Please note that the following Policy Statement, although correct at the time of issue, may not have been updated to reflect any subsequent legislative changes.

GST/HST policy statement P-152R

Date of Issue

Issued September 6, 1994; Revised May 20, 1998.

Subject

Meaning of "Canada" for Purposes of Division II Tax

Legislative Reference(s)

Subsection 123(2) of the Excise Tax Act

National Coding System File Number

11680-2

Effective Date

January 1, 1991 for GST; April 1, 1997 for HST.

Text

The following meaning may be used when determining whether a supply is made in or outside Canada for purposes of Division II tax:

"Canada" includes its land territory, its internal waters and a belt of sea adjacent to its coast, described as the territorial sea. The territorial sea extends 12 nautical miles from Canada's land territory, subject to international boundaries (e.g., Canada and the United States and Canada and the islands of St. Pierre and Miquelon). Canada also includes the air space above its land territory and over its internal waters, and the air space over the territorial sea as well as the bed and subsoil of the territorial sea.

In addition to the above, subsection 123(2) of the Excise Tax Act states that "Canada" includes:

(a) the sea bed and subsoil of the submarine areas adjacent to the coasts of Canada in respect of which the government of Canada or of a province may grant a right, licence or privilege to explore for or exploit any minerals; and

(b) the seas and airspace above the submarine areas referred to in paragraph (a) in respect of any activities carried on in connection with the exploration for or exploitation of minerals.

The effect of subsection 123(2) is that the jurisdiction for Division II tax extends beyond the territorial sea (i.e., 12-mile nautical limit) to 200 nautical miles, but only for the specific resource related purposes set out in the subsection, that is, activities related to mineral exploration and exploitation, and not other activities, such as fishing or fish processing.

SAMPLE RULING

Statement of Facts

1. A registered resident owns and operates a factory-freezer-trawler which is specifically designed and constructed to serve as both a fishing vessel and a fish processing factory.

2. At all times, the fishing and processing operations are conducted more than 12 nautical miles, but not more than 200 nautical miles, from the nearest Canadian coast.

3. Workers on board the trawler may purchase various goods (i.e., tobacco products, personal hygiene products, snack foods, beverages, etc.) from the registered resident through a tuck shop located on the trawler.

Ruling Requested

Does the registered resident have to collect the Division II tax on the supplies of tobacco products, personal hygiene products, snack foods, beverages, etc., made to the workers?

Ruling Given

No. The supplies made on board the factory-freezer-trawler to the workers are made outside Canada and therefore not subject to the Division II tax.

Rationale

The jurisdiction for Division II tax extends beyond the territorial sea (i.e. 12-mile nautical limit) to 200 nautical miles, but only for the specific resource related purposes set out in subsection 123(2) of the Excise Tax Act. Subsection 123(2) refers to certain activities carried out in connection with the exploration for or exploitation of minerals, and not for activities related to fishing or fish processing.