Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 107428
June 14, 2010
Subject:
GST/HST INTERPRETATION
Treatment of the supply of pallets for GST/HST purposes
Thank you for your letter of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply and purchase of pallets by XXXXX.
HST currently applies at the rate of 13% in Nova Scotia, New Brunswick, and Newfoundland and Labrador. Effective July 1, 2010, HST will apply at the rate of 15% in Nova Scotia, 13% in New Brunswick, Newfoundland and Labrador, and Ontario, and 12% in British Columbia. GST will continue to apply at the rate of 5% in the remaining provinces and territories.
Interpretation Requested
You are requesting an interpretation asking if XXXXX would pay/charge GST/HST in the following circumstances:
1 - the purchase of new or used pallets;
2 - the repair of pallets;
3 - the exchange of pallets XXXXX where no money transfers hands;
4 - where XXXXX charge a deposit on pallets in order to get them back, or
5 - where pallets are sold under load - i.e. as part of the total cost of the order
You have also asked whether the answers would differ XXXXX in Quebec.
Interpretation Given
We will respond to each circumstance listed above in the order presented.
1) The purchase of new or used pallets
We understand that you are referring to the situation where the pallets are sold or purchased by themselves (i.e. not where they are sold or purchased with other property). We will indicate under points 4 and 5 the treatment of the supply of pallets where they are sold or purchased with other property. Point 4 details the tax treatment where the pallets are given back to the original supplier by the original recipient for an amount equal to the original amount charged.
The purchase of new or used pallets is subject to the general rules of GST/HST where the consideration for the pallet is invoiced separately and when it is supplied by a GST/HST registrant. Under point 5, we explain our position where a single amount is charged for a pallet and a good.
2) Repair of pallets
The repair of pallets is subject to the general rules of GST/HST when the service is supplied by a GST/HST registrant. As a result, the supplier must charge tax on the consideration for the repair service.
3) Exchange of pallets XXXXX where no money transfers hands
The barter of pallets XXXXX is not subject to tax when the following conditions are all met:
• pallets which are exchanged are property of the same class or kind;
• the persons exchanging the pallets are registrants for GST/HST purposes; and
• the persons exchanging the pallets acquire the pallets as inventory and for exclusive use in commercial activities, i.e. generally for the purpose of making taxable supplies (which includes zero-rated supplies).When all the conditions are not met and there is an exchange of pallets between persons without any transfer of money, each person is deemed to have made a supply of pallets to the other one for the fair market value of the pallets it receives in exchange for the pallets.
For example, suppose pallet supplier A is a GST/HST registrant and pallet supplier B is not a GST/HST registrant. A supplies 100 pallets to B in exchange for 100 pallets from B and thus, B supplies 100 pallets to A in exchange for 100 pallets received from A. Because B is not a registrant, the conditions for having the transactions not subject to tax are not met. For GST/HST purposes, A is considered to be supplying 100 pallets to B for the fair market value of the pallets it receives in exchange; conversely, B is considered to supply 100 pallets to A for the fair market value of pallets it receives in exchange. Let us suppose that the fair market value of the pallets received by A is $500: registrant A is considered to have supplied 100 pallets for a consideration of $500, and must therefore charge and remit tax (GST for example) on $500 of consideration, which is $25 (5% of $500). B is also considered to have made a supply for the fair market value of the pallets it receives in exchange for the pallets it supplied, but because B is not a GST/HST registrant, B does not have the obligation to collect and remit tax. Would B be a GST registrant, it would have also the obligation to charge collect and remit tax on the fair market value of the pallets received in exchange for the pallets it supplied.
4) Where XXXXX charge a deposit on pallets in order to get them back
When a separate charge is made by the supplier of a pallet, the pallet is being sold, with ownership and all rights to that container transferred to the purchaser (i.e., this is not a "deposit" for GST/HST purposes). As such, the amount paid to purchase the pallet will generally be subject to GST/HST.
When these pallets are "returned" to XXXXX who supplied them, there are two possible treatments.
• The person "returning" the pallet can be considered to be "selling" that pallet back to the supplier who sold it. The person "returning" the pallet will collect and remit the GST/HST and the person paying for the pallet will be entitled to claim a corresponding input tax credit for the GST/HST paid or payable.
• Alternatively, payment of an amount equal to the pallet charge upon the pallet's return can be treated as a refund paid by the supplier to the customer.If both the supplier and the purchaser are registered for the GST/HST, and they have already accounted (i.e., remitted tax or claimed an input tax credit) for the GST/HST paid or payable in their GST/HST returns, both parties may wish to avoid the refund mechanism (described below). In this case, the supplier would provide the refund without including the GST/HST that was initially paid by the purchaser.
However, if the supplier gives the purchaser a refund or a credit of the tax previously paid, the supplier must issue a credit note or the purchaser must issue a debit note. In addition, both the supplier and the purchaser, if they are registrants, will have to adjust their GST/HST returns for the reporting period in which the credit note was issued. The supplier will be able to take a deduction for the amount of tax refunded or credited in calculating the net tax, while the purchaser will be required to add that amount in determining the net tax for that reporting period. Section 232 of the Excise Tax Act (the Act) sets out the rules for refund or adjustment of tax in such circumstances. More information is available in GST/HST Memorandum 12.2, Refund, Adjustment, or Credit of the GST/HST under Section 232 of the Act.
5) Where pallets are sold under load - i.e. as part of the total cost of the order
We understand that, in this circumstance, the pallets are sold with the property for a single charge. Where a good and a pallet are supplied to a recipient for a single charge, the supply of the pallet is deemed to be a supply of the good.
For example, if salt for human consumption is sold to a client for a single charge along with a pallet that is considered to be a usual container for transporting the salt, the supply of the pallet will be deemed to be a supply of the salt and would therefore be zero-rated as an ingredient for human consumption.
6) Treatment in Québec
The tax treatment for GST/HST purposes is the same all across Canada. We understand that you are asking whether the GST treatment is the same as the Québec Sales Tax (QST) treatment. CRA is not responsible for the application of the QST in Québec: the Ministère du Revenu du Québec (MRQ) has the sole responsibility for the application of QST. We therefore cannot answer your question on that matter. We however informed our colleagues from the MRQ of your request and forwarded them your incoming letter with the present answer.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-8815. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Raymond Labelle
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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