What is a "Service" for GST/HST Purposes?
The harmonized sales tax (HST) transition rules and HST place of supply rules set out general and specific rules for tangible personal property, real property, intangible property and services. What is important and glaringly missing is guidance on how the Canada Revenue Agency divides up the categories.
Subsection 123(1) of the Excise Tax Act (Canada) defines "service" to mean:
"anything other than
(a) property,
(b) money, and
(c) anything that is supplied to an employer by a person who is or agrees to become an employee of the employer in the course of or in relation to the office or employment of that person"
This means that the catch-all basket is the services basket. It also means that you must determine if the supply at issue fits in another basket and whether it is property, money or supplied in the context of an employer-employee relationship.
I will focus on the more difficult concept - property. Subsection 123(1) of the Excise Tax Act (Canada) defines "property" to mean:
"any property, whether real or personal, movable or immovable, tangible or intangible, corporeal or incorporeal, and includes a right or interest of any kind, a share and a chose in action, but does not include money."
"Personal property" is defined to mean "property that is not real property". So, you must ask if the supply is real property.
"Real property" is defined to include:
(a) in respect of property in the Province of Quebec, immovable property and every lease thereof,
(b) in respect of property in any other place in Canada, messuages, lands and tenements of every nature and description and every estate or interest in real property, whether legal or equitable, and
(c) a mobile home, a floating home and any leasehold or proprietary interest therein;
The various publications by the Canada Revenue Agency, Department of Finance and Ontario/BC contain examples in connection with the transition rules. This helps if certain situations fall between the lines or in the grey area. In my 16 years of practice I have seen many grey areas and have seen auditors move supplies from one basket to another. I expect this practice to continue.
If your situation falls between the lines in the grey area, please seek the advice of a specialist. For example, the Canada Revenue Agency is going to have difficulties with computer programs. Over-the-shelf software will likely be considered to be tangible personal property. Custom computer software may be considered to be tangible if provided on a disk/CD-Rom or a service if custom or intangible personal property if the contract sets out license rights. Whether a computer software maintenance contract is a contract for services or intangible property is an open question that the Canada Revenue Agency is considering. If it is possible that no maintenance would be required in a given period, the Canada Revenue Agency may consider the contract to be in respect of intangible personal property. The same issue arises for warranties and help desk contracts.
Cyndee Todgham Cherniak is counsel to and in affiliation with the International Trade Law and the Tax Law (Commodity Tax
You've said that "the Canada Revenue Agency is going to have difficulties with computer programs"; and, meanwhile, we, the company providing with computer software and different computer related services have much more trouble identifying types of products and applicable taxes (both for purchases and invoicing), that CRA will ever have. And, of course, you are absolutely right about "moving supplies from one basket to another".