GST/HST Ruling

Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.

GST/HST Rulings Directorate
Place de Ville, Tower A, 5th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 242566r

Business Number:

Dear [Client]:

Subject: GST/HST RULING
GST/HST on fees or charges for capital costs

Thank you for your letter of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the payment of capital contributions by a company to a municipality that is undertaking a municipal construction project.

We provided you with a ruling, dated [mm/dd/yyyy], under case number 242566. As a result of your [recent] letter and additional documentation submitted, we wish to revise our previous ruling. […]

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.

STATEMENT OF FACTS

We understand the following:

1. […] ([The] Municipality) is located in the […] Province of Ontario. The Municipality is […] registered for GST/HST purposes.

2. Subsection 11(3) of the Municipal Act, 2001, S.O. 2001, c. 25 (Municipal Act) provides that […] municipalities may pass by-laws respecting public utilities. Section 1 of the Municipal Act defines a “public utility” to include a system that is used to provide sewage and water services for the public.

3. Subsection 391(1) of the Municipal Act authorizes a municipality to impose a fee or charge on persons, for services or activities provided or done by or on behalf of it, for costs payable by it for services or activities provided or done by or on behalf of any other municipality or local board, and for the use of its property including property under its control.

4. Subsection 391(2) of the Municipal Act provides that a fee or charge imposed for capital costs related to services or activities that may be imposed on persons not receiving an immediate benefit from the services or activities but who will receive a benefit at some later point in time.

5. […][By-law A], authorizes the construction [or expansion] of the […][Municipality’s] sanitary sewer system and to establish a serviced area in the settlement areas of [the Municipality] and to impose connection requirements and charges to obtain revenue to pay the capital cost thereof.

6. According to [By-law A]:

* Section 391 of the Municipal Act provides that the Municipality may pass by-laws imposing charges on any class of persons for capital costs payable by it for sewage and other services which will be provided by the Municipality after the charges are imposed.

* Sections 9, 11 and Part XII of the Municipal Act and the Regulations thereto authorize the imposition of a charge for capital costs related to the Municipal sewage services, and thus the Sanitary Sewer, upon the owners of lands to whom such services are provided.

* Council deems it necessary, desirable and in the public interest to require all Owners to connect to the Sanitary Sewer and related Service Pipes pursuant to its authority under Sections 8 and 11 of the Municipal Act.

* No person can construct, operate, use or maintain an on-site private sewage system, including septic tank system and/or holding tank, and all future development requiring sanitary sewers must connect to the municipal sewer services, other than exempt properties.

7. […][By-law B], prohibits the discharge of wastewater into the sewage collection and wastewater treatment system that exceeds specified limits unless a discharger has entered into an Extra Strength Surcharge Agreement with the Municipality, and allows the Municipality to include terms and conditions in its Extra Strength Surcharge Agreement related to the calculation and payment for discharge.

8. […][By-law C] imposes fees and charges for goods and services provided by the Municipality, enacted in accordance with subsection 391(1) of the Municipal Act. Fees for wastewater treatment services are imposed by the Municipality under this By-law, including industrial waste fees as per agreement.

9. […] ([The] Company) […][which is located] within the municipal area, […] owns and operates a […] [processing facility] on lands owned by the Company. The [Company’s processing] facility […] generates wastewater that is treated at the Municipality’s […] (Treatment Plant).

10. […][By-law D] authorized an Agreement made on [mm/dd/yyyy], between the Company and the Municipality (Parties) to allow the discharge of extra-strength sewage into the sewage collection and treatment system in the Municipality. The Parties entered into an Extra Strength Surcharge Agreement (Surcharge Agreement) that sets out specific terms and conditions under which the Company is allowed to discharge extra-strength sewage into the Municipality’s sewage collection and treatment system. The Surcharge Agreement forms part of [By-law D].

11. […][By-law E] authorized an Amending Agreement […] between the Parties allowing the Company to discharge additional extra-strength wastewater into the Municipality’s sewage collection and wastewater treatment system and provide for an additional monthly maintenance payment.

12. According to the terms of the Surcharge Agreement and the Amending Agreement:

* The Company agreed to contribute to the cost of construction of the [Municipality’s] sewage collection and treatment system […], and the Municipality agreed to allow the Company to discharge wastewater, without pre-treatment, to the […][sewage collection and treatment system] which would otherwise be prohibited by [By-law B].

* The Company agreed to pay to the Municipality the following:

a) $[…] over [#] years […], starting on [mm/dd/yyyy];

b) a per kilogram amount of excess biochemical oxygen demand (BOD) loads;

c) a per cubic metre/per day amount as a flow rate; and

d) a fixed rate monthly maintenance amount.

* The Company is also required to pay to the Municipality additional amounts for any breach of the agreements where either the flow or BOD loads limits are exceeded.

* The Municipality is required to consider any reasonable request from the Company to increase wastewater flows and/or BOD loads from the limits outlined in the Surcharge Agreement.

13. On [mm/dd/yyyy], the Parties entered into […][Agreement X] for an addition to the Company’s […] processing facility as part of an expansion of its operations. The addition was expected to result in an increased level of wastewater discharge into the Municipality’s sewage collection and wastewater treatment system. Construction started in [yyyy].

14. [By-law F], authorized the entering into the [Agreement X] between the Parties under subsection 41(7) of the Planning Act, 1990.

15. According to the Recitals of the [Agreement X]:

* The Municipality approved the plans and drawings submitted by the Company on [mm/dd/yyyy], [...][for the expansion of building 1].

* The Company acknowledges that sufficient uncommitted reserve sewage capacity is not presently available at the Treatment Plant to accommodate the expected sewage effluent from the Company’s approved expansion of […][building 1].

* The Company acknowledges that a financial contribution from the Company to the Municipality will be required in order to construct and/or allocate sufficient uncommitted reserve sewage capacity at the Treatment Plant.

* The Company acknowledges that the [building 1] expansion shall not be used or occupied until either sufficient uncommitted reserve sewage capacity is available at the Treatment Plant; or the Parties agree on an alternative method of handling any hydraulic load and/or BOD levels that are in excess of today’s parameters resulting from the expansion.

16. According to [Agreement X]:

The Company agrees not to permit use or occupancy of any part of the building for which building permits have been issued as part of the approved expansion of [building 1], or request the issuance of an Occupancy Permit, under section 11 of the Building Code Act, 1992, for [building 1] until such time as sufficient uncommitted reserve sewage capacity, as defined by the Ministry of the Environment and Climate Change, is available at the Treatment Plant to the satisfaction of the Operations Manager of the Municipality, or the Company implements an alternative method of handling any hydraulic load and/or BOD levels that are in excess of today’s parameters in a manner satisfactory to the Parties, acting in a commercially reasonable manner.

If the sufficient uncommitted reserve sewage capacity is dependent upon the construction of new or expanded treatment facilities, the uncommitted reserve sewage capacity will be considered available once Environmental Assessment Act approval has been given, and the Council of the Municipality has passed a resolution approving a specific budget item that dedicates capital for the completion of the treatment facilities such that the treatment facilities are completed prior to the issuance of an occupancy permit for the approved expansion of [building 1].

17. According to [Agreement X], the Company agrees not to permit use or occupancy of any building or part thereof for which building permits have been issued, or request the issuance of occupancy permits under section 11 of the Building Code Act, 1992, for [building 1], until such time as the Parties have entered into a revised Extra Strength Surcharge Agreement [By-law D] in order to address shortcomings and failings within the current Surcharge Agreement and to properly address the expansion of [building 1] and the uncommitted reserve sewage capacity.

18. […].

19. […].

20. […].

21. The Company’s use of the Treatment Plant is governed by the Surcharge Agreement that requires the Municipality to provide the Company with sufficient treatment capacity at the Treatment Plant such that the Company shall be able to, at all time during the term of the Surcharge Agreement, discharge sewage to the Treatment Plant without pre-treatment.

22. The Company and the Municipality recognize there is insufficient capacity at the Treatment Plant to handle the level of discharge required by the Company to operate its facility to its full capabilities over the long-term, and therefore there is a need for additional capacity at the Treatment Plant.

23. The Company and the Municipality also recognize that the Surcharge Agreement, as currently drafted, does not provide the Company with its desired capacity levels to discharge sewage generated by the facility nor does it provide the Municipality with sufficient financial compensation to handle the impacts on the Treatment Plant of the Company’s desired sewage discharge levels.

24. The Municipality reviewed the future requirements for the industry to remain and expand its sewage treatment operations in [the Municipality]. It was determined that the Treatment Plant would need to be expanded to provide for the future needs of the industry and to retain sewage capacity for ongoing development in [the Municipality], and that the Municipality would impose charges to the Company for the recovery of capital costs of the expansion under subsection 391(2) of the Municipalities Act.

25. […] [the Settlement] details an arrangement between the Parties to amend the Surcharge Agreement and to share in the cost of the expansion of the Treatment Plant. […][The Settlement was] approved during proceeding of council on [mm/dd/yyyy], and confirmed by[By-law G]. According to [the Settlement]:

* The Parties recognized that under the Surcharge Agreement:

a) there is insufficient treatment capacity at the Treatment Plant to handle the desired level of wastewater discharged by the Company from its expanded [processing facility] over the long-term; and

b) the Municipality is not provided with sufficient financial compensation to handle the impacts on the Treatment Plant of the Company’s desired wastewater discharge levels.

* The Parties agreed that constructing an expansion to the Treatment Plant (Expansion) will create additional treatment capacity over the long-term, including capacity for the Company, and will allow for other growth opportunities in the Municipality. The engineering and construction costs (Capital Cost) of the Expansion were estimated at approximately$[…], plus the GST/HST.

* The Parties agreed that the provisions in [the Settlement] and the schedules attached thereto will apply and are deemed to amend the Surcharge Agreement.

* In order to achieve the desired capacity objectives, the Parties agreed to share in the cost of the Expansion (Cost of Expansion). This cost includes all costs associated with the environmental assessment process, design, tendering, contracting and the Capital Cost incurred by the Parties. The Cost of Expansion is to be allocated as follows:

a) Company - 70%

b) Municipality	-	30%

		[The Settlement] refers to this cost allocation as the Cost Sharing Agreement. 

* The Expansion will form part of the Treatment Plant, be solely owned by the Municipality, and be operated by an operator of the Municipality’s choosing. All contracts related to the Expansion will be signed solely by the Municipality.

* Any government grants received by the Municipality for the Expansion will reduce the corresponding capital contributions of the Parties, and be allocated equally between them.

* On or before the date the Expansion achieves substantial performance, as defined in the Construction Act, the Parties agree to enter into a new Extra Strength Surcharge Agreement which will satisfy the requirements of [By-law B], and include the terms agreed to.

* Any change orders and/or change directives related to the construction of the Expansion will be subject to approval by both Parties.

* The Parties agree that the process outlined in Schedule A, […] forms part of [the Settlement], and will be used by the Parties for the purpose of the administration of and payment of the Cost of Expansion based on the Cost Sharing Agreement. According to Schedule A, the process is generally as follows:

a) All invoices will be submitted by the contractor to the Municipality for payment.

b) The Municipality will process payment of the invoices within 15 days of receipt of the invoices.

c) The Municipality will then invoice the Company for 70% of the payment processed by the Municipality and treat the payment from the Company to the Municipality as a capital contribution to the project.

d) The Company will reimburse the Municipality within 30 days of the date of the Municipality’s invoice to the Company.

* After [#] years from the date the Expansion achieves substantial performance, the Municipality will undergo a rate review and establish new rates for the Company’s use of the expanded Treatment Plant. The new rates will take into consideration the operating costs of the expanded Treatment Plant during these [#] years.

* The Company will pay the Municipality a separate amount for any breach of the agreement where either flow or BOD loadings exceed the limits set out in [the Settlement].

* [The Settlement] constitutes the entire agreement between the Parties as to the matters dealt with, and supersede all prior negotiations, understandings and/or agreements.

26. An Amending Agreement to [the Settlement] was made on [mm/dd/yyyy], which increased the amount payable by the Company to $[…] due to an increase in engineering and construction costs. The Amending Agreement was approved during proceeding of council on [mm/dd/yyyy].

RULING REQUESTED

You would like to know whether the Municipality’s charges to the Company towards the Cost of Expansion are subject to the GST/HST.

RULING GIVEN

Based on the facts set out above, we rule that the Municipality’s charges to the Company towards the Cost of Expansion are consideration for a taxable supply of wastewater treatment services that is subject to the GST/HST.

EXPLANATION

Generally, every recipient of a taxable supply (other than a zero-rated supply) made in Canada is required to pay the GST/HST on the value of the consideration for the supply. An exempt supply is a supply that is not subject to the GST/HST and that is included in Schedule V.

Section 21 of Part VI of Schedule V exempts, in part, a supply of a municipal service, if the supply is made by a municipality to a recipient that is an owner or occupant of real property situated in a particular geographic area and the service is one which the recipient has no option but to receive. The exemption does not apply where the service is one of testing or inspecting any property for the purpose of verifying or certifying that the property meets particular standards of quality or is suitable for consumption, use or supply in a particular manner.

The Surcharge Agreement requires the Municipality to provide the Company sufficient wastewater treatment capacity at the Treatment Plant such that the Company is able to, at all times during the term of the Surcharge Agreement, discharge a defined amount of sewage into the sewage collection and treatment system.

Under [Agreement X], the Company acknowledges that there is insufficient uncommitted reserve sewage capacity available at the Treatment Plant to accommodate the expected sewage effluent from the Company’s expansion of [building 1] and that a financial contribution from the Company to the Municipality will be required in order to construct sufficient uncommitted reserve sewage capacity at the Treatment Plant. The Company is not permitted to use or occupy [building 1] until there is sufficient uncommitted reserve sewage capacity available at the Treatment Plant or the Company implements an alternative method of handling the sewage in a manner satisfactory to both Parties. The Company is also not permitted to use or occupy the building until the Parties enter into a revised Extra Strength Surcharge Agreement that addresses shortcomings and failings within the Surcharge Agreement and properly addresses the approved addition and the uncommitted reserve sewage capacity.

Under [the Settlement], the Company agreed to share the Cost of the Expansion [of the Treatment Plant] to create additional capacity necessary to handle the increased level of wastewater that will be discharged by the Company into the Municipality’s sewage collection and wastewater treatment system, and enter into a new Extra Strength Surcharge Agreement which will satisfy the requirements of the [By-law B] and include the new rates for the Company’s use of the expanded Treatment Plant.

Pursuant to subsection 391(2) of the Municipalities Act, the Municipality’s charges for 70% of the Cost of Expansion are related to the sewage or wastewater treatment services to be provided by the Municipality at a later point in time. Accordingly, the charges by the Municipality to the Company for the Cost of Expansion are consideration for the supply of wastewater treatment services.

The supply of wastewater treatment services made by the Municipality is not an exempt supply of municipal services under section 21 of Part VI of Schedule V, as the Company had the option of implementing an alternative method of handling the wastewater that is in excess of the existing parameters resulting from the expansion of [building 1].

As no other exempting or relieving provision applies, the Municipality’s supply of wastewater treatment services to the Company is taxable. In addition, the charges for the Cost of Expansion and the fees established under the new Extra Strength Surcharge Agreement for the wastewater treatment services are consideration for the taxable supply of the wastewater treatment services, and both fees are subject to the GST/HST.

DISCLAIMER

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.

CONTACT

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 289-257-6196. Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287. Sincerely,

Maria Forte-Long
Industry Sector Specialist
Municipal Sectors Unit
Public Services Bodies and Governments Division
GST/HST Rulings Directorate

Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.

GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 246006
Business Number: […]

Dear […]:

Subject: GST/HST ruling
Tax status of management services supplied to limited partnership

Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to services supplied by […] (the Manager) to certain limited partnerships and other persons. We apologize for the delay in this response.

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.

STATEMENT OF FACTS

We understand the following:

1. The Manager is a corporation resident in Canada. It wholly-owns various corporations that, as general partners, enter into Partnership Agreements with the Manager and other unrelated limited partners for the purpose of investing in a portfolio of residential properties through co-ownership agreements with homebuyers who have income levels that qualify them for conventional mortgage financing but have inadequate financial resources for a down payment (Shared Equity).

2. The limited partners of each partnership contribute funds to the partnership in exchange for a share in income distribution. The partnerships, in turn, use the contributed funds to acquire and hold interests in residential properties jointly with homebuyers as tenants in common. When the properties are sold, proceeds are split between the homebuyer and the investing partnership. Partnership income is then distributed back up to the limited partners.

3. This arrangement is [...] offered through an online Shared Equity platform.

4. In accordance with each Partnership Agreement, the Manager provides various services to each limited partnership, and may also provide certain services to other parties. You have provided and example of one such Partnership Agreement [...] (Agreement #1).

5. In accordance with [...] of Agreement #1, the Manager generally provides the following services to the limited partnership:

a. Certain investment management services

b. Assistance in financing of the partnership

c. Marketing services

d. Administration, bookkeeping, maintenance of books, records, and unit registrar

e. Preparation and distribution of information to partners

f. Tax and regulatory filings

g. Monitoring capital requirements

6. In exchange for performing the above services, […] of Agreement #1 generally entitles the Manager to earn from the partnership an annual investment management fee […]. The Manager is also entitled to an annual property oversight fee […], pursuant to […] Agreement #1. It may also be entitled to other fees in relation to specific properties or prospective properties held or pursued by the partnership. You have indicated that the Manager earns mortgage referral fees from mortgage brokers, for which it is not directly involved in arranging for the mortgage but merely provides referral services. The Manager also earns realtor marketing fees from realtors for promoting and training realtors in respect of these Shared Equity arrangements. You have indicated that the income from these 4 types of fees currently constitutes 100% of the Manager’s income.

7. The Manager incurs the following expenses:

a. Marketing – advertising and online publications generally aimed at promoting the Shared Equity arrangement

b. Rent

c. Professional services – legal, accounting and consulting in relation to meeting tax and regulatory requirements, as well as for marketing strategy and investment management.

8. The Manager became registered to collect GST/HST effective [mm/dd/yyyy], and treats its supplies as being taxable supplies.

RULING REQUESTED

You would like to know the following:

1. Whether GST/HST applies to the Manager’s services, namely:

a. Investment management;

b. Property oversight;

c. Mortgage referral; and

d. Realtor marketing

2. If all of the above services are taxable supplies made by the Manager in the course of its commercial activity, whether the Manager is eligible to claim input tax credits (ITCs) in respect of all HST paid or payable by it in respect of its expenses itemized in fact #7 above.

RULING GIVEN

In respect of your first question and based on the facts set out above, we rule that the Manager’s supplies of services to limited partnerships and other third parties are taxable (not zero-rated) supplies subject to the GST/HST at the applicable rate based on the place of supply rules.

You have also asked whether the Manager is eligible to claim ITCs in respect of all HST paid or payable by it in respect of its expenses.

As noted in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, a ruling provides the Canada Revenue Agency's (CRA) position on a specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person, and where all of the relevant facts and supporting documentation have been presented in writing. As we are not in possession of all of the information and supporting documentation in respect of the Manager’s expenses, we are unable to provide a ruling in respect of your second question. However, we are pleased to provide the following interpretation as guidance, as discussed under the heading Interpretation Given, below the Explanation.

EXPLANATION

Generally, all supplies of property and services made in Canada are taxable unless they are exempt. Taxable supplies are those made in the course of a commercial activity and may be taxable at 5%, 13%, 15%, or 0% (zero-rated supplies). Exempt supplies are listed in Schedule V and are not subject to the GST/HST.

“Commercial activity” is defined in subsection 123(1) to mean, in part, a business carried on by a person, except to the extent the business involves the making of exempt supplies.

In this particular case, none of the services supplied by the Manager fall within any of the exemptions listed in Schedule V. Accordingly, the services supplied by the Manager are all subject to GST/HST.

INTERPRETATION GIVEN

Where a person acquires or imports property or a service, or brings it into a participating province and, during a reporting period of the person in which the person is a registrant, the GST/HST in respect of the property or service becomes payable by the person or is paid by the person without having become payable, that person may be eligible to claim an ITC in respect of the tax to the extent (expressed as a percentage) the property or service was acquired, imported or brought into a participating province for consumption, use or supply in the course of the person's commercial activities.

Subsection 141.01(2) provides that the extent to which a property or service is considered to be acquired for consumption or use in a person's commercial activities is generally based on the extent to which the property or service is acquired for the purpose of making taxable supplies for consideration. Further, where substantially all (i.e., 90% or more) of a property or service is consumed or used in commercial activities, subsection 141(1) deems all of it to be consumed or used in commercial activities.

As such, a person may generally be able to claim an ITC with respect to property or a service if all the following criteria are met:

• the property or service must be acquired, imported or brought into a participating province by a person for consumption, use or supply in the course of the person's commercial activities;
• tax must be payable by the person in respect of the supply, importation or bringing in, or be properly paid by the person prior to its becoming payable;
• the person must be a registrant during the reporting period in which the GST/HST on the property or service becomes payable by the person or is paid without having become payable;
• the person must have obtained sufficient documentary evidence to substantiate the ITC prior to making the claim in a GST/HST return; and
• the ITC must be claimed in a return filed within the time limit for claiming the ITC.

However, ITC restrictions may apply in respect of certain specific types of property or services acquired (e.g. club memberships).

Accordingly, generally where a registered person has acquired property or services for the purpose of making taxable supplies for consideration, and has paid tax in so doing, the person may be eligible to claim ITCs in respect of all or a portion of the tax paid, provided all other conditions for claiming an ITC have been met. Whether a particular property or service was acquired all or substantially all for consumption or use in such commercial activity is a matter subject to verification upon audit.

DISCLAIMER

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.

CONTACT

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 236-330-8100.Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287 or by fax to 1-418-566-0319.

Sincerely,

Frankie Fenton
Industry Sector Specialist
Financial Services Unit
Financial Institutions and Real Property Division
GST/HST Rulings Directorate

Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.

GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 207052

Dear [Client]:

Subject: GST/HST ruling and GST/HST interpretation
Services provided through […][the Platform]

Thank you for your letter of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to services provided through […][the Platform] and service fees paid to [the Platform] […]

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.

STATEMENT OF FACTS

[…][we] understand the following:

1. The relevant provisions of the […][Consumer Terms] between […][a consumer] and […][the Platform] version last updated [mm/dd/yyyy], include:

	[…]:
		[…][Consumer Terms govern a consumer’s access and use of the Platform]

	[…]:
		[…][Consumer pays for goods or services they receive from a third party provider with the Platform acting as a collection agent for the third party]
		[…][Platform will email the consumer a receipt]

2. The relevant provisions of the […][Agreement] between an individual and […][the Platform] version last update: [mm/dd/yyyy], include:

	[…]:
		[…][Legal agreement between a delivery driver and the Platform. The Platform provides a service to the delivery driver that allows the driver to receive and accept requests for delivery services].

	[…][Definitions]:
		[…]

	[…]:
		[…][The delivery driver has a direct business relationship with the recipient of its delivery services, to which the Platform is not a party. The Platform assumes no liability]

	[…]:
		[…][Information about payment of delivery fee to the delivery driver. The Platform acts as a collection agent for the delivery driver]

	[…]:
		[…][Information about the service fee the delivery driver pays the Platform]

	[…]:
		[…][The Platform prepares and sends the recipient of the delivery service a receipt on behalf of the delivery driver]

3. The relevant provisions of the […][Annex] version last update: [mm/dd/yyyy], include:

	[…]:
		[…][A delivery driver may receive multiple requests from a single merchant for delivery to multiple consumers] 
		[…][A delivery driver may receive requests from multiple merchants for delivery to one or more consumers]. 
		[…][A delivery driver may receive additional requests after accepting a request]. 

4. The relevant [gratuity] provisions […] last updated: [mm/dd/yyyy] include:

[…][A Consumer may decide to provide a gratuity to the delivery driver]

5. […][Information on the Platform's webpage](Footnote 1):

[…][the merchant is required to remit the applicable GST/HST]

[…][Information on the merchant receiving the applicable GST/HST on the delivery fee]

[…][The Platform facilitates the payment from consumers and the payment to delivery drivers. The merchant provides the delivery service]

[…][The merchant charges the consumer for the goods, the delivery service, and the applicable GST/HST]

6. […][The Platform may pay delivery drivers referral/incentive bonuses and the delivery drivers pay the Platform a service fee].

RULING REQUESTED

You would like to know the following:

1. The tax status of each of the following earned by […][delivery drivers] in [Province X], [Province Y], and [Province Z] through [the Platform]:

a. delivery services

b. tips

c. referrals/incentives

2. Can [delivery drivers], who are GST/HST registrants, claim an ITC on the service fee paid to the Platform.

3. The application of GST/HST where a [delivery driver] provides both commercial ride-sharing and […] delivery services.

We acknowledge your request for rulings on the above matters. However, as noted in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, a ruling provides the Canada Revenue Agency's (CRA's) position on specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person. As the circumstances are such that all of the pertinent facts cannot be established at this time, we are unable to rule on some of these issues. Rather, we are providing general information which we trust will be of assistance.

RULING GIVEN

[…]

Based on the facts set out above, we rule that:

1.a. The [delivery driver] is making a taxable supply of a delivery service subject to GST/HST at the applicable rate based on the province in which the supply is made.

EXPLANATION

There are four participants in a supply of an electronically-arranged [good] delivery service on [the Platform]:

* [the Platform];

* a […][merchant];

* a [delivery driver]; and

* a consumer.

The […][Consumer Terms], between [a consumer] and [the Platform], is [an agreement] that applies to individuals who wish to use [the Platform] […]

[…][The Platform is not a merchant or a transportation carrier]

[…][The Platform does not assume liability for the delivery of the goods]

[...]

Apart from acting as a facilitator amongst the various parties to a transaction, the Platform is identified as […][a collection agent that is authorized] to collect payments on behalf of [delivery drivers] and [merchants]:

[…]

A […][delivery driver provides delivery services to a recipient]. Based on the [Annex] that you provided the [merchant] would generally be the person who obtains such services and be the […][recipient] for the purposes of the Agreement. The [merchant] pays the delivery driver for the delivery service through the Platform.

[...][The Platform's webpage] confirms that [the Platform] facilitates the collections of applicable taxes on [goods] sold and on delivery fees, as well as the payment to [delivery drivers]. […][The Platform’s webpage] states that it is the [merchants] that provide both the [good] and the delivery to consumers. This means it is the [merchant] that charges the consumer for the [good], the delivery fee, and any applicable taxes.

The [delivery driver] is making a supply of a delivery service to the [merchant], which the [merchant] uses as an input into the supply that it makes to the consumer.

Delivery Service

As defined in subsection 1(1) of Part VII of Schedule VI, “freight transportation service” means a particular service of transporting tangible personal property (TPP). A […] service of delivering a […][good] (TPP) is a taxable supply of a freight transportation service made in Canada as per paragraph 142(1)(g). The applicable GST/HST will depend on where the TPP is delivered. Section 5 of Part VI of Schedule IX states, subject to Part VII, that a supply of a freight transportation service is made in a province if the destination of the service is in the province. A [good] delivered in [Province X, Y, or Z] will be subject to […][GST/HST at the applicable rate].

A freight transportation service may be zero-rated (subject to GST/HST at the rate of 0%) under section 11 of Part VII of Schedule VI where interlining occurs between two or more carriers. Interlining occurs where a supply of a freight transportation service made by a carrier of the property being transported is made to a second carrier of the property being transported, where the service is part of a continuous freight movement and the second carrier is neither the shipper nor the consignee of the property being transported.

“Carrier” is defined under subsection 123(1) of the ETA to mean “a person who supplies a freight transportation service…” Various publications, including GST/HST Memorandum 28.2, Freight Transportation Services (Memo 28.2), elaborate that a person does not have to physically transport TPP in order to be a carrier, but only has to assume liability as a supplier of a freight transportation service; in other words, the person must commit to transporting TPP for another person.

Based on the facts, however, only the [delivery driver] is a carrier for GST/HST purposes. The only other party that could be a carrier would be a [merchant] from whom a [good] is ordered using the Platform. However, “shipper” is defined under subsection 1(1) of Part VII of Schedule VI to mean “…the person who, in respect of a continuous freight movement or a continuous outbound freight movement, transfers possession of the property being shipped to a carrier at the origin of the freight movement and, for greater certainty, does not include a person who is a carrier of the property to which the freight movement relates. As explained in Memo 28.2, where a carrier hires another carrier to transport the first carrier’s property, the first carrier is the shipper of the property. As a [merchant] would generally be the shipper of the [good] it cannot be a carrier.

INTERPRETATION GIVEN

Tips/Gratuities

Subsection 123(1) “consideration”, 153(1) and 165(1) require that the GST/HST be applied to gratuities when they are included as part of the total invoice to be paid. On the other hand, gratuities are not subject to the GST/HST when given freely by a customer.

[…][According to the gratuity provisions in the Agreement, the delivery fees do not include any gratuity which a consumer may provide to a delivery driver].

Gratuities will not be subject to GST/HST when given voluntarily by a customer. However, when a business that is registered for GST/HST includes a gratuity as part of the charge for a taxable supply, whether it is a mandatory or a suggested amount, GST/HST will be calculated on the total amount including the gratuity. Where it cannot be distinguished whether payment for a taxable supply includes a voluntary gratuity or not (e.g., taxi chit) the entire amount is subject to GST/HST.

Referral/Incentive Bonuses

The tax status of payments that are […] (Referral/Incentives) […] depends on who the recipient is. Generally, the person that is required to make payment under a legal agreement is the recipient.

In the case of an earnings guarantee or referral bonus the Platform may be the recipient if the [merchant] or consumer is not required to make the payment.

A person making a referral of another person to a platform to become a driver on the platform is making a supply of a service.

Under the Act a payment will constitute consideration if it has been made pursuant to a legal obligation and is linked closely enough to a supply that it may be regarded as having been made for that supply.(Footnote 2)

A referral bonus payment made under a contract may meet this requirement since the very existence of the obligation to pay is conditional on the co-contracting party and the third party referee fulfilling the corresponding obligations that rest on him or her.

The earnings guarantee may be an inducement that is paid by the Platform to the [delivery driver].

The term "supply" in subsection 123(1) of the ETA means "… subject to section 133 and 134, the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition".

The definition of a supply for GST/HST purposes is broad, as is the definition of a service. Therefore, a supply can include the service of agreeing to enter into an arrangement. An inducement is generally provided for a supply of agreeing to perform a specific action and the tax treatment to be applied depends upon the surrounding circumstances.

Where compensation, in this case an earnings guarantee, is an inducement for the [delivery driver] to agree to use the Platform for the purpose of providing delivery services, the inducement payment would be consideration for a taxable supply of a service provided by the [delivery driver] to the Platform.

Generally, a service that is, or is to be, performed in whole or in part in Canada is deemed to be made in Canada.

Different rules can apply for determining whether a supply of a service is made within a province. If specific place of supply rules for certain services, like freight transportation services, do not apply the general rule for services will apply. The general rule for determining the place of supply of a service hinges on whether, in the ordinary course of business of the supplier, the supplier obtains an address of the recipient of the supply. Section 13 of the New Harmonized Value-Added Tax System Regulations states the following:

13(1) General rule for services – address obtained

Subject to sections 14 to 17, a supply of a service is made in a province if, in the ordinary course of business of the supplier, the supplier obtains an address in the province that is

(a) if the supplier obtains only one address that is a home or a business address in Canada of the recipient, the home or business address in Canada obtained by the supplier,

(b) if the supplier obtains more than one address described in paragraph (a), the address described in that paragraph that is most closely connected with the supply, or

(c) in any other case, the address in Canada of the recipient that is most closely connected with the supply.

13(2) General rule for services – no address obtained

Subject to subsection (1) and sections 14 to 17, a supply of a service is made

(a) in a participating province if the Canadian element of the service is performed primarily in participating provinces and

(i) an equal or greater proportion of the Canadian element of the service is not performed in another participating province, or

(ii) if subparagraph (i) does not apply, the tax rate for the participating province is the highest among the participating provinces for which no greater proportion of the service is performed in another participating province; and

(b) in a non-participating province if the Canadian element of the service is not performed primarily in participating provinces.

For more information on place of supply rules please refer to GST/HST Technical Information Bulletin B-103, Harmonized Sales Tax – Place of supply rules for determining whether a supply is made in a province.

Generally, a supply of a service made in Canada is subject to GST/HST. However, in some exceptional circumstances such a supply may be zero-rated when supplied to a non-resident. Whether a supply is zero-rated depends on the specific facts, including who the agreement regarding referrals or incentives is with. Suppliers who are registrants are responsible for determining the residence or registration status of their customers. For the supply to be zero-rated, satisfactory evidence should be retained by suppliers, indicating that their customers are non-residents and, where applicable, not registered for GST/HST purposes. For additional information please refer to GST/HST Memoranda 4.5.1 Exports – Determining Residence Status and 4.5.3 Exports – Services and Intellectual Property.

Platform Service Fee

The Platform charges [delivery drivers] a service fee for use of its services of providing the platform app and acting as [a collection agent]. The service fee is calculated and charged on each delivery service transaction.

The Platform service fee paid by [delivery drivers] is consideration for a taxable supply of a service. Subsection 143(1) of the ETA may deem this supply to be made outside of Canada if the Platform is a non-resident that does not make the supply in the course of a business carried on in Canada or has not registered voluntarily for the GST/HST.

If the supply is deemed to be made in Canada the Platform would be required to collect the GST/HST based on the place of supply, if not a small supplier. The place of supply rules for services, as discussed earlier, would apply.

Whether a registrant [delivery driver] can claim an ITC on the Platform service fee would depend on if the supply has been made in Canada, GST/HST was paid or payable, and all documentary requirements for claiming the ITC have been met. For additional information please refer to GST/HST Memoranda 8.1 General Eligibility Rules and 8.4 Documentary Requirements for Claiming Input Tax Credits.

Commercial Ride-Sharing and Other Commercial Activity

Some drivers involved in commercial ride-sharing services may also be engaged in other commercial activities, such as delivery services.

A taxi business is defined as follows: a business carried on in Canada of transporting passengers by taxi or other similar vehicle for fares that are regulated under the laws of Canada or a province, or a business carried on in Canada by a person transporting passenger by fares by motor vehicle – being a vehicle that would be an “automobile”, as defined in subsection 248(1) of the Income Tax Act, if that definition were read without reference to “a motor vehicle acquired primarily for use as a taxi,” in its paragraph (c) and without reference to its paragraph (e) – within a particular municipality and its environs if the transportation is arranged or coordinated through an electronic platform or system.

Pursuant to subsection 240(1.1), a self-employed driver making taxable supplies of a taxi business, including commercial ride-sharing services, is required to register for the GST/HST in respect of those services. This is regardless of whether or not they are a small supplier. Generally, a small supplier refers to a person whose total revenue (along with the revenue of all persons associated with that person) from worldwide taxable supplies is equal to or less than $30,000 ($50,000 for public service bodies) in a calendar quarter and over the four previous calendar quarters.

If a driver is a small supplier engaged in a taxi business in addition to making supplies of other taxable supplies their mandatory GST/HST registration will generally only apply in respect of their taxi business unless they request otherwise, pursuant to subsection 240(3.1). This means that they will not be required to charge the GST/HST in respect of their other taxable supplies.

Section 169 and the Input Tax Credit Information (GST/HST) Regulations set out the eligibility and documentary requirements necessary to claim input tax credits (ITCs). Where a person acquires or imports property or a service, or brings it into a participating province and, during a reporting period of the person in which the person is a registrant, the GST/HST in respect of the property or service becomes payable by the person or is paid by the person without having become payable, that person may be eligible to claim an ITC in respect of the tax to the extent (expressed as a percentage) it was acquired, imported or brought into a participating province for consumption, use or supply in the course of the person's commercial activities. In addition to meeting the conditions for claiming ITCs and before making any ITC claim, the registrant must also obtain sufficient documentary evidence to enable the amount of the ITC to be determined, including any such information that is prescribed in the Input Tax Credit Information (GST/HST) Regulations.

If a small supplier driver who makes supplies of delivery services is required to be registered because they are also engaged in a taxi business, but they have not requested that the registration apply to their other commercial activities they will not be entitled to claim ITCs in relation to those other supplies.

If a driver’s combined total annual revenue from taxable supplies of the taxi business and delivery services exceeds $30,000 (for example, $20,000 for commercial ride-sharing services and $15,000 for delivery services), they will not be considered a small supplier. The person will therefore be required to charge and collect tax on all of their revenues from their taxable supplies (the combined $35,000), pursuant to subsection 241(2).

DISCLAIMER

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.

CONTACT

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 343-553-3972.Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.Sincerely,

David Phoenix, CPA, CGA
Industry Sector Specialist
Services and Intangibles Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate

FOOTNOTES

1 [...]

2 Commission Scolaire des Chênes v Canada, 2001 FCA 264 paragraph 19

Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.

GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 193029

Business Number: […]

[Dear Client]:

Subject: GST/HST ruling
[…][Goods] and delivery services provided through […][the Platform]

Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to […][goods] and delivery services provided through […][the Platform]. […]

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.

STATEMENT OF FACTS

We understand the following:

1. […] [The] ([…][merchant]) is operating […] in […][Canada].

2. The [merchant] is incorporated as a for-profit entity and registered for GST/HST with Business Number […].

3. The [merchant] entered into an agreement with […][the Platform] for the purpose of accessing […][the Platform] to allow customers to place orders for [goods] and have the [goods] delivered.

4. The relevant provisions of […][the Merchant Agreement] between [the] [merchant] and [the Platform] dated [mm/dd/yyyy] include:

[…]:

[…][The agreement is between the merchant and the Platform]

[…]

[…]:

[…][The merchant makes goods available on the Platform]

[…]:

[…][The Platform provides the merchant with access to delivery drivers and various services related to the merchant’s sale and delivery of goods. The Platform acts as a collection agent for the merchant]

[…]:

[…][The merchant is responsible for the delivery of the good]

[…]:

[…][The merchant provides the good and delivery service and is responsible for the collection and remittance of the GST/HST]

[…][The merchant maintains title to the good until it is delivered to the consumer]

[…][The merchant pays the Platform a service fee]

5. The relevant provisions of the […][the Annex] between [the][merchant] and [the Platform] dated [mm/dd/yyyy] include:

[…]:

[…][The Annex is subject to the Merchant Agreement].

[…]:

[…][The merchant makes goods available on the Platform]

[…]:

[…][Payment and calculation of a service fee that the merchant pays the Platform]

[…][The merchant is required to pay the delivery driver. The Platform charges the consumer a delivery fee and pays the delivery driver on behalf of the merchant]

[…][The Platform remits to the merchant the payments collected minus adjustments]

6. The relevant provisions of the […][Consumer Terms] between […][a consumer] and [the Platform] version last updated [mm/dd/yyyy], include:

[…]:

[…][The Consumer Terms govern a consumer’s access and use of the Platform]

[…]:

[…][Description of services]

[…]

[…]:

[…][The consumer pays for goods or services they receive from a third party provider with the Platform acting as a collection agent for the third party]

[…][The Platform will email the consumer a receipt].

[…]

RULING REQUESTED

You would like to know when a consumer orders a [good] for delivery using [the Platform] who is supplying the delivery service to the consumer?

RULING GIVEN

[…] Based on the facts set out above, we rule that the [merchant] is the supplier of the delivery service to the consumer. The [merchant] is making a single supply of a delivered [good].

EXPLANATION

The roles of the participants are as follows:

Platform

The [Consumer Terms], between [a consumer] and [the Platform], is […][an agreement] that applies to individuals who wish to use [the Platform] […].

[…][The Platform] connects consumers, [merchants] and […][delivery drivers] by providing them access to the Platform […].

[…][The Platform is not a merchant or transportation carrier].

[…][The Platform does not assume liability for the delivery of goods]

Apart from acting as a facilitator amongst the various parties to a transaction, […][the Platform is identified as a collection agent that collects] payments on behalf of [delivery drivers] and [merchants] […].

Finally, for use of its services, [the Platform] charges a service fee to the [merchant] […].

[Merchant]

[…][Merchants are fully liable for the goods, are responsible for the delivery of the goods, and maintain title to the goods until they are delivered to the consumer]

[Delivery Driver]

[…], the [merchant] is the person who obtains the delivery services provided by the [delivery driver]. […][The merchant pays the delivery driver through the Platform].

Consumer

Consumers are required to agree to the [Consumer Terms] before they can use the Platform […]

[…][Description of liability and payment provisions]

The liability and payment provisions of the [Consumer Terms] are thus clear regarding […][the Platform’s] limited role in any transaction arranged and facilitated by the Platform. As a result, the electronically-arranged delivery of a [good] is an arrangement between a consumer and the third parties involved in the transaction, not between the consumer and the Platform.

Single and multiple supplies

To help with determining whether a transaction is a single supply or multiple supplies the Canada Revenue Agency (CRA) has published GST/HST Policy Statement P-077R2, Single and Multiple Supplies (P-077R2).

P-077R2 outlines the principles used to determine whether a transaction consisting of several elements is to be regarded as a single supply or multiple supplies. They are as follows:

1. Every supply should be regarded as distinct and independent.

2. A supply that is a single supply from an economic point of view should not be artificially split.

3. There is a single supply where one or more elements constitute the supply and any remaining elements serve only to enhance the supply.

Two or more elements are part of a single supply when the elements are so intertwined or interdependent that they must be supplied together. Conversely, multiple supplies occur when one or more of the elements can sensibly or realistically be broken out.

It should also be remembered that the way in which the price for a transaction is set out does not determine whether there are one or more supplies. A single price does not automatically mean that there is one supply. Equally, separately identified prices for certain elements do not necessarily mean that there are two or more supplies.

P-077R2 provides a number of questions that should be asked:

1. Is the property/service provided by two or more suppliers?

2. Is there more than one recipient?

3. What did the supplier provide for the consideration received?

4. Is the recipient made aware of the elements (in detail) that are part of the package?

5. In the context of the particular transaction, does the recipient have the option to acquire the elements separately or to substitute elements?

From the outset, one must ask whether the elements can sensibly or realistically be broken out, or if those elements are integral to one another. In the case of a consumer ordering a [good] for delivery using the Platform, the expectation is for the [good] to be delivered.

Based on the relevant agreements, a [delivery driver’s] contractual obligation is with a [merchant]. […][The Annex] establishes that the [merchant] is required to pay a delivery fee to the [delivery driver], which the Platform collects from the consumer on the [merchant’s] behalf.

[…][The Merchant Agreement] states that the [merchant] is responsible for the delivery of the [goods] and […] says that the [merchant] maintains title to all […] inventory until each [good] is delivered to the consumer. As a result, the consumer is the recipient of a [good] and delivery service from one supplier, the [merchant]. The [merchant] maintains possession of the [good] until it is delivered to the consumer […].

Where a supplier sells goods on a delivered at destination basis, the delivery of the goods will generally be considered to be part of a single supply of the goods even if a separate charge is itemized on the invoice. In the case of orders made using the Platform, the [merchant] has title to the [good] until it is delivered.

ADDITIONAL INFORMATION

Where a single supply of delivered goods is made and there is a separate charge for the delivery service, that deliver fee is considered to be consideration for the single supply of the specific good which it is shown as relating to. The charge would consequently be subject to tax at the same rate as the supply of the specific good, be it 0%, 5% GST, 13% HST, or 15% HST.

DISCLAIMER

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.

CONTACT

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 343-553-3972.

Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287 or by fax to 1-418-566-0319.

Sincerely,

David Phoenix, CPA, CGA
Industry Sector Specialist
Services and Intangibles Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate

Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.

GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 215868

Business Number: […]

[Dear Client]:

Subject: GST/HST ruling
Delivery services provided through […][the Platform]

Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to delivery services provided through […][the Platform]. […]

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.

STATEMENT OF FACTS

We understand the following:

1. The relevant provisions of the […][Consumer Terms] between […][a consumer] and […][the Platform] version last updated [mm/dd/yyyy], include:

[…]:

[…][The Consumer Terms govern a consumer’s access and use of the Platform]

[…]:

[…][Description of services]

[…]

[…]:

[…][The consumer pays for goods or services they receive from a third party provider with the Platform acting as a collection agent for the third party]

[…][The Platform will email the consumer a receipt].

[…].

2. The relevant provisions of the […][Agreement] between an individual and […][the Platform] version last update: [mm/dd/yyyy], include:

[…]:

[…][Legal agreement between a delivery driver and the Platform. The Platform provides a service to the delivery driver that allows the driver to receive and accept requests for delivery services]

[…]:

[…][Definitions]

[…]:

[…][The delivery driver has a direct business relationship with the recipient of its delivery services, to which the Platform is not a party. The Platform assumes no liability]

[…]:

[…][Information about payment of delivery fee to the delivery driver. The Platform acts as a collection agent for the delivery driver]

[…]:

[…][Information about the service fee the delivery driver pays the Platform]

[…]:

[…][The Platform prepares and sends the recipient of the delivery service a receipt on behalf of the delivery driver]

3. On [mm/dd/yyyy] you provided us a copy of the […][document](Footnote 1). Relevant sections of the document include:

[…][The merchant is required to remit the applicable GST/HST]

[…][Information on the merchant receiving the applicable GST/HST on the delivery fee]

[…][The Platform facilitates the payment from consumers and the payment to delivery drivers. The merchant provides the delivery service].

[…][The merchant charges the consumer for the goods, delivery service, and applicable GST/HST]

[…].

4. You provided us a copy of an invoice, dated [mm/dd/yyyy], that was issued by [the Platform] on your behalf to a […][merchant]. The invoice number is […]. The description on the invoice is for a delivery service and the amount charged was $[…].

RULING REQUESTED

You would like to know the tax status of your delivery service provided through [the Platform].

RULING GIVEN

Based on the facts set out above, we rule that:

[…], you are making a taxable supply of a delivery service subject to GST/HST at the applicable rate based on the province in which the supply is made.

EXPLANATION

There are four participants in a supply of an electronically-arranged […][goods] delivery service on [the Platform]:

• [the Platform];
• a [merchant];
• a […][delivery driver]; and
• a consumer.

The [Consumer Terms], between [a consumer] and [the Platform], is […][an agreement] that applies to individuals who wish to use [the Platform] […]

[…][The Platform is not a merchant or transportation carrier]

[…][The Platform does not assume liability for the delivery of goods]

[…]

Apart from acting as a facilitator amongst the various parties to a transaction, the Platform is identified as a […][collection agent] to collect payments on behalf of [delivery drivers] and [merchants]:

[…]

[…][A delivery driver provides delivery services to a recipient]. Based on the invoice that you provided that [the Platform] issued on your behalf, the [merchant] would generally be the person who obtains such services and be the […][recipient] for the purposes of the Agreement. The [delivery driver] invoices the [merchant], through the Platform, and the [merchant] pays the delivery driver for the delivery service through the Platform.

The […] document confirms that [the Platform] facilitates the collections of applicable taxes on [goods] sold and on delivery fees, as well as the payment to [delivery drivers]. The document states that it is the [merchants] that provide both the [goods] and the delivery to consumers. This means it is the [merchant] that charges the consumer for the [goods], the delivery fee, and any applicable taxes.

The [delivery driver] is making a supply of a delivery service to the [merchant], which the [merchant] uses as an input into the supply that it makes to the consumer.

Delivery Service

As defined in subsection 1(1) of Part VII of Schedule VI, “freight transportation service” means a particular service of transporting tangible personal property (TPP). A domestic […] delivery service of delivering [goods] (TPP) is a taxable supply of a freight transportation service made in Canada as per paragraph 142(1)(g). The applicable GST/HST will depend on where the TPP is delivered. Section 5 of Part VI of Schedule IX states, subject to Part VII, that a supply of a freight transportation service is made in a province if the destination of the service is in the province. [Goods] delivered in […][a province] will be subject to […][applicable GST/HST].

A freight transportation service may be zero-rated (subject to GST/HST at the rate of 0%) under section 11 of Part VII of Schedule VI where interlining occurs between two or more carriers. Interlining occurs where a supply of a freight transportation service made by a carrier of the property being transported is made to a second carrier of the property being transported, where the service is part of a continuous freight movement and the second carrier is neither the shipper nor the consignee of the property being transported.

“Carrier” is defined under subsection 123(1) of the ETA to mean “a person who supplies a freight transportation service…” Various publications, including GST/HST Memorandum 28.2, Freight Transportation Services (Memo 28.2), elaborate that a person does not have to physically transport TPP in order to be a carrier, but only has to assume liability as a supplier of a freight transportation service; in other words, the person must commit to transporting TPP for another person.

Based on the facts, however, only the [delivery driver] is a carrier for GST/HST purposes. The only other party that could be a carrier would be a [merchant] from whom a [good] is ordered using the Platform. However, “shipper” is defined under subsection 1(1) of Part VII of Schedule VI to mean “…the person who, in respect of a continuous freight movement or a continuous outbound freight movement, transfers possession of the property being shipped to a carrier at the origin of the freight movement and, for greater certainty, does not include a person who is a carrier of the property to which the freight movement relates. As explained in Memo 28.2, where a carrier hires another carrier to transport the first carrier’s property, the first carrier is the shipper of the property. As a [merchant] would generally be the shipper of the [goods] it cannot be a carrier.

ADDITIONAL INFORMATION

The […] delivery service a [delivery driver] provides to a [merchant] on the Platform is a taxable supply. The [delivery driver] would be responsible for collecting the GST/HST on this supply from the [merchant] unless it is a small supplier. “Small supplier” refers to a person whose revenue (along with the revenue of all persons associated with that person) from worldwide taxable supplies was equal to or less than $30,000 in a calendar quarter and over the last four consecutive calendar quarters.

A [delivery driver] that is registered for GST/HST is required to collect tax on the full amount of the consideration charged for the delivery service before any commission fees that are charged by the Platform for its services to the [delivery driver] are deducted.

DISCLAIMER

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.

CONTACT

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 343-553-3972.

Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287 or by fax to 1-418-566-0319.

Sincerely,

David Phoenix, CPA, CGA
Industry Sector Specialist
Services and Intangibles Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate

FOOTNOTES
1 […]

Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.

GST/HST Rulings Directorate
Place de Ville, Tower A, 5th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 231162

Dear [Client]:

Subject: GST/HST RULING
Emission allowance

Thank you for your correspondence of August 11, 2021, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the sale of British Columbia Low Carbon Fuel Standard (BC-LCFS) credits and debits.

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.

STATEMENT OF FACTS

We understand the following:

1. The British Columbia (B.C.) government enacted the Greenhouse Gas Reduction (Renewable and Low Carbon Fuel Requirements) Act (the GGR Act) and the related Renewable and Low Carbon Fuel Requirements Regulation (the Regulation) to reduce Greenhouse Gas (GHG) emissions in the transportation sector by encouraging the use and supply(Footnote 1) of alternate renewable and low carbon fuels in B.C. (Footnote 2)

2. Together, the GGR Act and the Regulation set out two main requirements fuel suppliers must meet in respect of the fuel they supply:

a. Minimum renewable fuel content – Fuels must have a 5% annual average renewable content in gasoline and 4% renewable content in diesel. (Footnote 3)

b. Annual carbon intensity limits. Fuels must have a carbon intensity that meets the increasingly stringent carbon intensity reduction limits each year.

Part 3 of the GGR Act requires fuel suppliers to reduce the carbon intensity of the gasoline and diesel fuel that they supply. Subsection 11.02(1) of the Regulation establishes a schedule of declining carbon intensity limits for each Part 3 fuel class.

3. Under section 1 of the GGR Act, a “Part 3 fuel supplier” means

(a) a person who, within [B.C.], sells Part 3 fuel for the first time after it is manufactured in or brought into [B.C.],

(b) in relation to Part 3 fuel that is not covered by paragraph (a) but is

(i) manufactured or received in [B.C.], or
(ii) brought into [B.C.],

for use in [B.C.], a person prescribed as being a Part 3 fuel supplier, or

(c) a person who is designated as a Part 3 fuel supplier under section 7.1.

Part 3 fuel suppliers must comply with the legislation unless they qualify for an exemption under section 11.022 of the Regulation. Compliance with Part 3 of the GGR Act is measured in terms of credits and debits.

4. Under section 1 of the GGR Act a “credit” is, in relation to a particular diesel class fuel or a particular gasoline class fuel, as applicable, for a period, means a positive difference, in tonnes of carbon dioxide equivalent emissions, between

(a) the number of tonnes of carbon dioxide equivalent emissions that a Part 3 fuel supplier could have had attributable to the quantity of the particular fuel it supplied in the period without exceeding the prescribed carbon intensity limit for the applicable class of fuel for the compliance period of which that period forms all or part, and

(b) the number of tonnes of carbon dioxide equivalent emissions attributable to the quantity of that particular Part 3 fuel that the Part 3 fuel supplier supplied in the period, and includes a credit issued under a Part 3 agreement.

and includes a credit issued under a Part 3 agreement.

5. Under section 1 of the GGR Act, a “debit” is, in relation to a particular diesel class fuel or a particular gasoline class fuel, as applicable, for a period, means a negative difference, in tonnes of carbon dioxide equivalent emissions, between

(a) the number of tonnes of carbon dioxide equivalent emissions that a Part 3 fuel supplier could have had attributable to the quantity of the particular fuel it supplied in the period without exceeding the prescribed carbon intensity limit for the applicable class of fuel for the compliance period of which that period forms all or part, and

(b) the number of tonnes of carbon dioxide equivalent emissions attributable to the quantity of that particular Part 3 fuel that the Part 3 fuel supplier supplied in the period;

6. Under subsection 6(1) of the GGR Act, a Part 3 fuel supplier must ensure that the sum of the credits it generates or acquires and applies against debits for a compliance period is equal to or greater than the number of debits the Part 3 fuel supplier is required to set off against credits for that compliance period(Footnote 4).

7. Under subsection 6(2) of the GGR Act, a Part 3 fuel supplier must set off against credits for a compliance period all debits that the Part 3 fuel supplier

(a) calculates under subsection (4) in respect of Part 3 fuel it supplies in the compliance period, or

(b) acquires under section 8 [transferring credits and debits] in that compliance period and has not transferred under section 8.

At the end of each compliance period a Part 3 fuel supplier with more debits than credits for that compliance period is out of compliance and therefore subject to an automatic penalty.

8. To comply with the GGR Act, Part 3 fuel suppliers can:

a. Supply low carbon fuels – A Part 3 fuel supplier generates credits for supplying fuels with a carbon intensity below the limits;

b. Enter into a Part 3 agreement – A Part 3 agreement is formed between a Part 3 fuel supplier and the director appointed under the GGR Act. Under this agreement, the Part 3 fuel supplier earns credits by engaging in actions that will help reduce GHG emissions through the use of Part 3 fuels; and/or

c. Engage in credit trading – Acquire validated credits from other Part 3 fuel suppliers.

Supply low carbon fuels

9. Where a Part 3 fuel supplier supplies Part 3 fuel, subsection 6(4) of the GGR Act requires the Part 3 fuel supplier to calculate, using the following formula, the credits it generated or debits it incurred for each Part 3 fuel it supplied in the compliance period:

Credit or Debit = (CI class × EER fuel – CI fuel) × EC fuel/1 000 000

where

Credit or Debit = the number of credits generated, if the number is positive, or the number of debits incurred, if the number is negative, for the compliance period;
CI Class = the prescribed carbon intensity limit for the compliance period for the class of fuel of which the fuel is a part;
EER fuel = the prescribed energy effectiveness ratio for that fuel in that class of fuel;
CI fuel = the carbon intensity of the fuel;

EC fuel = the energy content of the fuel calculated in accordance with the regulation.

Values for the Credit or Debit formula, including CI class, EER fuel and prescribed energy densities are published in the Regulation(Footnote 5).

Part 3 agreements

10. Under subsection 8.01(3) of the GGR Act, the director may enter into an agreement(Footnote 6) under subsection (1) of the GGR Act

(a) on request of a Part 3 fuel supplier, or

(b) after advertising to and inviting proposals from all Part 3 fuel suppliers.

11. Under section 1 of the GGR Act, a “director” is a government employee designated as the director by the Minister of Energy, Mines and Low Carbon Innovation for the purpose of the Act.

12. Under subsection 8.01(5) of the GGR Act, the director may agree to issue credits under a Part 3 agreement for an action in respect of which the Part 3 fuel supplier also generates, or is likely to generate, credits under section 6(4) of the GGR Act for the same or a different compliance period.

13. Under subsection 8.01(6) of the GGR Act, if the director is satisfied by evidence provided under subsection (4)(d) that the Part 3 fuel supplier has completed the action, or a stage of the action, that, under the agreement, entitles the Part 3 fuel supplier to a credit, the director must issue the credit.

14. A credit issued under subsection 8.01(6) of the GGR Act may be

(a) applied against the Part 3 fuel supplier's debits for any compliance period or, if the regulations restrict the application of credits generated in a compliance period to prescribed compliance periods, against the Part 3 fuel supplier's debits for a compliance period prescribed for that purpose, or

(b) transferred under section 8.

15. Under subsection 8.01(8) of the GGR Act, a credit issued under subsection (6) is conclusively deemed to be a validated credit for the purposes of section 8 of the GGR Act.

Credit and debit trading

16. Under subsection 8(2) of the GGR Act, subject to the regulation, a Part 3 fuel supplier may transfer to another Part 3 fuel supplier

(a) some or all of its validated credits for a compliance period or for a 3 month period of a compliance period, or

(b) some or all of the debits it incurs for a compliance period.

17. Under subsection 8(1) of the GGR Act, "validated credit" means a credit

(a) validated by the director under subsection (5), or

(b) issued by the director under a Part 3 agreement.

18. The GGR Act does not require the debits to be validated before transfer.

19. Under subsection 8(4) of the GGR Act, before transferring a credit under subsection (2)(a), the Part 3 fuel supplier must apply to the director, in accordance with the regulation, for validation of the credit. The application for validation submitted to the director must meet the requirements in section 11.101 of the Regulation.

20. Under section 11.11 of the Regulation, all credit transfers must be approved by the director through the submission of a Credit Transfer Proposal Form signed by both the transferor/seller and transferee/buyer.

21. It is understood that the credits and debits are not serialized or registered on a registry and therefore the purchaser does not know whether they are purchasing credits generated by a Part 3 fuel supplier and validated by the government or issued to a Part 3 fuel supplier by the government under a Part 3 agreement.

INTERPRETATION REQUESTED

You would like to know the following:

• Does the BC-LCFS credit meet the definition of an emission allowance pursuant to subsection 123(1), and thus requiring a registered purchaser to self-assess and remit the GST to the Canada Revenue Agency (CRA) pursuant to subsections 221(2.1) and 228(4)? If subsection 221(2.1) applies, it is understood the supplier is relieved of its obligation to charge and collect GST from the recipient.
• In the event the supply meets the definition of an emission allowance and where the supplier incorrectly charges GST to the recipient where subsection 221(2.1) applies and are otherwise relieved from their obligation to charge and collect GST pursuant to subsection 221(1), and if GST is paid by the recipient who is registered, how would the recipient recover the tax paid? Would the registered recipient be eligible for an input tax credit (ITC) or apply for a rebate of tax paid in error from CRA in respect of the tax paid to the supplier?
• In the event that a debit under the BC-LCFS is sold, what would be the GST treatment of this transaction? In the event the sale is characterized as a taxable supply, who is responsible for remitting the GST? Is the recipient entitled to an ITC?

RULING GIVEN

Based on the facts set out above, we rule that BC-LCFS credits do not meet the definition of emission allowance in subsection 123(1). In addition, we further rule that BC-LCFS debits do not meet the definition of emission allowance in subsection 123(1). As a result, the general rule for the collection and remittance of tax set out in subsection 221(1) applies and a Part 3 fuel supplier is required to collect from the recipient the GST/HST payable on any taxable supplies of BC-LCFS credits and debits it makes. A GST/HST registrant purchaser would be entitled to claim an ITC, as described below, provided the conditions under section 169 were met.

EXPLANATION

An emission allowance is defined in subsection 123(1) as:

(a) an allowance, credit or similar instrument (other than a prescribed allowance, credit or instrument) that

(i) is issued or created by, or on behalf of,

(A) a government, a government of a foreign country, a government of a political subdivision of a country, a supranational organization or an international organization (each of which is in this definition referred to as a “regulator”),

(B) a board, commission or other body established by a regulator, or

(C) an agency of a regulator,

(ii) can be used to satisfy a requirement under

(A) a scheme or arrangement implemented by, or on behalf of, a regulator to regulate greenhouse gas emissions, or

(B) a prescribed scheme or arrangement, and

(iii) represents a specific quantity of greenhouse gas emissions expressed as carbon dioxide equivalent, or

(b) a prescribed property;

Currently, no property is proposed to be prescribed.

For an instrument to meet the criterion in subparagraph (a)(i) of the definition emission allowance, the instrument must be issued or created by a regulator or by a body established by, or an agency of, a regulator. It is the CRA’s view that BC-LCFS credits do not meet this criterion, and therefore they do not meet the definition of emission allowance in subsection 123(1).

As a result, under the general rule for the collection and remittance of tax set out in subsection 221(1), a Part 3 fuel supplier is required to collect from the recipient (usually the purchaser) the GST/HST payable on any taxable supplies of BC-LCFS credits it makes. A GST/HST registrant purchaser will generally be entitled to claim an ITC under section 169 to recover the GST/HST paid or payable to the extent that the BC-LCFS credits are acquired for consumption, use or supply in the course of the purchaser’s commercial activities.

However, if it is determined that the BC-LCFS credits are capital property of the purchaser, under subsections 199(1) and (2), a GST/HST registrant purchaser, other than a financial institution, may claim a full ITC in respect of the GST/HST payable on the supply if it were for use primarily (i.e., greater than 50%) in commercial activities. There is no ITC entitlement if use of capital property is 50% or less in commercial activity.

The GST/HST registrant purchaser will report the ITC on their regular Form GST34-2, Goods and Services Tax/Harmonized Sales Tax (GST/HST) Return For Registrants for the reporting period in which the tax became payable.

GST/HST treatment of the sale of BC-LCFS debits

Pursuant to section 165, every recipient of a taxable supply made in Canada is required to pay GST/HST on the value of the consideration(Footnote 7) for the supply, unless an exemption from GST/HST is available. The GST/HST exemptions are set out in Schedule V.

Generally, there are no exemptions in the ETA which would apply to exempt a supply of BC-LCFS debits made by way of sale, transfer, barter or exchange(Footnote 8). Therefore, generally a Part 3 fuel supplier who sells or trades BC-LCFS debits is making a taxable supply of property to that person.

BC-LCFS debits do not meet the definition of emission allowance in subsection 123(1). Therefore, under subsection 221(1), a Part 3 fuel supplier is required to collect from the purchaser the GST/HST payable on any taxable supplies of BC-LCFS debits it makes. GST or HST would be calculated on the consideration paid for the taxable supply, depending on the province in which the supply is made (as HST rates may differ from province to province). A GST/HST registrant purchaser would be entitled to claim an ITC, as described above, provided the conditions under section 169 were met.

DISCLAIMER

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.

CONTACT

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 343-550-1665. Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Sincerely,

Alison Jones
Special Projects Unit
Public Services Bodies and Governments Division
GST/HST Rulings Directorate

FOOTNOTES

1 Supply is defined in section 1 of the GGR Act.

2 It is understood that Low Carbon Fuels Act replaced the GGR Act and as such, the GGR Act has been repealed effective January 1, 2024.

3 This requirement is set out in Part 2 of the GGR Act and Part 2 of the Regulation. This requirement is not addressed in this interpretation.

4 Pursuant to subsection 7(1) of the GRR Act, for each compliance period, a Part 3 fuel supplier must submit to the director a report, in accordance with the regulations, respecting, in part, (a) compliance with the requirements under section 6(1) of the GGR Act.

5 Sections 11.02, 11.04, 11.06 and 11.06 of the Regulation.

6 Subsection 8.01(4) of the GGR Act sets out what must be included in the terms and conditions of a Part 3 agreement.

7 The value of consideration is determined under 153(1) of the ETA.

8 Where the supplier is a public sector body, as defined in subsection 123(1) (which is defined to include the Canadian federal government, the government of a Canadian province or territory, a charity and a non-profit organization), the supply of carbon debits may be exempt under Schedule V in very specific circumstances.

Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.

GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 245576

Dear [Client]:

Subject: GST/HST ruling and GST/HST interpretation
Registration obligations regarding an agreement for Shared Facilities

Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to registration obligations regarding an agreement for Shared Facilities. We apologize for the delay in this response.

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.

STATEMENT OF FACTS

Based on your letter and the supplemental information provided, we understand the following:

1. […] (Developer 1), […] (Developer 2), and [….] (Developer 3) are real estate developers.

2. Developer 1 is the registered owner of the land municipally known as [Address 1] located in […][Canada]. Developer 1 intends to build a condominium project known as the “[…] [Project A Condo]”.

3. Developer 1 intends to develop the [Project A Condo] in two separate phases:

a) First phase, an initial registration incorporating the […][Project A Condo Phase 1]

b) Second phase, a phase registration incorporating the […][Project A Condo Phase 2]

Upon completion and registration of both the [Project A Condo Phase 1] and the [Project A Condo Phase 2], both developments together will be known as the [Project A Condo]. But before completion and registration of the [Project A Condo Phase 1] and the [Project A Condo Phase 2], they shall comprise separate properties.

4. Developer 1 will be developing the phased [Project A Condo] as the “[…][Project A Condo Declarant]”.

5. Developer 2 is the registered owner of the land municipally known as [Address 2] located in [Canada]. Developer 2 intends to develop a condominium project known as the “[…][Project B Condo]”.

6. Developer 2 will be developing the [Project B Condo] as the “[…][Project B Condo Declarant]”.

7. Developer 2 and Developer 3 are, as tenants in common, the registered owners of the [Project C Lands] known as [Address 3] located in [Canada]. Developer 2 and Developer 3 together, intend to develop a commercial building known as the “[…][Project C]”.

8. On [mm, dd, yyyy], [Project A Condo Declarant] (on behalf of […][Project A Condo Corporation), [Project B Condo Declarant] (on behalf of […][Project B Condo Corporation]) and the […][Project C Owner] entered into a Shared Facilities Agreement (the Agreement) in order to provide for the mutual use, maintenance, cost sharing and other matters relating to the Shared Facilities as well as to regulate and govern the use and enjoyment of various easements between the following properties.

a) [Address A] located in [Canada] ([Project A Condo),

b) [Address B] located in [Canada] ([Project Condo B]), and

c) [Address 3] located in [Canada] ([…][Project C]).

9. Developer 2 as [Project B Condo Declarant] is entering into the Agreement both in its capacity as the owner and developer of the proposed [Project B Condo] and together with Developer 3 as owners and developers of[Project C]. They will be entering into the Agreement as the developer, “[Project C Owner]”.

10. Developer 1 is entering into the Agreement both in its capacity as the “[…][Project A Condo Phase 1 Declarant]”, the declarant of the proposed […][Project A Condo Phase 1 Condo Corporation] and as […][Project A Condo Phase 2 Declarant]”, the declarant of the proposed […][Project A Condo Phase 2 Condo Corporation].

11. The [Project A Condo Phase 1 Declarant], is entering in to the Agreement for and on behalf of the [Project A Condo Phase 1], and on the understanding that as and when the same is registered as a separate condominium corporation, it shall assume all the covenants and obligations of the [Project A Condo Phase 1 Declarant] and correspondingly the [Project A Condo Phase 1 Declarant] shall be automatically released, relieved and discharged from the obligations and/or liabilities relating to the [Project A Condo Phase 1].

12. The [Project A Condo Phase 1 Declarant] is entering in to the Agreement for and on behalf of the [Project A Condo Phase 2 Condo Corporation], and on the understanding that as and when the same is registered as a separate condominium corporation, it shall assume all the covenants and obligations of the [Project A Condo Phase 1 Declarant] and correspondingly the [Project A Condo Phase 1 Declarant] shall be automatically released, relieved and discharged from the obligations and/or liabilities relating to the [Project A Condo Phase 2].

