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...