16 January 2002 GST/HST Interpretation 34390 - Tax Status of Magazine Subscriptions Sold Over the Internet

Dear XXXXX:

Thank you for your letter of January 25, 2001, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale of magazine subscriptions downloaded over the Internet.

The following are the facts of this case.

•   XXXXX is resident in XXXXX and is registered for GST/HST purposes XXXXX[.]

•   XXXXX makes a magazine available to subscribers across Canada via an Internet server located in XXXXX. (The magazine is made available in the form of a file that may be downloaded via the Internet.)

•   The magazine will carry no advertising and all of XXXXX revenue in respect of the magazine will derive from subscriptions. The subscriptions will be payable annually, or via monthly or quarterly installments.

Interpretation Requested

The application of the GST/HST to supplies of subscriptions to a downloadable magazine made available to subscribers via an Internet server located in XXXXX.

Interpretation Given

Considering that the magazine is supplied and delivered by electronic means through the Internet, the supply is considered by the Canada Customs and Revenue Agency ("CCRA") to be a supply of intangible personal property (IPP) for purposes of the Excise Tax Act ("the Act"). If the magazine is supplied by means of a physical medium, it will be considered to be a supply of tangible personal property (TPP).

A supply of IPP that may be used in whole or in part in Canada is deemed to be made in Canada pursuant to subparagraph 142(1)(c)(i) of the Excise Tax Act ("the Act"). 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.

The supply of IPP (the magazine in electronic format or file that may be downloaded via the Internet by a subscriber) by XXXXX is deemed to be made in Canada pursuant to subparagraph 142(1)(c)(i) of the Act as the IPP may be used in whole or in part in Canada.

Every recipient of a taxable supply made in Canada is required to pay GST/HST in respect of the supply. Where the supply is determined to be made in a non-participating province it will be subject to GST at the rate of 7%. Where a taxable supply (that is not zero-rated) is deemed to be made in a participating province the supply is subject to HST at the rate of 15%. The three participating provinces are Nova Scotia, New Brunswick, and Newfoundland.

There is no provision under the Act that zero-rates a supply of IPP that is not intellectual property or any right, licence or privilege to use any such property.

Where a supply is made in Canada and is not zero-rated, a further analysis with respect to the province in which the supply is made or deemed to be made is necessary to determine the appropriate rate of GST/HST.

Whether a supply of IPP made in Canada is made in a participating or non-participating province is determined by section 144.1 and Schedule IX to the Act. Section 144.1 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, 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 paragraphs 2(d) and 3(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 can be used only in the province. "Canadian rights" refers to that part of the IPP that can be used in Canada (section 1 of Part II of Schedule IX to the Act). Since it appears that the magazine subscription is not limited in any manner to any specific province or groups of provinces, subparagraph 2(d)(i) and paragraph 3(d) of Part III of Schedule IX would not be applicable.

Subparagraph 2(d)(ii) of Part III of Schedule IX to the Act states that a supply of IPP is considered to be made in a province if the place of negotiation of the supply is in the province, and the property can 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 ...". Where there are no restrictions regarding the province in which the magazine subscriptions may be used, it will always be the case that the property can be used otherwise than exclusively outside the province where the place of negotiation occurred. Therefore, where it is determined that the place of negotiation of the supply of the magazine subscriptions is in a participating province XXXXX, subparagraph 2(d)(ii) deems the supply to be made in that province and subject to HST at 15%.

Consequently, XXXXX is required to charge HST in respect of the magazine subscriptions whether the recipient of the supply is a resident of XXXXX, another participating or non-participating province, or of another country.

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

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