25 October 2006 GST/HST Ruling 64854 - Independent Medical Examinations and Other Independent Assessments

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 supplies of XXXXX (the Book), published and sold by XXXXX (the Company).

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

Effective July 1, 2006, the rate of the GST has been reduced from 7% to 6% and the rate of the HST from 15% to 14%. The new rates apply to supplies for which the GST/HST is paid on or after July 1, 2006, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to Reduction in the Rate of the GST/HST - Questions and Answers (http://www.cra-arc.gc.ca/agency/budget/2006/gstrateqa-e.html) on the CRA Web site.

Statement of Facts

Our understanding of the facts, based on your letter XXXXX, our telephone conversation XXXXX and information from the websites for the Company and the Book, is as follows:

1. The Company is a book publisher in XXXXX and sells its books to retail bookstores, wholesalers, universities, and individuals across Canada.

2. The Book is a XXXXX.

3. The Book is sold with a free CD-ROM enclosed. The CD-ROM includes all of the features of the Book XXXXX. In addition, some of the programs necessary to view the contents of the on-line edition, which may also be downloaded free from the Internet, are included on the CD-ROM.

4. The Company is responsible for shipping the Book to its customers, and remains responsible for the Book until it is received by the customer.

5. The on-line edition of the Book includes all of the information in the Book, along with XXXXX.

6. An individual may subscribe to the on-line edition of the Book by purchasing a licence. The licence gives the purchaser the right to use the on-line edition for a year for personal use only.

7. The licence does not indicate where the individual may use the on-line edition of the Book.

Ruling Requested

You would like to know if the Company's supplies of the Book and subscriptions to the on-line edition are subject to the full 14% HST in the participating provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador.

Ruling Given

Based on the facts set out above, we rule that all supplies of subscriptions to the on-line edition of the Book are subject to GST of 6%.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by this ruling provided that none of the above issues is 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.

On October 6, 2006, the Department of Finance announced its intention to amend the Deduction for Provincial Rebate (GST/HST) Regulations under the ETA to facilitate the expanded application of the point-of-sale rebate on printed books. These amendments have not yet been enacted. As stated in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, we are unable to issue a ruling with respect to proposed legislation. However, we are pleased to provide the following interpretation.

Interpretation Given

Based on the facts set out above, supplies of the Book made on or after September 1, 2006, in the provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador are eligible for the point-of-sale rebate of the 8% provincial component of the HST.

The foregoing comments represent our general views with respect to the proposed amendments to the ETA as they relate to the subject matter of your request. Any change to the wording of these proposed amendments or any future proposed amendments, 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 Memorandum 1.4, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation.

Explanation

On-Line Edition of the Book:

GST/HST Technical Information Bulletin B-090, Electronic Commerce (TIB B-090), outlines how the GST/HST applies to supplies made by electronic means; the first issue is to characterize the supply (i.e., determining whether the supply is one of property or a service). The characterization of a supply is fundamental to the application of the GST/HST, as it affects the place where a supply is considered to be made, the tax rate that applies to a supply, the manner in which tax is collected, and the timing of liability for tax in respect of a supply. Supplies made by electronic means (including digitized products) are considered to be either intangible personal property or services.

The on-line edition of the Book is a product that has already been created or developed, and a customer can purchase a subscription to the on-line edition of the Book for a certain period of time. Based on the criteria in TIB B-090, the subscription to the on-line edition of the Book is intangible personal property for GST/HST purposes.

Pursuant to paragraph 142(1)(c) of the ETA, a supply of intangible personal property is deemed to be made in Canada if the intangible personal property may be used (meaning "allowed to be used"), in whole or in part in Canada. Pursuant to paragraph 142(2)(c), a supply of intangible personal property is deemed to be made outside Canada if it may not be used in Canada. A supply of intangible personal property can be considered to be made in Canada even if it is not actually used in Canada. The fact that the supply may be made to a recipient who is outside Canada has no bearing on whether the supply is made in Canada.

As there are no restrictions on where the on-line edition of the Book may be used, the supply is considered to be made in Canada.

Section 144.1 of the ETA states 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. A supply is deemed to be made outside the province in any other case. A supply made in Canada that is not made in any participating province is deemed to be made in a non-participating province.

Paragraph 2(d) of Part III of Schedule IX states that a supply of intangible personal property that does not relate to real property, tangible personal property, or services is considered to be made in a province if all or substantially all of the Canadian rights in respect of the property may be used only in that particular province, or the place of negotiation of the supply is in the province and the property can be used otherwise than exclusively outside the province.

"Canadian rights" refers to that part of the intangible personal property that may be used in Canada, while "place of negotiation" of a supply means the location of the supplier's permanent establishment at which the individual principally involved in negotiating for the supplier the agreement for the supply ordinarily works, or to which that individual ordinarily reports, in the performance of the individual's duties in relation to the activities of the supplier in the course of which the supply is made and, for the purposes of this definition, "negotiating" includes the making or acceptance of an offer.

Where there are no restrictions regarding the use of the intangible personal property in a particular province, it will always be considered that the property may be used otherwise than exclusively outside the province where the place of negotiation occurred.

Customers purchase the subscription to the on-line edition of the Book from its website. The place of negotiation of the supply is XXXXX, where the Company is located. Under the agreement for the licence for the on-line edition of the Book, there are no restrictions on where the purchaser may use the on-line edition.

As such, the place of supply of the subscription to the on-line edition of the Book is XXXXX, and supplies of subscriptions to the on-line edition will be subject to GST at the rate of 6%, regardless of the location of the purchaser.

Book with CD-ROM:

The governments of the participating provinces provide a point-of-sale rebate of the 8% provincial component of the HST to all purchasers of printed books and other qualifying property. Qualifying property includes printed books and updates of printed books, audio recordings all or substantially all of which is a spoken reading of a printed book, and bound or unbound printed versions of scripture of any religion. The term "printed book" does not include electronic versions of books or books packaged together with CD-ROMs.

As recently announced by the governments of Nova Scotia, New Brunswick, and Newfoundland and Labrador, the rebate is being expanded to include a new category of qualifying property, called composite property. This change will apply to sales made on or after September 1, 2006. More information on this change can be found in the enclosed GST/HST Technical Information Bulletin B-094, Amendments to the Point-of-Sale Rebate for Printed Books.

Composite property consists of a printed book and a read-only medium (and/or a right to access a website under certain conditions) that is wrapped, packaged or prepared for sale as a single product. A read-only medium is a tangible medium that is designed for the read-only storage of information and other material in digital format.

Composite property is eligible for the point-of-sale rebate under two situations:

•   A printed book and a read-only medium sold together as a single product qualifies for the rebate if all or substantially all of the value of the material on the read-only medium is reasonably attributable to

–   a reproduction of the printed book, and/or

–   to material that makes specific reference to the printed book and its content, and that supplements and is integrated with that content.

•   A printed book and a read-only medium and/or the right to access a website sold together as a single product qualifies for the rebate when the product is specially designed for use by students enrolled in a qualifying course ^[viii]footnote 1, and the read-only medium and/or website contain material that is related to the subject matter of the printed book.

The Book, with the enclosed CD-ROM, meets the definition of composite property. The Book and the CD-ROM are sold together as a single product and all or substantially all of the value of the material on the CD-ROM is attributable to the reproduction of the Book or to material that makes specific reference to the Book and its content, and that supplements and is integrated with that content.

Therefore, the Book with the enclosed CD-ROM will be eligible for the point-of-sale rebate when sold in the participating provinces on or after September 1, 2006. The Company will only have to collect the 6% federal component of the HST.

GST/HST Memoranda Series 13.4, Rebates for Printed Books, Audio Recordings of Printed Books, and Printed Versions of Religious Scriptures, states that shipping and handling charges are dealt with in one of two ways depending on the agreement between the supplier and recipient for the supply of the qualifying goods. The point-of-sale rebate applies to the shipping and handling charges related to the qualifying property if the supplier is required to transport the qualifying property to the recipient (e.g., to the recipient's premises) as part of the agreement terms for the supply, and remains responsible for the qualifying property until it is delivered to the recipient. The shipment in these circumstances is considered to be a single supply of qualifying property, with the shipping and handling included in the supply. The point-of-sale rebate can be applied to the shipping and handling charges even if the charges are shown separately on the supplier's invoice.

The shipping and handling is considered to be a separate supply if the supplier of the qualifying property is not responsible for the transportation of the qualifying property to the recipient as part of the agreement terms for the supply (i.e., the purchaser is responsible for the transportation of the qualifying property to its premises). In this case, the point-of-sale rebate would not apply to the shipping and handling charges.

Since the Company is responsible for shipping the Book to its customers, and remains responsible for the Book until it is delivered to its customer, the shipping and handling charges are also eligible for the point-of-sale rebate.

For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Goods and Services Tax Rulings.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 957-8253.

Yours truly,

Jacqueline Russell, CGA
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/10/06 — RITS 77396 — [Application of the GST/HST to Pension Plan Trusts]