Section 178.8

A resident registered corporation (Corporation A) entered into an agreement with a resident registered corporation (Supplier) for the purchase of a power facility the components of which were to be imported from abroad. Under the terms of the agreement, the facility was to be sold to Corporation A on the basis of Incoterm "DDU" Job Site (i.e., Delivered Duty Unpaid to a site located in Canada). A wholly-owned registered subsidiary of Corporation A (Corporation B) acted as "importer of record," and paid the GST under Division III. In finding that s. 178.8(2) did not apply, CRA stated:

Corporation A is not a recipient of a specified supply of the good made outside Canada and therefore is not the constructive importer of the good under subsection 178.8(2) of the ETA. Based on the information provided, legal delivery of the good to Corporation A would occur at the specified site in Canada. As a result, the supply of the good made by the Supplier to Corporation A would be deemed to be made in Canada under subsection 142(1) of the ETA.

Subsection 178.8(2) of the Act reflects the fact that it is the constructive importer's activities for which the imported goods are immediately destined after they have been supplied outside Canada and that it is therefore those activities that should determine entitlement to an ITC for the tax. By deeming the constructive importer to be the sole importer of the goods and the tax on the importation to be paid or payable solely by the constructive importer, the provision ensures that the constructive importer may be entitled to an ITC regardless of whether another person such as the supplier may have effected the physical importation of the goods and accounted for the importation of the goods....

The specified supply of goods may...be deemed made outside Canada where the goods are delivered or made available in Canada to the recipient of the supply, but the supplier is a non-resident person who is not registered and does not carry on business in Canada. However, subsection 178.8(2)...will not apply in this case if the non-resident pays the tax on the importation of goods. Rather, it is the ITC relief mechanism under section 180 of the Act (ITC for imported goods received from a non-registered non-resident)...that may apply in this situation.

In the course of a general discussion respecting the importing of a U.S. based utility aircraft into Canada by a Canadian company which is a registrant, CRA noted that it may not always be practical for the constructive importer to obtain import documentation which satisfies the ITC requirements of s. 169(4):

As a result, where the supplier is a registrant (as a result of being required to register or voluntarily registering as explained below) and the imported goods are supplied outside Canada, subsection 178.8(3) allows the parties to agree to an alternative GST/HST treatment in order to avoid the need for the supplier to pass on the import documentation to the constructive importer for purposes of recovering the tax.

The registrant and the supplier may enter into the agreement at any time. If the agreement is entered into after the supply and importation of the goods, the effects of entering into the agreement described above will be retroactive as follows:

• The supplier will become retroactively entitled to an ITC for the tax on the importation of the goods and will be retroactively liable for the collection of tax that became payable on the supply that is deemed to have been made in Canada when the agreement for the supply was originally entered into. If the supplier had claimed an ITC for the tax on the importation of the goods, there will be no penalty and interest consequences if the supplier had also collected the tax on the deemed value of the consideration for the supply when it became payable (as if the supply made at that time had in fact been made in Canada and been subject to tax), accounted for it in its net tax and remitted any resulting net tax remittable when required.
• The constructive importer will no longer be entitled to an ITC that it may have claimed for the tax on the importation of goods. If the constructive importer in this case had claimed an ITC for the tax on the importation of the goods, the limitation period for assessing the net tax of the constructive importer is extended to four years after the day the agreement is entered into to take into account the amount of the ITC claimed.

Supplier enters into an agreement to supply the "Goods" to the Customer on terms "DDU [Canada] INCOTERMS 2010" (Supply A). Supplier orders the goods from Foreign Manufacturer on terms (i) "FOB China INCOTERMS 2010" or (ii) "DDU [Canada] INCOTERMS 2010" (Supply B). Customer acts as Importer of Record of the Goods. Given that there is no "constructive importer" in the case of either Supply A or Supply B, which entity is entitled to claim an input tax credit in respect of any GST payable on the importation? CRA responded:

[T]here are two specified supplies made under subsection 178.8(1). … Supply A, which is made on terms DDU Canada, would be deemed to be made in Canada under subsection 142(1) based on the fact that legal delivery of the goods to Customer occurs in Canada. We also agree that Supply B, which is made by a non-registered non-resident manufacturer who is not carrying on business in Canada, would generally be deemed to be made outside Canada under either subsection 142(2), where the terms of delivery for the goods are based on an Incoterm such as FOB China, or subsection 143(1), where the terms of delivery are based on an Incoterm such as DDU Canada.

Supplier, who is the recipient of a specified supply of the goods made outside Canada and does not make a supply of the goods outside Canada before their release, would be considered to be the constructive importer of the goods under subsection 178.8(2). However, Supplier, who was not the importer of record, would have to obtain the importation documentation from Customer to support the claiming of an ITC. Provided Supplier does not claim the ITC, Customer who is the importer of record and has the import documentation, will instead be considered to have imported the goods for consumption, use or supply in the course of its commercial activities and be entitled to an ITC for the tax on the importation of the goods.