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Determining Place of Supply When A Contract Is Silent

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Section 165 of the Excise Tax Act imposes GST/HST on taxable supplies "made in Canada". A supply is deemed to be made in Canada if “delivered or made available” to the supply’s recipient in Canada (para. 142(1)(a)), but deemed to be made outside Canada if “delivered or made available” outside Canada (para. 142(2)(a)). “Delivery” refers to physical delivery, and “made available” refers to constructive or “legal” delivery.

The recent decision of the Tax Court of Canada (“TCC”) in Jayco, Inc. v. The Queen, 2018 TCC 34(“Jayco”) is a good example of issues that can arise when a contract is silent as to the place of physical or legal delivery.

The CRA assessed Jayco for GST/HST owing on the sales of RVs and parts shipped from the US to Canadian dealers. The CRA said these were “delivered or made available in Canada” and thus taxable pursuant to para. 142(1)(a), whereas Jayco said they were “delivered or made available” in its US facility so not taxable pursuant para. 142(2)(a).

While the ETA does not define the phrase “delivered or made available”, both the case law and the CRA in GST/HST Memorandum 3.3 make clear that this phrase should be interpreted in the same manner as the concept of “delivery” in sale of goods legislation. Since the sales agreement between Jayco and the Canadian dealers provided that the relationship between the parties was governed by the laws of the state of Indiana, the TCC confirmed that the rules of this jurisdiction applied.

Similar to the law in Ontario, the TCC accepted that absent an agreement between the parties, under Indiana law delivery occurred at Jayco’s place of business in the US. However, because Indiana allows parties to agree on a different place of delivery, the TCC determined that it had to assess whether there was an explicit or implicit agreement pertaining to place of delivery. The TCC found that an explicit agreement was not supported by the evidence so further analysis was required.

The TCC held that there was an implicit agreement that delivery of the RVs took place at Jayco’s place of business in the US when the RVs were turned over to the common carrier. For example, the TCC noted that the terms of the certificate of origin stated that “the vendor has transferred ownership to the Canadian dealer at the time that the RV was turned over to the common carrier”. The fact that the common carrier was the agent for the consignee on the bill of lading (the consignee was the Canadian dealer) was also held to support a finding that title passed and delivery occurred in the US.

The TCC held that the contractual arrangements between Jayco and the Canadian dealers were quite different for parts sales than for RV sales. In particular, the TCC noted that instead of transferring parts orders directly to a common carrier acting as the agent of the Canadian dealers as was the case for RV orders, parts orders were processed by Jayco, consolidated, and then made available for pickup by a customs broker and logistics firm. The customs broker arranged for a common carrier to pick up consolidated orders at Jayco’s US facility for shipment to the customs broker’s US facilities; the orders were then further consolidated into a master load and shipped to the customs broker’s facility in Canada, where they were finally separated and delivered to the Canadian dealers by third party carriers.

The TCC held that the evidence clearly established that the customs broker was mandated by and acted as an agent of Jayco and not for the Canadian dealers. Since the customs broker was not acting as agent for the Canadian dealers, title was found not to pass and delivery was held not occur at Jayco’s US facility.

Since a single bill of lading was used for the shipment of consolidated parts orders, the TCC held that the bill of lading could not serve as a title and delivery document for parts orders going to specific Canadian dealers, nor could the various Canadian dealers be consignees under the single consolidated bill of lading. Unlike RV sales where the importer of record was the Canadian dealer, the TCC also noted that the importer of record of the parts was Jayco.

The TCC therefore dismissed the appeal in regards to the sale of parts, which it found were supplied in Canada per para. 142(1)(a), but allowed the appeal for the RVs sales, which were held to be supplied outside Canada per para. 142(2)(a) of the ETA and thus not subject to GST/HST.

Clarifying the particular agreement on “delivery” in any cross-border purchase and sale situation is clearly paramount. Incoterms 2010 could be helpful in specifying delivery obligations, but nothing really replaces a very specific phrase clarifying exactly where goods are agreed to be “delivered or made available”. There is no alternative for proper legal advice when drafting commercial agreements and terms of sale, especially when cross-border transactions are involved.

A version of this article appeared in the March 2018 issue of the Canadian Tax Foundation’s Canadian Tax Highlights.

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