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.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 133380
August 20, 2013
Dear [Client]:
Subject: GST/HST RULING
[...] [Place of supply - rate of tax]
Thank you for your [correspondence], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) with respect to the supplies made to the [...]([...][Recipient]) in relation to [...]([...][the Recipient's]) [...]([...][Project X]). We apologize for the delay in our response.
The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador, 14% in Prince Edward Island (effective April 1, 2013) and 15% in Nova Scotia. The GST applies in the rest of Canada at the rate of 5%.
Effective April 1, 2013, the 12% HST in British Columbia has been replaced by the 5% GST and a provincial sales tax.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
Statement of Facts
We understand that:
1. [Project X] is [...] [describes purpose of project].
2. [...] [Description of project requirements and deliverables]
3. [...] [Additional project requirements]
4. [...] [Additional project requirements]
5. [...], the [Recipient] awarded [Project X] to [...]([...][the Company]), a GST/HST-registered resident with its headquarters located in [...][Province 1]. As part of [Project X], the [Recipient] has entered into two contracts with [the Company]: [...][Contract #1] that was signed on [mm/dd/yyyy] and [...][Contract #2] that was signed on [mm/dd/yyyy].
[Contract #1]
6. The contract requires the design, building, and delivery of [...][the Product] and related documentation including [the Product] operation and maintenance manuals.
7. [...] [Description of deliverables]
8. [...] [Describes usage of deliverables]
9. All clauses and conditions identified in the contract by number, date and title are set out in [...]
10. There is a [$] for the contract that is subject to [...] payments that are tied to different completion dates culminating with the delivery and acceptance of the [Product].
11. Under the contract, delivery means the transfer of possession of the [Product] from [the Company] to the [Recipient] and is deemed to have occurred when the [Product] have been received by the [Recipient] at the destination specified in the contract. The contract indicates that the [Product] are to be delivered Delivered Duty Paid (Destination) Incoterms 2000 to [the Recipient] [at] [...][Province 2].
12. The contract includes several addresses in Canada of the [Recipient]. The contract identifies [...] as the [...][contractor] and indicates that its address is located in [...][Province 3].
13. The contract also provides options for the [Recipient] to separately acquire the following items for separate consideration: [...] [listed items]
14. Under the contract, the optional [Product] and [...][item A] are also to be delivered Delivery Duty Paid (Destination) Incoterms 2000 to [the Recipient] [at] [Province 2].
15. There are no restrictions with respect to where in Canada the optional [...][item B] may be used.
[Contract #2]
16. The contract is for the provision of [...] and training support for the [Product].
17. All clauses and conditions identified in the [Contract #2] by number, date, and title are set out in [...]
18. [...] [Description of contract requirements]
19. [...] [Description of contract requirements].
20. [...] [Description of contract requirements].
21. [...] [Description of contract requirements].
22. [...] [Terms of payment for contract].
23. The contract includes several addresses in Canada of the [Recipient]. The contract identifies [...] as the [contractor] and indicates that its address is located in [Province 3].
24. The contract also provides the option for the [Recipient] to acquire [...] services for [the Product] and to extend the term of the contract by up to [#] additional [...] periods based on the same conditions and at the prices stated in the contract.
Ruling Requested
You would like to know the rate of tax that applies to the taxable supplies made pursuant to the [Contract #1] and the [Contract #2], including any taxable supplies that may be made as a result of the exercising of the options under each of the contracts.
Ruling Given
Based on the facts set out above, we rule that:
1. The taxable supplies of the [Product] made by [the Company] to the [Recipient] under the [Contract #1] are supplies of tangible personal property (TPP) by way of sale that are made in [Province 2] and subject to HST at a rate of [...]%. Furthermore, the supply of an optional [Product] and the supply of optional [item A] under the [Contract #1] would be taxable supplies of TPP by way of sale that are made in [Province 2] and subject to HST at a rate of [...]%. The taxable supply of optional [item B] under the [Contract #1] would be a taxable supply of intangible personal property (IPP) that is made in [Province 3] and subject to GST at the rate of 5%.
2. The taxable supply of the [...] service that [the Company] is making to the [Recipient] under the [Contract #2] is made in [Province 3] and subject to GST at the rate of 5%. The taxable supply of the optional [...] service under the [Contract #2] would also be made in [Province 3] and subject to GST at the rate of 5%.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
Explanation
A taxable (other than zero-rated) supply made in Canada is subject to GST at the rate of 5% if it is made in a non-participating province, and is subject to HST at the applicable harmonized rate if it is made in a participating province.
