8 October 2003 GST/HST Interpretation 35021 - Application of the GST/HST to Supplies of Master CDs Made to a Registrant Located in

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies made to XXXXX a GST/HST registrant located in XXXXX, by XXXXX a GST/HST registrant located in the province of XXXXX. We apologize for the delay in replying.

Based on the information provided, our understanding of the facts is as follows:

•   XXXXX.

•   XXXXX produces a master CD in XXXXX which is shipped to XXXXX in XXXXX along with XXXXX.

•   XXXXX duplicates the number of required XXXXX from the master CD.

•   XXXXX does the imprinting on the XXXXX and assembles and poly-wraps the XXXXX

•   Once the XXXXX are completed, XXXXX ships them to XXXXX in XXXXX.

•   XXXXX

Interpretation Requested

You have asked whether XXXXX should be charging XXXXX GST at a rate of 7% or HST at a rate of 15% on the supplies it is making to XXXXX.

Although you have requested a ruling, we are unable to do so without all of the relevant information necessary to make a conclusive determination regarding the application of tax to the supplies described above. In particular, we would require a copy of the agreement between XXXXX and XXXXX for the supplies described above.

As set out in enclosed GST/HST Memoranda Series 1.4 Goods and Services Tax Rulings, where insufficient facts are provided to issue a definitive ruling, an interpretation of the relevant portions of the legislation may be provided in order to assist the requester in fulfilling its obligations under the law. We are therefore providing you with the following interpretation of the GST/HST provisions. If the required information is provided, we would be pleased to provide you with a GST/HST ruling on the matter.

Interpretation Given

A taxable supply made in Canada is generally subject to GST at the rate of 7% or HST at the rate of 15% when made in the participating province of Nova Scotia, New Brunswick, or Newfoundland and Labrador, unless the supply is zero-rated (taxed at 0%). The determination of whether GST or HST applies to the supplies made by XXXXX to XXXXX depends on where those supplies are considered made, which in turn depends on the type of supplies being made.

Based on the information provided, XXXXX appears to be producing tangible personal property (TPP) in the form of the XXXXX for supply by way of sale to XXXXX. However, to make a conclusive determination in this regard would require consideration of the terms of the agreement for the supply between XXXXX and XXXXX and all relevant facts.

Where XXXXX makes a supply of TPP by way of sale to XXXXX, that supply will be deemed to be made in Canada under paragraph 142(1)(a) of the Excise Tax Act (the Act) if the TPP is delivered or made available to XXXXX in Canada.

For purposes of paragraph 142(1)(a) of the Act, the phrase "delivered or made available" has the same meaning as that assigned to the concept of "delivery" under the law of the sale of goods, as follows:

•   "Delivered" refers to those situations where delivery of the tangible personal property under the applicable law of the sale of goods is effected by actual delivery.

•   "Made available" refers to those situations where delivery of the tangible personal property under the applicable law of the sale of goods is effected by constructive delivery (i.e., actual physical possession of the tangible personal property is not transferred to the recipient of the supply yet is recognized as having been intended by the parties and as sufficient in law).

Whether GST at 7% or HST at 15% applies to a taxable (other than zero-rated) supply made in Canada depends on whether the supply is deemed made in a participating province.

Section 144.1 of the Act deems a supply 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, but deems the supply to be made outside the province in any other case. Also, a supply made in Canada that is not made in a participating province is deemed to be made in a non-participating province.

Section 1 of Part II of Schedule IX to the Act provides that a supply by way of sale of TPP is made in a province if the supplier delivers the property or makes it available in the province to the recipient of the supply. Section 3 of Part II of Schedule IX further provides that the TPP is deemed to be delivered in a particular province by a supplier and is deemed not to be delivered in any other province by the supplier where the supplier either

•   ships the property to a destination in the particular province that is specified in the contract for carriage of the property or transfers possession of the property to a common carrier or consignee that the supplier has retained on behalf of the recipient to ship the property to such a destination; or

•   sends the property by mail or courier to an address in the particular province.

The rule in section 3 described above could apply for example, where a supply of TPP by way of sale made by a supplier in a non-participating province to a recipient in a participating province were supplied on terms such as FOB supplier's plant. If the supplier in this case were to transfer possession of the TPP in the non-participating province to a common carrier that the supplier retained on behalf of the recipient to ship the TPP to the participating province, the supply would be deemed to be made in the participating province and HST would apply to the supply.

Therefore, if XXXXX makes a supply of TPP by way of sale to XXXXX and the TPP is delivered or made available in the province of XXXXX, based on the rules described above, the supply would be deemed made in that province and HST would apply to the supply.

Pursuant to paragraph 142(1)(g) of the Act, the supply of a service is deemed to be made in Canada if it is, or is to be, performed in whole or in part in Canada. If XXXXX makes a separate taxable (other than zero-rated) supply of a freight transportation service to XXXXX in Canada, the province in which that service is deemed supplied will determine whether GST at a rate of 7% or HST at a rate of 15% applies to the supply of the service.

Normally, for purposes of determining whether a supply of a service is deemed to be made in a particular province for HST purposes, paragraph 2(a) of Part V of Schedule IX to the Act provides that a supply of a service is deemed made in a particular province if all or substantially all (90% or more) of the service is performed in the province.

Therefore, if a supplier located in a non-participating province were to make a taxable (other than zero-rated) supply of a service to a recipient located in a participating province and all or substantially all of that service were to be performed in a non-participating province, that supply would be deemed to be made in the non-participating province. In this case, the supplier would only be required to collect GST at a rate of 7% with respect to the supply of the service.

The general place of supply rule for services previously described does not apply with respect to the supply of a freight transportation service. Pursuant to section 5 of Part VI of Schedule IX to the Act, a supply of a freight transportation service is made in a province if the destination of the service is in the province. For purposes of this rule, "destination" of a freight transportation service is defined under section 1 of Part VI of Schedule IX to the Act to mean the place specified by the shipper of the property where possession of the property is transferred to the person to whom the property is consigned or addressed by the shipper.

Therefore, if XXXXX were to make a separate taxable (other than zero-rated) supply of a freight transportation service with a destination in a participating province such as XXXXX, XXXXX would be required to collect 15% HST on the supply of that freight transportation service.

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.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-8810.

Yours truly,

Patrick McKinnon
Manager
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate