Example 1: Electronic ordering and downloading of digitized products

A customer selects an item from an on-line catalogue of software or other digitized products and orders it electronically directly from a commercial supplier. There is no separate charge to the customer for using the catalogue. The product is downloaded onto the customer's computer. For a separate fee, the customer will receive updates and add-ons to the product, which are also downloaded directly to the customer's computer.

The supply in this example (i.e., the software or other digitized products, updates, and add-ons), is delivered electronically. The product is already in existence as it is listed in the catalogue and is available for downloading. The customer is provided with a copy of the product, as well as the right to use the product. Consequently, the supply is characterized as a supply of intangible personal property. Similarly, the supply of the updates and add-ons is characterized as a supply of intangible personal property.

Example 2: Limited duration software and other digitized information licences

A customer receives the right to use software or another digitized product for a period of time that is less than the useful life of the product. The product is downloaded to the customer's computer. Upon termination of the licence, all copies of the digitized product are deleted or become unusable.

This is a supply of intangible personal property. Except that the software or other digitized product can only be used temporarily, the characteristics of the supply are the same as in Example 1. Limiting the period of use does not affect the characterization of the supply as one of intangible personal property. This rationale applies even if the digitized product can only be used once.

Example 3: Subscription to a Web site that allows the downloading of digitized products

A supplier makes a Web site available to subscribers that features copyrighted digitized products (e.g., music). Subscribers pay a fixed periodic fee to access the site and to select and download digitized products.

This supply is one of intangible personal property. The subscribers are acquiring a right to use the digitized product and to copy it (by downloading) and the product is already in existence.

Example 4: Software maintenance

A supplier and customer enter into a software maintenance contract, which typically bundles software updates with technical support. The customer is given the right to copy and use the product for personal or commercial purposes and is charged a single annual fee for the software updates and the technical support. The principal object of the contract is the software updates.

As the principal object of the supply is the provision of a software update delivered electronically, the supply is characterized as one of intangible personal property.

Example 5: Customer support over a computer network

A software supplier provides a customer with on-line technical support, including installation advice and trouble-shooting information. This support is in the form of on-line technical documentation, a trouble-shooting database, and, as a last resort, communication with a technician by e-mail.

If the technical support is essentially the supply of a right to use existing technical information in the form of on-line documentation and access to a trouble-shooting database, and the interaction with the technician is incidental, the supply would be characterized as one of intangible personal property.

If technical support is provided through interaction with technicians, and the provision of any rights to documentation or databases is incidental, the supply would be characterized as a supply of a service, since it is of specific work performed for a specific customer.

Example 6: Application hosting - separate licence

A customer with a perpetual licence to use a software product enters into a contract with a host entity, whereby the host entity loads a copy of the software on servers owned and operated by the host and provides technical support to protect against system failures. The customer can access, execute and operate the software application remotely. The application is executed either at the customer's computer after it is downloaded, or remotely on the host's server. This type of arrangement could apply, for example, to financial management, inventory control, human resource management or other enterprise resource management software applications. The customer has no control over the equipment used by the host entity.

The agreement between the host entity and the customer is to host software on a server maintained by the host entity. Since the software licence is held by the customer, there is no provision of rights in the software or for the use of the software between the host entity and the customer. The host entity is essentially providing the space to store and run the software application on its equipment, as well as technical support. Consequently, this is characterized as a supply of a service.

Example 7: Application hosting - bundled contract

For a single fee, a user enters into a contract whereby a host entity, which is also the copyright holder, allows access to one or more software applications, hosts the applications on a server owned and operated by the host, and provides technical support for the hardware and software. The user can access, execute and operate the software application remotely. The contract is renewable annually for an additional fee. The principal object of the contract is the provision of software applications.

This is similar to the supply in Example 6. However, as the host entity (rather than the customer) is the copyright holder for the software, the customer is being provided with the right to use the software. Although the supplier is also hosting the software application(s) on its server(s), and providing technical support for the hardware and the software, the supply is essentially the provision of a right to use software. Consequently, it is characterized as a supply of intangible personal property.

Example 8: Service provider

A supplier has a licence to use a software application in the course of its business. It hosts the software on a server that it owns, operates and maintains. The supplier enters into an agreement with a customer to manage a particular back-office function (e.g., the customer's payment processing), and provides the customer with access to the software application, enabling the customer to perform specific tasks when required (e.g., data entry, addition of tombstone data for new suppliers and clients). However, the supplier is responsible for the major aspects of the payment processing, such as cheque issuance and bank verification, and uses the software application to automate these tasks. The customer has no right to copy the software or use it other than for the specific functions assigned by the supplier, and at no time does the customer have possession or control of the software (since it resides on the supplier's server).

The supply in this instance is for the management of a particular business function, such as payment processing. In making the supply, the supplier has the licence for the necessary software, equipment and personnel necessary to process payments. The customer is provided with access to the software for specific tasks, such as entering data. The provision of the right to use the software for these specific tasks is incidental to the overall supply being made by the supplier (e.g., processing payments on behalf of a customer). Since the supply does not involve the provision of rights (other than incidentally) or other property, it is characterized as a supply of a service.

Example 9: Web site hosting

An Internet Service Provider (ISP) hosts its customers' commercial Web sites on its servers. The ISP does not obtain any rights in the copyrighted material on the site. Customers can remotely manipulate the site, including modifying its content, but do not possess or have direct control of the server(s) used to host the site. The customer pays a fee based on the passage of time.

This is similar to Example 6. The agreement between the supplier and the customer is to host the customer's Web site on a server maintained by the supplier, and the customer maintains all rights in the site. There is no supply of rights or of property between the supplier and the customer, and therefore the supply is characterized as a supply of a service.

Example 10: Data warehousing

A customer stores its computer data on servers owned and operated by a supplier. The customer can access, upload, retrieve and manipulate data remotely. No software is licensed, or rights transferred, to the customer in this transaction. The customer does not have control over or possession of any specific equipment used by the supplier in the data storage. For example, a retailer may store its inventory records on the supplier's hardware, and the retailer's employees may remotely access this information to allow them to determine whether orders can be filled from current stock.

This is similar to Example 9. The agreement between the supplier and customer is to store the customer's computer data on a server maintained by the supplier. Since there is no provision of rights or property, the supply is characterized as a supply of a service.

Example 11: Advertising

Companies pay a fee to Web site operators to place advertisements on their Web sites. Advertising rates may be determined in a number of ways, including the cost per thousand "impressions" (i.e., the number of times the advertisement is displayed to a user), or the number of "click-throughs" (i.e., the number of times the advertisement is clicked by a user). For example, "banner ads," which are small graphic images embedded in a Web page, allow a company's Web page to be loaded to a user's computer when clicked by the user.

An advertising service is a service of creating a message and a service directly related to the communication of such a message. The message must be oriented towards soliciting business, attracting donations, or calling public attention in the form of an information notice, political announcement, or other similar communication.

By publicizing companies' messages on the Internet (i.e., placing advertisements on Web sites), the Web site operators are supplying an advertising service to the companies.

Example 12: On-line shopping portals

A Web site operator hosts electronic catalogues of various merchants on its servers. Shoppers can select products from these catalogues and place orders on-line. The Web site operator has no contractual relationship with the shoppers, and merely transmits orders to the merchants, who are responsible for accepting and filling them. The merchants pay the Web site operator a commission based on a percentage of the value of orders placed through the site.

By hosting the catalogues, the Web site operator is communicating a message intended to solicit business for the merchants. This is a supply of an advertising service.

Example 13: On-line auctions

A Web site operator displays a vendor's items for purchase by auction. On-line shoppers purchase items directly from the owner of the items, rather than from the operator. The vendor compensates the Web site operator with a percentage of the sale price or a flat fee. The vendor and on-line shoppers have only the incidental use of the software to perform certain tasks in respect of the transactions (e.g., payment processing), but are not provided any rights to use the software.

The supply by the Web site operator to the vendor is considered to be a supply of a service. No rights in property or for the use of property are supplied between the operator and the vendor.

Example 14: Data retrieval

A supplier makes a vast repository of information available to customers for search and retrieval purposes. Customers pay a fee which enables them to access the data and to search and extract specific information from the repository. In some instances, the supplier adds significant value in terms of content (e.g., analysis of raw data), but the resulting product is not prepared for a specific customer and there is no obligation to keep the contents confidential. Such products might include special industry or investment reports, which are either sent electronically to subscribers, or are made available for purchase and download from an on-line catalogue or index.

