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: 245549
Business Number: N/A
Dear [Client]:
Subject: GST/HST RULING and GST/HST INTERPRETATION
Print-on-Demand Sales
Thank you for your correspondence of March 17, 2023, wherein you requested information on your requirement to register for the Goods and Services Tax/Harmonized Sales Tax (GST/HST) and to collect tax on supplies that you make as part of […][ACo]’s print-on-demand (POD) sales programs.
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.
STATEMENT OF FACTS
Based on the information provided in your letter, the […] agreements and our telephone conversation of [mm/dd/yyyy], we understand the following:
1. You are a Canadian resident.
2. You are not registered for GST/HST purposes.
3. In [yyyy], you entered into two written agreements with [ACo], […][Agreement A] and […][Agreement B] […]
4. [Agreement A] includes the following terms:
a. Royalties […][Description of royalty terms].
b. Taxes […][Description the tax responsibilities of the parties].
c. Grant of Rights […][Information about rights granted].
5. […][Agreement B] contains similar clauses […].
6. You create your own books and designs, and you upload them to [ACo’s] platform. Customers can purchase your books […] and can choose to receive either an electronic or printed version of the book. Customers can choose your designs […] to be printed on products that are acquired from [ACo].
7. You receive royalty payments from [ACo] when customers purchase the electronic books and when your digital designs are chosen by customers for application to products they acquire from [ACo].
8. […], [ACo] is responsible for collecting and remitting any and all taxes on sales to customers (although not explicitly stated in the agreements, that would include applicable GST/HST on taxable sales made in Canada to customers).
9. Royalty payments […] to you are “net of refunds, bad debt and any VAT, sales or other taxes charged to a customer” […].
10. You indicate that you deal exclusively with [ACo] and do not make supplies directly to [ACo] customers.
11. In the years [yyyy] and [yyyy], you earned more than $30,000 in royalties relating to the supply of POD products through {ACo’s] program.
12. As specified in clause [#] of Agreement [A] and equivalent clause [#] of Agreement [B], you are responsible for any taxes due and payable resulting from the royalties you receive; and any taxes due to you is considered to be included in the royalty payments.
RULINGS REQUESTED
You would like to know:
1. if you have to register for GST/HST purposes;
2. if you have to collect tax on the royalty payments you receive from [ACo]; and
3. if you are an “excluded operator” under the new digital economy rules.
A ruling provides the Canada Revenue Agency’s (CRA) position on specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person and where all of the relevant facts and supporting documentation have been presented in writing. The CRA reserves the right not to issue a ruling where it considers that one would not be appropriate.
We were able to rule on the registration and the excluded operator questions. However, a ruling cannot be issued in respect of the royalty payments as there is insufficient information on the status of the recipient on which to base the ruling. Therefore, we are issuing an interpretation of the applicable provisions and how the legislation would apply with respect to your question on the collection of taxes.
RULINGS GIVEN
Based on the facts set out above, we rule that:
1. You are required to register for GST/HST purposes.
2. You are not an “excluded operator” under the new digital economy rules because you are not a non-resident and you do not operate a digital platform.
EXPLANATION
Generally, a royalty is a payment made by a person who uses a right in respect of intellectual property (IP) that belongs to another person. Under the Agreements, you have granted a non-exclusive right to [ACo] to print, distribute, publish and sell the books and designs you have created. Therefore, you are making a taxable supply of your IP (which falls within the broader category of intangible personal property (IPP)), and in return you receive royalties as consideration (payment) for that taxable supply.
Pursuant to paragraph 142(1)(c), a supply of IPP is deemed to be made in Canada if it may be used in whole or part in Canada or if the IPP relates to goods ordinarily situated in Canada, real property in Canada or service to be performed in Canada. To determine whether IPP may be used in Canada, the written agreement should reveal any restriction regarding the place of use of the IPP. If there are no such restrictions, the supply will be deemed to be made in Canada regardless of if it is actually used in Canada.
In your situation, the Agreements contain no restriction as to where the IPP may be used; to the contrary, you have granted [ACo] the printing and distribution rights on a worldwide basis. Therefore, the supplies of IPP to [ACo] are deemed to be made in Canada and are subject to the GST/HST.
Under 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 register for GST/HST purposes except in certain circumstances including where the person is a small supplier.
Under section 148, a person is a small supplier and does not have to register for the GST/HST as long as the total amount of all revenues from worldwide taxable supplies (including zero-rated supplies) is $30,000 or less in the last four consecutive calendar quarters, or in a single calendar quarter.
Based on the information provided, your revenues from supplies to [ACo] exceeded $30,000 in [yyyy] and again in [yyyy]. Consequently, it appears that at some point in [those years], you were no longer a small supplier for purposes of the GST/HST and therefore you were required to register for the GST/HST. The effective date of your registration depends on when you went over the small supplier threshold. To help you make that determination, see page 12 of the GST/HST Guide RC4022, General Information for GST/HST Registrants.
INTERPRETATION GIVEN
The rate of tax applicable to a particular taxable supply made in Canada is based on where in Canada the supply is determined to be made. If a supply is made in Canada but not in a participating province it is subject to the GST. If the supply is determined to be made in Canada and in a participating province, it is subject to the HST at the specified rate for the participating province. Note that a taxable supply that is made in Canada may be a zero-rated supply (this means that the supply is taxable but that the rate of tax is 0%) where certain conditions are met (see the discussion following).
Where a supply of IPP is made in Canada, it must be determined in which province the supply is made. The general place of supply rules for supplies of IPP are based on the location where the IPP may be used. Generally, for supplies of IPP with respect to which there are no restrictions regarding where the property may be used, paragraph 8(b) of the New Harmonized Value-Added Tax System Regulations (the Regulations) deems the supply of the IPP to be made in a particular province if:
- in the ordinary course of business of the supplier, the supplier obtains a particular address that is:
- if the supplier obtains only one address that is the home or business address in Canada of the recipient, the home or business address in Canada obtained by the supplier,
- if the supplier obtains more than one such address, the home or business address in Canada of the recipient that is most closely connected with the supply, or
- in any other case, the address in Canada of the recipient that is most closely connected with the supply, and
- the particular address is in the particular province, and
- the IPP can be used in the particular province.
If, however, the supplier does not obtain an address of the recipient, either paragraph 8(c) or section 11 of the Regulations will determine the province where the supply is made. Pursuant to paragraph 8(c) of the Regulations, the supply is deemed to be made in the participating province for which the tax rate is the highest among the tax rates for the provinces where the IPP can be used. However, if IPP can be used in two or more participating provinces with the same highest tax rate, the provincial place of supply will be determined by section 11 of the Regulations.
Under section 11, one of the participating provinces with the same highest tax rate (known as the “specified provinces”) will be the province where the supply is made. Section 11 provides that the supply is made in the specified province where the supplier's business address, which is most closely connected with the supply, is located. If that business address is not located in one of the specified provinces, then the supply is made in the specified province closest in proximity, determined in any reasonable manner, to the supplier's business address that is most closely connected with the supply. […].
For more information regarding the application of the place of supply rules for IPP, please see GST/HST Technical Information Bulletin B-103, Harmonized Sales Tax – Place of Supply rules for determining whether a supply is made in a province.
However, a supply of IPP that is made in Canada may be zero-rated pursuant to section 10 or 10.1 of Part V of Schedule VI of the ETA. For section 10 or 10.1 to apply, the recipient must be a non-resident of Canada and must not be registered under the regular GST/HST regime when the supply is made. As a result, you would not be required to collect or account for tax with respect to such supplies.
Section 10 zero-rates a supply of an invention, patent, trade secret, trade-mark, trade-name, copyright, industrial design or other IP or any right, licence or privilege to use any such property, where the recipient is non-resident and not registered at the time the supply is made.
Section 10.1 zero-rates a supply of IPP made to a recipient who is non-resident and not registered at the time the supply is made, except for a supply made in certain circumstance including where the supply is made to an individual who is inside Canada when the supply is made or the of IPP that may only be used in Canada.
For more information on the zero-rating rules in section 10 and 10.1, please refer to GST/HST Memorandum 4-5-3, Exports – Services and Intellectual Property.
A supplier who makes a zero-rated supply under these provisions must verify and maintain satisfactory evidence that the recipient of the supply is not resident in Canada and not registered at the time the supply was made. Appendix B of GST/HST Memorandum 4-5-1, Exports – Determining Residence Status, describes the documentation that the CRA will generally accept as proof that the recipient is a non-resident and a non-registrant. For more information, please refer to GST/HST Info Sheet GI-034, Exports of Intangible Personal Property.
When you register for the GST/HST, the threshold revenue amounts will determine your assigned reporting period. If your annual taxable supplies are $1.5 million or less, you are assigned an annual reporting period by default. However, if you want to file your return more frequently, you may apply to change your assigned reporting period.
As a GST/HST registrant, you are responsible for collecting the GST/HST when you make taxable supplies (other than zero-rated supplies) of property and services in Canada. You may recover the GST/HST paid or payable on property or services acquired for consumption, use or supply in the course of your commercial activities by claiming input tax credits (ITCs). The ITCs are deducted from the GST/HST collected and you must remit the difference (i.e., net tax) to the CRA if the amount is positive or get a refund from the CRA where the GST/HST on your expenses exceed the GST/HST collectible.
For more information on registration, small supplier, collecting taxes and reporting periods, you can refer to the GST/HST Guide RC4022, General Information for GST/HST Registrants.
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 Canada Revenue Agency (CRA) is bound by the ruling given in this letter provided that: none of the issues discussed in the ruling are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. 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.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 353-553-0164. 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.
Yours truly,
Cynthia Lynch
Senior Rulings Officer
General Operations Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate
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