New Harmonized Value-Added Tax System Regulations

Category of IPP relating to real property is narrow

27. Based on this definition [in s. 123(1) of real property], except for property in Quebec, there are very few supplies of intangible personal property relating to real property that would not be deemed to be a supply of real property. As a result, the place of supply rules explained in this section would only apply in limited circumstances, such as a supply of a vacation club membership relating to a number of vacation resorts.

28. The place of supply rules for supplies of intangible personal property that relates to real property require a determination of the proportion of real property that is situated in a province. The determination of the relevant proportion of the real property that is situated in a province is based on the physical size of the entire real property (for example, based on square footage, square yards or acres) pursuant to its legal description. The value of the real property or the number of properties (unless they are of equal size) is not relevant to this determination.

Real property, and IPP relating thereto, can be supplied both inside and outside Canada

29. A supply of intangible personal property that relates to real property is deemed by subsection 142(1) to be made in Canada if the real property is situated in Canada and is deemed by subsection 142(2) to be made outside Canada if the real property is situated outside Canada. As a result, where the real property is both situated in Canada and outside Canada, the proportion of the supply of the intangible personal property that relates to the real property that is situated in Canada is considered to be made in Canada, while the proportion of the supply of the intangible personal property that relates to the real property that is situated outside Canada is considered to be made outside Canada.

30. It is therefore only the proportion of the supply of the intangible personal property that relates to real property that is situated in Canada that may be deemed to be made in a participating province and subject to the HST.

Meaning of "can only be used"

The terms of the agreement for the supply governing the use of the rights generally determine the extent, if any, to which the rights can be used in one or more provinces. The use of the rights may be limited to one or more provinces by the nature of the rights being supplied without such a restriction being explicitly stated in the terms of the agreement. For instance, if as a matter of fact, the right that is supplied could only ever be used from a single location in a single province, then the use of the right would be considered to be limited to that province regardless of whether this is explicitly stated in the terms of the agreement.

Description of distinction between supplies of IPP and services

45. If the supply includes the provision of rights and the rights are the predominant element of the supply, the supply is likely a supply of intangible personal property. If the rights are merely incidental, the supply is likely a supply of a service.

46. The following are factors that generally indicate that a supply is one of intangible personal property:

• a right in a product, a right to use a product for personal or commercial purposes or a right of access is provided, such as:
  
  • intellectual property or a right to use intellectual property (for example, a copyright)
  • rights of a temporary nature (for example, a right to view, access or use a digitized product while online)
  • a membership in a club or association
  • an admission to a workshop, seminar or event
  • a transportation pass that entitles an individual to one or more passenger transportation services
• a digitized product (for example, online music or online movies) is provided that has already been created or developed, or is already in existence
• a digitized product (for example, a logo) is created or developed for a specific customer, but the supplier retains ownership of the product
• a right to make a copy of a digitized product is provided

47. The following are factors that generally indicate that a supply is a service:

• the supply does not include the provision of rights (for example, technical know-how), or if there is a provision of rights, the rights are incidental to the supply
• the supply involves specific work that is performed by a person for a specific customer, such as:
  
  • a consulting service
  • a training service or service of instruction
  • a web design service
• there is human involvement in making the supply

a supply of intangible personal property that can be used anywhere in Canada which is made by a non-resident supplier to a Canadian-resident GST/HST registrant occurred at the address of that recipient which the non-resident obtained in the ordinary course of its business.

a resort developer supplies memberships that entitle a member to use certain real property at one or more resort locations located in Canada and outside Canada, namely, the right to use a villa or condominium at one of the resorts. The resort developer also may supply a number of points to be redeemed each year for the use of a unit. CRA declined to comment on whether the supply of memberships or points was a supply of intangible personal property or real property in the absence of being provided with the relevant agreements other than to say that if the supply of points gave the recipient only the right to use real property, the supply would be considered as a supply of real property for GST/HST purposes.

the supply of memberships in an association would be governed by s. 8 as a supply of intangible personal property so that, for example, if in the ordinary course of business the association obtained a single address of the recipient in Ontario, the HST rate of 13% would apply.

Limited scope of s. 10 rules

15. The general place of supply rules for supplies of intangible personal property do not apply to supplies of intangible personal property that relates to tangible personal property such as an option to purchase tangible personal property. These types of supplies are subject to specific place of supply rules in section 10 of the Regulations.

16. Generally, a supply of intangible personal property is considered to relate to tangible personal property if the intangible personal property relates to specific tangible personal property. It excludes a supply of a right to use tangible personal property by way of lease, licence or similar arrangement, since such a supply is deemed by subsection 136(1) to be a supply of the tangible personal property that is subject to different place of supply rules,

Example 12

• Quebec company supplies an Ontario company with intangible personal property that relates to tangible personal property, which is ordinarily located as to 30% in Prince Edward Island, 10% in Ontario and 60% in the USA.
• Since the TPP that is ordinarily located in Canada to which the intangible personal property relates is ordinarily located primarily in the (two) participating provinces, and the greatest proportion is ordinarily located in PEI, the supply of the IPPis therefore made in PEI.

