18 October 2002 GST/HST Ruling 35779 - Tax Status of Transcription Services

Dear XXXXX:

Thank you for your letter of XXXXX, with an attached copy of a contract between XXXXX and XXXXX to the XXXXX Tax Services Office, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below. Your enquiry was transferred to us for reply and we apologize for the delay in responding to your request.

Statement of Facts

Our understanding of the facts, the transactions, and the purpose of the transactions is as follows:

1. XXXXX has entered into a contract with XXXXX, XXXXX on XXXXX, to supply XXXXX with medical transcription services.

2. XXXXX is a non-resident person located in the United States and owns a mobile dictation service which its clients, generally doctors and nurses, access by using a telephone to dial into a computer in order to dictate reports which are stored in the computer.

3. XXXXX allocates the dictated reports to XXXXX XXXXX for typing.

4. XXXXX subcontracts the typing of the dictated reports to XXXXX of XXXXX medical transcribers, all of whom are non-residents located in the U.S. When the reports have been typed, the medical transcribers e-mail them to XXXXX XXXXX.

5. XXXXX then sends the completed reports to XXXXX XXXXX via its secure Web site.

6. XXXXX holds all hard copies of the reports in the United States.

7. XXXXX pays XXXXX for its services and XXXXX, in turn, pays the XXXXX medical transcribers for their services.

Ruling Requested

That the medical transcription services supplied by XXXXX to XXXXX XXXXX are not subject to the GST.

Ruling Given

Based on the facts set out above, we rule that the supplies of transcription services made by XXXXX to XXXXX pursuant to the written agreement entered into by the parties on XXXXX, are zero-rated pursuant to section 7 of Part V of Schedule VI to the Excise Tax Act.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Explanation

Pursuant to paragraph 142(1)(g) of the Excise Tax Act (the "Act"), a supply of a service, other than a service in relation to real property, is deemed to be made in Canada if the service is, or is to be, performed in whole or in part in Canada. Given that part of the activities carried out by XXXXX in performing the transcription service are carried out in Canada, the supply of the transcription service is made in Canada.

The supply of a service made in Canada in the course of a commercial activity is taxable for GST/HST purposes at the rate of 7% (15% where the supply is made in a participating province (The three participating provinces are Nova Scotia, New Brunswick and Newfoundland and Labrador.)) on the value for the consideration for the supply unless the supply is zero-rated (i.e., taxable at the rate of 0%).

Section 7 of Part V of Schedule VI to the Act is the general zero-rating provision for supplies of services made to non-resident persons. A supply of a service to a non-resident person is zero-rated under this section unless it is excluded under paragraphs (a) through (h) of this section. The exclusions to section 7 of Part V of Schedule VI to the Act are discussed in paragraphs 18-23 of the enclosed section 4.5.3, Exports - Services and Intellectual Property of the GST/HST Memoranda Series. Based on the above facts, the transcription services provided by XXXXX XXXXX are not excluded from this zero-rating provision. As such, the supplies are taxable at the rate of 0%.

In the above circumstances, the supplier must verify and maintain evidence that the recipient of the supply is not resident in Canada. Section 4.5.1, Exports - Determining Residence Status of the GST/HST Memoranda Series is enclosed for your review. Appendix A of this section describes the documentation that the Canada Customs and Revenue Agency (CCRA) will generally accept as proof that the recipient is not resident in Canada.

It should be noted that every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada must register for the GST/HST except where, among other things, the person is a small supplier. Generally, a person qualifies as a small supplier during any calendar quarter and the following month if the total value of the consideration for world-wide taxable supplies, including zero-rated supplies, made by the person (or an associate of the person at the beginning of the particular calendar quarter) that became due, or was paid without becoming due, in the previous four calendar quarters does not exceed $30,000.

There is an exception to this rule. Generally, a person ceases to be a small supplier at any time in a calendar quarter if the total value of the consideration that becomes due, or is paid without having become due, in that quarter for world-wide taxable supplies made by the person, or an associate of the person at the beginning of the calendar quarter, exceeds $30,000. In this case, the person ceases to be a small supplier immediately before the consideration becomes due or is paid for the particular taxable supply that puts the person over the $30,000 threshold. Both of these calculations exclude consideration attributable to the sale of goodwill of a business, supplies of financial services, and supplies by way of sale of capital property. Small suppliers may voluntarily register for the GST/HST. For more information on small suppliers, voluntary registration, and required registration, please refer to the enclosed guide General Information for GST/HST Registrants.

Please note that if the total consideration paid by XXXXX to XXXXX XXXXX, including the portion of the consideration that XXXXX XXXXX will pay to the medical transcribers, for the transcription services performed in whole or in part in Canada by XXXXX exceeds $30,000 Canadian in any four consecutive calendar quarters or in any one calendar quarter, XXXXX will be required to register for GST/HST purposes. In this case, registration is required even if XXXXX is only making zero-rated supplies.

Generally, a GST/HST registrant is eligible to claim input tax credits (ITCs) for the GST/HST paid or payable on goods and services acquired or imported by the registrant for consumption, use or supply in its commercial activities. These ITCs permit the registrant to recover the GST/HST paid or payable on goods and services to the extent that it relates to taxable (including zero-rated) supplies of goods and services made by the registrant. As such, XXXXX XXXXX may be entitled to claim ITCs to recover any GST/HST paid or payable in the course of providing the zero-rated transcription services. For more information, please refer to the enclosed guide, General Information for GST/HST Registrants.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-7931.

Yours truly,

Anne Kratz
Electronic Commerce Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate