TEI-Revenue Canada liaison meeting: excise tax questions - Tax Executives Institute

Tax Executive, The, Nov, 1998

2. If the answer to question 1 is no, would the result change if the import documents segregated the value of the copper from the value to roll and size the copper into copper wire and for insulating the copper wire? In other words, will a partial amount of ITCs be allowed?

23. An unregistered non-resident (URNR) purchases goods from a Canadian GST-registered firm (Supplier) and requests that the goods be shipped to another Canadian registrant (Consignee). The Consignee issues a purchase order to URNR and the order is accepted outside Canada. To comply with Canadian-content rules, URNR often issues purchase orders to Canadian firms. All three parties employ section 179(2) of the ETA and complete the appropriate drop-shipment and unregistered nonresident certificates. Completing the certificates enables the Canadian GST-registered supplier to omit the GST from invoices to URNR. This is the only activity that URNR has in Canada. In other words, URNR has no employees, bank accounts, inventory, land, rental facilities, etc., in Canada.

Technically, URNR takes title to goods in Canada for re-supply. That is, URNR buys and resells the goods to the Consignee, albeit for only an instant. Under these facts and circumstances, we do not believe that URNR is carrying on business in Canada. Please confirm that, irrespective of the volume of its activity, URNR is not carrying on business in Canada if this is its only activity in Canada.

24. A Canadian GST registrant (Canco) purchases goods for use fully in a commercial activity. Canco is the importer of record and pays Division III tax on importation with the terms of sale from the non-resident supplier (NRS) being FOB Canadian destination. On the invoice to Canco, NRS charges Division II tax because the terms are FOB Canadian destination and NRS's GST registration number is not on the invoice. (The lack of a GST registration number on the invoice is the only unsatisfied requirement in respect of a claim for ITC). Upon contacting NRS, Canco discovers that NRS has applied for GST registration but has not received the number at the time of the supply to Canco. Notwithstanding the lack of a number, NRS is obligated to invoice, collect, and remit GST. May Canco recover the GST invoiced under Division II tax even though the documentation requirements are not fully satisfied as a result of the omitted GST registration number? If the answer to that question is no, may Canco recover the ITC when NRS receives its GST number and subsequently forwards it to Canto?

25. Where a GST-registered Canadian supplier ships goods to a GST-registered Canadian consignee of an unregistered non-resident and the consignee provides a proper drop-shipment certificate, Revenue Canada has advised that the supply of goods to the unregistered non-resident is deemed made outside Canada. In some cases, the Canadian supplier will pay the freight charge for delivering goods from its Canadian plant to the consignee's location and will invoice that amount separately to the unregistered non-resident. While the scope of the drop-shipment certificate is clear -- the goods are deemed sold by the supplier outside Canada and are not subject to GST by virtue of section 179(2) -- the treatment of the freight is not. Is the charge for the Canadian domestic freight subject to GST if it is shown separately on the invoice to the nonresident? If so, please explain the rationale.