14 July 2003 GST/HST Interpretation 34141 - Web Site Design and Hosting

Dear XXXXX:

Thank you for your letter XXXXX to the XXXXX Tax Services office, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of Web site design and Web site hosting. Please accept our apology for the delay in responding to your letter.

Our understanding of the facts is as follows:

•   XXXXX is resident in Canada and is registered for purposes of the GST/HST.

•   XXXXX provides Web design and hosting services to residents and non-residents through its server, which is physically located in XXXXX.

Interpretation Requested

How does GST/HST apply to the supply of Web site design and hosting?

Interpretation Given

The supply of Web site design and Web site hosting is considered to be a supply of a service.

A supply that is made in Canada is subject to GST at the rate of 7%, or HST at a rate of 15% where the supply is deemed to be made in a participating province unless the supply is zero-rated (taxed at 0%). The three participating provinces are Nova Scotia, New Brunswick, and Newfoundland and Labrador.

Paragraph 142(1)(g) of the Excise Tax Act ("the Act") deems a supply of a service to be made in Canada if the service is, or is to be, performed in whole or in part in Canada. Paragraph 142(2)(g) of the Act deems a supply of a service to be made outside Canada if the service is, or is to be, performed wholly outside Canada.

Whether a service is performed in whole or in part in Canada is a question of fact. A supply of a service is performed at least in part in Canada if:

•   the service requires a person to perform a task (i.e., the supplier acts through one or more of its employees), and the person performing or physically carrying out the task is situated in Canada at the time the activity is done;

•   the service includes operations performed by a supplier's equipment (e.g., computer equipment), and the equipment is located in Canada;

•   the supply involves doing something to or with a recipient's equipment by accessing it from a remote location, and the recipient's equipment is located in Canada; or

•   any activity related to the performance of the service is undertaken in Canada.

Based on the information provided, XXXXX supplies of Web site design and Web site hosting would appear to be performed in Canada and, consequently, are deemed to be made in Canada.

Section 7 of Part V of Schedule VI to the Act zero-rates (tax applies at the rate of 0%) a supply of a service when made to a non-resident person provided none of the exclusions of that provision apply. For example, the supply of a service to a non-resident is zero-rated provided it is not rendered to an individual while that individual is in Canada or made to an individual who is in Canada at any time when the individual has contact with the supplier in relation to the supply. It is the supplier's responsibility to verify that the recipient is a non-resident and to ensure that all of the remaining zero-rating criteria are satisfied. Supplies of services of designing or hosting Web sites made to non-residents qualify for zero-rating under this provision. For your information, please find enclosed GST/HST Memoranda Series Section 4.5.1, Exports - Determining Residence Status. Appendix A of this Memorandum describes the documentation that CCRA will generally accept as proof that the recipient is not resident in Canada. Also enclosed is GST/HST Memoranda Series Section 4.5.3, Exports - Services and Intellectual Property.

Where the supply is made in Canada and is not a zero-rated supply, 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 a service 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 rule for a supply of a service, such as Web site design, are provided for 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 more) of the Canadian element of the service is performed in the province. According to section 1 of that same Part, "Canadian element" of a service means the portion of the service that is performed in Canada. Where the supply of Web site design is performed entirely in a non-participating province XXXXX, the service is deemed to be made in a non-participating province and is subject to GST at 7% unless it is zero-rated.

With respect to a supply of Web site hosting, section 3 of Part IX of Schedule IX to the Act provides that, notwithstanding any other Part of this Schedule, a supply of a property or service is made in a province if the supply is prescribed to be made in the province. Subsection 10(1) of the Place of Supply (GST/HST) Regulations provides, in part, that when a particular supplier makes a supply of a computer-related service and there is to be one final recipient of the service who acquires it under an agreement either with the particular supplier or another supplier, the supply is considered to be made in a particular province if there is a single ordinary location in the province at which the final recipient avails itself of the service, and either:

•   the particular supplier maintains information sufficient to determine that location, or

•   it is the normal business practice of the particular supplier to obtain information sufficient to determine that location.

In any other case, the supply is made in a particular province if the mailing address for the recipient of the supply is in that province.

For purposes of the Place of Supply (GST/HST) Regulations, a "computer-related service" includes "... a service involving the electronic storage of information and computer-to-computer transfer of information". A supply of Web site hosting is considered to be a computer-related service.

Therefore, where a single final recipient of a Web site hosting service provided by XXXXX does not avail itself of the service at a single ordinary location or where the conditions above with respect to information are not met, the determination of the place of supply is based on the mailing address of the recipient. For example, if the mailing address of the recipient of a taxable (other than zero-rated) supply of Web site hosting is in one of the participating provinces (e.g., New Brunswick), the supply by XXXXX is made in New Brunswick and subject to the HST at a rate of 15%. If the mailing address of the recipient of XXXXX supply of Web site hosting is in a non-participating province, the supply is subject to the GST at a rate of 7%, unless the supply is zero-rated.

There are special rules for situations that involve multiple final recipients. More information regarding these rules may be found in the enclosed Technical Information Bulletin B-[0]90, GST/HST and Electronic Commerce.

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