In the wake of Dawn’s Place vs. the Queen, a recent (October 2006) decision from the Federal Court of Appeal, website operators who sell digital content to non-residents should be reviewing their system of collecting GST (Goods and Services Tax) on the sales.

The question in Dawn’s Place was whether the Canadian website operator should be collecting GST on subscription fees for access to its website.  Access to the website was previously considered a zero-rated supply for GST purposes.  The term “zero-rated” refers to a specified list of goods and services that are taxable at the rate of 0%. Generally, intellectual and intangible property is covered under the definition as a zero-rated supply and GST is not charged for non-resident customers.

In the decision, the appeal court found that customers had the right to download and retain a copy of copyrighted material accessed on the website.  The appeal court made a distinction between the supply of copyrighted material and the supply of some or all of the bundle of rights that comprise the copyright, and agreed with the government position that the latter was not covered by the definition of a zero-rated supply. 

As a result of this decision, Canadian website operators may be required to charge GST on subscription or access fees charged to non-residents.  Website operators should review their tax collection procedures as well as the terms (including license terms) under which they are supplying intellectual or intangible property to non-resident customers.

 

Calgary – 9:45 MST