods for sale. The supply is a specified supply of goods because the goods are imported after the supply of the goods is made.

Since the supply of the goods made by the non-resident is made by an unregistered non-resident person who does not carry on business in Canada, the supply is deemed made outside Canada ^{Footnote 130}.

The manufacturer is the recipient of a specified supply of the dies and moulds made outside Canada and does not make a supply of the goods outside Canada before their release. The manufacturer is therefore the constructive importer of the goods. The goods that are imported for use by the manufacturer in the course of manufacturing goods for sale are deemed to have been so imported, and the tax to have been paid, solely on behalf of the manufacturer ^{Footnote 131}. Therefore, the manufacturer is entitled to an ITC for the tax

on the importation of the goods.

The manufacturer and the non-resident may not enter into an agreement to provide for an alternative treatment with respect to the supply and importation of the goods ^{Footnote 132} since the non-resident is not a registrant and did not account for the importation.

The supply of the manufactured goods made by the manufacturer is deemed to be made outside Canada under the drop-shipment rules since the goods are transferred to a carrier for export to the non-resident ^{Footnote 133}. Generally, unless the manufactured goods were exported, the registrant would be liable under the drop-shipment rules for the collection of tax on the fair market value of the goods ^{Footnote 134} if physical possession of the goods were transferred to another party.