TEI-Canada Customs and Revenue Agency liaison meeting agenda: excise tax issues.

December 7, 1999

On December 7, 1999, Tax Executives Institute held its annual liaison meeting with the Canada Customs and Revenue Agency on pending commodity and excise tax issues. The agenda for the meeting, which was prepared under the aegis of TEI's Canadian Commodity Tax Committee, whose chair is Glen S. Pye of Nortel Networks Corporation. Marlie R.M. Burtt, the Institute's Vice President-Region I, coordinated preparations for the liaison meeting.

Tax Executives Institute, Inc. welcomes the opportunity to present the following comments and questions on pending commodity and excise tax issues, which will be discussed with representatives of the Canada Customs and Revenue Agency (hereinafter referred to as "Revenue Canada") during TEI's December 7, 1999, liaison meeting. If you have any questions in advance of that meeting, please do not hesitate to call either Marlie R.M. Burtt, TEI's Vice President for Canadian Affairs, at (403) 269-8736 or Glen S. Pye, chair of the Institute's Canadian Commodity Tax Committee, at (905) 863-6118.

1. A corporation resident in Canada is a GST registrant and acts as Importer of Record for goods. The importer does not take ownership of the goods, but provides services in respect of the goods as part of its normal commercial activities. Is the importer entitled to claim back the GST paid on importation as an input tax credit, in the following circumstances:

   (a) The importer provides a service of warehousing the imported goods in Canada.

   (b) The importer further manufactures the imported goods and then exports them from Canada to a related party.

   (c) The importer breaks the shipment into smaller parcels and then ships the goods to customers located both inside and outside of Canada.

2. Please clarify Revenue Canada's interpretation of the words "rendered to" in section 7 of Part V of Schedule VI. Is a service "rendered to" the contracting party or to the person making use of the service? The technical notes describe a supply made to a non-resident corporation but rendered to one of its employees in Canada as being excluded from zero-rating. Is the rationale that the employee is considered part of the non-resident corporation -- and therefore the contracting party -- or does the example have a broader application? For example, if a Canadian GST-registered corporation provides a help desk service to a non-resident corporation, are the services rendered (i) to the non-resident corporation or (ii) to the unrelated persons (i.e., the customers of the non-resident) who may call in for assistance?

3. Revenue Canada currently treats fees for both Internet access and website hosting as telecommunications services, which limits the zero-rating for such supplies. Are changes contemplated to this interpretation? Broadening the zero-rating provisions in respect of telecommunications services would avoid putting Canadian suppliers of these services at a competitive disadvantage vis-a-vis their foreign counterparts.

4. A Canadian resident corporation that is a GST registrant provides managed computer operations services (also referred to as computer outsourcing services) to its customers from a location in Canada. One customer is a non-resident corporation and is not required to register for the GST. This customer has a specific piece of equipment for which it wishes to retain title. This equipment -- together with other computer equipment owned by the provider of the managed operations services -- will be used to provide the outsourcing service. If the customer ships the equipment to the GST-registered corporation, is the service to the non-resident corporation zero-rated under section 7 of Part V of Schedule VI? Or will it be excluded because the service is in respect of tangible personal property situated in Canada at the time that the service is performed? If the service is excluded from zero-rating, is section 179 of the Excise Tax Act available to relieve the supply from tax?

5. Under the terms of Reciprocal Taxation Agreements, certain provincial government entities do not pay GST/HST on the acquisition of otherwise taxable supplies. Revenue Canada has instituted a certificate system to facilitate the proper treatment of these supplies whereby the government entity may either issue a separate, signed certificate to the supplier or include the prescribed wording of the certificate as part of its standard purchase order. The certificate includes the statement that the supplies are being acquired with Crown funds. There appears to be some confusion between Revenue Canada and suppliers that receive these certificates.

   The suppliers recognize the requirement to maintain the certificates in their books and records and treat the certificates as proof that the tax need not be collected. Some Revenue Canada employees apparently believe that the supplier must investigate and document that the supplies were purchased with Crown funds, especially where a credit card is used to pay for the purchases. TEI submits, however, that suppliers should be able to rely upon the signed statement that the acquisition was made with Crown funds.

   Please clarify whether suppliers must verify the legitimacy of the signed statements. If so, please explain the justification for Revenue Canada's position that the verification of the certificates issued by provincial government entities rests with the suppliers that accept these certificates in good faith.

6. The definition of a residential complex excludes a building (or that part of a building) that is a hotel or a motel "if all or substantially all of the leases, licenses or similar arrangements ... provide or are expected to provide for periods of continuous possession or use of less than sixty days."

   (a) Where the building contains condominium units -- some of which are provided for periods of less than 60 days -- is the "all or substantially all" test applied on a per-unit basis or are all short-term leased units taken into account for purposes of this calculation?

   (b) The receipts and "bed-night" method are both acceptable means of applying the "all or substantially all" test. If the units must be aggregated, how can the owner of a single unit obtain the information required for the computation?

   (c) If the units are aggregated for computation purposes, the units as a whole may become a residential complex because an owner may have decided to make long-term rather than short-term supplies. Change-of-use rules will thus apply and have consequences even for persons whose use of the unit does not change. Is this the result we should expect?

7. The allocation rules relating to the use of a building are particularly important in the case of a public sector organization.

   (a) To determine the use of a building, are all of the buildings located on a given piece of land considered or is the use established separately for each building?

   (b) What constitutes a building? For example, a college builds on its own land a school in 1991, a sports centre in 1994, and an indoor pool in 1999. If the three buildings are physically separate, they constitute three distinct buildings. If, instead, the three buildings are attached side by side, are there still three buildings?

8. In determining the input tax credits of a GST registrant, section 170(1)(b) of the Excise Tax Act excludes supplies acquired "exclusively for the personal consumption, use or enjoyment." Consider the following situation:

   A GST-registered employer transfers an employee from its plant in Montreal to the Winnipeg plant. The employer gives the employee a relocation allowance, which is based solely on an evaluation made by the employer of the cost of moving an employee from one location...