Schedule VI

Part I

2

Cases

Hedges v. Canada, 2016 FCA 19

authorizations to possess marihuana were not sale exemptions

The appellant (“Hedges”) sold illegally produced dried marihuana to an intermediary (“BCCS”) which, in turn, sold it to individual members suffering from ailments. Although it was accepted by the Crown that the product was a “drug,” it was not zero-rated under Sched. VI-I-2(d) if it could “be obtained without a prescription or Ministerial exemption” (para. 4). Although Hedges and BCCS in fact had not been issued authorizations to possess marihuana (ATPs) by Health Canada, Hedges argued inter alia that the ATPs constituted “exemptions” permitting the sale of marihuana - so that marihuana did not come within this carve-out for drugs which could be sold without an exemption.

After first concluding (at para. 20) that “the zero-rated supply was intended to apply to certain drugs that could be legally sold to a consumer,” and noting (at para. 24) that “it would be illogical to tax a drug that may be lawfully sold to a consumer, (i.e., all the drugs captured by the carve out) but to exempt from taxation a drug that is not lawfully sold,” Rennie JA went on to reject the above argument, stating (at paras. 25, 29):

An ATP is an authorization…[and] is not an exemption.

… While holding an ATP may exempt one from the application of the criminal law, it is not an “exemption” as contemplated by fiscal legislation… .

Words and Phrases
exemption
Locations of other summaries Wordcount
Tax Topics - General Concepts - Illegality illogical to infer a tax benefit from illegal sales 145
Tax Topics - Statutory Interpretation - Headings heading did not contemplate illegal drugs 94

See Also

Hedges v. The Queen, 2014 TCC 270, aff'd 2016 FCA 19

marihuana is a drug but "Authorization to Possess" it is not a purchase "exemption"

Hedges was assessed for his failure to charge GST on his sales of illegally produced dried marihuana to an intermediary ("BCCCS"), which in turn sold it to individual members suffering from ailments. After a detailed review of the regulatory regime, including the Marihuana Medical Access Regulations permitting sales by licensed producers to patients who, following certification by a medical practitioner, had received an "Authorization to Possess" (ATP) from Health Canada, C Miller J found that zero-rating of the product under Sched. VI, Part I, s. 2(d) turned on whether, as a general mater, dried marihuana was a "drug" which "may [not], under the MMARs, be sold to a consumer without a prescription or exemption" (para. 74).

He found that it was a "drug" as broadly defined in the Food and Drugs Act (noting at para. 67 that "dried marihuana sold for use recreationally is not a drug as defined under the FDA, while dried marihuana sold for use therapeutically is") and rejected Crown submissions that the term should be restricted to drugs approved under the FDA and accessible by prescription.

However, he found (at para. 84) that "the medical declaration required to be completed by a practitioner pursuant to the MMARs is not an order nor is it given to a pharmacist [and] is clearly not a prescription" and further found (at paras. 94-6) that an ATP is not as exemption. The appeal was dismissed.

Administrative Policy

Excise and GST/HST News - No. 97 17 November 2015

Importations of donor eggs

[S]upplies of human sperm and oocytes are not drugs that are included in section 2 of Part I of Schedule VI and therefore are not zero-rated under this section. In addition, section 5 of Part I of Schedule VI zero-rates supplies of human sperm. However, there is no corresponding provision in the Act that zero-rates supplies of human oocytes.

GST Memoranda Series 4.1 "Prescription Drugs and Biologicals" ETA - Schedule VI Part II

GST M 300-4-2 "Health Care Services"

Paragraph 2(b)

Administrative Policy

Excise and GST/HST News - No. 101 March 2017

Hormonal, but not copper, intrauterine devices are zero-rated

Hormonal IUDs have a reservoir which slowly releases hormones used for contraception. … Copper IUDs have a plastic frame that is wound around with copper wire or has copper sleeves. …

[H]ormonal IUDs available in Canada contain the drug levonorgestrel which is on the list established under subsection 29.1(1) of the Food and Drugs Act and require a prescription from a physician to be purchased. … Therefore, the supply of hormonal IUDs is zero-rated pursuant to paragraph 2(b) of Part I of Schedule VI….

[S]ales of copper IUDs are subject to GST/HST....

Part II

Section 11.1

See Also

Dr. Brian Hurd Dentistry Professional Corporation v. The Queen, 2017 TCC 142 (Informal Procedure)

hypothetical separate supply of an orthodontic appliance by an orthodontist would have been zero-rated

Campbell J found that an incorporated orthodontic practice was making a single supply of exempt orthodontic health services rather than (as argued by it) two supplies comprised of a zero-rated supply of medical equipment (the orthodontic appliance) and of exempt orthodontic services (e.g., adjustment and maintenance services). She then rejected obiter the Crown's argument in the alternative that a separarate supply of the orthodontic appliances would not have been zero-rated but, instead, an exempt supply of a "medical...prosthesis" under Sched. V, Pt. II, s. 1 - "institutional health care service" para. (b), stating (at para 44):

…[I]f I had concluded that the Appellant provided multiple supplies, then … the supply of the orthodontic appliance would be zero-rated pursuant to section 11.1 of Schedule VI, Part II of the Act. … [T]he Act has set out the scheme for an orthodontic appliance entirely separate and apart from the provisions that apply to a prosthesis. … [T]he supply of an orthodontic appliance, being a medical device assembled by a licensed dental professional in a patient’s mouth, falls within the zero-rated scheme contained in Schedule VI. This interpretation is also consistent with the Department of Finance Technical Notes to section 11.1 of Schedule VI, Part II which unconditionally zero-rates an appliance.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Schedules - Schedule V - Part II - 5 single supply by incorporated orthodontist of health care services 246
Tax Topics - Excise Tax Act - Schedules - Schedule V - Part II - 1 - Institutional Health Care Service - Paragraph (h) single supply of orthodontic services by incorporated orthodontic practice qua health care facility 155
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply single supply of orthodotic service 81
Tax Topics - Excise Tax Act - Schedules - Schedule V - Part II - 1 - Institutional Health Care Service - Paragraph (b) orthodontic appliance was not a "medical prosthesis" 152

