25 June 2002 GST/HST Interpretation 6211 - Subscription to a Web Site

Dear XXXXX:

Thank you for your letter of September 27, 1999, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to subscriptions to a Web site supplied by your client. Please accept our apologies for the delay in replying to your letter.

The following facts were provided in your letter.

•   Your client is a resident of Canada and is not registered for purposes of the GST/HST.

•   Your client has a Web site set up in two locations. There is a free site on a server in Canada and a subscription site on a server located in the U.S.

•   An individual can preview what is on the U.S. Web site on the Canadian Web site for no charge. An individual may then subscribe to the U.S. Web site XXXXX., for which a subscriber is given unlimited access to the U.S Web site for 90 days.

•   On the U.S. Web site, a subscriber pays to view the content of the site, which includes XXXXX.

•   Subscribers may download the files to their own computer for their personal use. A subscriber does not obtain title or ownership to the files; just the right to view and/or print them.

•   Payment for the subscription (U.S. site only) is made through XXXXX XXXXX. The payment is made in U.S. funds and deposited by XXXXX to your client's U.S. bank account on a daily basis.

•   Subscribers are from all over the world, including Canada.

Interpretation Requested

Your client would like to know whether he has to charge GST on the subscription fees to the Web site.

Interpretation Given

The supply of the right to access a Web site from which digitized products may be downloaded as described above is considered to be a supply of intangible personal property (IPP) for purposes of the Excise Tax Act ("the Act"). The subscribers are acquiring a right to use the digitized products and a copy of the products for personal use.

If your client is a registrant (a person who is registered or required to be registered for GST/HST purposes) and makes a taxable (other than zero-rated) supply of IPP in Canada, your client is required to collect tax in respect of the supply at the applicable rate and to account for and remit any net tax remittable.

Generally, under subsection 240(1) of the Act, every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to be registered, except where the person is a small supplier or is a non-resident person who does not carry on any business in Canada.

Generally, a person is a small supplier throughout a particular 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. As an exception to this rule, 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 becoming due, in that quarter for world-wide taxable supplies (other than consideration attributable to the sale of goodwill of a business, supplies of financial services, and supplies by way of sale of capital property) made by the person, or an associate of the person at the beginning of the calendar quarter, exceeds $30,000. 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 small supplier threshold.

A supply of IPP is deemed to be made in Canada pursuant to subparagraph 142(1)(c)(i) of the Act if the IPP may be used (meaning "allowed to be used") in whole or in part in Canada. Conversely, where the IPP may not be used in Canada, the supply is deemed to be made outside Canada pursuant to subparagraph 142(2)(c)(i) of the Act.

With respect to the supply made by your client, there does not appear to be any restrictions regarding where the IPP may be used. Where there are no restrictions, it will always be the case that the IPP may be used in Canada. The fact that the supply may be made to a recipient who is not resident in Canada at the time the supply is made will not impact the determination of whether the supply of IPP is made in Canada.

A taxable supply of IPP made in Canada is generally subject to GST at the rate of 7% (15% HST when made in a participating province: Nova Scotia, New Brunswick or Newfoundland) unless the supply is zero-rated (taxed at 0%).

With respect to supplies of IPP made in Canada to non-resident persons, section 10 of Part V of Schedule VI to the Act is the only relevant zero-rating provision. Section 10 zero-rates a supply of intellectual property or of any right, licence or privilege to use such property where the recipient is a non-resident person who is not registered when the supply is made. Intellectual property includes an invention, patent, trade secret, trade-mark, trade-name, copyright or industrial design. The supply of IPP made by your client is not considered to be a supply of intellectual property nor a right to use such property and consequently does not qualify for zero-rating under section 10 of Part V of Schedule VI to the Act.

A taxable supply of IPP that is made in Canada and is not zero-rated, is subject to HST at 15% if deemed to be made in a participating province or subject to GST at 7% if deemed to be made in a non-participating province. Whether a supply of IPP made in Canada is made in a participating or non-participating province is determined by applying the rules in section 144.1 and Schedule IX to the Act. Section 144.1 of the Act provides 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 to the Act, made in the province. Section 144.1 also states that a supply made in Canada that is not made in a participating province is deemed to be made in a non-participating province.

The place of supply rules for a supply of IPP not related to real property, tangible personal property or services are provided for in paragraph 2(d) of Part III of Schedule IX to the Act. Subparagraph 2(d)(i) of Part III of Schedule IX to the Act states that a supply of IPP is considered to be made in a province if all or substantially all of the Canadian rights in respect of the IPP may be used only in the province. "Canadian rights" refer to that part of the IPP that can be used in Canada (section 1 of Part III of Schedule IX to the Act). Where there are no restrictions regarding which province or groups of provinces in which the IPP can be used, subparagraph 2(d)(i) is not applicable.

Subparagraph 2(d)(ii) of Part III of Schedule IX to the Act states that a supply of IPP will be considered to be made in a province if the place of negotiation of the supply is in the province, and the property may be used otherwise than exclusively 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 or reports to in the performance of his or her duties relating to the supplier's activities in the course of which the supply is made. "Negotiating" includes the making or acceptance of an offer. Generally, subsection 132.1(2) of the Act defines a permanent establishment for purposes of the place of supply rules set out in Schedule IX to be as defined in various provisions of the Income Tax Regulations of the Income Tax Act, based on the type of person. For more information, see Section 3.4 of the GST/HST Memoranda Series (enclosed). Where there are no restrictions regarding the province in which the right can be used, it will always be the case that the right can be used otherwise than exclusively outside the province where the place of negotiation occurred. Therefore, if it is determined that the place of negotiation of the supply of the IPP is in a non-participating province, such as Ontario, subparagraph 2(d)(ii) deems the supply to be made in that province.

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) 952-6743.

Yours truly,

Cheryl R. Leyton
Border Issues
General Operations and Border Issues
Excise and GST/HST Rulings Directorate