GST/HST Memorandum 4.5.2 (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.

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.

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.

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.

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.

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.

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.

58. When natural gas liquids are recovered from natural gas at a straddle plant, a certain amount of make-up gas is often added to the residue gas to make up for the loss of energy content due to the recovery. This sometimes involves transactions whereby the person holding the rights to the natural gas liquids exchanges the liquids or the rights to them for the make-up gas supplied by the other party to the transaction. …

59. The exchange of natural gas liquids and make-up gas is normally between the owner of the gas and the straddle plant operator, but there may be intermediary transactions as well involving such an exchange. A third party might acquire the rights to the natural gas liquids from the owner of the gas before it is processed and promise to supply the necessary make-up gas after the processing. In this case, there could be more than one exchange to which subsection 153(6) applies: an exchange between the owner of the gas and the third party; and another exchange between the third party and the straddle plant operator who supplies the make-up gas to the third party for supply to the owner.

60. The value of the consideration or part for any supply of the natural gas liquids (or the right to recover the liquids) recovered at a straddle plant is deemed to be nil if the consideration or a part of the consideration is make-up gas... [or]if the consideration is the natural gas liquids recovered at a straddle plant or the right to recover the liquids. If there is any monetary consideration for either supply, tax is calculated in the normal manner.

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.

Self-assessment…

67. In addition, every recipient of an imported taxable supply of continuous transmission commodity, that is delivered or made available to the recipient in a particular participating province where the recipient is either a resident or is a registrant, must self-assess an amount of the provincial part of the HST under subparagraph 218.1(1)(b)(ii), equal to the tax rate for the particular participating province multiplied by the value of the consideration for the supply.

74. A registrant who receives a zero-rated supply of a continuous transmission commodity that is not subsequently exported or supplied, as required for zero-rating under section 15.2 of Part V of Schedule VI, is required to add an amount to its net tax for the reporting period that includes the earliest day in which tax on the initial supply would have become payable had that supply not been a zero rated supply. This net tax adjustment reflects the cash flow benefit obtained by the registrant in having received a supply on a zero-rated basis.

75. The amount to be added to net tax is equal to interest, at the prescribed rate, calculated on the total amount of tax that would have been payable in respect of the supply.