21 May 1997 GST/HST Interpretation HQR0000283 - Freight Transportation Services

Dear XXXXX:

Thank you for your letter of August 30, 1996 concerning the application of the Goods and Services Tax (GST) to freight transportation services.

Interpretation Requested

You requested an interpretation regarding the application of section 8 of Part VII of Schedule VI to the Excise Tax Act (ETA). More specifically, you are questioning the Department's position according to which a non-resident company making sales f.o.b. destination of goods to be delivered in Canada is making a single supply of goods and is not making a supply of a freight transportation service.

I understand that you are concerned with situations where a non-resident supplier is selling goods and undertakes to deliver the goods to customers in Canada. If the supplier is charging an amount for the freight transportation, you believe that this amount should not be subject to tax.

Interpretation Given

Section 8 of Part VII of Schedule VI to the ETA zero-rates:

A supply of a freight transportation service in respect of the transportation of tangible personal property from a place outside Canada to a place in Canada.

The issue raised in your letter is more a matter of understanding the facts of a particular transaction than a matter of interpreting the ETA. In this regard, to determine whether a supply is zero-rated under the above mentioned provision or similar provisions, it is necessary to determine first whether the vendor is, in fact, making a supply of a freight transportation service in addition to the supply of goods or is merely making a supply of goods. The fact that an amount is indicated on an invoice in respect of delivery does not mean by itself that a supply of a freight transportation service is actually made. In many instances, suppliers indicate on their invoices amounts that reflect the costs of inputs acquired in making a supply; such amounts are part of the consideration for that supply and are not consideration for separate supplies.

Under subsection 123(1) of the ETA, means, subject to sections 133 and 134, the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition; in respect of property, includes any transfer of the ownership of the property and a transfer of the possession of the property under an agreement to transfer ownership of the property;

The above definitions indicate that the ETA contemplates different types of supplies and distinguishes supplies of properties made by way of sale from other types of supplies, including supplies of services. Therefore, where a vendor undertakes to deliver the goods to its customers, it is necessary to determine whether the delivery is part of the sale of the goods or constitutes a separate supply. Such a determination can be made by analyzing the terms of the sale agreement between the vendor and the purchaser and identifying the time at which the title to the goods passes from the vendor to the purchaser under that agreement.

If title passes to the purchaser at the shipping point, the sale is completed at that time. In this case, if, the supplier undertakes to deliver the goods, the delivery of the goods to the customers' premises will not be part of the supply of the goods and will constitute a supply of a freight transportation service. Consequently, if the vendor is transporting the goods from a place outside Canada to a place in Canada, the supply of the freight transportation service will be zero-rated, under section 8 of Part VII of Schedule VI to the ETA. However, if the vendor undertakes to deliver the goods to the customer's premises and title to the goods only passes at this location, the sale is not completed before that time. Given that, under the terms of the agreement, the vendor is making a sale of goods delivered at the customer's premises, the delivery is an input into making a supply of goods by way of sale and cannot be considered as a separate supply of a freight transportation service. Under this scenario, if the vendor indicates on an invoice an amount for the delivery and the goods are taxable at 7%, this amount will be subject to tax because it is part of the consideration for the goods and the vendor is not making a supply of a freight transportation service.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed or future amendments to the legislation may result in changes to our interpretation. These comments are not rulings and, in accordance with the guidelines set out in GST Memoranda Series (1.4), do not bind the Department with respect to a particular situation.

For your convenience, find enclosed, copy of GST Memoranda Series (1.4). If you need additional information, please feel free to contact me at (613) 952-9580.

Yours truly,

Serge Bernier
Senior Rulings Officer
Industries Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations