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.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
Case Number: 111598
Attention: XXXXX XXXXX
January 21, 2010
Dear XXXXX:
Subject:
GST/HST RULING
Thank you for your letter of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to XXXXX. We apologize for our delay in responding.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
Statement of Facts
We understand the facts to be as follows:
• XXXXX is engaged in, among other things, the purchase and sale of XXXXX carbon offsets. These carbon offsets are generated from activities that reduce or avoid the emissions of Greenhouse Gases ("GHG') into the atmosphere measured in metric tons of carbon dioxide;
• In particular, the XXXXX (the "Agreement" - copy included with your submission") between the Buyer XXXXX and the Seller defines an "Offset" to mean:
XXXXX.
• The Agreement defines XXXXX to mean:
XXXXX.
• The Agreement further states XXXXX:
XXXXX.
XXXXX.
XXXXX.
• The Agreement defines XXXXX to mean, XXXXX;
• XXXXX will acquire Offsets from the Seller for consideration that isXXXXX; and
• XXXXX is engaged in commercial activities and is registered for the GST/HST.
Ruling Requested
You have asked whether the Offset as described in the Agreement is considered a "financial instrument" for GST/HST purposes; in particular, if paragraph (f) within that term's definition under subsection 123(1) applies to the Offset.
Ruling Given
Based on the facts set out above, we rule that the Offset as described in the Agreement is not considered a financial instrument in accordance with the definition under subsection 123(1). The Offset is intangible personal property.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
Explanation
As there is no provision in the ETA that specifically addresses the supply of Offsets, the normal rules within that Act will apply. As such, the Offsets are treated the same way as other property supplied by a GST/HST registered person.
A financial instrument is defined in paragraph (f) of subsection 123(1) to mean: "an option or a contract for the future supply of a commodity, where the option or contract is traded on a recognized commodity exchange." The ETA does not define the term "commodity". Accordingly, its common dictionary meaning generally recognizes the term within the financial market as a bulk good, product, merchandise, article, physical asset, or other type or kind of tangible property. We have not established a direct link or connection between the Offset and any underlying commodity.
Furthermore, for the definition of financial instrument to apply under paragraph (f), an option or contract must be traded on a recognized commodity exchange. It is your understanding XXXXX. The information submitted, in particular the wording within the Agreement, does not point towards these Offsets being in fact traded at any time on a recognized commodity exchange. However, since the Offset is not an option or a contract for the future supply of a commodity, it does not matter if they are traded on an exchange. Accordingly, the Offset does not meet the defined criteria of a financial instrument under this provision.
Lastly, our review of the definition of financial instrument under paragraph (i) of subsection 123(1), i.e. "an option or a contract for the future supply of money or anything described in any of paragraphs (a) to (h)" also established that the term has no application in the case at hand. That is, the Agreement does not represent an option or a contract for the right to buy or sell money or a financial instrument at a specified price within a stipulated future time period or a stipulated future date.
In your submission, you also refer to a previous GST/HST ruling which determined that the GST/HST did not apply to XXXXX. Our conclusion in that ruling was based on facts that are dissimilar to the facts in the case at hand.
Lastly, the transfer of an Offset is considered a supply made by the Seller of its right to or interest in that Offset generated from qualifying energy efficiency measures undertaken at Canadian sites. By transferring the Seller's right or interest to the Offset, the Seller is making a supply of intangible personal property to XXXXX. GST/HST will generally apply to this supply if the Seller is a GST/HST registrant making the supply in the course of a commercial activity.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9262. 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,
Paul Lafond
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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