19 August 2004 GST/HST Interpretation 53344 - Transfer or cancellation of a prepaid funeral arrangement

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

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of services made by a Canadian sales representative to a non-resident corporation.

All legislative references are to the Excise Tax Act and its regulations, unless otherwise noted.

In your letter you request clarification regarding the Canada Revenue Agency's interpretation of section 5 of Part V of Schedule VI as illustrated in the example in paragraph 8 of GST/HST Memorandum 4.5.3, Exports - Services and Intellectual Property (example reprinted below).

Specifically, it is your view that the supply of the service made by the representative in the example would not be zero-rated where it is in respect of supplies of the product by the non-resident to Canadian residents since the supply of the products in this case would not qualify for zero-rating as an export.

EXAMPLE

An unregistered non-resident corporation located in the United States (USCo) contracts with a Canadian sales representative to promote USCo's products in a specific geographic area, i.e., Manitoba and Saskatchewan. The solicitation is done by mail, telephone, door-to-door, including the provision of product information (e.g., advertising brochures), and participation in trade shows where product information is provided, free samples are distributed and demonstration of the products is given. The sales representative may also assist customers with the completion of purchase orders. However, purchase orders are accepted by USCo in the United States. The sales representative is paid a fee (i.e., commission) for her services, based on 5% of the value of the sales of USCo's products in Manitoba and Saskatchewan. The supply of the service provided by the sales representative is zero-rated.

Interpretation Requested

You wish to confirm that the conclusion in the example in paragraph 8 of Memorandum 4.5.3 is correct. Particularly, that the supply by the sales representative of services to the non-resident company is zero-rated.

In addition, you would like to know whether the GST/HST tax treatment changes if the sales representative is paid a monthly flat fee rather than a fee based on a percentage of the sales.

Interpretation Given

As explained below, the supply of the service made by the representative to the non-resident in the example would be zero-rated on the basis that the service is in respect of a supply of the products made outside Canada as opposed to a supply of the products that is zero-rated.

Generally a supply of a service that is made in Canada is subject to the GST at a rate of 7% or the HST at a rate of 15% if the supply is made in a participating province (Nova Scotia, New Brunswick and Newfoundland and Labrador), unless the supply is exempt or zero-rated.

Pursuant to paragraph 142(1)(g), 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." For example, a supply made by a Canadian sales representative to a non-resident person of promoting the non-resident's products in Canada is deemed to be made in Canada in accordance with paragraph 142(1)(g).

Please note there are no exempting provisions that apply to the supply in question. Section 5 of Part V of Schedule VI zero-rates a supply made to a non-resident person of acting as an agent of the non-resident or of arranging for, procuring or soliciting orders for supplies by or to the non-resident, where the service is in respect of a supply to the non-resident person that is zero-rated under Part V of Schedule VI or a supply that is made outside of Canada by or to the non-resident person.

In the example in question, the Canadian sales representative is making a supply of a service to the non-resident person that is in respect of a supply by the non-resident of tangible personal property (TPP). If the supply of the TPP by the non-resident is deemed to be made outside of Canada, then the service supplied by the Canadian representative to the non-resident person would be zero-rated. Conversely, if the supply by the non-resident person were made in Canada and does not qualify for zero-rating, the Canadian sales representative would be required to charge the GST/HST on the consideration payable for her service.

The general place of supply rule in paragraph 142(1)(a) deems a supply by way of sale of TPP to be made in Canada if the property is, or is to be, delivered or made available in Canada to the recipient of the supply. However, where a supply of TPP is made in Canada by a non-resident person who is not registered for GST/HST at the time the supply is made and the supply is not made in the course of a business carried on in Canada by the non-resident person, the supply of the TPP by the non-resident person is deemed to be made outside Canada pursuant to subsection 143(1).

Whether a particular non-resident person is carrying on business in Canada is a question of fact to be determined on a case-by-case basis. Factors to consider in determining whether a non-resident person is carrying on business in Canada in a particular situation include:

•   the place where agents or employees of the non-resident are located;

•   the place of delivery;

•   the place of payment;

•   the place where purchases are made;

•   the place from which transactions are solicited;

•   the location of an inventory of goods;

•   the place where the business contracts are made;

•   the location of a bank account;

•   the place where the non-resident's name and business are listed in a directory;

•   the location of a branch or office;

•   the place where the service is performed; and

•   the place of manufacture or production.

The importance of a given factor in a specific case depends upon the nature of the business activity under review, and, as always, the particular facts and circumstances of each case. Generally, a non-resident must have a significant presence in Canada to be considered to be carrying on business in Canada.

In addition, paragraph 142(2)(a) deems a supply of TPP that is made by way of sale to be made outside of Canada if the property is, or is to be, delivered or made available outside of Canada to the recipient of the supply.

The conclusion in the example that the representative's service is zero-rated is based on the assumption that the products supplied by the non-resident in this case would be deemed to be made outside Canada under either 142(2) on the basis of being delivered or made available outside Canada or under subsection 143(1) on the basis that the non-resident is not registered for the GST/HST and is not carrying on business in Canada.

With respect to your second question, the method by which the consideration for the supply is determined (i.e., commission or flat fee) would not affect the zero-rated status of the service provided the conditions for zero-rating the supply under section 5 of Part V of Schedule VI are met.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memoranda 1.4, do not bind the Canada Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-7841.

Yours truly,

Dwayne Moore
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2004/07/29 — RITS 53446 — Effective Date of Municipal Rebate at the Rate of 100%