30 April 1998 GST/HST Interpretation HQR0001106 - Payment of Tax by a Non-resident

                                                                        GST/HST Rulings and Interpretations
Place Vanier, Tower C, 10th Floor
25 McArthur Avenue
Vanier, Ontario
K1A 0L5

Dear XXXXX

I refer to your facsimile message of March 4, 1998, concerning the application of the Goods and Services Tax (GST) Harmonized Sales Tax (HST) to the sale of electrical equipment to your client.

You provided the following information in your message:

a) Your client is located in XXXXX[.]

b) Your client sold electrical equipment to a purchaser located in Canada.

c) The electrical equipment was purchased by your client from a Canadian supplier. The supplier charged your client the GST at 7%.

d) The electrical equipment was delivered directly to the Canadian purchaser by the Canadian supplier.

Interpretation Requested

Are there any provisions in the Excise Tax Act (Act), the legislation which imposes the GST, which would enable the tax paid to be recovered by your client or, alternatively, the Canadian purchaser?

Interpretation Given

For purposes of this interpretation, the following assumptions are being made:

a) your client is a non-resident and is not registered for GST/HST purposes;

b) the Canadian supplier is registered for GST/HST purposes; and

c) the Canadian purchaser is registered for GST/HST purposes.

There are three provisions in the Act which will be of interest to your client. These provisions are discussed below.

a) Section 179 of the Act

Subsection 179(2) of the Act deals with a scenario where a registrant (a person who is registered for GST/HST purposes, or who is required to be registered), under an agreement between the registrant and an unregistered non-resident, makes a supply of tangible personal property by way of sale to the non-resident. If the registrant transfers physical possession of the property at a place in Canada to a GST/HST registered third party, and the third party gives a drop-shipment certificate to the registrant, the supply by the registrant to the unregistered non-resident will be deemed to be made outside Canada. As a result, the registrant does not have to charge and collect the GST or the HST.

In the situation outlined in your letter, a registrant (the Canadian supplier) has supplied tangible personal property (the electrical equipment) by way of sale to an unregistered non-resident (your client). Physical possession of the property was transferred at a place in Canada to a third party (the Canadian purchaser). However, it appears that the Canadian purchaser did not give a drop-shipment certificate to the Canadian supplier. Therefore, the Canadian supplier was required, under the provisions of subsections 179(1) and 165(1) of the Act, to charge and collect the tax from your client.

Enclosed for your client's information is a copy of Policy Statement P-107 entitled "Certificate for Pre-retail Drop-Shipments".

b) Section 261 of the Act

Where a person pays an amount as or on account of tax that is later found not to be payable, the person may claim a rebate of that amount within the specified time limit. However, as stated above, the Canadian supplier was required to charge and collect the tax from your client. Therefore, as the tax was payable, your client is not eligible for the rebate under section 261.

c) Section 180 of the Act

This provision deals with a scenario where tax is imposed on goods that are acquired by a person and that were drop-shipped in Canada (i.e., in circumstances in which subsection 179(1) applies) but the tax is paid by an unregistered non-resident who cannot claim an input tax credit or rebate. Where the person acquiring the goods is a GST/HST registrant, section 180 permits that person to claim an input tax credit for the tax paid by the unregistered non-resident under subsections 179(1) and 165(1). The unregistered non-resident is, in effect, flowing through the input tax credit to the registrant acquiring the goods.

In the situation described in your letter, the Canadian purchaser acquired goods that were drop-shipped in Canada. Your client paid the GST and is not eligible to claim an input tax credit or rebate in respect of the tax. Therefore, your client may flow through the input tax credit to the registered Canadian purchaser.

To substantiate the claiming of the input tax credit by the Canadian purchaser, the purchaser will require a copy of the invoice from the Canadian supplier to your client showing the amount of the GST paid by your client. Please note that the flowing through of the input tax credit by your client to the Canadian purchaser, and any subsequent reimbursement to your client of an equal amount, is a matter between your client and the Canadian purchaser.

The foregoing comments represent our general views with respect to the subject matter of your letter. Unannounced proposed or future amendments to the 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 section 1.4 of Chapter 1 of the GST Memoranda Series, do not bind the Department with respect to a particular situation.

I am also enclosing, for your client's information, the publication entitled "Doing Business in Canada - GST/HST Information for Non-Residents". You will note on page 2 of this publication that on April 1, 1997, the HST replaced the GST and the provincial sales tax in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland. The HST at 15% applies to the same base of goods and services as the GST.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact Mr. Garry L. Ryhorchuk, Senior Rulings Officer, Border Issues Unit, at (613) 952-6743.

Yours truly,

E.H. Gauthier
Director General
GST/HST Rulings and Interpretations Directorate
Policy and Legislation Branch

Enclosures

Legislative References:           Subsection 165(1), 179(1) and 179(2) of the Act
Sections 180 and 261 of the Act