Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 155053r
Attention: [Client]
Dear [Client]:
Subject: GST/HST RULING
Application of GST/HST to core charges
This is in response to your concerns raised regarding a response received from our […][City 1] office dated [mm/dd/yyyy]. That letter discussed the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to core charges included in the consideration for the supply of replacement automotive parts. Pursuant to your discussions with […][a CRA official] of this office and your subsequent letter of [mm/dd/yyyy], we are providing the following ruling.
The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador, 14% in Prince Edward Island and 15% in Nova Scotia. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
We understand the facts to be as follows:
1. […] ([…][the Company]) […] is in […][Province 1] […]. You have provided third party authorization from [the Company] with your request.
2. [The Company] is registered for the GST/HST.
3. [The Company] supplies certain new automotive parts such as alternators, starters, CV shafts, brake callipers, and distributors. The consideration charged for these parts contains a […][“core” or recyclable component] sometimes called a core charge […]. When [the Company] supplies a new part, a core charge is added to the consideration payable for the new part. The non-registrant consumer pays GST/HST on the consideration payable for the part including the core charge.
4. An amount equal to the core charge may be paid by [the Company] to a non-registrant consumer where the consumer brings a used part to [the Company]. Pursuant to [Company] policy this may occur at the time of the original supply of the new part or within […] days of the original supply.
5. When the non-registrant consumer brings in the used part at the same time as he/she purchases the new part, [the Company] charges the core charge to the non-registrant consumer and credits an amount equal to the core charge. GST/HST is charged on the consideration payable for the new part taking into account the core charge and the credit for the core charge.
6. When the non-registrant consumer brings in the used part to [the Company] after the original supply of the new part, [the Company] pays to the consumer an amount equal to the amount of the core charge. This amount paid to the non-registrant consumer does not include any amount paid as GST/HST.
7. You have provided sample invoices evidencing the current tax treatment of transactions involving core charges. The first invoice dated [mm/dd/yyyy], was for a supply made by [the Company] of an automotive battery. The invoice shows that a core exchange was included in the consideration for the battery but the actual amount of the core charge was not identified.
8. You also provided a transaction log printout for the transaction, which you refer to as a receipt. The receipt shows that [the Company] credited an amount equal to the core charge before applying the HST.
9. A further transaction log printout also referred to as a receipt dated [mm/dd/yyyy], where a consumer brought in a battery core and [the Company] applied a credit to the customer’s VISA account in the amount of $[X] for the core. The $[X] was characterized as a credit. No HST was paid by [the Company] to the consumer.
In your letter you propose that, when a consumer brings in the used part and is paid an amount equal to the core charge by [the Company], the amount should be considered a price adjustment. You further state that as a price adjustment, subsection 232(2) should apply and consequently the amount paid to the non-registrant consumer should include an amount paid as GST/HST.
RULING REQUESTED
You would like the Canada Revenue Agency (CRA) to confirm your understanding of the application of subsection 232(2) to the scenario when a non-registrant consumer brings a used part into [the Company] after the initial purchase as described above.
RULING GIVEN
Based on the facts set out above, we rule that when a non-registrant consumer purchases from [the Company] an automotive part and the consideration paid for the part includes a core charge and the consumer later brings in a used part to [the Company] and is paid an amount equal to the core charge, the amount paid by [the Company] to the consumer is considered to be consideration for the supply of the used part made by the consumer and not an adjustment under subsection 232(2).
EXPLANATION
Where there is a supply of the core or used part by a non-registrant consumer who is not required to charge GST/HST to the retailer, the trade-in rules for tangible personal property under subsection 153(4) are designed to apply to this situation where the used part is supplied to [the Company] at the same time [the Company] sells a new part to the consumer. This treatment is not at issue in your letter.
At issue is the situation where a non-registrant consumer brings in the used part at a point in time after the initial supply of the new part by [the Company].
In your case, the issue is whether the amount equal to the core charge paid by [the Company] for the used part at a point in time after the original supply of the new part is an “adjustment” to the consideration for the original supply, as that term is used in section 232 or whether it is consideration in its own right for a separate supply made by the consumer.
It is the CRA’s position that based on the definition of “supply” in subsection 123(1), the non-registrant consumer is making a supply of the used part to [the Company]. The amount paid to the non-registrant consumer by [the Company] is linked to that supply. For example, the greater the value of the used part, the greater the amount paid by [the Company] to the non-registrant consumer for the acquisition of the used part. As the recipient, [the Company] can also refuse to accept the used part, and therefore not pay any amount for the used part. However, if [the Company] accepts the used part, [the Company] is required to pay the amount to the non-registrant consumer as a result of the agreement entered into with the consumer. As such, it is also the CRA’s position that the amount paid by [the Company] to the non-registrant consumer is consideration for the supply of the used part.
As a result, when the non-registrant consumer supplies the used part at the same time that it purchases a new part from [the Company], the trade-in rules under subsection 153(4) apply.
However, these trade-in rules do not apply when the used part is supplied to [the Company] at a later time. Given that the consumer is a non-registrant, [the Company] is not required to pay GST/HST to the consumer in respect of the supply of the used part.
Given that the amount is consideration for the supply of the used part, it is the CRA’s position that the amount is not an adjustment or reduction of the consideration for the supply of the new part made by [the Company]. Therefore, subsection 232(2) does not apply in these circumstances.
In your letter, you note GST/HST case 107428 wherein the CRA applied subsection 232(2) in a scenario which you believe is similar to the case at hand. Case 107428 was a ruling on the application of the GST/HST to the supply of wooden pallets, specifically where customers were charged an amount characterized as a deposit for the supply of the pallet. In this case, it was concluded that where 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. This is not a deposit for GST/HST purposes. The amount is consideration for the supply of the pallet. Therefore, the amount paid to purchase the pallet is subject to GST/HST. This scenario differs from the core charge scenario in that the core charge amount is added to the consideration for the supply of the new part and only the new part is being supplied.
Case 107428 also differs from your case in that:
* the returned pallet is understood to be a return of the original pallet back to the original supplier; and
* the supplier and the recipient are both GST/HST registrants.
These significant facts are absent from your scenario.
[…] we have recently published GST/HST Info Sheet GI-167, Application of the GST/HST to Core Charges, which will help ensure an awareness of the application of the GST/HST. A copy of the Info Sheet is enclosed.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the CRA is bound by the ruling given in this letter provided that: none of the issues discussed in the ruling are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-5124. 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,
Ben Boboski
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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