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
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 183417
Business Number: [...]
Dear [Client]:
Subject: GST/HST INTERPRETATION
Non-resident cruise line company carrying on business in Canada
Thank you for your correspondence of [mm/dd/yyyy] concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to a non-resident cruise line company that operates cruise trips in Canada. We apologize for the delay in this response.
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.
Based on the information contained in your [correspondence] of [mm/dd/yyyy], we understand the following:
1. […]
2. […] is a cruise line company (CruiseCo) that produces and operates […] cruise trips using ships that they own. […] CruiseCo sells its cruise trips to customers from around the world, including customers from Canada.
3. CruiseCo is not incorporated in Canada or any province in Canada, is not continued in Canada and is a non-resident of Canada. CruiseCo is not registered for GST/HST purposes and is not a small supplier under section 148.
4. […], CruiseCo […][operates] approximately [#] cruise trips worldwide and [some] of these cruise trips […][include days sailing or at port in Canada]
5. CruiseCo estimates that the […][# of] Canadian cruise trips occurring in [yyyy][…] were sailing or at port in Canada for a total of [#] days.
6. CruiseCo forecast that in [yyyy] they would sail approximately [#] cruise trips worldwide and offer […][a slightly larger number of] cruise trips […][that enter Canada and include days sailing or at port in Canada].
7. CruiseCo estimates that the [#] cruise trips occurring in [yyyy] […][will be] sailing or at port in Canada for a total of [#] days.
8. CruiseCo has agreements with independent third-party Canadian sales agents that sell for CruiseCo. Some of these agents are tour operators that do their own travel packaging and sell in their own name, others are travel agents that sell on behalf of CruiseCo. In one case, CruiseCo cooperates with a […] sales agent to both advertise and sell CruiseCo’s cruise trips.
9. CruiseCo also operates a website that allows individuals (including Canadian residents) to directly book their cruise trips online.
10. When Canadian sales agents sell to Canadian customers, CruiseCo sends its invoice to the sales agent who sends their own invoice to the customer. Canadian residents booking a cruise trip directly online through CruiseCo’s website can pay for their cruise trip on the company’s website. All payments received by CruiseCo are deposited into CruiseCo’s […][foreign currency] bank account. CruiseCo does not have a Canadian bank account.
11. CruiseCo’s sales agents create listings for CruiseCo in Canadian directories on CruiseCo’s behalf.
12. CruiseCo offers cruise trips that include certain base components included in the price. The basic food package is always included in the cruise trip purchased along with basic accommodation. Customers can upgrade their accommodations to suites, add water and wine packages and add food packages that include additional ordering options.
13. Customers can purchase additional services supplied by CruiseCo, including:
a. Hotel services in Canada, such as third-party hotel rooms for stays before or after cruise trips;
b. Transportation services, such as flight, bus, taxi or train transportation services to or from the ship’s point of origin or destination; and
c. Additional local excursions in Canada, such as tickets to cultural events, guided tours, or local transportation.
14. With respect to local excursions in Canada, CruiseCo purchases them from independent third-party providers and resells them to its customers. CruiseCo’s employees are not involved in providing these services.
15. Your [correspondence] did not specify the size of the […] ships entering Canada […].
16. CruiseCo does not have employees located in Canada other than those employees that are in Canada on the ships as part of the crew for the duration of the cruise trips.
17. CruiseCo has a store that sells everyday commodities and other products located on board each ship. The store is closed when the ship is at port.
18. CruiseCo does not have an office, warehouse or branch in Canada. CruiseCo does not store inventory in Canada, other than what is on the ship when it is sailing or at port in Canada.
INTERPRETATION REQUESTED
You would like to know whether CruiseCo is carrying on business in Canada for GST/HST purposes and consequently required to register under subsection 240(1).
INTERPRETATION GIVEN
Pursuant to subsection 240(1), every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to be registered for GST/HST purposes unless:
(a) the person is a small supplier;
(b) the only commercial activity of the person is the making of supplies of real property by way of sale otherwise than in the course of a business; or
(c) the person is a non-resident person who does not carry on any business in Canada.
The only exception in subsection 240(1) that would be relevant in this case would be the exception in paragraph 240(1)(c).
GST/HST Policy Statement P-051R2, Carrying on Business in Canada (P-051R2), sets out factors and principles to be considered in determining whether a non-resident is carrying on business in Canada for GST/HST purposes. As indicated in P-051R2, the determination requires consideration of all relevant facts. The factors to consider in determining whether a non-resident is, for GST/HST purposes, carrying on business in Canada include:
- the place where agents or employees of the non-resident are located;
- the place of delivery;
- the place of payment;
- the place where purchases are made or assets are acquired;
- the place from which transactions are solicited;
- the location of assets or an inventory of goods;
- the place where the business contracts are made;
- the location of a bank account;
- the place where the non-resident’s name and business are listed in a directory;
- the location of a branch or office;
- the place where the service is performed; and
- the place of manufacture or production.
The importance or relevance of a given factor in a specific case depends on the nature of the business activity under review and the particular facts and circumstances of each case. The determination of whether a non-resident is carrying on business in Canada for GST/HST purposes does not involve the mechanical application of a numerical test that is simply based on whether a specific number of the above factors are present in any given case. Rather, the determination requires judgment in establishing the importance of each factor in light of the type of supply that is being made in the context of the relevant facts.
[…] P-051R2 states that in general, a non-resident must have a significant presence in Canada to be considered to be carrying on business in Canada, and specifically indicates in this regard that generally, isolated transactions carried on in Canada as part of a business that is carried on by a non-resident person outside Canada may not result in the person being considered to be carrying on business in Canada for GST/HST purposes, given that the factors would usually not be met to a sufficient degree.
[…][You believe] that CruiseCo is not carrying on business in Canada because the cruise trips offered by CruiseCo that […][are sailing or at port in Canada] do not constitute a significant presence and are better explained as isolated transactions.
You have referred to examples 19 and 20 in P-051R2 to support your position that CruiseCo is not carrying on business in Canada. […]
If a significant presence in Canada were intended to be described solely in the context of comparing a non-resident’s Canadian activities to their worldwide activities, each example concerning the supply of services in P-051R2 would have to include information on the non-resident’s worldwide activities. Some of these examples do provide limited context of the non-residents’ worldwide activities, indicating it is an element to consider.
However, the comparison of Canadian to worldwide activities cannot be the central component in determining whether a non-resident has a significant presence in Canada given there are examples in P-051R2 that lack this information. For instance, example 19 contains no information that enables a comparison between the non-resident’s Canadian activities and its overall worldwide activities, and the non-resident was determined to be carrying on business in Canada.
In contrast, examples 18 to 21 in P-051R2 all contain information allowing the number of employee days spent in Canada (the number of employees multiplied by the number of days they work in Canada) to be calculated. The company in example 19 engages in about 220 employee days in Canada and it was determined that they were carrying on business in Canada. The company in example 20 also engaged in about 220 employee days in Canada and was determined to be carrying on business in Canada.
CruiseCo makes supplies of cruise trips which are characterized as supplies of a service for GST/HST purposes. Consequently, as stated in P-051R2, the factors that will be most relevant in determining whether CruiseCo is carrying on business in Canada include the place where the services are performed and the place where CruiseCo’s employees are located in performing those services.
[…][To add some clarity to this interpretation, we consider an example, XCo, based on assumptions that XCo’s ship capacity is 3000 customers accompanied by 1,275 employees.] […][XCo] is making supplies of services that are regularly performed in Canada by its employees. […][For the example, we will assume that the XCo employees generally worked a total of 10 days in Canada (12,750 employee days) and are projected to work a total of 50 days in Canada (63,750 employee days), an indicator that XCo’s] […] (Footnote 1) […] sales are trending upward […]. The type of activities […][that XCo] carries on in Canada is significant and relates to their main business line. […][In addition, assuming that XCo] is actively soliciting more business in Canada through promotion, marketing and advertising of their cruise trips in Canada through third-party agents, […][XCo’s] Canadian operations are not isolated transactions. These factors are sufficient for […][XCo] to be considered to be carrying on business in Canada for GST/HST purposes and […] required to register for the GST/HST under subsection 240(1) as none of the exclusionary paragraphs apply.
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(s) given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 343-549-4904.
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,
Chris White
Industry Sector Specialist
Border Issues 2
General Operations and Border Issues Division
GST/HST Rulings Directorate
FOOTNOTES
1 […].
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