Canada: GST/HST On Exports From Canada — Ships, Carriers, And Place Of Delivery

Goods exported or otherwise delivered to a recipient outside of Canada are typically not subject to the GST/HST and usually zero-rated. To qualify for zero-rated treatment, a GST/HST registrant must either satisfy one of the zero-rating provisions in Schedule VI of the Excise Tax Act (ETA) or establish that the good was delivered outside of Canada. The place of delivery is determined with reference to the applicable sale of goods legislation.

Montecristo Jewellers Inc. v. The Queen (2019 TCC 31) is an important decision from the Tax Court which closely examined the requirements for zero-rating under s. 12(a) of Schedule VI and adds to jurisprudence on the meaning of "delivery" when determining the place of supply. For an importer or exporter of goods, Montecristo provides useful analysis of the requirements to zero-rate exports under s. 12(a) and the criteria to determine the place of delivery.

Overview of GST/HST Assessment

Montecristo disputed a GST/HST assessment for failure to charge, collect and remit GST/HST in the amount of $2,298,898.13 on its exported sales of jewellery. Montecristo argued that the subject sales were either zero-rated exports under para. 12(a), Schedule VI or, alternatively, that the jewellery was delivered to the customer outside of Canada and was not subject to GST/HST.

TCC Decision

The TCC concluded that the subject sales were not zero-rated and that the jewellery was delivered in Canada. Accordingly, Montecristo should have charged, collected and remitted GST/HST on those sales. Montecristo Jewellers adopted a narrow interpretation of the meaning of "contract for carriage" and "shipped" for purposes of para. 12(a) as well as the "place of delivery" under the BC Sale of Goods Act (BCSGA).

Background

During its April 1, 2010 to March 31, 2013 reporting period, Montecristo was a retailer of jewellery and luxury watches in Vancouver, B.C. Most of Montecristo's loyal clientele were members of the Chinese community who lived in and around Vancouver and purchased items from Montecristo to gift to family and business relations in China. Some customers requested a GST/HST exemption on their purchase because it was destined for China and, effectively, exported. Montecristo accommodated those clients by following a procedure to zero-rate the goods.

The Procedure

Montecristo produced a hand-written invoice for the purchase inclusive of the customer's flight information. Physical possession of the jewellery remained with Montecristo until the customer was departing for China at which point an employee would take the jewellery, invoice, and a partially-completed Form E15, Certificate of Destruction/Exportation to the Vancouver International Airport (VIA) where they met the customer at the Canada Border Services Agency (CBSA) office. The employee would hand the jewellery, boarding pass, and Form E15 to the CBSA official for inspection. If satisfied with the inspection, the CBSA Officer completed the balance of Form E15 and stamped it with a copy to the employee. The customer took possession of the jewellery and boarded.

Zero-Rated Exports — paragraph 12(a) of Schedule VI

Paragraph 12(a), Part V, Sch, VI provides that a supply of tangible personal property (TPP) is zero-rated if the supplier ships the property to a destination outside Canada that is specified in the contract for carriage of the property.

Lyons, J. read para. 12(a) to mean that a third party carrier was required for a supply of TPP to satisfy paragraph 12(a):

[71] ... in my view the most plausible interpretation of paragraph 12(a), applying the unified approach, denotes an intention that a third party carrier would need to be engaged where the supplier "ships" the property to a destination outside Canada. ...

The Appellant argued that para 12(a) did not preclude the customer from being a party to a contract to ship the jewellery outside of Canada and referred to Form E15, the sales invoice and airplane ticket as evidence. Lyons, J. did not accept that the evidence proved para 12(a) was satisfied. At paragraph 78 she stated:

[78] ... As no third party carrier was engaged under a contract for carriage, I find that the appellant did not ship the Jewellery within the meaning of paragraph 12(a).

The TCC adopted a narrow interpretation of para 12(a) which excludes a contract for carriage other than those with a third party. For businesses that have not used a third party carrier to export goods and relied on para 12(a) to zero-rate, this should be cause to revisit their contract for carriage for compliance.

Delivery of Jewellery was made in Canada

Paragraph 142(2)(a) provides that a supply of TPP shall be deemed to be made outside Canada if the property is, or is to be, delivered or made available outside Canada to the recipient of the supply. Montecristo argued that the jewellery was delivered outside of Canada either on board the airplane or at the destination on the airline ticket.

To determine the place of delivery, the TCC relied on the BCSGA, which defined "delivery" as a "voluntary transfer of possession from one person to another". In finding that the place of delivery was in Canada, Lyons, J. explained that:

[a]t the time the Customers were physically handed the Jewellery at VIA, they had full possession, use and assumed the risks inherent in the Jewellery thereby acquired it regardless of their intent. ...

... I find that there was a full voluntary transfer of possession, without restriction, when supplies of Jewellery were physically handed to Customers who accepted possession of the Jewellery.

Under the BCSGA, parties may contractually, whether express or implied, specify the place and intended time of delivery. The Appellant argued that the evidence demonstrated their intent, whether express or impliedly, was to deliver the goods outside of Canada. Lyons, J. could not reconcile that intent with the fact that customers had unencumbered possession and control of the jewellery while in Canada and found "the stated intent to be implausible in the circumstances".

Montecristo has appealed the decision to the FCA.

About BLG

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions