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

Tax Executive, The, Nov, 1999

(b) Specifically, a consortium cannot register for GST purposes, and

(c) Customer H can recover the $7.00 and $14.00 from the support invoices detailed in the consortium's "Interim Certificate."

11. Company A is undergoing a Quebec Sales Tax (QST) audit. Assume Company A's head office is located outside Quebec and therefore the auditor is auditing only for the QST, not the GST. Consider the following:

The QST auditor arrives on January 1, 1998, and begins an audit for the period January 1, 1994, to December 31, 1997. On June 1, 1998, the auditor presents a supplier's invoice(4) to Company A (dated March 1, 1994) as outlined below:

Goods                    $100.00
GST                       $ 7.00
QST                       $ 8.56

Total                    $115.56

The amount recovered from the Quebec government should have been only $8.56, but inadvertently, the $7.00 and $8.56 were both recovered from the Quebec government as an input tax refund (ITR). The Quebec auditor assesses Company A the $7.00 for incorrectly recovering the GST on the QST return.

Can Company A now recover the GST on the March 1, 1994, invoice since the four-year restriction to claim input tax credits has expired?

12. Company USA is a firm physically located in the United States, is not registered for GST, and has no operations in Canada. Company USA sells software to Canadian customer X. The software is sold outright (i.e., the rights to the underlying code are sold) to X, who pays Division III tax on importation into Canada. The software is physically loaded on X's local area network (LAN), which is located in Canada. Company USA bills X for the software.

Company USA also has an arrangement with X whereby Company USA (for a flat fee) can access X's computers and fix any hardware or software problems via telecommunications lines (i.e., no repair person is physically sent to the Canadian location). For example, the customer calls Company USA and states it has a problem. Company USA uses the telecommunications lines to access the software on the LAN and to fix the problem.

Please confirm that Company USA is not required to register for GST purposes if Company USA merely supplies the software to X, regardless whether Company USA or X is the importer of record.

In addition, please answer the following questions:

(a) For GST purposes, where is the service being performed -- the physical location of the repair person located in the United States or the physical location of the computer located in Canada?

(b) If the service is considered made in Canada, must Company USA register for GST purposes (assuming more than $30,000 in annual sales) because Company USA will be viewed as making supplies (i.e., repairing the hardware and software) in Canada?

(c) Would the answers to (a) and (b) change if the software were licensed by the non-resident and supplied either on media or electronically, as opposed to being sold outright?

13. What is the proper GST application when two parties lease a vehicle, which is delivered to an Indian reserve, but only one co-lessee is a native Indian?(5) This transaction can occur when one lessee is a Native Indian and the spouse is not. Does GST apply on 0, 50, or 100 percent of the periodic lease payments?