37

Administrative Policy

Excise and GST/HST News - No. 97 17 November 2015

Design features must assist in coping with incontinence

To be an incontinence product specially designed for use by an individual with a disability, the product must be designed to absorb leakages, reduce odours, control bacteria, maintain dryness, and protect the individual against skin irritation. As such, the product must be designed using high-absorbency materials and typically have a sealed edge to ensure leakage protection. The fact that a product is reusable or disposable, or can be used by an individual who does not have a disability is not sufficient to change the characteristics of a product so that it is no longer considered to be an incontinence product specially designed for use by an individual with a disability.

…Examples of products that are not zero-rated under this provision include waterproof chair pads, sheets and mattress covers.

Children’s diapers…are not zero-rated… .

24.1

See Also

Health Quest Inc v. The Queen, 2014 TCC 211 (Informal Procedure)

insufficient product design evidence

The appellant ("Health Quest") distributed footwear for the relief of various disabling conditions of the foot. The Minister reassessed the taxpayer on the basis that many of the shoes sold were not zero-rated supplies under s. 24.1 of Part II of Schedule VI of the ETA. Campbell J found that the Minister's pleading of this legal conclusion did not shift the burden of proof to the taxpayer (see summary under General Concepts - Onus).

The Minister was unable to prove that the shoes were not specially designed for use for a "crippled or deformed or similarly disabled foot," as the appeal officer's evidence was based on there not being sufficient information to conclude that they were. Campbell J suggested that "product literature, any scientific studies conducted and testimony of medical professionals" would have been beneficial in drawing any conclusions (para. 37) and indicated (at para. 41) that Masai Canada Ltd. v. Canada (Border Services Agency), 2012 FCA 260 "implied that to establish if a product, at least under the Customs Tariff, is 'specially designed' there should be evidence on the design and purposive intent behind the design of the product."

Locations of other summaries Wordcount
Tax Topics - General Concepts - Onus mixed assumptions of fact and law 173

32

See Also

Tremblay v. The Queen, [2001] GSTC 64 (TCC) (Informal Procedure)

An elevator shaft constructed by the builder of the appellant's home in order to permit the operation of a wheelchair lift provided by a separate supplier was found to be an "accessory" essential for the use of the lift, so that its supply was zero-rated under section 32.

34

See Also

Buccal Services Ltd. v. The Queen, [1994] GSTC 70 (TCC)

A healthcare facility through a dentist (as independent treatment provider) provided various laboratory and diagnostic services such as special x-ray studies, photographs and anesthesia facilities. The appellant had a paucity of evidence to support its submission that 40% to 50% of the supplies made by it were zero-rated supplies. Kempo T.C.J. went on to reject a submission that dental supplies made by the appellant fell within ss.23 (now, 11.1) 25, 26 and 34 of Part II of Schedule VI, stating that "where the service is clearly included in Schedule V, the exempt status of that service would govern and take precedence over the zero-rating provisions" (p. 70-3) and found that the services provided were institutional healthcare services instead.

Part III

Section 1

See Also

River Road Co-Op Ltd. v. The Queen, [1995] GSTC 34 (TCC)

A direct charge retail co-operative charged $3.50 per week to each member of the co-operative irrespective of the type or volume of goods purchased by the member. Lamarre TCJ. concluded that such service fees did not constitute partial payment for goods purchased by the members and, therefore, no portion of such fees qualified for zero-rating.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 153 - Subsection 153(2) 62

Administrative Policy

GST/HST Technical Information Bulletin B-110 Application of the GST/HST to the Practice of Acupuncture April 2017

Separate supplies of herbal goods by acupuncturist

Sales of products such as dried herbs and herbal goods for medicinal purposes are generally separate supplies made by the acupuncturist and do not form part of an acupuncture service. As such, most sales of these products are subject to the GST/HST. Such products also include botanical medicines, Chinese herbal medicines, and tinctures, ointments, and nutritional supplements, whether or not dispensed by an acupuncturist….

Paragraph 1(e)

See Also

Ike Enterprises Inc. v. The Queen, 2017 TCC 59

crystallized ginger sold as baking ingredient rather than candy

The appellant sold crystallized ginger; sticks (made of wheat, rice and spelt); and granola in special packaging in bulk to retailers for sale in their bulk bins. Before turning to these individual items, Smith J stated (at paras 47-48):

[T]he Act…ensure[s] that basic groceries are not subject to GST. …

[T]he exclusions listed in section 1 of Part III…should be narrowly construed. To take a broad interpretation of such exclusions would defeat the policy objective noted above.

Smith J found that the crystallized ginger was zero-rated, finding (at paras 53, 54, 55, 57 and 58):

The first ingredient was … ginger.

The Appellant …had never sold this product as a candy or confectionery nor seen it sold as such by its customers in their bulk bins.

Taking a textual approach to the interpretation of section 1(e) of the Act, I find that the opening words “candies, confectionery that may be classed as candy, or any goods sold as candies”, clearly suggest that it is primarily intended to exclude food that is commonly viewed and sold as candy where the first ingredient is in fact sugar or some other natural or artificial sweetener. …

[M[ost consumers would be surprised to learn that products sold in the baking section of a typical grocery store, could be subject to GST

[T]he crystallized ginger …was sold as a baking ingredient similar to a dried fruit.

