The Federal Court of Appeal has held that downloading copyrighted data, such as pictures or streaming video, from a Canadian Internet site to non-residents will be subject to GST, unless the transaction involves an actual transfer of, or permission to use, the underlying copyright in the works.

McCarthy Tétrault Notes:

In Dawn’s Place Ltd. v. Canada, the Federal Court of Appeal found that an Alberta corporation that operated an adult entertainment website must pay GST on sales to its customers, regardless of whether the customers were Canadians or non-residents. The website made available copyrighted pictures and streaming video. The site’s terms of use gave the customers a limited, personal licence to make a single copy of the content. Approximately 90 per cent of the website’s customers were not Canadian residents. Under the Excise Tax Act, no GST is payable on the supply of copyrighted material to non-residents (who are not GST registrants). The same provision of the Excise Tax Act also applies to the supply of other intellectual property such as inventions, patents, trade secrets, trademarks, trade names, industrial designs, and to any right, licence or privilege to use any such property.

However, the Federal Court of Appeal characterized the transactions as accessing a website as opposed to the "supply" of copyright or of any "right, license or privilege." The court interpreted the Excise Tax Act exemption to apply to transactions where the copyright itself is assigned or sold, or where the holder of the copyright permits another person to use the copyright (such as through a licence to publish the work). In the case at hand, the court held that the copying from the website was merely an incident to the transaction (i.e., the means by which the data is captured and stored), but not the "supply" of the copyright. At the time of this publication, application for leave to appeal has been filed to the Supreme Court of Canada, but the court has not decided whether to hear the appeal.