17 October 2000 GST/HST Interpretation 32354 - Supply of a Service Made Through the Internet

Dear XXXXX:

Thank you for your letter of August 15, 2000, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the operations of XXXXX (Company A). Your request has been transferred from the XXXXX to the Border Issues Unit of the General Operations and Border Issues Division for response.

In accordance with GST/HST Memoranda Series Section 1.4, an application ruling can only be issued with reference to a clearly defined fact situation of a particular registrant. Rulings are issued upon request and where the taxpayer has presented all the relevant facts such as the nature of the transactions undertaken, detailed descriptions of services or property involved, the parties involved in all transactions and relevant documentation such as invoices, contracts and other pertinent agreements. Where all the relevant facts are not provided, an interpretation may be issued. We are pleased to issue you an interpretation which will elaborate on how the GST/HST applies to the services described in your letter.

The following information was taken from your letter, Company A's web site and a telephone conversation between yourself and XXXXX:

•   Company A is resident in Canada and registered for GST/HST purposes with Business Number XXXXX.

•   Company A supplies the service of creating custom digital presentations to recipients situated inside and outside Canada. In most cases the recipient is a real estate agent or broker.

•   Where contracted to provide its services, Company A requests that the client send the necessary information to Company A's offices in XXXXX, XXXXX. Once received, Company A develops the multimedia presentation using a template and the information from the client. The completed presentation is mailed electronically to the client in the form of a self running computer file.

Interpretation Requested

What is the GST/HST status of the supply of the service when made to a resident or a person who is not resident in Canada?

What documentation must be maintained to support a zero-rated tax status?

Interpretation Given

Based on the information provided, we provide the following interpretation:

The supply of the service of creating custom designed digital presentations is considered by the Canada Customs and Revenue Agency (CCRA) to be a supply of a service for purposes of the Act. Pursuant to paragraph 142(1)(g) of the Act a service of this nature is deemed to be made in Canada if the service is performed in whole or in part in Canada. Based on the information given, the supply of the service made by Company A is performed at least in part in XXXXX Canada, and is therefore deemed to be made in Canada.

The supply of a service is taxable for GST/HST purposes at the rate of 7% (15% where the supply is deemed to be made in a participating province: Nova Scotia, New Brunswick or Newfoundland) on the value of the consideration for the supply unless the supply is zero-rated (taxed at 0%).

The supply of the service by Company A may be zero-rated when supplied to a non-resident person under section 7 of Part V of Schedule VI to the Act. That is, the supply of the service made by Company A to a non-resident is zero-rated unless:

•   it is supplied to an individual who is in Canada at any time when the individual has contact with the supplier in relation to the supply;

•   the service is rendered to an individual while that individual is in Canada;

•   the service is in respect of tangible personal property that is situated in Canada at the time the service is performed.

The supplier must verify and maintain evidence that the recipient is not resident in Canada for the supply to be treated as a zero-rated supply. GST/HST Memoranda Series Chapter 4.5.1 Exports - Determining Residence Status has been enclosed for your review. Appendix A of this Memorandum describes the documentation that the CCRA will generally accept as proof that the recipient is not resident in Canada.

Where the supply of the service is made in Canada and is not zero-rated it is subject to GST at 7% provided it is made in a non-participating province. Where the supply is made in a participating province the supply is subject to HST at 15%. Whether a supply of a service made in Canada is made in a participating or non-participating province is determined by section 144.1 and Schedule IX to the Act.

The relevant place of supply rules with respect to a province are in Part V of Schedule IX to the Act. Paragraph 2(a) of Part V of Schedule IX to the Act deems a supply of a service to be made in a province if all or substantially all (90% or greater) of the Canadian element of the service is performed in that province. Where 90% or more of the service is performed in the province of XXXXX, the supply is deemed to be made in that province and where not zero-rated, subject to GST at 7%.

Where paragraph 2(a) is inconclusive, paragraph 2(b) of Part V of Schedule IX deems a supply to be made in a province if the place of negotiation of the supply is in the province and it is not the case that all or substantially all of the service is performed outside the province. Section 1 of Part I of Schedule IX to the Act defines the "place of negotiation" of a supply to be "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 ...". Based on the information provided it appears that the place of negotiation for the supply of the service is in the province of XXXXX. Where greater than 10% of the service is performed in XXXXX, the supply is deemed to be made in XXXXX and is subject to GST at 7%.

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 section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-8812.

Yours truly,

Jeff Frobel
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate