Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
Place de Ville, Tower A, 5th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 244682
Business Number: […]
Dear [Client]:
Subject: GST/HST INTERPRETATION
Sale of goods imported by customer
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) with respect to goods imported by the customer. We apologize for the delay in responding.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We understand the following from your written correspondence and our telephone conversations with you:
1. […][The Company] is a Canadian corporation registered for GST/HST purposes, which operates an online store that supplies […] goods to its customers.
2. Customers can place orders for the goods either online on the Company’s website, or by telephone. The Company receives and processes the customer order in Canada and then charges the customer for the goods, and shipping fees where applicable. The Company collects the GST/HST from Canadian customers.
3. The goods are manufactured in […][Country A] and then shipped to a third-party fulfilment house in […][Country B] that warehouses the goods. Once an order is placed and payment is received, the Company sends shipping instructions and delivery locations to the fulfilment house in [Country B], and the goods are shipped directly to the customer. When the order is shipped to the customer, the customer is the importer of record and is responsible for paying any GST/HST and duties on importation of the goods into Canada.
4. Your website, in part, states the following on […] webpage [Z]:
[…][The webpage paragraphs describe the place of supply being in Canada while the customer is also the importer of record.]
5. You submitted invoices you issued to [#] of your customers. Each of the [#] invoices list the customer name, billing address and shipping address (both located in Canada), the amount of consideration charged for the goods, shipping fees (where applicable), and the shipping terms DDU via the shipping method chosen by the customer. The GST/HST was charged on the consideration for the goods and any shipping fees.
6. The Canada Border Services Agency (CBSA) charged GST/HST on the value for duty of the goods determined at the time of importation. This was shown on the corresponding Canada Customs – Coding Form B3-3 for one of the invoices.
7. You provided the GST/HST refund claim documentation you received from the [#] customers for whom you provided the invoice information (noted above). These [#] customers applied for a refund of the GST/HST from CBSA. Each of their refund claims was denied. The reason provided by CBSA was that the vendor was not authorized to collect the GST/HST. The customer was directed to apply to the vendor for a refund of the GST/HST.
8. Currently, customers are still being charged GST/HST by, and paying it to, the Company, and CBSA is still collecting GST/HST on the importation of the goods. The customers file for a refund with the CBSA, and if CBSA denies the claim, the Company provides a refund to its customers of the tax paid to CBSA; the refunded amount is included in the Company’s GST/HST return.
9. You previously received a GST/HST interpretation from the Canada Revenue Agency (CRA) […]. The interpretation addressed whether a customer is required to pay GST/HST to the CBSA upon delivery of goods to the customer in Canada even in cases where the customer has already paid the GST/HST to the Company on the purchase of the goods.
10. […], you provided the following additional information to the rulings officer in your letter of [mm/dd/yyyy], and requested an updated GST/HST interpretation:
The following has been added to the Company’s […][webpage Z]:
* […]
[…][The Company] also updated the […][importation] section to read:
* […][the bullets describe purchase fulfillment and the customer still being the importer of record.]
11. Further, in your letter dated [mm/dd/yyyy], you stated that […][the Company removed the DDU shipping term.]
INTERPRETATION REQUESTED
You would like an updated interpretation on the application of GST/HST to supplies of goods made by the Company, where the Company’s customers pay GST/HST to the Company and then act as the importer of record when the goods are imported into Canada.
INTERPRETATION GIVEN
It is a question of fact whether supplies of goods are deemed to be made in or outside Canada. If a supply of goods is made in Canada, GST/HST under Division II of Part IX of the ETA generally applies; that is, the supplier is liable to collect the GST/HST on the supply of goods it makes in Canada and the recipient of that supply is liable to pay the GST/HST. If goods are supplied outside Canada and imported into Canada, GST/HST under Division III of Part IX of the ETA will generally apply and be payable by the importer.
Consequently, whether GST/HST under Division II applies to the supplies of goods made by the Company is dependent on whether the goods are deemed to be supplied in Canada. The purchasing terms, such as the terms on the Company’s website, are therefore particularly relevant for determining whether Division II tax applies. Regardless of whether the goods are supplied in or outside Canada, GST/HST under Division III is generally payable by the importer to CBSA upon importation of the goods.
Application of Division II GST/HST
The GST (or federal part of the HST) is imposed under subsection 165(1) in respect of taxable supplies that are made in Canada. The provincial part of the HST is imposed under subsection 165(2) in addition to the federal part of the HST in respect of taxable supplies that are made in a participating province.
The general place of supply rules for determining if a supply is made, or deemed to be made, in Canada are found in subsection 142(1). Paragraph 142(1)(a) deems a supply by way of sale of tangible personal property (such as goods) that is, or is to be, delivered or made available in Canada to the recipient of the supply to be made in Canada.
The general place of supply rules for determining if a supply is made, or deemed to be made, outside Canada are found in subsection 142(2). Paragraph 142(2)(a) deems a supply by way of sale of tangible personal property that is, or is to be, delivered or made available outside Canada to the recipient of the supply to be made outside Canada.
The place where the goods are delivered or made available may be determined by reference to the place where the goods are considered to have been delivered under the law of the sale of goods applicable in that case. However, if delivery terms are specified in a contract, then generally, subject to any evidence to the contrary, the place where the goods are delivered or made available can be determined by reference to the terms of that contract.
When an Incoterm has been used in an agreement/purchase order/contract (not necessarily contained within a specific "delivery" clause) in accordance with its intended circumstances (such as set out under Incoterms 2010 or 2020), that Incoterm will generally, subject to any evidence to the contrary, be used to dictate where the goods are delivered or made available for the purposes of section 142.
In the case of the DDU Incoterm (from Incoterms 2000), delivery to the buyer is generally regarded as being at the destination specified after the Incoterm, provided the Incoterm is used in accordance with its intended circumstances. Where the DDU Incoterm provides a destination, the place of supply will generally be at that destination. As a result, the Company would be required to collect the GST/HST under Division II if the goods are to be delivered or made available to the recipient at a destination in Canada.
If, however, the supply is deemed to be made outside Canada, GST/HST under Division II would not be imposed in respect of the goods. However, GST/HST under Division III may be applied in respect of the goods upon their importation.
Imported goods and application of Division III GST/HST
Pursuant to section 212, every person who is liable under the Customs Act to pay duty on imported goods, or who would be so liable if the goods were subject to duty, must pay GST or the federal part of the HST on the goods calculated at the rate of 5% on the value for duty of the goods. The value for duty of the goods is determined under section 215 and, pursuant to section 214, any GST/HST calculated on the value of the goods is collected under the Customs Act by CBSA.
In addition, a person who is liable under the Customs Act to pay duty on imported goods, or who would be so liable if the goods were subject to duty, and who is a resident of a participating province may also be required under subsection 212.1(2) to pay the provincial part of the HST on the goods calculated at the tax rate for that province. However, pursuant to subsection 212.1(3), the requirement to pay the provincial part of the HST does not apply if the goods are accounted for as “commercial goods” under section 32 of the Customs Act. "Commercial goods" are defined under subsection 212.1(1) to mean goods that are imported for sale or for any commercial, industrial, occupational, institutional, or other like use.
The importer of record is generally the person who is liable to pay any duties on imported goods under the Customs Act and consequently liable to pay GST or the federal part of the HST. Therefore, if a customer in Canada is the importer of record, they generally would be the person liable to pay the GST/HST under Division III in respect of the importation.
Conversely, where the Company structures the transaction so that the Company is the importer of record, it would be liable to pay the GST/HST under Division III when the goods are imported. The Company, however, could then claim an input tax credit (ITC) for the Division III tax paid to the extent that the goods are for consumption, use or supply by the Company in the course of the Company’s commercial activities and if documentary requirements are met. For additional information regarding ITCs and imported goods, see GST/HST Policy Statement P-125R: Input Tax Credit Entitlement for Tax on Imported Goods.
Refund of excess tax
Pursuant to subsection 232(1), where the Company has charged an amount as GST/HST in excess of the correct amount, it has the option to adjust, refund or credit the excess tax to the person within two years after the day the amount was so charged or collected. If the Company chooses to adjust, refund, or credit the excess amount of GST/HST, it must issue a credit note containing prescribed information. It may also make an adjustment to its net tax calculation to account for any adjustment, refund or credit of an amount of tax paid in error to the extent that the amount was included in determining the net tax for the reporting period or a prior reporting period. More information is available in GST/HST Memorandum 12.2, Refund, Adjustment, or Credit of the GST/HST under Section 232 of the Excise Tax Act.
If a supplier chooses not to adjust, refund or credit an excess amount of GST/HST that was charged or collected, the person who paid that amount may apply for a rebate of the excess amount pursuant to section 261. As such, a rebate in respect of an amount paid to or collected by the Company in excess of the correct amount of GST/HST may be paid by the CRA where a customer files an application for the rebate within two years after the day the GST/HST was paid by the customer. Where eligible, your customers may claim a rebate of the amount overpaid to the Company as or on account of GST/HST using form GST189, General Application for GST/HST Rebates, using reason code 1C.
DISCLAIMER
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the interpretation given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation or the additional information provided herein.
CONTACT
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 343-596-6625.
Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287 or by fax to 1-418-566-0319.
Sincerely,
Melissa Mycroft
Border Issues Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate
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