13. [Project B Condo Declarant] is entering into this Agreement for and on behalf of the […][Project B Condo Corporation] and when registered as a separate condominium corporation, it shall assume all the covenants and obligations of the [Project B Condo Declarant] and correspondingly the [Project B Condo Declarant] shall be automictically released, relieved and discharged from the obligations and/or liabilities relating to the [Project B Condo].

14. [Project C Owner] is entering into this Agreement on its own behalf and upon any future disposition or other conveyance of [Project C Lands], any successor in title to the [Project C owner] shall, as a condition of such conveyance or other disposition, be required to assume all covenants and obligations of the [Project C Owner] and shall be automatically released, relieved and discharged from the obligations and or liabilities relating to the [Project C Lands].

15. Upon completion, [Project A Condo] and [Project B Condo] will be residential condominiums whereas [Project C] will be a commercial building.

16. Upon completion of the following residential buildings:

a) [Project A Condo Corporation] is the condominium corporation for the [Project A Condo], and

b) [Project B Condo Corporation] is the condominium corporation for the [Project B Condo].

17. [Project A Condo Corporation], [Project B Condo Corporation] and [Project C] will be responsible for the allocation of the Shared Facilities and costs between the buildings.

18. Under paragraph […] of […], the Shared Facilities of the [Project A Condo Phase 1], [Project A Condo Phase 2], the [Project B Condo] and [Project C] include:

• shared Units (if any),
• the common roadway,
• the parking garage,
• the common elements mechanical room located […][in Project A Condo Phase 1],
• the common elements electrical transformer vault located […][in Project A Condo Phase 1],
• the common elements electrical switch gear vault […][located in Project A Condo Phase 1],
• any equipment located within the aforementioned switch gear vault and the transformer vault,
• the common elements bicycle storage room located on Level A of [Project A Condo Phase 1],
• exhaust fans in the parking garage, and
• life safety systems.

19. Article [#] of the Agreement lists and describes the maintenance and repair work associated to the three buildings.

a) Article [#], states that any work related to the Shared Facilities undertaken prior to the creation of the Shared Facilities Committee shall be carried out and completed under the direction and control of [Project C] in the case of any Shared Facilities upon the[Project C Lands], and

b) Any work related to the Shared Facilities undertaken or required to be undertaken after the creation of the Shared Facilities Committee shall be the sole responsibility of the Shared Facilitates Committee and be carried out and completed under the direction and control of the Shared Facilities Committee.

20. The Shared Facilities Committee means the committee formed in accordance with the provisions of Article [#] of this Agreement that will manage, control and/or operate the Shared Facilities.

21. Under Article [#] of the Agreement, it states that until the turnover of the [Project B Condo], it can appoint up to two additional members to the Shared Facilities Committee. The Shared Facilities Committee will consist of three members, one of which will be appointed by [Project C] and the remaining two members will be appointed by and be the members of each of the boards of directors of each of the Condominium Corporations. Each of the Condominium Corporations will also appoint an alternative member to fulfill the obligation of the appointed member when unavailable to ensure timely and full functioning of the Shared Facilities Committee.

22. Each condominium corporation will be responsible for a proportionate share of the Shared Facilities costs and is outlined under Article [#] of the Agreement. It is agreed that the Shared Facilities costs are allocated and paid on the basis of each of the Condominium Corporations and [Project C] as follows:

[…]

a) [Project A Condo Phase 1 Declarant], [Project A Condo Phase 2 Declarant] and [Project B Condo] will not pay or be responsible for any portion of the Shared Facilities costs for or in respect of the buildings while the condominium corporation is not yet registered. [Project C] will not be responsible for any portion of the Shared Facilities costs for or in respect of [Project C] prior to completion of construction and the commencement of paid tenant occupancies (i.e. excluding any rent free of fixturing period and any occupancies not involving the payment of market rents to [Project C] pursuant to a lease agreement) within the completed [Project C] development.

b) During the time of any initial partial tenant occupancy of the [Project C] development, [Project C]’s Proportionate Share shall be pro rated in proportion to the extent of the partial occupancy (e.g. if 50% of the premises within [Project C] premises are occupied then their Proportionate Share will be reduced by 50%)

23. You indicate that when expenses are incurred, the invoices are being issued to the Agreement as “[Project B] SF” ([Project B] Shared Facilities) and are paid from a shared bank account and not invoiced or paid directly by one of the developers. However, detailed documentation such as an invoice or signing authority documents were not provided.

24. You indicate that the signing authority for the Agreement is held by the condominium manager along with three other committee members but the details were not provided.

25. The Agreement is not incorporated and there is no partnership agreement between the members. The only documentation that outlines the relationship between the three developers is the Agreement provided with the incoming request.

RULING REQUESTED

1. Is the Agreement considered to be making a taxable supply with respect to the share of the facilities costs allocated in the Agreement and paid by each of the condominium corporations?

2. Is the Agreement considered a person for GST/HST purposes as defined under the Excise Tax Act (ETA) and if so, is the Agreement required to register for the GST/HST and collect the GST/HST on the Shared Facilities costs incurred?

RULING GIVEN

Based on the facts set out above, we rule that the Agreement is not “a person” as defined in subsection 123(1) of the ETA, and therefore is not engaged in a commercial activity and cannot register for purposes of the GST/HST.

EXPLANATION

Under subsection 240(1), every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to be registered for the GST/HST except where:

a) the person is a small supplier (i.e., annual worldwide taxable sales, including those of the person's associates, do not exceed $30,000);

b) the only commercial activity of the person is the making of supplies of real property by way of sale otherwise than in the course of a business; or

c) the person is a non-resident person who does not carry on any business in Canada.

Pursuant to subsection 123(1), a “person” means an individual, a partnership, a corporation, the estate of a deceased individual, a trust, or a body that is a society, union, club, association, commission or other organization of any kind.

A “taxable supply" is defined in subsection 123(1) to mean a supply that is made in the course of a commercial activity.

Under subsection 123(1), a "commercial activity" of a person includes a business carried on by the person, or an adventure or concern of the person in the nature of trade, except to the extent it involves the making of exempt supplies by the person. It also includes making a supply (other than an exempt supply) of real property, including anything done by the person in the course of or in connection with the making of the supply.

Based on the information provided, it appears that the condominium developers entered into an agreement to share and allocate expenses for the maintenance and operational costs of the Shared Facilities. Notwithstanding that expenses are billed to the Agreement, there is nothing in the information provided to indicate that the Agreement is a person as defined in subsection 123(1). Therefore the Agreement is not engaged in a commercial activity and is not eligible to register for the GST/HST.

DISCLAIMER

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.

CONTACT

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-407-5134.Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287 or by fax to 1-418-566-0319.

Sincerely,

Monica Ma
Senior Rulings Officer
General Operations Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate

Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.

GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 247128

Dear [Client]:

Subject: GST/HST ruling
Emission Allowance

Thank you for your correspondence of January 31, 2024, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to supplies of compliance units issued under the Low Carbon Fuels Act, S.B.C. 2022, c. 21 (the LCFA).

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.

STATEMENT OF FACTS

We understand the following:

1. Effective January 1, 2024, the LCFA replaces the Greenhouse Gas Reduction (Renewable and Low Carbon Fuel Requirements Act, S.B.C. 2008, c. 16 (GGR Act) under which British Columbia’s Low Carbon Fuel Standard was previously administered.

Together with the Low Carbon Fuels (General) Regulation, Order in Council 699/2023 (General Regulation) and the Low Carbon Fuels (Technical) Regulation, Ministerial Order 437/2023 (Technical Regulation), the LCFA helps reduce Greenhouse Gas (GHG) emissions in the transportation sector in British Columbia.

2. The LCFA and the supporting regulations set out two main requirements:

a. Renewable fuel target – Fuels must comprise a prescribed percentage of renewable fuel. (Footnote 1)

b. Annual carbon intensity target. Fuels must have a carbon intensity that meets the increasingly stringent carbon intensity reduction targets each year.

3. Subsection 12(2) of the LCFA states that a person who markets fuels in a compliance period(Footnote 2) must, at the end of the compliance date(Footnote 3) for the period, have a balance of zero or more compliance units.

4. Under subsection 6(1) of the LCFA, a person is considered to market fuel in British Columbia in a compliance period if

(a) the fuel is reportably supplied in the period, and

(b) the person is responsible for the fuel at the end of the compliance date for the period.

5. Under subsection 6(2) of the LCFA, a fuel is reportably supplied in a compliance period if the fuel

(a) has not previously been reportedly supplied(Footnote 4), and

(b) meets one of the following criteria in the period:

(i) the fuel is used in British Columbia;

(ii) the fuel is type A fuel and is supplied in British Columbia by a person who is responsible for the fuel at the end of a compliance date for the period;

(iii) the fuel is type B fuel and is supplied in British Columbia through final supply equipment.

6. Under subsection 6(3) of the LCFA, a person becomes responsible for a type A fuel if the person

(a) manufactures or imports the fuel in British Columbia,

(b) is made responsible for the fuel under the regulations, or

(c) is made responsible for the fuel under an allocation agreement(Footnote 5).

7. Under 6(4) of the LCFA, a person becomes responsible for a type B fuel if the person

(a) supplies the fuel through final supply equipment in British Columbia,

(b) is made responsible for the fuel under the regulations, or

(c) is made responsible for the fuel under an allocation agreement.

8. Section 1 of the LCFA defines type A fuel to mean fuel other than a type B fuel. Section 1 of the LCFA defines type B fuel to mean any of the following: (a) electricity(Footnote 6), (b) natural gas, (c) propane, or (d) a prescribed fuel.

Issuance of compliance units

Supply of fuel

9. Under subsection 13(2) of the LCFA, the director(Footnote 7) may, in accordance with subsection 13(3) of the LCFA, issue compliance units to a person in relation to fuel if

(a) the person markets the fuel for an applicable purpose(Footnote 8)(Footnote 9), or

(b) in the case of an application under subsection 13(1)(b) of the LCFA, the director is satisfied that the person intends to market the fuel for an applicable purpose.

10. Subsection 13(3) of the LCFA states that subject to subsection 13(4) (Footnote 10) of the LCFA, the number of compliance units to be issued under subsection 13(2) of the LCFA in relation to the fuel, which may be a positive or negative number, is the number determined in accordance with the following formula, as it applies on the date the fuel is reportably supplied:

Number = (TCI x EER – (RCI + UCI)) x EC/1 000 000 grams
where
TCI = the target carbon intensity for the fuel, as determined under subsection 13(5);
EER = the energy effectiveness ratio of the fuel, as determined in accordance with the regulations of the minister(Footnote 11);
RCI = the recorded carbon intensity of the fuel;
UCI = the additional carbon intensity attributed to the use of the fuel, as determined in accordance with the regulations of the minister(Footnote 12);
EC = the energy content of the fuel in megajoules, as determined in accordance with the regulations of the minister(Footnote 13);

11. Subsection 13(5) of the LCFA states that for the purpose of subsection 13(3) of the LCFA, the target carbon intensity for a fuel is the number determined in accordance with the following formula:

TCI = BCI x (1 – R)
where
BCI = the carbon intensity specified in section 19(a) of the LCFA for the base fuel for the category to which the fuel belongs;
R = the prescribed(Footnote 14) reduction for that category, expressed as a percentage.

12. It is understood that the formulas in subsections 13(3) and 13(5) of the LCFA calculates the difference between the number of tonnes of carbon dioxide equivalents (CO2e) contained in the marketed fuel compared to the number of tonnes of CO2e contained in the prescribed base fuel target. Where the carbon intensity of the marketed fuel is lower than the prescribed target carbon intensity limit for the base fuel for the category to which the fuel belongs, the formula in subsection 13(3) of the LCFA will generate a positive number of credits(Footnote 15) to be issued by the director. Where the carbon intensity of the marketed fuel is higher than the prescribed target carbon intensity limit for the base fuel for the category to which the fuel belongs, the formula in subsection 13(3) of the LCFA will generate a negative number representing the number of debits(Footnote 16) to be issued by the director.

Initiative agreement

13. Subsection 15(2) of the LCFA states that the director may issue credits to a person in accordance with an agreement under section 15 of the LCFA.

14. Subsection 15(3) of the LCFA states that subject to section 15 of the LCFA and the regulations, the director may, with the approval of the minister, enter into an agreement with a person that provides for the issuance of credits to the person in relation to an action that the person proposes to take.

15. Subsection 15(4) of the LCFA states that the director may not enter into an agreement under section 15 of the LCFA with a person in relation to a proposed action unless

(a) the person manufactures or supplies fuel for an applicable purpose, in British Columbia or elsewhere, for use in British Columbia and the director is satisfied that the proposed action has a reasonable possibility of achieving an eligible goal(Footnote 17),

(b) the person manufactures or supplies feedstock, in British Columbia or elsewhere, for manufacturing described in paragraph (a) and the director is satisfied that the proposed action has a reasonable possibility of achieving an eligible goal,

(c) the person intends to become a person described in paragraph (a) or (b) and the director is satisfied that the proposed action

(i) has a reasonable possibility of achieving an eligible goal, and

(ii) will advance the intention, or

(d) the director is satisfied that the proposed action has a reasonable possibility of reducing the use of a base fuel in British Columbia for a purpose other than transportation.

16. Subsection 15(5) of the LCFA prohibits the director from entering into an initiative agreement that contemplates the issuance of a number of credits that exceed the number set out in paragraphs (a) and (b) of subsection 15(5) of the LCFA.

Export of fuel

17. Subsection 17(2) of the LCFA states that the director may, in accordance with subsection 17(3) of the LCFA, issue debits to a person who reportably exports fuel.

18. Pursuant to subsection 17(3) of the LCFA, the number of debits to be issued under subsection 17(2) of the LCFA in relation to the fuel is the number determined in accordance with the formula under section 13(3) of the LCFA, modified in accordance with section 20 of the General Regulation.

