14 March 2005 GST/HST Interpretation 51795 - Transfer of an Interest in a Trust Holding a Freehold Mineral Title - XXXXX

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.

This is in response to XXXXX that you sent to Dwight Kostjuk XXXXX, requesting information on extended warranties on vehicles, and product service plans for software when provided to a band-empowered entity (BEE).

Your questions specifically relate to BEEs. However, the information provided in the answers below applies to Indians, bands and BEEs.

Question:

What is the tax status of an extended warranty on a vehicle when provided to a BEE at the time of purchase of the vehicle?

The following details on the warranty were provided XXXXX:

•   The BEE acquired the vehicle from a dealer registered for GST/HST;

•   The vehicle was shipped to a reserve by an agent of the dealer;

•   The BEE acquired the optional extended warranty for the vehicle at the time of purchase of the vehicle;

•   The dealer charged GST on the extended warranty.

Response:

Where it has been determined that an extended warranty is not a financial service, (i.e. the warranty is such that it is excluded from the definition of financial service), the warranty in respect of tangible personal property (TPP) would be a taxable supply normally subject to the GST/HST.

However, it is the Canada Revenue Agency's (CRA's) position that, for purposes of B-039R: GST Administrative Policy - Application of GST to Indians (B-039R), warranties in respect of TPP (e.g. vehicles) will be relieved of tax when they are sold together with TPP that is relieved of tax where the conditions of B-039R are met. Where an Indian, band or unincorporated BEE is purchasing TPP off a reserve and the TPP is delivered to a reserve by the vendor or the vendor's agent, the supply of the TPP, the warranty, and/or the delivery charges will be relieved of GST even if separately billed provided the conditions of B-039R are met (e.g. adequate documentation must be retained by the vendor). Where the BEE is incorporated, the TPP must be acquired for band management activities in order for tax relief to apply.

Question:

What is the status of software and a product service plan for the software when provided to a BEE at the time of purchase of the software?

The following details on the software and product service plan were provided XXXXX:

•   The BEE acquired software that has been determined XXXXX to be intangible personal property (IPP) in accordance with B-090, GST/HST Electronic Commerce, i.e. the supply of the software was made in digital format by electronic means;

•   The software was acquired via the Internet at the BEE's office which is off a reserve and the software will be used in that off-reserve office;

•   At the time of acquisition of the software the BEE also acquired a product support plan;

•   The plan entitles the BEE to receive services relating to troubleshooting and the operation of the software, but the principal object of the supply is the technician's services;

•   The BEE paid GST on the software and on the product support plan.

Response:

XXXXX has determined that the software in question is a supply of IPP. Under section 87 of the Indian Act (IA), property must be situated on a reserve in order for tax relief to apply. For purposes of section 87 of the IA, the CRA has taken the position that goods delivered to a reserve meet the condition of being situated on a reserve. As IPP is not a physical object, it cannot be delivered to a reserve. It is the position of the CRA that where a right to property or services (IPP) can be used or exercised exclusively on a reserve, it will be situated on a reserve, and, where all other conditions set out under B-039R have been met, it may be acquired on a tax-relieved basis. Two examples of where the CRA has taken this position with respect to supplies of IPP made to Indians, bands and BEEs are: memberships where the rights conveyed under that membership can be exercised exclusively on a reserve, and a ticket conveying a right to attend a sporting event that will be held on a reserve. Note: B-039R only applies to BEEs that are situated on a reserve, i.e. they maintain a presence on reserve.

With respect to software, there is generally a licensing agreement allowing the person acquiring the software to use the product in a province or a country. That is, licensing agreements do not specify precise locations, such as a reserve, as to where the software may be used.

The jurisprudence related to IPP indicates that connecting factors should be used to determine the situs of the IPP, i.e. the software. Where a supply of software is made to an Indian, a band or a BEE and the software is a supply of IPP that is downloaded via the Internet, the CRA takes the position that, where the following two connecting factors apply, the software will meet the condition of being "situated on a reserve":

1. the software is provided to an Indian that lives on a reserve, to a band on a reserve, or to a BEE that maintains a physical premises on a reserve, at the time of the transaction, and

2. the software provider can establish that the software is downloaded onto a computer located on a reserve at the time of acquisition of the IPP.

Where the two connecting factors are met, and the software provider has sufficient documentation as evidence XXXXX, the software may be supplied tax relieved where all other conditions of B-039R have been met. The facts provided by you indicate that the BEE will be downloading the software at a location off a reserve; therefore, the supply to the BEE would be taxable with no tax relief available, as the first connecting factor has not been met. The software cannot be connected to the reserve at the time of acquisition.

You indicate that the product support plan may be a service, as the principal object of the plan is that of the technician's services, but you also indicated that the plan relates to troubleshooting and operation of the software. There is insufficient information to enable us to determine whether the plan forms part of the supply of the software, or is a separate supply, i.e. a single supply of IPP, or is a separate supply of either IPP or a service.

Generally, where a supply of software maintenance is included in the software licence, it is considered to be part of a single supply of the software and takes on the tax status of the software. This would be true where a product support plan is included in the software licence.

However, where the product support plan is a separate supply and it is by nature technical support, the principal object of which is to provide access to technicians, interaction with technicians, or specific work performed by technicians, the product support plan would be considered a supply of a service. Services acquired by a BEE for band management activities or for real property on reserve are relieved of tax where the conditions of B-039R have been met.

If the product support plan is essentially the supply of a right to use existing technical information in the form of on-line documentation and access to a trouble-shooting database, and the interaction with the technician is incidental, the supply of the product support plan would be characterized as one of IPP. A product support plan that is IPP meets the requirement of being situated on a reserve at the time of acquisition where the two connecting factors noted above are met. The supply will be relieved of tax where all remaining conditions of B-039R are met.

Question:

Would the tax status of the software/product support plan change if the BEE acquired the software via the Internet at an office located on a reserve but for use at the off-reserve location?

Response:

Where the supply of the software is a separate supply of IPP, the situs of the IPP would be determined based on whether the software meets the condition of being situated on a reserve using the connecting factors noted above. In order for the software to be relieved of tax, the remaining conditions in B-039R must be met. If the product support plan forms part of a single supply of the IPP, i.e. the software, the tax status of the product support plan would be the same as that of the software.

Where the supply of the product support plan is a separate supply of a service, relief of tax would only be available to the BEE when the specific conditions of B-039R have been met. If it is a separate supply of IPP, the two connecting factors noted above would first need to be applied to determine the situs of the IPP. Tax relief would only apply if the IPP is found to be situated on a reserve and the remaining conditions in B-039R have been met.

Question:

Would it make a difference if the software were delivered in CD format by the vendor or vendor's agent?

Response:

Software supplied on a physical medium is generally considered to be a supply of TPP. Where a BEE acquires property on a reserve or has it delivered to a reserve by the vendor or vendor's agent, it is relieved of tax as long as the remaining conditions of B-039R have been met. As well, for incorporated BEEs to acquire TPP tax relieved, the TPP must also be for band management activities.

Question:

Is the BEE entitled to a Code 1 rebate of the tax paid on either of the above two supplies?

Response:

If an amount was paid as tax in error by the BEE, a rebate under section 261 of the Excise Tax Act (ETA) is available (Code 1 rebate). In general, where a BEE has paid and amount as GST/HST in error on either the warranty, the software, or the product support plan, the BEE would be entitled to file a rebate application using Code 1 as the reason for the rebate. However, the BEE would not be able to acquire the product support plan tax relieved if that plan was a separate supply of IPP that was not situated on a reserve. If the product support plan was a separate supply of a service and an amount was paid as tax in error, the BEE would be entitled to a Code 1 rebate where the service was acquired for band management activities or for real property on reserve.

Should you wish to discuss the matter further, please call me at 613-954-7954.

2005/03/14 — RITS 53920 — Computer Software Programs Used by Blind Individuals