Ruling #1 - The [Contract #1]
With respect to the taxable supplies of the [Product], the optional [Product] and the optional [item A], pursuant to paragraph 142(1)(a) of the ETA, a supply of TPP by way of sale is deemed to be made in Canada if the TPP is, or is to be, delivered or made available in Canada to the recipient of the supply. This rule is based on where legal delivery of the TPP occurs.
Under the [Contract #1], the terms of delivery for the supply of the [Product], the optional [Product] and the optional [item A] are Delivered Duty Paid (Destination) Incoterms 2000 [to] [the Recipient] [at] [Province 2]. As a result, legal delivery of that TPP occurs in Canada and the supply of that TPP is made in Canada.
Section 144.1 of the ETA provides that a supply is deemed to be made in a province if it is made in Canada and is, under the rules set out in Schedule IX, made in the province. Further, under section 144.1, a supply made in Canada that is not made in any participating province is deemed to be made in a non-participating province. Pursuant to section 3 of Part IX of Schedule IX, notwithstanding the rules in Schedule IX, a supply is made in a province if the supply is prescribed under the New Harmonized Value-Added Tax System Regulations (the "Regulations") to be made in the province.
Section 1 of Part II of Schedule IX provides that a supply by way of sale of TPP is made in a province if the supplier delivers the TPP or makes it available in the province to the recipient of the supply. This rule is generally based on the province in which legal delivery of the TPP occurs. However, for purposes of this rule, under section 3 of Part II of Schedule IX, TPP is also deemed to be delivered in a particular province, and not in any other province, if the supplier either:
* ships the TPP to a destination in the particular province that is specified in the contract for carriage of the TPP or transfers possession of the TPP to a common carrier or consignee that the supplier has retained on behalf of the recipient to ship the TPP to such a destination; or
* sends the TPP by mail or courier to an address in the particular province.
Based on the terms of delivery in the contract, legal delivery of the [Product], the optional [Product] and the optional [item A] occurs at [the Recipient] in [Province 2]. The supply of that TPP is therefore made in [Province 2] and subject to HST at a rate of [...]%.
With respect to the taxable supply of optional [item B], paragraph 142(1)(c) of the ETA provides that a supply of IPP is deemed to made in Canada if the IPP may be used in whole or in part in Canada. As the optional [item B] may be used in Canada, the supply of that IPP would be made in Canada.
Generally, if there are no restrictions with respect to where in Canada IPP that is supplied can be used, as in this case, paragraph 8(b) of the Regulations deems the supply of the IPP to be made in a province if:
* in the ordinary course of business of the supplier, the supplier obtains an address that is:
* if the supplier obtains only one address that is a 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;
* the address is in the province, and
* the IPP can be used in the province.
Where multiple business addresses in Canada of the recipient are obtained by the supplier in the ordinary course of its business, the business address of the recipient from which the supplier is hired pursuant to the agreement for the supply (the "contracting address") will generally be the address that is most closely connected with the supply.
In the ordinary course of its business [the Company] has obtained several business addresses of the [Recipient] in Canada in the contract. The business addresses obtained include the address of the [contractor] in [Province 3], which is considered to be the contracting address and consequently the address that is most closely connected with the supply of the IPP. As the business address of the [Recipient] in Canada that is most closely connected with the supply of the IPP is located in [Province 3] and the IPP may be used in that province, the supply of the IPP would be made in [Province 3] and subject to GST at the rate of 5%.
Ruling #2 - The [Contract #2]
With respect to the taxable supply of the [...] service and optional [...] service under the [Contract #2], paragraph 142(1)(g) of the ETA provides that a supply of a service is deemed to be made in Canada if the service is, or is to be, performed in whole or in part in Canada. The supply of the [...] service and the optional [...] service that are to be performed in part in Canada are therefore made in Canada.
Generally, pursuant to subsection 13(1) of the Regulations, a supply of a service is made in a province if in the ordinary course of its business the supplier obtains an address in the province that is:
* if the supplier obtains only one address that is a 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.
In the ordinary course of its business [the Company] has obtained several business addresses of the [Recipient] in Canada in the contract. The business addresses obtained include the address of the [contractor] in [Province 3], which is considered to be the contracting address and consequently the address that is most closely connected with the supply of the [...] service and the optional [...] service. As a result, the supply of the [...] service and the optional [...] service is made in [Province 3] and subject to GST at the rate of 5%.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-8220.
Yours truly,
Kevin W. Smith
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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