The supply to the customers is a supply of intangible personal property. The supplier is providing customers with a right to access and use the repository of information (i.e., a product already in existence), as well as the software programs required to search and retrieve information from the repository. Although there may be human involvement in maintaining the repository of information (e.g., by adding content or raw data analysis), this is considered to be an input to the supply as there is no human involvement on the part of the supplier when a customer accesses and retrieves information.

Example 15: Access to an interactive Web site

A supplier makes a Web site featuring digitized content available to subscribers, including information, music, video, games, and activities, whether or not developed or owned by the supplier. The subscribers pay a fixed periodic fee for access to the site. The principal value of the site to subscribers is interacting with the site while on-line, as opposed to getting a product or services from the site. The supplier also charges companies a fee for placing their banner or pop-up ads on the site.

In this example there are two separate supplies: the provision of the right to access the content on the Web site, and the placement of banner or pop-up ads.

The subscribers' right to access the content on the Web site is a supply of intangible personal property. In essence it is a supply of a right to use software, and the right to access other digitized content on the Web site. Although a copy of a digitized product is not provided, there is a supply of a right to view, access or use a product while the customer is on-line. As in Example 14, any human involvement occurs behind the scenes in establishing and maintaining the Web site, but there is no human involvement on the part of the supplier when subscribers access the site and its digitized content.

The placement by the supplier of the banner or pop-up ads on its site is a supply of an advertising service, as in Example 11.

Example 16: Electronic access to professional advice (e.g., consulting)

A consultant, lawyer, doctor or other professional service provider advises clients through e-mail, video conferencing, or other remote means of communication.

The supply of the advice to clients, delivered by electronic means, is a supply of a service, as it involves specific work that is performed for a specific client, and does not involve a supply of rights to an existing product.

Example 17: Undisclosed technical information

A customer is provided with undisclosed technical information concerning a product or process (e.g., narrative description and diagrams of a secret manufacturing process).

If the customer is provided with the right to use information by way of licence, whether the information is in existence or is developed specifically for the customer, the supply is one of intangible personal property.

If the supply is one of developing information for a specific customer, and the customer owns the information, it is characterized as a supply of a service.

Example 18: Information delivery

A supplier delivers data electronically on a periodic basis to subscribers (e.g., news clippings or stock market quotations), in accordance with their personal preferences. The principal value to the customers is the convenience of receiving information in a customized format tailored to their specific needs.

The supply is one of a right to customized information. There is no human involvement on the part of the supplier in the making of the supply. Consequently, the supply is characterized as one of intangible personal property.

Example 19: Content acquisition transactions

A Web site operator pays various content providers for news stories, information, and other on-line content to attract users to a site. Alternatively, the Web site operator might hire a content provider to create new content specifically for the Web site.

This could be characterized as either a supply of a service or intangible personal property, depending upon the facts.

Where the supply made by the content provider is of the right to use copyrighted content, it is considered to be a supply of intangible personal property, regardless of whether the content is already in existence (e.g., it has already been published), or it is developed specifically for the customer. Where the content provider develops content specifically for the Web site operator, and the Web site operator owns the content, the supply is characterized as a supply of a service.

Examples

In the following examples the above-noted indicators are used to determine whether the supplies in question are characterized as telecommunication services.

Internet access service

An ISP is a company that provides users with Internet access, for which they pay a fee. The connection is made by a modem, which allows the user to send and receive data over a telephone line. The telephone line is supplied to the user by a third party telephone service provider. To access the Internet, a user "calls" the ISP to log on (if not already connected), and the user's request for a particular Web site is routed to the server hosting the desired data.

This is a supply of a telecommunication service. The predominant purpose of the service is to provide the consumer with a connection, allowing the transmission and reception of data over the Internet. Generally, this is the predominant purpose of the service even where an ISP provides content or access to content as part of its service. The recipient is generally looking to the ISP to supply the means by which access to the Internet is obtained.