Transfer of credits

19. It is understood that if a responsible person has a positive balance of compliance units at the end of a compliance period, the person may sell their excess credits to another registered person(Footnote 18).

Pursuant to subsection 16(1) of the LCFA, the director may record a transfer of credits from one person to another if the persons are both registered under the regulations, and both submit a notice of the proposed transfer in accordance with subsection 16(2) of the LCFA and section 18 of the General Regulation.

Section 17 of the General Regulations permits the director to register a person to transfer credits where the person provides to the director the requisite information described in the section.

Compliance report and assessment by director

20. Subsection 28(1) of the LCFA states that a person must submit a report for a compliance period if, in the period, the person

(a) markets fuel,

(b) reportably exports fuel, or

(c) allocates responsibility for a type A fuel under an allocation agreement other than an inter-refiner agreement.

The compliance report must be submitted to the director and must be prepared in accordance with and contain information required by the director(Footnote 19).

21. Subsection 30(1) of the LFCA states on receipt of a report under section 28(1)(a) or (b) or (3) of the LCFA of a person in relation to a compliance period, the director must serve on the person a notice of assessment that sets out the following, as applicable (all section references cited below are to the LCFA):

(a) …

(f) a statement of whether the person has met the low carbon fuel targets set under section 12;

(h) the number of credits that the director assesses as having been transferred away by the person under section 16, on or before the compliance date for the period, that have not been previously assessed as transferred;

(i) the number of credits that the director assesses as having been received by the person under section 16, on or before the compliance date for the period, that have not been previously assessed as transferred;

(j) the number of compliance units that the director previously issued to the person in relation to the period under each of the following provisions:

(i) section 13(2)
(ii) [Not in force]
(iii) section 15(2)
(iv) section 17(2)

(k) the number of compliance units that the director issues to the person in relation to the period under each of the following provisions:

(i) section 13(2)
(ii) [Not in force]
(iii) section 17(2)

(l) …

22. Reassessments by the director may also be conducted. On assessment or reassessment, the director may adjust the number of compliance units held by a person. (Footnote 20)

Transfer of validated credits under the former GGR Act

23. Subsection 61(1) of the LCFA states that a person who has a balance of validated credits(Footnote 21) under the former Act [GGR Act] immediately before its repeal has a starting balance under the LCFA that is equal to the amount of these credits, as determined by the director.

Subsection 61(1.1) of the LCFA states that after receiving a report for a person under section 7 of the former Act [GGR Act] in relation to the last old compliance period, the director may adjust the person’s starting balance under this Act for the purpose of resolving any difficulties arising from the transition from the former Act [GGR Act] to this Act.

RULING REQUESTED

You would like the Canada Revenue Agency (CRA) to publish guidance to clarify whether compliance units issued under the LCFA are emission allowances for the purpose of subsection 221(2.1) of the ETA.

RULING GIVEN

Based on the facts set out above, we rule that credits issued by the director under the subsections 13(2) and 15(2) of the LCFA meet the definition of emission allowance in subsection 123(1) of the ETA. In addition, we rule that credits determined by the director pursuant to subsection 61(1) of the LCFA to form a person’s starting balance under the LCFA also meet the definition of emission allowance in subsection 123(1) of the ETA. As such, subsequent transfers of these credits permitted under the LFCA and its supporting regulations constitute supplies of emission allowances for purposes of Part IX of the ETA.

ADDITIONAL INFORMATION

In addition, you further requested that the CRA publish its guidance clarifying whether the compliance units issued under the LCFA are emission allowances for the purposes of subsection 221(2.1) of the ETA in a publication to the broader industry to avoid additional confusion regarding the interpretation of the definition. We provide the following comment.

The CRA reviews the relevant Canadian provincial, federal and international legislation as ruling and interpretation requests are received to determine which existing credits, allowances and other instruments are an emission allowance, as defined under subsection 123(1) of the ETA. As decisions are rendered and where appropriate, the letters relating to these decisions will be severed and published. Given that these laws are not administered by the CRA and are subject to change, the CRA cannot consistently verify if allowances, credits or similar instruments issued under these laws meet the ETA definition of emission allowance and update any public information. Therefore, the CRA does not anticipate publishing a document to the broader industry regarding the compliance units issued under the LCFA or other provincial, federal and international credits, allowances and other instruments at this time.

In your letter you recommended that transactions made prior to the publication of CRA’s interpretation should not be assessed solely on the basis that the position taken by the taxpayers differs from CRA’s eventual position as there is currently significant uncertainty about CRA’s interpretation on emission allowances in general and on the compliance units in particular. We provide the following comment.

Whether a supplier is responsible for collecting and reporting the tax on a supply (or whether the recipient is required to pay and remit the tax) can be determined only upon consideration of all applicable facts and legislation. During an audit, auditors have the discretion whether to (re) assess based on the facts of the case.

DISCLAIMER

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.

CONTACT

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 343-550-1665.

Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287 or by fax to 1-418-566-0319.

Sincerely,

Alison Jones

Special Projects Unit
Public Service Bodies and Governments Division
GST/HST Rulings Directorate

FOOTNOTES

1 This requirement is set out in section 9 of the LCFA and section 13 of the General Regulation. This requirement is not addressed in this interpretation.

2 Pursuant to section 1 of the LCFA and section 4 of the General Regulation, a compliance period means the calendar year.

3 Pursuant to section 1 of the LCFA and section 5 of the General Regulation, the compliance date is March 31.

4 Section 1 of the LCFA defines supply, in relation to fuel, to mean to sell or otherwise provide the fuel to a person.

5 Pursuant to section 1 and subsection 7(1) of the LCFA, allocation agreements allow persons who would be otherwise be responsible to transfer their responsibility to another person.

6 For purposes of this ruling request, how electricity is treated under the LCFA is not addressed, as indicated in the incoming letter.

7 Section 1 of the LCFA defines director to mean the government employee designated in writing by the minister as the director for the purposes of this Act. The minister is the Minister of Energy, Mines and Low Carbon Innovation as per CivicInfo BC.

8 Section 1 of the LCFA defines applicable purpose to mean (a) transportation, and (b) any prescribed purpose.

9 Section 2 of the General Regulation defines applicable purpose for purposes of paragraph (b) of the definition of applicable purpose in section 1 of the LCFA to mean the following purposes (a) use in cargo handling equipment; (b) use in ground support equipment; (c) use in a forklift.

10 Subsection 13(4) of the LCFA states that if a person described in subsection 13(2) does not have a carbon intensity record for the fuel, the recorded carbon intensity of the fuel for the purposes of subsection 13(3) is deemed to be the applicable carbon intensity specified in section

19 (a) or (b) (ii) of the LCFA.

11 As determined by section 7 of the Technical Regulation.

12 As determined by section 8 of the Technical Regulation.

13 As determined by section 9 of the Technical Regulation.

14 The prescribed carbon intensity reduction targets for fuel and gasoline are set out in section 15 of the General Regulation.

15 Section 1 of the LCFA defines credit to mean a positive number of compliance units.

16 Section 1 of the LCFA defines debit to mean a negative number of compliance units.

17 Subsection 15(1) of the LCFA defines eligible goal to mean (a) reducing the carbon intensity of a fuel, or (b) increasing the use of a fuel with a carbon intensity below the prescribed carbon intensity.

18 Section 19 of the General Regulations provides the grounds for which the director may refuse to record a transfer of credits.

19 Subsections 28(4) and 28(5) of the LCFA, Part 4 of the Technical Regulation.

20 Sections 31 and 32 of the LCFA.

21 Under subsection 8(1) of the GGR Act, "validated credit" means a credit (a) validated by the director under subsection (5), or (b) issued by the director under a Part 3 agreement.

Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.

GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 247341

Business Number: […]

[Dear Client]:

Subject: GST/HST ruling
Delivery services provided through […][the Platform]

Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to delivery services provided through […][the Platform]. […]

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.

STATEMENT OF FACTS

We understand the following:

1. The relevant provisions of the […][Platform Terms] version last modified [mm/dd/yyyy], include:

[…]:

[…][The Platform Terms govern a consumer’s access and use of the Platform](Footnote 1)

[…][If a consumer requests delivery services through the Platform the Delivery Terms will also apply]

[…][The Delivery Terms is a separate agreement between a consumer and the Platform]

[…]

2. The relevant provisions of the […][Delivery Terms] version last modified [mm/dd/yyyy], include:

[…]:

[…][The Delivery Terms apply when consumer requests a delivery service through the Platform]

[…][The Platform Terms apply to the consumer’s access and use of the Platform].

[…]:

[…][The Delivery Terms govern a consumer’s use of delivery services sold by the Platform](Footnote 2)

[…][The Delivery Terms do not apply if a consumer orders from a merchant that uses its own delivery staff]

[…]:

[…][The merchant is responsible for the goods]

[…][A consumer may use the Platform to order goods and request delivery services]

[…][Information on options that do not include delivery services]

[…][The Platform charges the consumer for delivery services]

[…]:

[…][Information on Platform and merchant charges]

[…][The consumer is required to pay the Platform for the delivery service]

[…][Information on canceling an order]

[…][Issues with delivery services must be addressed with the Platform. The Platform may provide refunds for delivery services].

[…]:

[…][The Platform limits its liability for the delivery service to the consumer to the amount paid by the consumer for that service]

[…]

3. The relevant provisions of the […] (Agreement) version [mm/dd/yyyy], include:

[…]:

[…][The Agreement applies to delivery driver’s use of the Platform].

[…][The Platform purchases delivery services from the delivery driver and resells it to consumers]. […][The delivery driver may receive instructions about the delivery service from the merchant or consumer].

[…][The Agreement is between a delivery driver and the Platform](Footnote 3).

[…]

[…][The Platform has agreements with merchant and consumer to provide a delivery service. The delivery driver provides its services to the Platform, which the Platform provides to consumers or merchants]

[…][Information on relationship between a delivery driver and the Platform]

[…]

[…]:

[…][Definitions]

4. […][Information on the Platform webpage about refunds to consumers. The merchant is not responsible for refunds the Platform provides to consumers that are related to delivery services]

RULING REQUESTED

You would like to know the tax status of your […][delivery services] provided through [the Platform].

RULING GIVEN

Based on the facts set out above, we rule that:

[…], the [delivery services] you provide to [the Platform] […][are] a zero-rated supply of a freight transportation service, pursuant to subsection 1(2) and section 11 of Part VII of Schedule VI.

EXPLANATION

According to the [Delivery Terms] the consumer is advised that they may place orders for […][goods] and request [delivery services] using [the Platform].

The consumer can place orders via […][the Platform] that do not require [delivery services][…]. […][The Platform Terms apply] to the sale and purchase of any [goods] or delivery services provided by a merchant to a consumer.

If a consumer chooses [delivery services], [the Platform] will request and arrange for a […][delivery driver] to undertake the [delivery services] and will charge the consumer directly for the [delivery services].

For the [delivery services] provided to the consumer, [the Platform] limits its liability to the amount paid by the consumer for that service.

The […] webpage for merchants confirms that merchants are not responsible for refunds provided to consumers that are for [delivery services] provided by [delivery drivers]. [The Platform] is assuming liability.

The Agreement indicates that […][the Platform enters] into separate agreements with merchants and consumers to provide deliveries of [goods]. Under the Agreement, the [delivery driver] agrees to sell [delivery services] to [the Platform] which [the Platform] resells to consumers or merchants, as the case may be.

Regardless of whom [the Platform] resells the [delivery services] to, the Agreement is clear that [the Platform] is the recipient of the [delivery driver’s] services.

Delivery Service

Interlining is the process whereby several carriers take part in the supply of a freight transportation service during the course of a continuous freight movement from the origin of the freight movement to its destination, but only one carrier invoices the shipper or the consignee.

Section 11 of Part VII of Schedule VI zero-rates:

"A supply of a freight transportation service made by a carrier of the property being transported to a second carrier of the property being transported, where the service is part of a continuous freight movement and the second carrier is neither the shipper nor the consignee of the property being transported".

"Carrier" is defined in subsection 123(1) as the person who supplies a freight transportation service. For a person to be considered a "carrier", the person need only assume liability as a supplier of a freight transportation service.

"Continuous freight movement" is defined in subsection 1(1) of Part VII of Schedule VI as the transportation of tangible personal property by one or more carriers to a destination specified by the shipper of the property, where all freight transportation services supplied by the carriers are supplied as a consequence of instructions given by the shipper of the property.

Based on the facts provided, for [delivery services], a merchant (shipper) and a consumer (consignee) contracts with [the Platform] for the delivery of goods received from the shipper’s premises to the consignee. [The Platform] is the carrier that invoices and receives payment from the consignee or shipper and subcontracts the performance of the work to [delivery drivers] (another carrier) such as yourself.

ADDITIONAL INFORMATION

Under subsection 225(1), all amounts that became collectible and all other amounts collected by you in a particular reporting period as or on account of GST/HST, are required to be included in determining your net tax for the particular reporting period. Thus, where an amount of GST/HST was collected by you on the delivery services in a particular reporting period, then you must include the full amount of that tax in determining your net tax for that reporting period.

You may refund or credit the amount as or on account of tax within two years after the day the amount was charged or collected to the recipient pursuant to section 232, provided all the conditions of the provision are satisfied. For more information, refer to GST/HST Memorandum 12.2, Refund, Adjustment, or Credit of the GST/HST under Section 232 of the Excise Tax Act.

Where a refund or credit is not issued by the supplier, the person who has paid an amount as GST/HST on supplies that qualify as a zero-rated supply may make an application to the Canada Revenue Agency for a rebate of tax paid in error under section 261 using Form GST189, General Application for Rebate of GST/HST.

DISCLAIMER

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.

CONTACT

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 343-553-3972.

Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287 or by fax to 1-418-566-0319.

