Contributing Lawyers


Cyndee Todgham Cherniak

United States

Susan Kohn Ross


Andrew Hudson

Draft GST/HST Drop Shipment Administrative Statement Available for Comments

January 31, 2008 is the due date for comments on the GST/HST Notice 225 "Draft Revised GST/HST Memorandum 3.3.1, Drop Shipments (September 2007).  This administrative interpretation is very important because it will form the rules for GST/HST auditors to follow in the future and will be the basis for many to save money (in not having to pay certain unrecoverable GST/HST costs).

Drop shipment rules under the Excise Tax Act (Canada) apply to transactions involving a transfer of goods from a person who is registered for GST/HST purposes to a person who is not registered for GST/HST purposes where GST/HST is payable in respect of the transaction.  Since the recipient is not registered for GST purposes, they are not entitled to recover the GST/HST by way of input tax credits.  The drop shipment rules provide a mechanism so that there is no unrecoverable GST/HST in respect of commercial transactions (by way of flow-through input tax credits or a rebate).

As a general rule, GST/HST is payable in respect of most supplies of goods and services made in Canada.  A supply of tangible personal property is deemed to be made in Canada if the property is delivered or made available in Canada.  A supply of services is deemed to be made in Canada if the services are performed in whole or in part in Canada. Further, property and services imported into Canada are subject to GST/HST.

The drop shipment rules provide exceptions to these general rules and apply when the recipient of the goods or the services is not registered for GST/HST purposes and the supplier is registered for GST/HST purposes.  As a result, the administrative interpretation regarding the rules are extremely important for many non-resident Canadian purchasers of goods and services in Canada. 

The drop shipment rules apply in so many situations - and for that reason, GST/HST Notice 225 is 80 pages long with text, diagrams and a sample drop shipment certificate.

It is important for non-residents who rely on the drop shipment rules and those who may be able to rely on the drop shipment rules to save the unrecoverable GST/HST cost to carefully review GST/HST Notice 225 and provide comments by the January 31, 2008 deadline.  If you are not sure whether the drop shipment rules apply to your unique circumstances, please contact a Canadian GST lawyer.

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