17 February 2003 GST/HST Interpretation 41030 - Supply of Software Via the Internet

Dear XXXXX:

Thank you for your e-mail XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of software made by XXXXX (XXXXX[).] Your e-mail was sent to the XXXXX GST/HST Rulings Centre and was forwarded to us for reply. We apologize for the delay in responding to your request.

From your e-mail, Web site XXXXX and our telephone conversation XXXXX, our understanding of the situation is as follows:

•   XXXXX has produced and supplies software that assesses the sales skills required by XXXXX XXXXX by means of XXXXX;

•   XXXXX clients download the software from the Internet so that it resides and operates on the client's computer hardware;

•   XXXXX retains ownership of the software which is supplied by way of licence to resident and non-resident clients for a specified period of time; and

•   under the licence agreement, non-resident clients may not use the software in Canada.

Ruling Requested

You have requested a ruling as to whether XXXXX is required to charge the GST/HST on its supplies of software made to non-resident clients. In accordance with GST/HST Memoranda Series section 1.4, an application ruling can only be issued with respect to a clearly defined fact situation of a particular registrant. Rulings are issued upon request and where the taxpayer has presented all the relevant facts such as the nature of the transactions undertaken, detailed descriptions of services or property involved, the parties involved in all the transactions and relevant documentation such as invoices, contracts and other pertinent agreements. Where all the relevant facts are not provided, an interpretation may be issued. We are pleased to provide you with an interpretation, which will explain how the GST/HST applies to the supplies described in your e-mail.

Interpretation Given

Depending on the medium by which it is supplied, the supply of software that is not custom designed software may be a supply of tangible personal property (TPP) or intangible personal property (IPP). As the software supplied by XXXXX by way of licence is not customized for a particular client and is supplied and delivered by electronic means via the Internet, the supply is considered by the Canada Customs and Revenue Agency (CCRA) to be a supply of IPP. In addition, the CCRA considers the supply of software by way of licence that is a supply of IPP to be a supply of intellectual property.

Pursuant to subparagraph 142(2)(c)(i) of the Excise Tax Act (the Act), the supply of IPP that is not related to real property, tangible personal property or a service is deemed to be made outside of Canada if the property may not be used (meaning "not allowed to be used") in Canada. As you have indicated during our telephone conversation that, pursuant to the licence agreement, the software may not be used by the non-resident in Canada, the supply of the software by XXXXX is deemed to be made outside of Canada pursuant to subparagraph 142(2)(c)(i) of the Act.

The GST/HST does not apply to supplies made outside Canada. As such, under the above circumstances, XXXXX is not required to collect GST/HST in respect of supplies of software made to non-residents as the supplies are made outside Canada.

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 the GST/HST Memoranda Series, do not bind the CCRA 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) 954-7931.

Yours truly,

Anne Kratz
Electronic Commerce Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate