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
[Client Address]
Case Number: 214430
Business Number: […]
Dear [Client]:
Subject: GST/HST interpretation
Application of GST/HST to […][the Platform] earnings
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to revenues earned through […][the Platform]. We apologize for the delay in this response.
The HST applies in the participating provinces at the following rates: 13% in Ontario; 14% in Nova Scotia; and 15% in New Brunswick, Newfoundland and Labrador, 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 your submission, which included a copy of relevant portions of three agreements (described further below), and telephone conversations […], we understand the following:
1. You operate an incorporated company, […][Company A], in […][City, Province], through which you produce and upload videos on [the Platform]. The video content is focused on your children, […](the Talent), […]. Since the time of your inquiry, you have become registered for GST/HST purposes.
2. You have created an account with […][the Program], run by […]([…][Company B]), where you earn revenue for advertisements displayed or played on videos from [the Platform].
3. At the time of your inquiry, you and [Company A] had also entered into an agreement with […]([…][Company C]); you indicated […] that this contract has since been dissolved. Under the contract, [Company C] would facilitate obtaining paid agreements for product placement within your videos with other companies (Brands). [Company A] earned revenue, on behalf of the Talent, when a Brand’s products were integrated into your videos.
4. Through [Company C], [Company A] had agreements with 3 or 4 Brands at the time of your ruling request, all of which were non-residents. However, you indicated that at times the Brands could also be residents.
5. The agreements provided for our consideration are described below.
Agreement 1 – [The Program]
6. You have provided a copy of […]([…][Agreement 1]), which you accepted when you registered for [the Program].
7. Relevant terms of [Agreement 1] include:
a. Pursuant to […], the agreement is for use of [the Program]’s search and advertising services (the Services). The agreement is between you (and […][direct quote from agreement]) and [Company B].
b. […][direct quote from the agreement].
c. […][direct quote from the agreement]
d. […][direct quote from the agreement]
e. […][direct quote from the agreement]
Agreement 2 – [Company C]
8. You have provided a copy of your […]([…][Agreement 2]) with [Company C].
9. Relevant terms of [Agreement 2] include:
a. As stated in […][a paragraph of Agreement 2], the agreement is between you ([Client]) and [Company A] on behalf of the Talent […], and [Company C]. The purpose of the agreement is to […][establish] the terms and conditions […][according] to which the Talent […][will] be presented with […][promotional] opportunities and have their interest […][represented] by [Company C] as its authorized representative with respect to these [promotional] opportunities.
b. […][direct quote from the agreement]
c. […][direct quote from the agreement]
d. In accordance with […],[Company C] shall pay the Talent a fee set forth in the […]([…][order]). It is our understanding that an [order] is an agreement between a Brand and the Talent to run an advertising campaign.
e. Pursuant to […][a paragraph of Agreement 2], all rights, […], including […], of the […][creative material] is owned by the Talent.
Agreement 3 – [Brand A]
10. You have provided a portion of the terms and conditions of an agreement with […][Brand A]([…][Agreement 3]). [Agreement 3] appears to be an [order].
11. Relevant terms to [Agreement 3] include:
a. […][direct quote from the agreement]
b. […][direct quote from the agreement]
c. […][ direct quote from the agreement]
d. […][direct quote from the agreement]
e. […][direct quote from the agreement]
f. […][direct quote from the agreement]
RULING REQUESTED
Based on our conversation of [mm/dd/yyyy], you would like to know:
1) Is [Company A] required to register for GST/HST?
2) Are [Company A]’s supplies taxable?
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. Because we do not have all the pertinent facts, we are issuing an interpretation, which is a general explanation of the applicable provisions and how the legislation would apply.
INTERPRETATION GIVEN
Generally, all supplies of property and services made in Canada are taxable supplies and subject to GST/HST unless they are specifically listed in Schedule V, which lists exempt supplies. Supplies that are listed in Schedule VI are zero-rated, which are still considered to be taxable supplies, but subject to GST/HST at the rate of 0%. Subsection 123(1) defines a taxable supply as “a supply that is made in the course of a commercial activity.”
The general rules for determining whether a supply is made in or outside Canada are set out in section 142 and depend on what is being supplied by the supplier. A supply is made, or deemed to be made, in Canada pursuant to the place of supply rules under subsection 142(1), while subsection 142(2) provides place of supply rules for determining if a supply is made, or deemed to be made, outside Canada.
The characterization of a supply is fundamental to the application of GST/HST, as it affects the place where the supply is considered to be made and the tax rate that applies to the supply. In determining whether a particular supply made by electronic means is a supply of a service or intangible personal property (IPP), the CRA will consider a number of factors such as the nature of the agreement between the supplier and the customer, and whether the agreement is in substance for work (or work and materials), or for property (including a right or interest of any kind).
Factors that generally indicate that a supply made by electronic means is one of IPP 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.
Factors that generally indicate that a supply made by electronic means is a service are:
• the supply does not include the provision of rights (e.g., 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; and
• there is human involvement in making the supply.
For more information, please refer to GST/HST Memorandum 3-3-2, Place of Supply in a Province – Overview (GST/HST Memorandum 3-3-2) and GST/HST Technical Interpretation Bulleting B-090, GST/HST and Electronic Commerce (TIB B-090).
If [Agreement 3] is representative of a typical [order] between the Talent and a Brand, then [Company A] appears to be supplying advertising services to the Brands, since the Talent is using the Brand’s products to draw attention to the products and generate interest in them. As explained in TIB B-090, a supply of a service made by electronic means is characterized as an advertising service where it consists of creating a message (and a service directly related to the communication of such a message) where the message is oriented towards soliciting business or attracting donations, calling public attention in the form of an information notice, political announcement, or other similar communication. Although compensation is provided to [Company A] through [Company C], [Company C] is acting only as [Company A]’s representative and is not the recipient of a supply from [Company A].
Because [Company A] is supplying services to the Brands, paragraphs 142(1)(g) and 142(2)(g) apply to determine whether the supply is made in or outside Canada. Paragraph 142(1)(g) deems a supply of a service to be made in Canada if the service is, or is to be, performed in whole or in part in Canada, while paragraph 142(2)(g) deems a supply of a service to be made outside Canada if the service is, or is to be, performed wholly outside Canada. As a result, if [Company A] or the Talent performs any aspect of the service in Canada, then the supply would be deemed to be made in Canada and generally subject to GST/HST.
Once a supply has been determined to be made in Canada, one must determine if the supply is made in a non-participating province and subject to GST of 5% or made in a participating province and subject to HST at the applicable rate for that province. Such a determination is made by applying section 144.1 and Schedule IX and, where applicable, the New Harmonized Value-Added Tax System Regulations (the Regulations).
If services are supplied in Canada, the province where the supply is made is determined by section 13 of Division 3 of Part 1 of the Regulations. Pursuant to subsection 13(1), a supply of a service is made in a province if, in the ordinary course of the supplier's business, the supplier obtains an address in the province that is
(a) if the supplier obtains only one address that is a home or a business address in Canada of the recipient, the home or business address in Canada obtained by the supplier,
(b) if the supplier obtains more than one address described in paragraph (a), the address described in that paragraph that is most closely connected with the supply, or
(c) in any other case, the address in Canada of the recipient that is most closely connected with the supply.
The address obtained by the supplier in the ordinary course of business must be an address of the "recipient" of the supply who, under subsection 123(1), is generally the person who is liable under the agreement for the supply to pay the consideration payable for the supply. If [Company A], in the ordinary course of its business, obtains through [Company C] a business address in Canada of a Brand, then the supply of the service will therefore be made in the province where that address is located.
However, where the supplier is not able to obtain an address in Canada of the recipient, subsection 13(2) of the Regulations provides that, subject to subsection (1) and sections 14 to 17, a supply of a service is made
(a) in a participating province if the Canadian element (i.e., the portion of the service that is performed in Canada) of the service is performed primarily in participating provinces and
(i) an equal or greater proportion of the Canadian element of the service is not performed in another participating province, or
(ii) if subparagraph (i) does not apply, the tax rate for the participating province is the highest among the participating provinces for which no greater proportion of the service is performed in another participating province; and
(b) in a non-participating province if the Canadian element of the service is not performed primarily in participating provinces.
As a result, if [Company A] does not obtain an address in Canada of a Brand, [Company A] will be required to determine the province where the greatest proportion of the Canadian element of the service is performed. If the greatest proportion of the service is performed in a non-participating province, such as […][Province], then GST of 5% would generally apply to the supply of the service to a Brand. However, if the greatest proportion of the Canadian element of the service supplied by [Company A] is performed in the participating provinces, it will then need to determine the participating province where the greatest proportion of the Canadian element is performed in order to apply the appropriate rate of HST.
For more information on determining the province where a service is supplied, please refer to GST/HST Technical Information Bulletin B-103, Harmonized Sales Tax – Place of supply rules for determining whether a supply is made in a province.
Supplies to Non-Residents
Despite a supply being made in Canada, a number of provisions exist under Part V of Schedule VI that may zero-rate supplies of property or services to be exported if certain conditions are met. In particular, section 8 of Part V of Schedule VI zero-rates a supply of a service of advertising made to a non-resident person who is not registered for GST/HST purposes at the time the service is performed. As a result, if [Company A] is supplying advertising services to a Brand that is a non-resident and not registered for GST/HST at the time the services are performed, the supply could be zero-rated under section 8 of Part V of Schedule VI.
If, based on the terms of a specific contract, it is determined that [Company A] is not supplying an advertising service, the service may still be zero-rated under the general zero-rating provision for the export of services found in section 7 of Part V of Schedule VI. This section zero-rates a supply of a service made to a non-resident, provided none of the following exclusions apply:
(a) a service made to an individual who is in Canada at any time when the individual has contact with the supplier in relation to the supply;
(a.1) a service that is rendered to an individual while that individual is in Canada;
(b) an advisory, consulting or professional service;
(c) a postal service;
(d) a service in respect of real property situated in Canada;
(e) a service in respect of tangible personal property that is situated in Canada at the time the service is performed;
(f) a service of acting as an agent of the non-resident person or of arranging for, procuring or soliciting orders for supplies by or to the person;
(g) a transportation service; or
(h) a telecommunication service.
In either case, it is [Company A]’s responsibility, as the supplier, to verify that a recipient is a non-resident and to ensure that all of the remaining zero-rating criteria are satisfied, even where [Company A] uses a talent agency, like [Company C], to represent it when contracting with various Brands. For more information, please refer to GST/HST Memorandum 4-5-1, Exports – Determining Residence Status and GST/HST Memorandum 4-5-3, Exports – Services and Intangible Personal Property
GST/HST Registration
Paragraph 240(1)(a) provides, in part, that any person who makes taxable supplies in Canada in the course of a commercial activity in Canada and who is not a small supplier is required to register for GST/HST purposes. “Commercial activity” includes in part, under subsection 123(1), a business carried on by a person, except to the extent that the business involves the making of exempt supplies. Pursuant to subsection 148(1), a "small supplier" is generally a person whose total amount of all revenues from the person's worldwide taxable supplies and those of associated persons is $30,000 or less in any single calendar quarter and in the last four consecutive calendar quarters.
As a result, if [Company A]’s taxable supplies exceed the $30,000 small supplier threshold, it will not be considered to be a small supplier and will be required to register for the GST/HST and collect GST/HST on supplies it makes in Canada and report it to the CRA. If, however, [Company A]is a small supplier but engaged in a commercial activity in Canada, it may voluntarily register for GST/HST purposes pursuant to paragraph 240(3)(a); once registered, it would be required to collect and report GST/HST in respect of supplies it makes in Canada. Additional information regarding the obligations of GST/HST registrants may be found in RC4022, General Information for GST/HST Registrants.
ADDITIONAL INFORMATION
We understand that some video creators who upload their videos on [the Platform] may be required to register with [the Program]. While you included an agreement with [the Program] in your submission, no agreement between [Company A] and [the Platform] was provided. As a result, we are unable to determine the relationship that [Company A] has with either [the Platform,] or [the Program], the nature of any supplies made by [Company A] to either entity, or the nature of the payments by [the Program] to [Company A].
However, using the criteria provided in TIB B-090 and GST/HST Memorandum 3-3-2, the videos that you produce and upload would be intellectual property, which is regarded as a type of IPP. Depending on the terms of your agreement with [the Platform], [Company A] may therefore be making supplies of IPP to [the Platform] when you upload videos to the platform. If such supplies are taxable, the place of supply rules for IPP, along with zero-rating provisions in respect of IPP, will apply.
For more information regarding the place of supply rules for IPP, please refer to GST/HST Memorandum 3-3, Place of Supply and GST/HST Memorandum 3-3-5, Place of Supply in a Province – General Rules for Intangible Personal Property. Please refer to GST/HST Memorandum 4-5-3 for more information on IPP zero-rating provisions.
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 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.
CONTACT
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 905-706-7621.
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,
Philippa Howard
Senior Rulings Officer
Border Issues Unit 1
General Operations and Border Issues Division
GST/HST Rulings Directorate
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