E-mail

A company contracts with a vendor to provide e-mail services. For a fee, the vendor will ensure that the company's personnel can send and receive intra-office and external e-mails. The vendor dedicates space on a server for the composition, reception and storage of e-mail messages sent to or by the company. The company is provided with e-mail addresses (ID), a mailbox, and the use of a network, thus allowing its employees to send, receive and store information on a secure basis. The company addresses its outgoing e-mail to a mail recipient's e-mail address, and the mail is routed to the server and forwarded to its final destination. Incoming mail addressed to the company is routed to the server and directed to a particular employee.

This is a supply of a telecommunication service. The predominant purpose of the service is to allow the company to send and receive e-mail. The vendor is providing the company with a service of transmitting text, images, etc., by means of its server and the use of a network.

Web site hosting

A company enters into an agreement with an ISP to provide Web site hosting services for the company's Web site. Under the agreement, the ISP is responsible for housing the Web site on a server it owns and maintains, which includes ensuring the security of the server and that the Web site is accessible over the Internet. The server is linked to the Internet through dedicated lines acquired from a telephone service provider. The company is responsible for the design and content of the Web site. The agreement only addresses the Web site hosting arrangements and does not deal with Internet access.

This is not a supply of a telecommunication service. The predominant purpose of the supply is the storage and maintenance of the Web site on a server in a manner that allows access to the Web site on the Internet. In making the supply of this service the ISP uses or consumes a number of inputs (e.g., telecommunication services, hardware and software).

Internet access services, e-mail and personal Web page

A consumer pays a fee to an ISP for Internet access. In addition to the Internet access, the consumer receives e-mail services and space on the ISP's server to create and maintain a personal Web page. The consumer determines the content of the Web page, but it is hosted on the ISP's server.

The service provided by the ISP is a supply of a telecommunication service. This is a typical transaction between an ISP and an individual consumer. The ISP is making a single supply which includes providing the consumer with a connection to the Internet, an e-mail account, and space on the ISP's server. The predominant purpose of the supply to the consumer is the Internet connection. As in the case of Internet access services, the supply of a connection to the Internet is considered to be a telecommunication service.

Voice telephony services provided through the Internet

A consumer pays a fee to a company for long distance "telephone calls" made over the Internet. The consumer is able to place these calls from his or her computer or telephone any place in the world. The calls are routed through the networks that make up the backbone of the Internet.

This is a supply of a telecommunication service. The predominant purpose of the supply is to provide the transmission of voice communication. The supplier of the voice telephony is providing a traditional voice telephone service, except that the service is being provided over the Internet.

Electronic Data Interchange (EDI) transmission of income tax returns

A company is engaged by an approved EFILE tax preparer to electronically file income tax returns for its clients. The tax preparer completes all of the income tax returns prior to submitting them to the company for electronic transmission. Upon receipt of the returns, the company validates the format of the returns, encrypts the data, validates the values indicated in the tax return boxes (e.g., SIN numbers), and electronically submits the returns to the CCRA.

This is a supply of a telecommunication service. The predominant purpose of the supply is the electronic transmission of data. The validation and encryption are part of the service of transmitting the data.

Preparation and EDI transmission of income tax returns

A consumer pays a fee to a tax preparer to prepare and electronically file his or her income tax return with the CCRA. The tax preparer completes the income tax return, validates the format and values, encrypts the data, and electronically transmits the return to the CCRA.

This is not a supply of a telecommunication service. The tax preparer is making a single supply which comprises a number of elements, including preparation of the tax return and its transmission to the CCRA. The predominant purpose of the supply is the preparation of the tax return. Therefore, the supply is not a telecommunication service.

Provision of digitized products (e.g., film, video, music)

A consumer selects and orders a digitized product from a commercial supplier. For a fee, the digitized product is available for downloading by the consumer.

This is not a supply of a telecommunication service. The supply of a digitized product that is readily available for download over the Internet is the supply of intangible personal property. In this instance, a telecommunication service is used or consumed by the supplier in making the supply of the digitized product.

Web-based broadcasting

A consumer pays a subscription fee for access to a Web site with audio and/or visual content that is streamed (i.e., broadcast in real time) over the Internet. A copy of the content is not provided to the consumer.

The supply of the audio and/or visual content streamed over the Internet is a telecommunication service. The predominant purpose of the supply is to provide the consumer with the broadcast content. This is analogous to a traditional radio or television broadcasting service, which is considered to be a telecommunication service for GST/HST purposes.