Words and Phrases
confectionary
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Schedules - Schedule VI - Part III - Section 1 - Paragraph 1(f) fried sticks were sold as snack and were not baked 215
Tax Topics - Excise Tax Act - Schedules - Schedule VI - Part III - Section 1 - Paragraph 1(h) granola in cereal aisle intended primarily as breakfast cereal 176

Paragraph 1(f)

See Also

Ike Enterprises Inc. v. The Queen, 2017 TCC 59

fried sticks were sold as snack and were not baked

The appellant sold crystallized ginger; sticks (made of wheat, rice and spelt); and granola in special packaging in bulk to retailers for sale in their bulk bins. Before turning to these individual items, Smith J stated (at paras 47-48):

[T]he Act…ensure[s] that basic groceries are not subject to GST. …

[T]he exclusions listed in section 1 of Part III…should be narrowly construed. To take a broad interpretation of such exclusions would defeat the policy objective noted above.

In finding that the sticks came within the exclusion from zero-rating in para. 1(f), Smith J stated (at paras 59, 62, and 63):

…[T]he sticks … were manufactured by a company called “Old School Snacks” and the evidence clearly established that they were sold as snacks and eaten as‑is without further preparation.

…[T]he … sticks were not sold as crackers or “bread sticks” or even as a bread product. … [B]read products including crackers are in fact oven‑baked and not fried.

…I find that nothing turns on the fact that the sticks were marketed as a healthy organic snack. On balance, I find that the sticks are a convenience food captured by the use of the words “other similar snack foods” and more specifically the use of the word “sticks” in section 1(f) of the Act.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Schedules - Schedule VI - Part III - Section 1 - Paragraph 1(e) crystallized ginger sold as baking ingredient rather than candy 229
Tax Topics - Excise Tax Act - Schedules - Schedule VI - Part III - Section 1 - Paragraph 1(h) granola in cereal aisle intended primarily as breakfast cereal 176

Paragraph 1(h)

See Also

Ike Enterprises Inc. v. The Queen, 2017 TCC 59

granola in cereal aisle intended primarily as breakfast cereal

The appellant sold crystallized ginger; sticks (made of wheat, rice and spelt); and granola in special packaging in bulk to retailers for sale in their bulk bins. Before turning to these individual items, Smith J stated (at paras 47-48):

[T]he Act…ensure[s] that basic groceries are not subject to GST. …

[T]he exclusions listed in section 1 of Part III…should be narrowly construed. To take a broad interpretation of such exclusions would defeat the policy objective noted above.

In finding that the granola was not excluded from zero-rating under para. 1(h), Smith J found (at paras 68, 70):

… [M]any types of breakfast cereals can be snacked “right out of the box” and the suggestion on the packaging that you can do so, does not change a breakfast cereal into a snack item or convenience food. ...

While I agree that packaging and labelling will generally carry the day, I find that product placement within the grocery store is equally determinative. … [I]ts customers sold the product in question in the cereal aisle of the grocery store… .

Words and Phrases
breakfast cereal
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Schedules - Schedule VI - Part III - Section 1 - Paragraph 1(e) crystallized ginger sold as baking ingredient rather than candy 229
Tax Topics - Excise Tax Act - Schedules - Schedule VI - Part III - Section 1 - Paragraph 1(f) fried sticks were sold as snack and were not baked 215

Paragraph 1(k)

See Also

Hubka v. The Queen, [1995] GSTC 58 (TCC)

Supplies of ice cream made in the form of boxes of 12, 24 or 36 single serving packages were excluded from zero-rating by s. 1(k). Bonner TCJ. stated (at p. 58-3):

"I cannot discover any basis either in the language of para. (k) or in the statutory context for arriving at a conclusion that the packaging which contains the single serving packages of ice cream is in any way relevant. The plain language looks to the packaging of the ice cream and not to the packaging of the packages."

Part V

1

See Also

Muller v. Baldwin, L.R. 9 Q.B. 457

In the absence of anything in the governing legislation to the contrary, "exported from the port" was to be construed in its ordinary meaning of "carried out of the port" and, therefore, included coals taken out of the port on a steamer to be consumed on board during a distant voyage.

Words and Phrases
exported

Administrative Policy

GST/HST Memorandum 4.5.2 "Exports – Tangible Personal Property" August 2014

Overview of requirements

3. A supply of tangible personal property (other than an excisable good) made by a person to a recipient (other than a consumer) who intends to export the property is zero-rated if all of the following conditions are met:

  • a. in the case of property that is a continuous transmission commodity that the recipient intends to export by means of a wire, pipeline, or other conduit, the recipient is not registered for GST/HST;

    b. the recipient exports the property as soon after the property is delivered by the person to the recipient as is reasonable having regard to the circumstances surrounding the exportation, and where applicable, to the normal business practice of the recipient;

    c. the recipient has not acquired the property for consumption, use, or supply in Canada before exportation;

    d. after the supply is made and before the recipient exports the property, the property is not further processed, transformed, or altered in Canada, except to the extent reasonably necessary or incidental to its transportation; and

    e. the person maintains evidence satisfactory to the Minister of National Revenue of exportation of the property by the recipient.

Intent to export vs actual export of the property

7. Tangible personal property will generally be regarded as exported where the property is carried or sent out of Canada for trade, consumption, use, or supply by the recipient outside Canada, and the property is not consumed, used, or supplied en route before delivery to a place outside Canada. The recipient must have the intention of exporting the property when the supply is made in order for it to be zero-rated. However, ...[t]he recipient must export the property in fact.

As soon after the property is delivered by the person to the recipient as is reasonable

9. Whether tangible personal property is exported "as soon after the property is delivered by the person to the recipient as is reasonable" will depend on the facts of each situation, including the type of property involved and the general business practices of the recipient. The CRA will consider the following factors where the supplier can provide documentary evidence why the property was not exported either immediately after the supply was made, or in the time frame originally anticipated:

  • a late shipment from a subcontractor delays the shipment of the whole consignment;
  • transportation obstacles have been encountered;
  • some tangible personal property is held in inventory while awaiting delivery of other property before exporting all of the property at once;
  • the delay is attributable to the recipient's normal business practice; or
  • other situations have resulted in unexpected delays.
Satisfactory evidence of exportation

16. The acceptability of the evidence of exportation will depend on whether the entire shipment of the tangible personal property can be traced from its origin in Canada to the point where it leaves Canada on its way to a foreign destination. [E]vidence…will vary depending on the mode of transportation…and the nature of the property. Satisfactory evidence may include…:

  • sales invoice or purchase contract that identifies the property and the recipient, matched with the respective shipping or delivery instructions on the purchase order;
  • transportation document…such as a bill of lading…which is evidence of a contract of carriage as well as proof of delivery of the property on board a vessel (additional information… is available in GST/HST Memorandum 28.2, Freight Transportation Services);
  • customs brokers' or freight forwarders' invoice that relates to the exported property;
  • import documentation required by the country to which the property is exported;
  • in the case of motor vehicles, boats, ships, and aircraft, registration from the foreign regulatory authority where the property has been licensed;
  • or any other evidence (…not generated internally by the recipient)…that the property has been exported.

CBAO National Commodity Tax, Customs and Trade Section – 2013 GST/HST Questions for Revenue Canada, Q. 1

prosecution or civil remedy
available with membership password at http://www.cba.org/CBA/sections_NSCTS/main/GST_HST.aspx

Where the taxpayer has failed to provide information pursuant to a requirement under s. 289.1, "CRA's general policy is to proceed with a compliance order under section 289.1 (civil court remedy) prior to seeking the prosecution provision under section 326.)

94 CPTJ - Q. 1

RC will be amending its administrative policy to allow certificates to be issued by purchasers containing prescribed information as evidence of exportation. However, the exporter may be required to make available to the Department the shipper's balance sheet statements and any other evidence necessary to verify the zero-rated export purchases.

5

Administrative Policy

CBAO National Commodity Tax, Customs and Trade Section – 2013 GST/HST Questions for Revenue Canada, Q. 17. ("Supplier Reliance on Purchaser Certificates")

available with membership password at http://www.cba.org/CBA/sections_NSCTS/main/GST_HST.aspx

Respecting a certificate of a non-resident that it is not carrying on business in Canada:

CRA has not indicated in GST/HST Memorandum 4.5.1, nor in any other publication, that such a document would be accepted by the CRA as proof that a non-resident is not carrying on business in Canada for purposes of zero-rating a supply under Part V of Schedule VI to the ETA. A supplier may not rely on such documentation as acceptable proof that a non-resident person is not carrying on business in Canada for purposes of zero-rating a supply under Part V of Schedule VI to the ETA.

6.1

Administrative Policy

GST/HST Memorandum 4.5.2 "Exports – Tangible Personal Property" August 2014

Emergency

38. The term "emergency" is not defined in the Act but generally refers to an unforeseen event or combination of events that calls for immediate action. The repairs must be of an urgent nature that if not immediately undertaken, could seriously affect the safety of the conveyance, the property, or passengers being transported, and the people working on or about the conveyance. The application of sections 6, 6.1 and 6.2 of Part V of Schedule VI depends on the facts associated with each situation.

  • Example 6 While transporting an empty tank car from Montréal to Québec City, the domestic carrier notices that one of the wheels of the tank car is damaged. The carrier delivers the empty tank car to a repair facility operated by a firm specializing in repairing railway rolling stock. The repair firm contacts the unregistered non-resident lessor of the tank car and obtains authorization to repair the tank car. Following the repairs, the tank car is returned to the carrier for transportation to Québec City. The parts supplied to the unregistered non-resident, along with the emergency repair service, are zero-rated.

7

Administrative Policy

"GST/HST In Electronic Commerce", CCRA Discussion Paper, November 2001.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 143 - Subsection 143(1) 0

23 October 2000 Interpretation 11640-1

The Canadian operator of an internet auction site would be considered, with respect to non-resident vendors, to be arranging for, procuring or soliciting orders for supplies made by them. The payment of an annual fee by vendors for the right to list items on the auction site would be considered to be consideration for a supply to them of a right and would not be eligible for zero-rating and would be deemed by s. 142(1)(c)(i) to be a supply made in Canada.

6 May 1998 HQ Letter

administrative services provided to an RRSP with a non-resident beneficiary and a resident trustee will be zero-rated if paid for by the annuitant and taxable if funded out of the trust.

Paragraph 7(d)

Administrative Policy

GST/HST Memorandum 4.5.3 “Exports – Services and Intellectual Property” June 1998

Examples of Canadian real property exclusion

48. The following are examples of services that are considered to be in respect of real property for purposes of Part V of Schedule VI:

  1. services physically performed on the real property (e.g., construction and maintenance);
  2. services that enhance the value of the real property, affect the nature of the real property, relate to preparing the real property for development or redevelopment, affect the management of the real property, or affect the environment within the limits of the real property (e.g., engineering, architectural services, surveying and subdividing, management services, security services);
  3. services related to;
    1. the transfer or conveyance of the real property or the proposed transfer or conveyance of the real property (e.g., real estate services in relation to the actual or proposed acquisition, lease or rental of the real property, legal services rendered to the owner or beneficiary or potential owner or beneficiary of real property as a result of a will or testament);
    2. a mortgage interest or other security interest in the real property; or
    3. the determination of the title to the real property.

10.1

Administrative Policy

8 April 2016 Ruling 158060

zero-rating of law society membership

A non-resident lawyer who does not practise law in Canada is a “not in Province” member of a specified Class of a provincial law society, and is provided with access to educational programs as a member. The lawyer is not present in Canada each time a supply of a membership is made to him or her, and is not registered.

Ruling

That as none of the exclusions in s. 10.1 applies, the supply of membership by the society to the lawyer is zero-rated.

CBAO National Commodity Tax, Customs and Trade Section – 2013 GST/HST Questions for Revenue Canada, Q. 33. ("Application of S. 10.1, Sch. VI, P. V – Service Related to Intangible Personal Property")

available with membership password at http://www.cba.org/CBA/sections_NSCTS/main/GST_HST.aspx

A Canadian GST-registered supplier sells custom software that it has been using to perform a service electronically, with such supplies being made in Canada. The purchaser is a non-resident who does not carry on any business in Canada, and will use the software to supply the same service to Canadian customers, with such supplies being deemed to be made outside Canada pursuant to s. 143.

After stating that the supply would be zero-rated under s. 10 (rather than 10.1) assuming the non-resident was not registered, CRA stated:

[I]f the intangible personal property supplied to the non-resident in the scenario were the type of intangible personal property that can be zero-rated under [s. 10.1]…and again assuming that the non-resident was not registered, the supply would not be excluded from zero-rating under that provision on the basis of the exclusion in subparagraph 10.1(b)(iii).

2 November 2012 Ruling Case No. 140160

Operator, a registered resident of province 1, has developed a program that consists of a secure network and various business, communications and software systems. The clients of the Operator are businesses that supply taxable goods and services and independent contract agents ("ICAs") who are contracted by the businesses to provide services. The ICAs are provided access to, and the use of, the program to provide their services. There are no restrictions with respect to where the program may be accessed and used by the businesses and the ICAs. Rulings that the supply made by the Operator to non-resident non-registered businesseses or ICAs of the right of access to, and use of, the program is a zero-rated supply of intangible personal property under section 10.1 of Part V of Schedule VI.

14 February 2012 Ruling Case No. 99181 [non-exclusive information use rights]

non-exclusive information use rights

A Canadian company which is a registrant (the "Resident Supplier") enters into an agreement with a non-registered non-resident company to supply it "with the non-exclusive use rights to information belonging to the Resident Supplier for an up front payment of CD$[…] and contingent payments of CD$[…] in each of the succeeding […] years." Ruling that there is a zero-rated supply of intangible personal property by the Resident Supplier under s. 10.1.

4 February 2012 Ruling Case No. 99181 [information licence]

information licence

A resident supplier agrees to supply an unregistered non-resident recipient with the non-exclusive use rights to information belonging to the supplier for an up front payment as well as and contingent payments for a number of the succeeding years.

As the Agreement contains no terms or conditions with respect to the location of the use of the rights, the supply is deemed by s. 142(1)(c) to be made in Canada. However, it is zero-rated under Sched. VI, Pt. V, s. 10.1.

GST/HST Info Sheet GI-034 "Exports of Intangible Personal Property" April 2007

Examples of supplies of IPP that will now be eligible for zero-rating under the proposed provision include:

  • subscriptions to Web sites that provide subscribers with a right to access and use digitized content on the site, such as information in a database or images, and that may also include a right to download a copy of the digitized content;
  • subscriptions to interactive Web sites that provide subscribers with a right to access and use digitized content, such as games, music and videos, on the sites while they are online;
  • digitized information, such as news items or stock market data, that is delivered electronically on a periodic basis to subscribers based on their personal preferences;
  • digitized products, such as music, images, and books, that are downloaded from Web sites and paid for individually. ...

The CRA will generally accept an online self-declaration by customers that they are not residents of Canada along with their complete home address as proof of residency, provided it is supported by another satisfactory verification method of residency such as:

  • if customers pay for the supplies of IPP by credit card or debit card, either a comparison of the customer's declared home address with the billing address, or
  • a comparison of the customer's declared home address with the location of the financial institution that issued the card; or the use of geo-location software.

B-090 "GST/HST and Electronic Commerce" July 2002

Factors that generally indicate that a supply made by electronic means is one of intangible personal property are:

  • a right in a product or a right to use a product for personal or commercial purposes is provided, such as:

    - intellectual property or a right to use intellectual property (e.g., a copyright); or

    - rights of a temporary nature (e.g., a right to view, access or use a product while on-line);

  • a product is provided that has already been created or developed, or is already in existence;
  • a product is created or developed for a specific customer, but the supplier retains ownership of the product; and
  • a right to make a copy of a digitized product is provided

12

Administrative Policy

GST/HST Memorandum 4.5.2 "Exports – Tangible Personal Property" August 2014

Common carrier

19. A "common carrier" is not defined in the Act but generally refers to a person engaged in the business of transporting property from place to place, and who offers services to the public for compensation.

  • Example 1
  • A Canadian resident purchases a vehicle from an automobile dealer located in Toronto. The resident asks the dealer to arrange for a common carrier to pick up the automobile from the dealer's lot and deliver it to the resident's son who is currently living in Portugal. The dealer hires a carrier on behalf of the resident to ship the vehicle to Portugal. The supply of the vehicle by the dealer to the Canadian resident is zero-rated provided the dealer maintains the appropriate documentary evidence of exportation.

14

Administrative Policy

GST/HST Memorandum 4.5.2 "Exports – Tangible Personal Property" August 2014

Example 8

A manufacturer in Canada charges its customers for moulds required in manufacturing a specific product. The moulds remain in Canada but the goods produced with the use of the moulds are sold to both Canadian and American customers. The supplies of the moulds to the non-resident customers are zero-rated provided the moulds are for use directly in the manufacture or production of goods for the non-resident.

15.1

Administrative Policy

May 2016 Alberta CPA Roundtable, GST Q.1

docs must evidence like-kind exchange, delivery places, and BN/name of registrant

What documentation satisfies Sch. VI, Pt. V, s. 15.1? CRA responded:

In order for the "first seller" to zero-rate the supply of the continuous transmission commodity to the "first buyer" referenced in Section 15.1 of Part V of Schedule VI, the "first buyer", in addition to the other requirements as set out in this provision, must supply evidence satisfactory to the Minister to the "first seller" that the continuous transmission commodity (CTC) has been supplied to a registrant and all or part of the consideration is property of the same class or kind delivered to the first buyer outside Canada.

The CRA would accept invoices and/or written agreements of the CTC exchanged between the first buyer and the registrant. The documentation should contain such information as would be required to determine the following:

  • The CTC exchanged is of the same class or kind purchased.
  • The place of delivery of the CTC to the registrant inside Canada.
  • The place of delivery of the exchanged CTC to the first buyer outside Canada.
  • Identity of the registrant including their BN.

GST/HST Memorandum 4.5.2 "Exports – Tangible Personal Property" August 2014

62. Continuous transmission commodities situated in Canada are frequently exchanged for similar commodities situated outside Canada. For example, natural gas acquired in Canada on a zero-rated basis by an unregistered non-resident who intends to export the gas may instead be sold and delivered in Canada, without having been exported, to a registrant in exchange for the registrant's gas of the same class and kind already situated outside Canada. Persons may enter into such exchange agreements to minimize transportation costs and reduce shipping time without changing the zero-rated status of the transaction.

63. Generally, section 15.1 ensures that specified cross border exchanges of continuous transmission commodities transported by means of wire, pipeline, or other conduit qualify for zero-rating on a transaction basis rather than on the basis of physical flows.

64. Where the registrant who acquires the continuous transmission commodity from the first buyer is not acquiring the commodity for consumption, use, or supply exclusively in the course of commercial activities of the registrant, the supply is an imported taxable supply and the registrant is liable for tax under sections 218 and 218.1, calculated on the value of the consideration for the supply of the commodity.

15.2

Administrative Policy

GST/HST Memorandum 4.5.2 "Exports – Tangible Personal Property" August 2014

69. If the recipient subsequently neither exports the commodity as described in paragraph 15.2(a), nor supplies it as described in paragraph 15.2(b), the supply is still zero-rated if the supplier did not know or could not reasonably be expected to have known, at or before the latest time at which GST/HST in respect of the supply would have been payable if the supply were not zero-rated, that the recipient would not supply or export the commodity as required.

70. Where the commodity is not exported or supplied as declared in writing by the registered recipient, the supply to the recipient is an imported taxable supply. The recipient is liable for tax under sections 218 and 218.1, and an amount calculated under section 236.1, unless the commodity is acquired for consumption, use, or supply exclusively in the course of the recipient's commercial activities.

5 February 2013 Ruling Case No. 141852

Company A (a Canadian-resident registrant) sells crude oil for its market value to Company B (its U.S.-resident affiliate and also a registrant), with title and delivery occurring when it is injected into the pipeline, and with Company B being the importer of record into the U.S. Where Company B does not require the crude oil which it purchased, it will sell the crude back to Company A at the current market price, with payment generally made on a set-off basis. CRA stated:

If the recipient [i.e., Company B] does not know at the time of purchase whether the continuous transmission commodity, including a portion thereof, purchased from a particular supplier will be exported, then the recipient cannot and should not provide a written declaration stating that the commodity is intended to be exported in the circumstances described in paragraphs 1(b) to (d) of Part V of Schedule VI.

GST Memorandum (New Series) 3.7 (Draft), February 2012 para. 1040105: General Discussion. 2 August 2001 TI RITS 32561

"Where a registrant receives a zero-rated supply of natural gas intended for export and a taxable supply of natural gas that is not zero-rated because it is intended for sale in Canada, the fact that the gas purchased for export may be mixed with the gas purchased for supply in Canada does not affect the entitlement to purchase natural gas using an export declaration, provided that evidence is maintained that the quantity purchased for export is the same as the quantity exported."

23

Administrative Policy

31 August 2004 Headquarter Letter - RITS 50657

In indicating that legal services provided to a non-resident manufacturer to defend it against product liability claims would be zero-rated, the Directorate stated that:

"Legal services supplied to a manufacturer to defend against a product liability claim are not generally considered to be directly connected to the product, but rather directly connected to the manufacturer's objective of defending itself against the claim to minimize its potential legal liability."

24 July 2003 Ruling Case No. 41660

Preparation of written appraisals of specific real properties located in Canada were "in respect of" such properties and, accordingly, were not zero-rated.

9 April 2001 T.I. 33818

Professional services provided to a non-resident insurer with regard to the liability of the non-resident insurer under an insurance contract relating to the insurance of real or tangible personal property situated in Canada were zero-rated. "Although the professional services relate to a liability of the insurer in relation to an insurance contract in respect of real or tangible personal property situated in Canada, the real or tangible personal property does not appear to be the direct object of the professional service."

P-169R

"Meaning of 'in respect of real property situated in Canada' and 'in respect of tangible personal property that is situated in Canada at the time the service is performed', for purposes of Schedule VI, Part V, Section 7 and 23 to the Excise Tax Act," 25 May 1999.

15 June 2000 Headquarters Letter RITS 31364

A legal account rendered to a non-resident insurer was not zero-rated because the services were in respect of the defence of an individual involved in a motor accident in Canada.

1 September 1999 Headquarters Letter RITS HQR0001873

Ruling that a contingency fee charged to a non-resident could be pro-rated based on the litigation services provided by the law firm before and after the commencement of the litigation.

Memorandum (New Series) 4-5-3 "Export - Services and Intellectual Property" June 1998

48. The following are examples of services that are considered to be in respect of real property for purposes of Part V of Schedule VI:

  • (a) services physically performed on the real property (e.g., construction and maintenance);
  • (b) services that enhance the value of the real property, affect the nature of the real property, relate to preparing the real property for development or redevelopment, affect the management of the real property, or affect the environment within the limits of the real property (e.g., engineering, architectural services, surveying and subdividing, management services, security services);
  • (c) services related to;
  • (i) the transfer or conveyance of the real property or the proposed transfer or conveyance of the real property (e.g., real estate services in relation to the actual or proposed acquisition, lease or rental of the real property, legal services rendered to the owner or beneficiary or potential owner or beneficiary of real property as a result of a will or testament);
  • (ii) a mortgage interest or other security interest in the real property; or
  • (iii) the determination of the title to the real property.

Part V-10

See Also

Canada v. Dawn’s Place Ltd., [2006] GSTC 137, 2006 FCA 349

use of copyright in downloading images was only incidental

International subscribers to the registrant's internet website were granted a "non-exclusive, limited and revocable licence to download and view the content of the website" on their computer. In finding that the subscription fees were not zero-rated consideration, Sharlow J.A. quoted with approval a statement of the OECD Model Tax Convention on Income and Capital that:

"Thus, in a transaction that in essence is an acquisition of data or images transmitted electronically, any incidental copying is merely the means by which the data is captured and stored. The essential consideration for the payment in that case is the data, not the use of the copyright, even though copyright is incidentally used."

Locations of other summaries Wordcount
Tax Topics - Treaties - Articles of Treaties - Article 12 111

Articles

James Swanson, David Ross, "Taxing Intangibles - GST and the Supply of Digital Images", GST & Commodity Tax, Vol. XVII, No. 4, May 2003, p. 25.

2

Administrative Policy

GST/HST Memorandum 4.5.2 "Exports – Tangible Personal Property" August 2014

Example 3

An unregistered non-resident airline is supplied with meals for consumption on board, and parts used to operate the aircraft while the aircraft is transporting passengers or property to a destination outside Canada. The supplies of meals and parts are zero-rated.

Example 4

A cruise ship stops at a Canadian port while transporting passengers between places outside Canada. During the cruise ship's stay in port, the unregistered non-resident operator of the cruise ship rents bicycles for use by some of its passengers. The supplies of rented bicycles to the operator are not zero-rated because they are not acquired for consumption, use or supply by the operator in the course of transporting passengers.

Part VII

Section 1

Subsection 1(1)

Administrative Policy

GST/HST Info Sheet GI-170 "Charter Flights Supplied to Third-Party Charterers" May 2015

"Continuous journey" of an individual or group of individuals means the set of all passenger transportation services provided to the individual or group of individuals:

  • and for which a single ticket or voucher in respect of all the services is issued; or
  • where two or more tickets or vouchers are issued in respect of two or more legs of a single journey of the individual or group on which there is no stopover between any of the legs of the journey for which separate tickets or vouchers are issued, and all the tickets or vouchers are issued by the same supplier or by two or more suppliers through one agent acting on behalf of all the suppliers where:
    • all such tickets are supplied at the same time and evidence satisfactory to the Minister is maintained by the supplier or agent that there is no stopover between any of the legs of the journey for which separate tickets or vouchers are issued, or
    • the tickets or vouchers are issued at different times and evidence satisfactory to the Minister is submitted by the supplier or agent that there is no stopover between any of the legs of the journey for which separate tickets or vouchers are issued.

In order for passenger transportation services to be part of a continuous journey, the carrier or its agent must issue either a single ticket or voucher or multiple tickets or vouchers in respect of those passenger transportation services provided to the individual or group of individuals. If not, those passenger transportation services will not form part of a continuous journey for zero-rating and place of supply purposes as explained later in this info sheet.

…If a carrier does not issue tickets, but does issue a document that contains all the information commonly found on a ticket (such as detailed flight information, airports and specific locations where passengers will embark and disembark the aircraft, departure date(s) and time(s), and the passengers' information), then this document (hereafter, "travel document") is considered to be a ticket or voucher for the purposes of the definition of continuous journey.

Freight transportation service

See Also

Andrews v. The Queen, 2017 TCC 23 (Informal Procedure)

driving a car is not transporting it

The appellant operated a proprietorship ("Canadian Auto") which provided a service of arranging, at the request of insurance companies, for the return of vehicles from the United States to Canada where the owner had suffered an incapacitating medical emergency, and subcontracted with drivers to return the vehicles. In finding that this service did not qualify as a “freight transportation service,” so that the appellant‘s supplies to the insurance companies were not zero-rated under Sched. VI, Pt. VII, s. 8, V.A. Miller J stated (at paras 25, 29-30):

… [T]he Appellant assumed liability for small dents or scrapes to the vehicles he was delivering. …[T]he Appellant did not and would not assume complete responsibility for the vehicles. The services offered by Canadian Auto are indistinguishable from “driving services” in this regard.

… I have concluded that a “freight transportation service” means a particular service of carrying personal property from one place to another. … [T]here must be [a] mode of carrying the personal property. … [T]he vehicle cannot be both the personal property and the means of carrying it at the same time. …

Canadian Auto [instead] provided a driving service to the insurance companies and the owners of the vehicles.

Words and Phrases
transporting
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Schedules - Schedule VI - Part VII - Section 8 drving car not transporting it 113

Vuruna v. The Queen, 2010 TCC 365 (Informal Procedure)

Non-truck-owning driver not providing zero-rated freight transportation services

The registrant was a partnership comprised of a husband and wife who provided driving services to a trucking company. They appealed an assessment for late remittance of GST and late remittance penalties on the basis that they were providing outbound freight transportation services, and that supplies were zero-rated pursuant to Part VII of Schedule VI of the Act.

On finding that the registrant was not providing zero-rated freight transportation services, Bédard J. stated (at para. 23):

[T]he appellant did not use his own truck and did not assume liability for the supply of a freight transportation service. Consequently, he was not providing a freight transportation service to Whitelaw Trucking Inc. He was simply providing a driving service to Whitelaw Trucking Inc. and his services were a business input of that company.

Section 8

See Also

Andrews v. The Queen, 2017 TCC 23 (Informal Procedure)

drving car not transporting it

The taxpayer arranged for drivers to drive back to Canada the cars of those who had suffered an incapacitating medical emergency in the U.S. In finding that this did not qualify as a “service of transporting tangible personal property,” so that it was not zero-rated, V.A. Miller J found that the quoted definition of " freight transportation service" required that the property be carried by some mode of transport such as a vehicle, ship or rail car and that merely driving a car did not qualify as transporting it, stating (at para. 29) that:

[T]he vehicle cannot be both the personal property and the means of carrying it at the same time.

Continuous Journey

3

Administrative Policy

GST/HST Info Sheet GI-170 "Charter Flights Supplied to Third-Party Charterers" May 2015

Continuous journey

[T]he supply of a "passenger transportation service" is a supply of a service of transporting or carrying travellers (i.e., an individual or group of individuals) by any mode of transportation available to the public (such as a bus, taxi, train, aircraft, or boat) as long as there is:

  • a mode of conveyance;
  • an operator of the conveyance who is independent of the travellers; and
  • an itinerary.

Generally, the supply of a charter flight to a third-party charterer is considered to be a supply of a passenger transportation service.

A supply that is a supply of property (such as a supply, by way of lease, licence or similar arrangement, of the use or right to use tangible personal property such as an aircraft) is not a supply of a passenger transportation service.

Example of zero-rated flight embarking from Canada

...Example 4

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 one-way trip for a group of individuals travelling from Toronto, Ontario to Nassau, Bahamas. The carrier issues a travel document for the set of all passenger transportation services which specifies Toronto as the origin of the continuous journey.

Although the continuous journey originates in Ontario (a participating province), the supply of the passenger transportation service is zero-rated because the termination of the continuous journey is outside the taxation area.

Single v. multiple supply

A ferry flight is generally considered to be an input to a passenger transportation service. ...

[T]he fuel surcharges and the passenger/goods handling charges incurred by the carrier at airports other than its base are costs that the carrier has no choice but to incur in providing the specific air charter. When these charges are passed onto the third-party charterers, they are part of the consideration payable for the passenger transportation service.

Other costs, such as the ferry flights and the cost of accommodation, meals and ground transportation for aircraft crew, are for elements that are not supplied to the third-party charterer. Rather, these elements are inputs consumed or used by the carrier in providing the passenger transportation service. The charges for the ferry flights and crew costs would therefore form part of the consideration payable for the passenger transportation service.

However…the excess valuation charges for baggage would be viewed as a separate charge in respect of a passenger's baggage and not part of the consideration payable for the supply of the passenger transportation service.

4

Administrative Policy

GST/HST Info Sheet GI-170 "Charter Flights Supplied to Third-Party Charterers" May 2015

[T]he excess valuation charges for baggage would be viewed as a separate charge in respect of a passenger's baggage and not part of the consideration payable for the supply of the passenger transportation service.

For GST/HST purposes, there are specific place of supply and zero-rating provisions that apply to a service of transporting an individual's baggage when made by a supplier of a passenger transportation service that imposes a charge for the service. Generally, under these rules, when a carrier provides a separate service of transporting an individual's baggage in connection with the transportation of the individual (i.e., on a charter flight), the GST/HST applies to any excess valuation charge at the same rate as it applies to the passenger transportation service.

Stopover

Administrative Policy

GST/HST Info Sheet GI-170 "Charter Flights Supplied to Third-Party Charterers" May 2015

"Stopover", in respect of a continuous journey of an individual or group of individuals, means any place at which the individual or group embarks or disembarks a conveyance used in the provision of a passenger transportation service included in the continuous journey, for any reason other than for transferring to another conveyance or to allow for servicing or refuelling of the conveyance.

A stop between two legs of a journey that is 24 hours or less is not considered to be a stopover. A stop of more than 24 hours between two legs of a journey will generally be considered to be a stopover where two or more tickets or vouchers are issued for the legs of the journey.

Part IX

1

Administrative Policy

17 December 2015 Interpretation 153009

potential zero-rating re share issuances and dividends

A corporation, which is not engaged exclusively in commercial activities, issues shares and pays dividends to its shareholders, who are both resident and non-resident. After finding that the issuance of the shares and the dividend payments were financial supplies to the shareholders, CRA quoted Sched. VI, Part IX, s. 1 and stated:

If…the Corporation is a “financial institution”, this section may zero-rate an otherwise exempt supply of a financial service, provided the supply is not excluded by paragraphs (a) to (e) of section 1, or by section 2… .

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply required shareholder communications not a supply 169
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (f) dividend a financial supply to recipient 81
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (d) share issuance a financial supply to shareholder 164

11 July 1997 Technical Interpretation HQR0000416

Sales commissions and trailer fees received by a dealer who sells units in a mutual fund to non-resident investors would be zero-rated.

Guide for Providers of Financial Services under "Zero-rated Financial Services"

General synopsis of ss.1 and 2.

Articles

David Schlesinger, "De Minimis Financial Institutions", 1995 Commodity Tax Symposium Papers, C. 17: Danny Cisterna, "Hot Topics for Financial Institutions," 1999 Commodity Tax Symposium Papers, C. 7: suggests that "relates to" requires a direct connection.

indicates that an investment by a financial institution in dividend-bearing treasury shares of a non-resident company is a zero-rated supply.

3

Administrative Policy

Guide for Providers of Financial Services

Any supply of precious metals not described in s. 3 will be treated as a supply of a financial service.