Sincerely,

David Phoenix, CPA, CGA
Industry Sector Specialist
Services and Intangibles Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate

FOOTNOTES

1. […]

2. […]

3. […]

Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.

GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 246307

[Dear Client]:

Subject: GST/HST interpretation
Acquisition of real property by […][the Department]

Thank you for your email correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the acquisition of real property by […][the Department]. We apologize for the delay in this response.

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.

We understand:

1. [The Department] is involved in various real property acquisitions and disposals.

2. […], you provided general examples of real property transactions that are typical of the operations of [the Department].

3. […](Footnote 1) […][references a section of an act noting that the Department is an agent of His Majesty in right of Canada.]

4. [The Department] is listed as a departmental corporation in Schedule II to the Financial Administration Act (FAA)(Footnote 2).

INTERPRETATION REQUESTED

You would like to know how the GST/HST applies to the acquisition of real property by [the Department].

As discussed […], the application of the GST/HST to a supply of real property is fact-specific and unique. It was agreed that, in the absence of requisite facts to determine the tax status of a specific real property transaction entered into by [the Department], we would provide a general explanation of the relevant ETA provisions and how the legislation applies where the federal government (for example, [the Department]) is a party to a real property transaction.

INTERPRETATION GIVEN

Supplies of real property

A supply of real property that is situated in Canada is generally taxable unless the supply is exempt. Part I of Schedule V sets out exempting provisions that may apply to a supply of real property; no tax is charged or paid on an exempt supply.

The tax status of a supply by way of sale (sale) of real property is determined based on factors such as the identity of the supplier (for example, an individual or a corporation), the nature of the property and how the supplier used the property during its ownership of the property. Typically, the supplier of real property is the party that possesses the requisite information to make such a determination. For a sale of real property, it is not the identity of the purchaser nor the purpose for which the property is acquired that will determine the tax status of the property.

A person who makes a taxable supply is generally required to collect the tax payable by the recipient in respect of the supply. An exception to this general rule may apply where a person makes a taxable sale of real property. Specifically, paragraph 221(2)(b) provides that the supplier will not generally collect the tax on a taxable sale of real property where the purchaser is registered for the GST/HST. In such a case, the GST/HST registered purchaser generally has the obligation to report to the Canada Revenue Agency (CRA) the tax that is payable on the acquisition of the real property; this is often referred to as a self-assessment.

Federal Government GST/HST Registrant

Pursuant to paragraph 122(a) of the ETA, the federal government, including all departments, is fully bound both as a supplier and a recipient of property and services for purposes of the GST/HST.

The federal government GST/HST registrant is made up of all the departments as defined in the FAA, which includes, in part, those departmental corporations named in Schedule II to the FAA. As [the Department] is listed as a departmental corporation therein, it falls within the definition of “department”; and, consequently is part of the federal government GST/HST registrant.

[…]

As a […] branch of the federal government GST/HST registrant, [the Department] is responsible for paying the GST/HST on its purchases of taxable supplies and for collecting and remitting the GST/HST on taxable supplies of property and services.

The exception to the self-assessment rule in paragraph 221(2)(b) applies such that the supplier of real property will not collect the GST/HST on the taxable sale of real property where [the Department] is the purchaser. However, […] branches, including [the Department], do not self-assess tax nor adhere to any of the change of use-rules in the ETA which result in self-assessment of the GST/HST.

It is of note that the exception for the collection and payment of GST/HST applies only to the sale of real property. Where [the Department] acquires real property by way of lease, licence or similar arrangement and the supply is a taxable supply, the supplier (if registered for the GST/HST) will collect the applicable tax from [the Department].

[…].

DISCLAIMER

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.

CONTACT

If you require clarification with respect to the acquisition of real property by [the Department], please call me directly at 780-504-3442. For further enquiries with regard to the federal government registrant, please contact Melissa Drapeau, Manager of the Government Sectors and Indigenous Affairs Unit, at 343-549-4445. Should you have general questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at:

1-800-959-8287 or by fax to 1-418-566-0319.

Sincerely,

Johanne Cairo
Senior Rulings Officer
Real Property Unit 1
Financial Institutions and Real Property Division
GST/HST Rulings Directorate

FOOTNOTES

1 […]

2 […]

Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.

GST/HST Rulings Directorate
Place de Ville, Tower A, 5th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 245549
Business Number: N/A

Dear [Client]:

Subject: GST/HST RULING and GST/HST INTERPRETATION
Print-on-Demand Sales

Thank you for your correspondence of March 17, 2023, wherein you requested information on your requirement to register for the Goods and Services Tax/Harmonized Sales Tax (GST/HST) and to collect tax on supplies that you make as part of […][ACo]’s print-on-demand (POD) sales programs.

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.

STATEMENT OF FACTS

Based on the information provided in your letter, the […] agreements and our telephone conversation of [mm/dd/yyyy], we understand the following:

1. You are a Canadian resident.

2. You are not registered for GST/HST purposes.

3. In [yyyy], you entered into two written agreements with [ACo], […][Agreement A] and […][Agreement B] […]

4. [Agreement A] includes the following terms:

a. Royalties […][Description of royalty terms].

b. Taxes […][Description the tax responsibilities of the parties].

c. Grant of Rights […][Information about rights granted].

5. […][Agreement B] contains similar clauses […].

6. You create your own books and designs, and you upload them to [ACo’s] platform. Customers can purchase your books […] and can choose to receive either an electronic or printed version of the book. Customers can choose your designs […] to be printed on products that are acquired from [ACo].

7. You receive royalty payments from [ACo] when customers purchase the electronic books and when your digital designs are chosen by customers for application to products they acquire from [ACo].

8. […], [ACo] is responsible for collecting and remitting any and all taxes on sales to customers (although not explicitly stated in the agreements, that would include applicable GST/HST on taxable sales made in Canada to customers).

9. Royalty payments […] to you are “net of refunds, bad debt and any VAT, sales or other taxes charged to a customer” […].

10. You indicate that you deal exclusively with [ACo] and do not make supplies directly to [ACo] customers.

11. In the years [yyyy] and [yyyy], you earned more than $30,000 in royalties relating to the supply of POD products through {ACo’s] program.

12. As specified in clause [#] of Agreement [A] and equivalent clause [#] of Agreement [B], you are responsible for any taxes due and payable resulting from the royalties you receive; and any taxes due to you is considered to be included in the royalty payments.

RULINGS REQUESTED

You would like to know:

1. if you have to register for GST/HST purposes;

2. if you have to collect tax on the royalty payments you receive from [ACo]; and

3. if you are an “excluded operator” under the new digital economy rules.

A ruling provides the Canada Revenue Agency’s (CRA) position on specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person and where all of the relevant facts and supporting documentation have been presented in writing. The CRA reserves the right not to issue a ruling where it considers that one would not be appropriate.

We were able to rule on the registration and the excluded operator questions. However, a ruling cannot be issued in respect of the royalty payments as there is insufficient information on the status of the recipient on which to base the ruling. Therefore, we are issuing an interpretation of the applicable provisions and how the legislation would apply with respect to your question on the collection of taxes.

RULINGS GIVEN

Based on the facts set out above, we rule that:

1. You are required to register for GST/HST purposes.

2. You are not an “excluded operator” under the new digital economy rules because you are not a non-resident and you do not operate a digital platform.

EXPLANATION

Generally, a royalty is a payment made by a person who uses a right in respect of intellectual property (IP) that belongs to another person. Under the Agreements, you have granted a non-exclusive right to [ACo] to print, distribute, publish and sell the books and designs you have created. Therefore, you are making a taxable supply of your IP (which falls within the broader category of intangible personal property (IPP)), and in return you receive royalties as consideration (payment) for that taxable supply.

Pursuant to paragraph 142(1)(c), a supply of IPP is deemed to be made in Canada if it may be used in whole or part in Canada or if the IPP relates to goods ordinarily situated in Canada, real property in Canada or service to be performed in Canada. To determine whether IPP may be used in Canada, the written agreement should reveal any restriction regarding the place of use of the IPP. If there are no such restrictions, the supply will be deemed to be made in Canada regardless of if it is actually used in Canada.

In your situation, the Agreements contain no restriction as to where the IPP may be used; to the contrary, you have granted [ACo] the printing and distribution rights on a worldwide basis. Therefore, the supplies of IPP to [ACo] are deemed to be made in Canada and are subject to the GST/HST.

Under subsection 240(1), every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to register for GST/HST purposes except in certain circumstances including where the person is a small supplier.

Under section 148, a person is a small supplier and does not have to register for the GST/HST as long as the total amount of all revenues from worldwide taxable supplies (including zero-rated supplies) is $30,000 or less in the last four consecutive calendar quarters, or in a single calendar quarter.

Based on the information provided, your revenues from supplies to [ACo] exceeded $30,000 in [yyyy] and again in [yyyy]. Consequently, it appears that at some point in [those years], you were no longer a small supplier for purposes of the GST/HST and therefore you were required to register for the GST/HST. The effective date of your registration depends on when you went over the small supplier threshold. To help you make that determination, see page 12 of the GST/HST Guide RC4022, General Information for GST/HST Registrants.

INTERPRETATION GIVEN

The rate of tax applicable to a particular taxable supply made in Canada is based on where in Canada the supply is determined to be made. If a supply is made in Canada but not in a participating province it is subject to the GST. If the supply is determined to be made in Canada and in a participating province, it is subject to the HST at the specified rate for the participating province. Note that a taxable supply that is made in Canada may be a zero-rated supply (this means that the supply is taxable but that the rate of tax is 0%) where certain conditions are met (see the discussion following).

Where a supply of IPP is made in Canada, it must be determined in which province the supply is made. The general place of supply rules for supplies of IPP are based on the location where the IPP may be used. Generally, for supplies of IPP with respect to which there are no restrictions regarding where the property may be used, paragraph 8(b) of the New Harmonized Value-Added Tax System Regulations (the Regulations) deems the supply of the IPP to be made in a particular province if:

• in the ordinary course of business of the supplier, the supplier obtains a particular address that is:
• if the supplier obtains only one address that is the home or business address in Canada of the recipient, the home or business address in Canada obtained by the supplier,
• if the supplier obtains more than one such address, the home or business address in Canada of the recipient that is most closely connected with the supply, or
• in any other case, the address in Canada of the recipient that is most closely connected with the supply, and
• the particular address is in the particular province, and
• the IPP can be used in the particular province.

If, however, the supplier does not obtain an address of the recipient, either paragraph 8(c) or section 11 of the Regulations will determine the province where the supply is made. Pursuant to paragraph 8(c) of the Regulations, the supply is deemed to be made in the participating province for which the tax rate is the highest among the tax rates for the provinces where the IPP can be used. However, if IPP can be used in two or more participating provinces with the same highest tax rate, the provincial place of supply will be determined by section 11 of the Regulations.

Under section 11, one of the participating provinces with the same highest tax rate (known as the “specified provinces”) will be the province where the supply is made. Section 11 provides that the supply is made in the specified province where the supplier's business address, which is most closely connected with the supply, is located. If that business address is not located in one of the specified provinces, then the supply is made in the specified province closest in proximity, determined in any reasonable manner, to the supplier's business address that is most closely connected with the supply. […].

For more information regarding the application of the place of supply rules for IPP, please see GST/HST Technical Information Bulletin B-103, Harmonized Sales Tax – Place of Supply rules for determining whether a supply is made in a province.

However, a supply of IPP that is made in Canada may be zero-rated pursuant to section 10 or 10.1 of Part V of Schedule VI of the ETA. For section 10 or 10.1 to apply, the recipient must be a non-resident of Canada and must not be registered under the regular GST/HST regime when the supply is made. As a result, you would not be required to collect or account for tax with respect to such supplies.

Section 10 zero-rates a supply of an invention, patent, trade secret, trade-mark, trade-name, copyright, industrial design or other IP or any right, licence or privilege to use any such property, where the recipient is non-resident and not registered at the time the supply is made.

Section 10.1 zero-rates a supply of IPP made to a recipient who is non-resident and not registered at the time the supply is made, except for a supply made in certain circumstance including where the supply is made to an individual who is inside Canada when the supply is made or the of IPP that may only be used in Canada.

For more information on the zero-rating rules in section 10 and 10.1, please refer to GST/HST Memorandum 4-5-3, Exports – Services and Intellectual Property.

A supplier who makes a zero-rated supply under these provisions must verify and maintain satisfactory evidence that the recipient of the supply is not resident in Canada and not registered at the time the supply was made. Appendix B of GST/HST Memorandum 4-5-1, Exports – Determining Residence Status, describes the documentation that the CRA will generally accept as proof that the recipient is a non-resident and a non-registrant. For more information, please refer to GST/HST Info Sheet GI-034, Exports of Intangible Personal Property.

ADDITIONAL INFORMATION

When you register for the GST/HST, the threshold revenue amounts will determine your assigned reporting period. If your annual taxable supplies are $1.5 million or less, you are assigned an annual reporting period by default. However, if you want to file your return more frequently, you may apply to change your assigned reporting period.

As a GST/HST registrant, you are responsible for collecting the GST/HST when you make taxable supplies (other than zero-rated supplies) of property and services in Canada. You may recover the GST/HST paid or payable on property or services acquired for consumption, use or supply in the course of your commercial activities by claiming input tax credits (ITCs). The ITCs are deducted from the GST/HST collected and you must remit the difference (i.e., net tax) to the CRA if the amount is positive or get a refund from the CRA where the GST/HST on your expenses exceed the GST/HST collectible.

For more information on registration, small supplier, collecting taxes and reporting periods, you can refer to the GST/HST Guide RC4022, General Information for GST/HST Registrants.

DISCLAIMER

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling given in this letter provided that: none of the issues discussed in the ruling are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation, or the additional information provided herein.

CONTACT

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 353-553-0164. Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Cynthia Lynch
Senior Rulings Officer
General Operations Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate