Canada Revenue Agency
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Transfer of goods to a carrier or warehouse
A GST/HST registrant transfers your goods to a carrier or warehouse (bailee) and at the same time tells the bailee to transfer the goods to a third party. The registrant must obtain a drop-shipment certificate from the third party in order for tax not to apply to the supply of goods/commercial services from the GST/HST registrant to you.
A GST/HST registrant transfers your goods to a warehouse and the warehouse operator is instructed under the agreement for the storage of the goods to store the goods. The goods are stored until a third party purchaser is found, and the registrant is not required to charge tax on the sale of the goods to you. However, the registrant remains potentially liable for tax on the fair market value of the goods unless, at the time of the transfer of the goods to the third party, the registrant obtains a drop-shipment certificate from the third party.
A GST/HST registrant transfers your goods to a warehouse and instructs the warehouse operator to release the goods to you. The registrant is regarded as transferring physical possession to you in Canada and the transaction is subject to GST/HST. If you plan to sell the goods to a registrant, and the goods will not leave Canada, in order not to pay tax to the first registrant, you can instruct the warehouse to issue a drop-shipment certificate to the registrant.
When the certificate is issued, the warehouse operator becomes potentially liable for tax on the fair market value of the goods unless, at the time of the transfer of physical possession of the goods to a third party, the warehouse operator obtains a drop-shipment certificate from the third party.
If a warehouse operator acts as the importer of record for goods you transfer to the warehouse and claims an input tax credit for the importation of the goods, we consider the warehouse operator to have taken physical possession of the goods.
The warehouse operator has to pay GST/HST to us if and when physical possession of the goods is transferred to another person on your behalf, unless the warehouse operator obtains a drop-shipment certificate from the person to whom he or she transfers physical possession of the goods.