Example 14

• A registered non‑resident company supplies an Ontario company with intangible personal property that relates to tangible personal property, of which 5% is ordinarily located in Ontario and 95% in the USA.
• Since such TPP is ordinarily located primarily in the participating provinces and the greatest proportion is ordinarily located in Ontario, the IPP place of supply is in Ontario.

Ontario situs even though TPP predominantly in the U.S.

Example 72
A registered non-resident company supplies an Ontario company with intangible personal property that relates to tangible personal property. Of the total tangible personal property, 5% is ordinarily located in Ontario and 95% in the United States. ...

The tangible personal property that is ordinarily located in Canada to which the intangible personal property relates is ordinarily located primarily in the participating provinces and the greatest proportion of the tangible personal property that is ordinarily located in the participating provinces is ordinarily located in Ontario. Therefore, the supply of the intangible personal property is made in Ontario and subject to HST at a rate of 13%.

Example 33

• A registered supplier supplies website access by monthly subscription from its business address in Ontario, giving access and download rights to digitized content, and with no restrictions as to where subscribers may use the website access. One customer is a regular GST/HST registered non-resident which supplies a Texas home address in the ordinary course of business of the supplier.
• Since in the ordinary course of business, the supplier has not obtained a Canadian address of the non-resident, and the content may be used anywhere in Canada, the province of supply is whichever of Newfoundland, New Brunswick, PEI and (subject to the upcoming rate reduction) Nova Scotia that is closest in proximity to the supplier’s business address.

A real estate broker based in Nova Scotia is hired by a company with a head office in Nova Scotia to lease real property in New Brunswick to a tenant. Before concluding that the supply of the service would be in New Brunswick, CRA stated:

A service and real property would generally be regarded as being in relation to each other pursuant to the above guidelines if the purpose of the service is to: • physically count the property; • appraise or value the property; • physically protect or secure the property; or • enhance the value of the property. Similarly, if the service is aimed at effecting or dealing with the transfer of ownership of, claims on or rights to the real property, or determining title to the property, the service will generally be regarded as being in relation to the property.

Includes Example 120 (maintenance services supplied re three buildings of equal size - two in New Brunswick and one in Quebec - are supplied in New Brunswick).

After ruling that “each [on-site and off-site] supply of [Service X] made by [ACo] is a service in relation to TPP that is made in the province where the TPP, to which the services relate, is situated at the time the services are performed,” CRA provided a general discussion of the relationship between s. 15 and s. 16, and stated:

[W]hether a service is considered to be in relation to TPP depends on whether there is a direct connection between the service and the property, taking into account the objectives of the service and the particular circumstances of each case. With respect to determining the objectives of the service, it must be determined whether the service is designed, developed or undertaken to fulfill or serve a particular need or requirement arising from or relating to the property. It must then be determined whether the relationship between the purpose or objective of the service and the property is direct rather than merely indirect. In the case of [the Recipient], [ACo] is retained specifically […][to provide Service X].

Includes:

• Example 104 (a pet is tangible personal property, so that a veterinary service is made in the province where the pet is examined);
• Example 107 (a storage service (viewed as a single supply) is made in Ontario as that is where 60% of the art collection in question is situated); and
• Example 110 (the legal service of drafting an asset sale agreement relates to both Alberta tangible personal property and Ontario real estate - accordingly, the situs of the tangible personal property and real property does not govern and the place of supply instead is determined by the Ontario business address provided by the Ontario client).

A GST/HST-registered Canadian law firm performs legal services, as a single, bundled supply, on behalf of a Canadian lender in a secured financing transaction, where the security for the loan is registered under the Personal Property Security Acts in five Canadian provinces against the borrower's tangible personal property, including inventory. The firm does not know the location of the secured inventory throughout the time that the services are performed, so that it is not clear whether to apply provincial place of supply rules in s. 15 or 16. CRA stated:

[W]here it is possible based on the facts for the supplier to obtain information that is available with respect to where the tangible personal property is situated and its movement (which appears to be the case in the scenario provided), the supplier would be expected to obtain that information for purposes of applying the rule.

Conference example

ABC Co hosts a two day conference on the latest developments within a particular field and engages various experts to present papers and lead workshops at the conference. The conference is open to any individual that would like to attend. The fee is paid by the individual or the individual's employer.

ABC Co supplies a two day training session for employees of XYZ Co on the latest developments within a particular field. ABC Co is engaged by and paid by XYZ Co directly to develop and deliver the content for the training session.

How does s. 17 (personal services) and s. 28 (services in relation to a location specific event) apply? CRA responded:

The provision of the right to attend a professional development conference, workshop, seminar, or training session, would…generally be considered to be a supply of intangible personal property… . The place of supply rules in sections 6 and 7…would generally be relevant… .

… Generally, to determine that a particular supply is a service, it would have to be established based on a complete set of facts that the predominant element of the supply is a service… .

…[T]o be considered a service in relation to a location-specific event for purposes of section 28…the event must be the object of the service. Generally, this would include services supplied to an organizer of an event such as event planning or the performance of the event.

Rule of origin

61. Generally, where the origin is specified on the ticket or voucher issued in respect of the first passenger transportation service in a continuous journey (or the origin is otherwise known to be in a province), and the termination and all stopovers in respect of the continuous journey are in Canada, the province in which the origin is located will determine whether the supply is made in a participating province or a non-participating province.

Stopover outside Canada trumps Ontario origin

64. Where there is a termination or a stopover outside Canada in respect of a continuous journey, the passenger transportation services in that continuous journey are deemed to have been made in a non-participating province and are subject to the GST, regardless of the origin.

Example 17

An individual purchases a return air ticket from Ottawa, Ontario to Boston, Massachusetts, USA. Ottawa is specified as the origin of the continuous journey on the ticket.

Although the ticket issued in respect of the first passenger transportation service in the continuous journey specifies that the origin of the continuous journey is in Ontario, there is a stopover outside Canada in respect of the continuous journey. The supply of the passenger transportation service is therefore made in a non-participating province and subject to the GST at the rate of 5%.

Generally, a supply of a passenger transportation service that is part of a continuous journey is made in a participating province if the continuous journey originates in the participating province, the termination and all stopovers in respect of the continuous journey are in Canada, and the origin of the journey is specified in the ticket or voucher issued for the first passenger transportation service included in the journey.

If there is a termination or stopover outside Canada in respect of the continuous journey, then the supply of the passenger transportation service is considered to be made in a non-participating province, regardless of the province in which the continuous journey originates.

Generally, if a supply of a passenger transportation service is not part of a continuous journey, then:

• the supply is made in a participating province if the passenger transportation service begins in the participating province and ends in Canada; and
• the supply is made in a non-participating province if the passenger transportation service begins outside the participating provinces or ends outside Canada.

Example 5

A third-party charterer and a carrier enter into a charter agreement for the supply of a charter flight that is a passenger transportation service that is part of a continuous journey. The charter flight is a round-trip for an individual travelling from Halifax, Nova Scotia to Boston, Massachusetts. The carrier issues a travel document for the set of all passenger transportation services which specifies Halifax as the origin of the continuous journey.

Although the continuous journey originates in Nova Scotia (a participating province) and the origin is specified in the travel document, the supply of the passenger transportation service is made in a non-participating province because there is a stopover outside Canada. Therefore, the supply of the taxable (other than zero-rated) passenger transportation service is subject to the 5% GST.

Different tax rate on each leg of journey (para. 76)

Example 20

A traveller buys an airline ticket for travel from St. John’s, Newfoundland and Labrador to Winnipeg, Manitoba via Montreal, Quebec. The traveller buys a glass of wine on the first leg of the journey to Montreal. The traveller has to pay the HST at the rate of 15% on the glass of wine because that leg of the journey begins in Newfoundland and Labrador. If the traveller buys another glass of wine on the second leg of the journey, the GST applies at the rate of 5% because that leg of the journey begins in Quebec.

'The time when the administrative litigation commences will normally be based on the procedural requirements imposed by the relevant legislation, or the 'rules' of natural justice if no legislation exists, under which the administrative litigaton will be brought." Examples include the receipt of a complaint by the Competition Commissioner; and the receipt of an appeal by the Tax Court registrar. Where there is no specific statutory procedure, the litigation will be considered to have commenced when the board etc. is made aware of the complainant's intentions. "Documentation such as copies of agreements, requests for advisory, professional or consulting services, the supplier's accounting records, demand letters, copies of objections or appeals, etc., would usually indicate the purpose or objective of the service rendered in relation to civil or administrative proceedings."

Conference example

ABC Co hosts a two day conference on the latest developments within a particular field and engages various experts to present papers and lead workshops at the conference. The conference is open to any individual that would like to attend. The fee is paid by the individual or the individual's employer.

Training session example

ABC Co supplies a two day training session for employees of XYZ Co on the latest developments within a particular field. ABC Co is engaged by and paid by XYZ Co directly to develop and deliver the content for the training session.

How does s. 17 (personal services) and s. 28 (services in relation to a location specific event) apply? CRA responded:

The provision of the right to attend a professional development conference, workshop, seminar, or training session, would…generally be considered to be a supply of intangible personal property… . The place of supply rules in sections 6 and 7…would generally be relevant… .

… Generally, to determine that a particular supply is a service, it would have to be established based on a complete set of facts that the predominant element of the supply is a service… .

…[T]o be considered a service in relation to a location-specific event for purposes of section 28…the event must be the object of the service. Generally, this would include services supplied to an organizer of an event such as event planning or the performance of the event.

Includes Example 120 (the provision of lighting and other special effects at a gala event event in Quebec is considered to be services performed at the convention centre where the gala takes place).