20 September 2004 GST/HST Interpretation 54051 - Contract silent on the tax payable

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.

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale of postage stamps to an Indian band-operated postal outlet on a reserve.

The following information was provided in your letter and during our telephone conversations XXXXX.

•   XXXXX;

•   XXXXX sells postage stamps to the band and charges GST on the postage stamps;

•   A lawyer representing XXXXX has written to XXXXX indicating that the band is refusing to pay the GST on the basis that it is relieved of paying tax on items delivered to a reserve;

•   XXXXX received an interpretation from the Canada Revenue Agency (CRA) XXXXX with respect to the tax status of postage stamps when sold on a reserve and based on that letter XXXXX has been charging GST;

•   A follow-up letter XXXXX was sent to XXXXX providing additional information with respect to the sale of postage stamps to Indians;

•   XXXXX believes it is correct in charging GST on the sale of postage stamps to the band on a reserve;

•   The band is a registrant for purposes of GST/HST.

Interpretation Requested

You have requested that the CRA provide in writing its current position on the tax status of postage stamps when sold to a band-operated postal outlet located on a reserve.

Interpretation Given

Where a band operating a postal outlet on a reserve is a registrant for GST/HST purposes, it is engaged in a commercial activity for which it is entitled to input tax credits. Postage stamps are freight transportation services and not goods for GST/HST purposes. Therefore, postage stamps acquired on or off a reserve by the band for consumption, use, or supply in the course of that commercial activity cannot be acquired relieved of GST/HST. That is, the band is not acquiring the postage stamps for band management activities as defined for GST/HST purposes. However, the tax paid or payable on the purchase of the stamps may be recovered by claiming input tax credits in the band's GST/HST return.

Explanation

Section 87 of the Indian Act (IA) provides relief for "the personal property of an Indian or a band situated on a reserve", and the CRA has developed a corresponding administrative policy that is explained in Technical Information Bulletin B-039R, GST Administrative Policy - Application of GST to Indians (B-039R). Our guidelines are fully consistent with the relieving provisions affecting the personal property of an Indian or a band situated on a reserve. When extending relief to services, the guidelines also reflect policy announced in the Department of Finance's Press Release dated December 13, 1990. Copies of the press release and B-039R have been enclosed for your reference.

In accordance with the Canada Post Corporations Act (CPCA), a "postage stamp" is evidence of prepayment for the provision of a postal service. Part VII of Schedule VI to the Excise Tax Act (ETA) is consistent with the CPCA as subsection 1(1) of that part defines a "freight transportation service" to be a service of transporting tangible personal property, and includes a service of delivering mail.

Since a postage stamp is considered a transportation service for GST/HST purposes and not personal property, the determination of whether tax relief applies is dependent upon the conditions set out in B-039R. That is, a band is entitled to tax relief on services acquired on or off reserve when acquired for "band management activities or for real property on reserve".

For GST/HST purposes, band management activities are activities or programs undertaken by a band that are not commercial activities for which they would otherwise be entitled to an input tax credit. Therefore, activities for which a band is entitled to claim input tax credits are not band management activities, and up-front relief of GST/HST is not available on its purchases of services related to its commercial activities.

It is significant to note that under subsection 123(1) of the ETA a "registrant" is defined to mean "a person who is registered, or is required to be registered". Based on this definition, a person who is required to be registered is a "registrant" whether or not that person ever actually registers. The interpretation provided above applies to a registrant.

Every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to be registered under section 240 of the ETA, except in certain circumstances, such as when the person is a small supplier. Bands that are providing supplies of property or services are treated like other businesses. Where they exceed the small supplier threshold, as set out in section 148 of the ETA, they are required to register for the GST/HST.

Under subsection 148(1) of the ETA, a person is a small supplier during any particular calendar quarter and the following month if the total value of the consideration for world-wide taxable supplies, including zero-rated supplies, made by the person (or an associate of the person at the beginning of the particular calendar quarter) that became due, or was paid without becoming due, in the previous four calendar quarters does not exceed $30,000 or, where the person is a public service body (which includes a non-profit organization) $50,000. Annual taxable supplies also include all sales made to Indians.

As the selling of postage stamps is not an exempt supply, a band making such supplies is a registrant unless it is a small supplier. A band that is a registrant, as defined above, is entitled under subsection 169(1) of the ETA to claim an input tax credit of the tax paid or payable on services (e.g. postage stamps) to the extent that those services are acquired or imported for consumption, use, or supply in the course of the person's commercial activities. As a registrant, a band is also entitled to claim input tax credits in respect of tax paid or payable on property that is not tax relieved under B-039R provided the conditions of section 169 of the ETA are met.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-954-7954.

Yours truly,

Karen Chesterman
Aboriginal Affairs Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

2004/09/17 — RITS 54333 — Tax Status of XXXXX [Prepackaged Bars]