17 February 2003 GST/HST Interpretation 35280 - Freight Transportation Service – Goods Transported from Canada to the U.S. that Are Rejected and Returned to Canada

Dear XXXXX

Thank you for your letter XXXXX, (with attachments) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a freight transportation service when goods transported from Canada to the U.S. are rejected and redirected to Canada. Your letter was sent to the XXXXX Technical Interpretation Services Centre and has been forwarded to us for a response. We apologize for the delay in providing you with this response.

Our understanding of the facts is as follows:

1. XXXXX (the Company) is registered for GST/HST purposes XXXXX and is in the business of providing freight transportation services in Canada and the U.S.

2. XXXXX[.]

3. XXXXX is in the business of handling and marketing the product.

4. XXXXX[.]

5. The Company is hired by XXXXX and XXXXX to supply freight transportation services with regard to the transportation of the product.

6. The product is delivered to destinations both inside and outside Canada.

7. Occasionally, customers of XXXXX or XXXXX reject shipments of the product and the Company is instructed by XXXXX or XXXXX to return the shipment to either its origin or redirect it to a new location.

8. The Company does not charge for the return freight service.

9. When the product is returned or redirected to a location in Canada, bills of lading and invoices provided indicate that the Company applies tax to the entire original bill, as if it was a single transportation service.

Interpretation Requested

What is the tax status of a freight transportation service when goods transported from Canada to the U.S. are rejected and returned to Canada?

Interpretation Given

We have closely reviewed all the documents (bills of lading and invoices) provided by XXXXX for a number of freight transportation services where goods originating in Canada and shipped to the U.S. were rejected by the consignee and returned to Canada, to determine where the freight movements begin and end. Ideally, the documentation to establish this would be provided on the original bill of lading.

In the examples provided, the original bills of lading have a Canadian origin XXXXX and a U.S. address as the destination. It is apparent that additional information is added to the bill of lading once the goods reach the U.S. location specified in the bill of lading. However, it is not clear from the bills of lading whether the bills of lading have been amended so that there is a single freight transportation service which originated in Canada, continued in transit throughout the U.S. and reached its final destination at a place in Canada or if there are two separate freight transportation services (one from Canada to the U.S. and a second from the U.S. to Canada) recorded on one bill of lading.

To determine the tax status of a freight transportation service when goods transported from Canada to the U.S. are rejected by the consignee at its appointed destination, and consequently returned to Canada, it is important to note how the transactions are structured. Based on the information provided, we are unable to determine the exact nature of the freight transportation services at issue.

If the transaction were two separate freight transportation services, one service from a place in Canada to a place outside Canada (U.S.), and then a second from a place outside Canada (U.S.) to a place in Canada, then both freight transportation services would be zero-rated. The transportation of tangible personal property originating from a place in Canada and ending at a place outside Canada, where the value of the consideration for the supply is $5 or more, will be zero-rated by section 6 of Part VII of Schedule VI to the Excise Tax Act (ETA). The transportation of tangible personal property originating from a place outside Canada and ending at a place in Canada will be zero-rated by section 8 of Part VII of Schedule VI to the ETA.

On the other hand, if the transaction consists of a single continuous freight transportation service that originates at a place in Canada and continues in transit through the U.S. to a place in Canada, this service will not be zero-rated. This freight transportation service would be a taxable supply, taxable at 7% or 15%, depending on whether the supply is made in a non-participating province (i.e. a province other than Nova Scotia, New Brunswick, or Newfoundland and Labrador). The applicable portion of section 5 of Part VI of Schedule IX to the ETA states that a supply of a freight transportation service is made in a province if the destination of the service is in the 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) 952-2826.

Yours truly,

Connie Lush
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate