29 November 2002 GST/HST Interpretation 25805 - Application of the GST/HST to Freight Transportation Services

Dear Sir:

Thank you for your fax of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your operations. XXXXX[.] My understanding of the facts from your XXXXX XXXXX XXXXX is as follows:

1. XXXXX is registered under business number XXXXX and is in the business of growing and processing grains for human consumption.

2. XXXXX receives orders from XXXXX client for different types of grains; the XXXXX client requests exclusively grains that are XXXXX.

3. A typical supply made to the XXXXX client is made up of different types of grain. For example, XXXXX grows a type (type A) and purchases the others (type B and C). XXXXX grows many types of grain, some that are subject to the application of the Canadian Wheat Board Act, and some that are not.

4. Types A, B and C grains are food for human consumption or ingredients to be mixed with or used in the preparation of food for human consumption.

5. The typical procedure for export orders by the XXXXX client is as follows: XXXXX enquires as to the availability and price of certain grains and communicates to the XXXXX client the prices of those grains along with the price at which XXXXX will supply the grains it produces itself. The estimated price of the transportation costs of the ordered grains to XXXXX is also communicated to the XXXXX client, because such costs are also to be invoiced by XXXXX to the client (see paragraph 18).

6. If the XXXXX client wants to purchase the available grains at the price previously communicated, the client issues an export order that indicates the quantity of grain by type ordered and the corresponding price previously agreed upon between the client and XXXXX, as well as the estimated transportation costs of the grains to XXXXX.

7. XXXXX price for grains B and C to the XXXXX client is equivalent to the price of their acquisition by XXXXX, plus certain handling fees.

8. In order to save transportation costs, grains B and C are delivered to XXXXX premises to be grouped and delivered with type A grain. XXXXX arranges for the transportation of the grains of types B and C to XXXXX. XXXXX contracts with the various carriers in its name. XXXXX mentions verbally or in writing to the various carriers that the grain is for export.

9. Type B grain is purchased from a person in the United States and a carrier charges XXXXX to deliver the grain from the U.S. to XXXXX premises.

10. Type C grain is purchased from a person in Canada and a carrier charges XXXXX to deliver the grain from a place in Canada to XXXXX premises. Consideration for the supply of a transportation service from a place in Canada to XXXXX premises is more than 5$CAN.

11. It is understood between XXXXX and the supplier of grain in Canada that the supplier does not assume liability in respect of the grain from its departure point in Canada. The documents exchanged between the grain supplier in Canada and XXXXX are the order issued by XXXXX and the invoice issued by the supplier in Canada. There is XXXXX on these documents of the place where the ownership of the grain is transferred. In these circumstances, title to the grain from the supplier in Canada is transferred to XXXXX at its departure point in Canada.

12. The carriers transporting the types B and C grain do not charge tax for the transportation of the grains to XXXXX.

13. Once the shipment of types B and C grain are received at XXXXX premises, XXXXX arranges for the shipments of the three types of grain on a certain number of pallets (that is, type B and C plus type A, the latter being produced by XXXXX. The grains are not further processed, transformed or altered from their original state other than placing them on pallets and providing additional strapping for long-distance transportation purposes is provided. Any necessary repairs to the bags of grains of types B and C are also made. XXXXX may also ship type A grain it transformed on XXXXX premises before shipping XXXXX[.] Consideration for the supply of a transportation service from XXXXX to XXXXX XXXXX is more than 5$CAN.

14. The XXXXX produced by XXXXX is an ingredient to be mixed with or used in the preparation of food for human consumption.

15. No further processing, transformation or alteration of the grain supplied by the supplier in Canada is done between its departure from its place of origin in Canada and its arrival at the destination outside Canada.

16. No further processing, transformation or alteration of the grain supplied by the American supplier is done between its departure from its place of origin in the United States and its arrival at the destination outside Canada.

17. No further processing, transformation or alteration of the grain supplied by XXXXX is made between its departure from XXXXX premises and its arrival at the destination outside Canada.

18. Invoicing is done from XXXXX. A typical invoice indicates the price of the type A, B and C grain, and all the costs related to the transportation of the grains in Canada, that is: for the transportation of the types B and C grain to XXXXX from the various suppliers' locations as well as for the transportation of the types A, B and C grain from XXXXX to XXXXX. The documents sent to the XXXXX client along with the invoice also include a certificate of export from the Canadian Wheat Board (CWB) as necessary and XXXXX.

19. If the type A grain is wheat, XXXXX obtains title to the type A grain it produces and sells to the XXXXX client. XXXXX obligations towards the CWB are met by using the "producer-direct sales" process. Under this process, XXXXX sells its grain to the CWB for the landed price (same minimal price as for the other producers of the same type of grain), and then buys it back at its worldwide fair market value on the same day. That market value is established based on the XXXXX daily futures price. These transactions (sale to CWB and purchase from CWB) are done by telephone or by fax and do not necessitate the delivery of the grain to the CWB. Upon the sale to the CWB, the CWB issues a certificate to XXXXX permitting the latter to participate in the eventual profits from the relevant CWB's pool account at the end of the related CWB's market campaign.

20. There is XXXXX of the transfer of ownership of the grains in the documents exchanged between XXXXX and the XXXXX client. The XXXXX client does not request a copy of the invoices from the carriers, nor does the client require a copy of the invoices from the suppliers of the types B and C grain, and such copies are not issued to the client. The invoice prepared by XXXXX is normally received by the client before the arrival of the grains at XXXXX.

21. XXXXX arranges for the transportation of the grains of types A, B and C to XXXXX and the XXXXX client takes delivery of the grains at XXXXX[.]

22. The final destination outside Canada is indicated on the shipment order of the carrier of the grains from XXXXX to XXXXX and the carrier does not charge tax for the transportation of the grains.

23. XXXXX and the XXXXX client understand that XXXXX is responsible for delivering to XXXXX a grain that is of a satisfactory quality. At XXXXX, the client could refuse grain that was not of a satisfactory quality, even though this has never happened.

24. It is also understood between XXXXX and the XXXXX client that XXXXX is not responsible for the state of the grain or further transportation of the grain after the client has taken delivery of the grain at XXXXX. Payment by the client of the amount of the invoice is generally made at the time of delivery at XXXXX.

25. The grain is exported by the XXXXX client which makes its own arrangements for the transportation of the grain to a destination outside Canada.

26. The title to the types A, B and C grain shipped from XXXXX to the XXXXX client passes to the XXXXX client at XXXXX.

Rulings Requested

1. What is the GST/HST status of the freight transportation services charged to XXXXX for transporting the type C grain from the USA to XXXXX premises?

2. What is the GST/HST status of the freight transportation services charged to XXXXX for transporting the type B grain from a place in Canada to XXXXX premises?

3. What is the GST/HST status of the freight transportation services charged to XXXXX for transporting the types A, B and C grain from XXXXX premises to XXXXX?

4. What is the GST/HST treatment of the amounts attributed to transportation costs charged by XXXXX to its XXXXX client?

Rulings Given

RULING 1

1. What is the GST/HST status of the freight transportation services charged to XXXXX for transporting the type C grain from the USA to XXXXX premises?

Based on the facts set out above, we rule that the transportation of the grain from the US grain supplier's premises to XXXXX is zero-rated pursuant to section 8 of Part VII of Schedule VI to the Excise Tax Act (ETA).

RULING 2

2. What is the GST/HST status of the freight transportation services charged to XXXXX for transporting the type B grain from a place in Canada to XXXXX premises?

Based on the facts set out above, we rule that, where XXXXX has provided the carrier with a written declaration ^[i]* to the effect that the transportation of the grain from the grain supplier's premises in Canada to XXXXX is shipped for export and is part of a continuous outbound freight movement, the transportation service is zero-rated.

Where no written declaration to the effect that the transportation of the grain from the grain supplier's premises in Canada to XXXXX is shipped for export and is part of a continuous outbound freight movement has been provided to the carrier for that segment, the supply is not zero-rated and is thus taxable at the rate of 7%.

RULING 3

3. What is the GST/HST status of the freight transportation services charged to XXXXX for transporting the types A, B and C grain from XXXXX premises to XXXXX?

Based on the facts set out above, we rule that the transportation of the grain from XXXXX premises to XXXXX is zero-rated.

RULING 4

What is the GST/HST treatment of the amounts attributed to transportation costs charged by XXXXX to its XXXXX client?

Based on the facts set out above, we rule that these amounts are part of the consideration for the supply of the types A, B and C grain sold by XXXXX to the XXXXX client. As the supply of the grain is zero-rated, the amounts attributed to transportation costs charged by XXXXX to its XXXXX client is also zero-rated as it forms part of the consideration for the zero-rated supply of grain.

These rulings are subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by these rulings provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested rulings.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-8815.

Yours truly,

Raymond Labelle
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

Att.

ATTACHMENT

SHIPPER'S DECLARATION

Shipper to put an X in the appropriate box:

Declaration by the Shipper under Schedule VI, Part VII, paragraph 7(a), Excise Tax Act:

The property is being shipped for export and the freight transportation service to be supplied by the carrier is part of a continuous outbound freight movement (within the meaning of Part VII of Schedule VI to the Excise Tax Act) in respect of the property.

This declaration may appear on the carrier's bill of lading or the shipper may prepare the declaration as a separate document to be provided to the carrier.