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
Case Number: 113186
Business Number: XXXXX
Attention: XXXXX
April 7, 2009
Subject:
GST/HST INTERPRETATION
Plastic bags sold by retailers in the City of XXXXX
Dear XXXXX:
Thank you for your XXXXX of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale of plastic retail shopping bags in the City of XXXXX.
HST applies at the rate of 13% in the participating provinces of Nova Scotia, New Brunswick and Newfoundland and Labrador. GST applies at the rate of 5% in the remaining provinces and territories.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
In your XXXXX you state that the XXXXX (the City) has passed a policy that will mandate retailers charge all customers XXXXX cents per plastic bag. The City has not provided the XXXXX with the specific by-law. You have also indicated that the City will not provide any opinion or guidance as to whether the sale of the bags will be subject to GST.
You also state that the XXXXX cents per bag is not a tax. It is mandating a charge, which will come into effect XXXXX.
Included with your submission was a copy of a Retail Sales Tax Tip entitled "Plastic Bags Sold by Retailers", issued by the XXXXX. This Tax Tip explains the application of the XXXXX Retail Sales Tax (RST) to the sale of plastic bags. The RST is not applicable unless the total charge for all taxable goods sold as part of the same transaction is less than XXXXX cents.
Additional information about the City's action regarding the supply of plastic bags by retailers is available on the City's web site XXXXX. During Meeting No. XXXXX of the City Council held on XXXXX, the City Council, in closed session, adopted a number of motions to reduce in-store packaging waste and litter, municipal hazardous and special waste and plastic water bottles. Following is part of the motion passed in relation to plastic bags:
2. XXXXX:
(b) XXXXX
"Plastic retail shopping bag", per XXXXX, means a bag made of plastic film, designed to carry customer purchases from a store.
Interpretation Requested
You would like to know how the GST applies to the supply of the plastic shopping bags by a retailer located in the City.
Interpretation Given
Pursuant to section 165, goods and services supplied in Canada are subject to GST at 5% (or HST at 13% in the participating provinces of Nova Scotia, New Brunswick and Newfoundland and Labrador), unless they are specifically zero-rated or exempted under a provision in the ETA. Zero-rated supplies are taxable at the rate of 0% and are listed in Schedule VI. Exempt supplies are listed in Schedule V and are not subject to the GST/HST.
Section 165 provides that the tax in respect of the supply be calculated on the value of the consideration for the supply. As defined in subsection 123(1), consideration "includes any amount that is payable for a supply by operation of law". Subsection 221(1) requires the person making the supply to collect the GST/HST payable thereon from the recipient of the supply as an agent for Her Majesty in right of Canada.
Section 154 provides that certain amounts, such as federal or provincial taxes, duties, or fees, are included in the consideration for a supply of property or service, other than certain prescribed provincial levies. Pursuant to subsection 154(1) a provincial levy means: "a tax, duty or fee imposed under an Act of the legislature of a province in respect of the supply, consumption or use of property or a service". Section 154 does not apply in this situation. The amount that will be required to be charged for each bag is not a tax or levy imposed under federal or provincial legislation that is payable or collectible by the supplier (i.e., the retailer) or payable by the recipient (i.e., the customer). The $XXXXX is the value of consideration for the bag that is charged by the retailer.
There are no provisions to exempt or zero-rate the sale of plastic shopping bags. As the City is located in a non-participating province, GST/HST registrants would be required to charge and collect GST at the rate of 5% on the value of the consideration for the bags sold within the City.
As provided above, the RST is not applicable unless the total charge for all taxable goods sold as part of the same transaction is less than XXXXX cents. There is no similar provision for GST/HST under the ETA. However, the following explanation of section 165.2 may be of interest to your members. Depending upon the method used to calculate the tax, which is explained below, tax of less than one half of a cent may be disregarded.
A common business accounting practice is to calculate GST at 5% rounded off to four decimal places for each individual item being invoiced. Under subsection 165.2(1), suppliers have the option of calculating the GST separately on taxable (at 5%) items shown on an invoice and rounding off the GST with each calculation, or calculating the GST on the sum of all taxable items on the invoice and then rounding off that amount where tax applies at the same rate (5%) on all taxable items. Under the rounding off tax rules under subsection 165.2(2), that amount is again rounded off to two decimal places. Rounding off is when tax that is payable in respect of one or more supplies on an invoice includes a fraction of a cent; when the fraction is less than half a cent the fraction may be disregarded, and when the fraction is equal to or greater than half a cent, it is deemed to be equal to a cent.
When tax is calculated on the total of all taxable supplies on an invoice and compared to the tax calculated for each supply on that particular invoice, there is a possibility, because of rounding off the GST on each calculation, that the total tax calculated on the invoice will not be exactly the same amount in both cases. Either method of calculating the tax payable mentioned above is permitted under the ETA.
The following example illustrates the operation of section 165.2:
Chocolate bar
$1.89 (taxable)
Potatoes
2.00 (zero-rated)
Milk
3.00 (zero-rated)
1 plastic bag
XXXXX (taxable)
Total
$6.94
Using subsection 165.2(1), GST will apply to the sum of all taxable items ($1.89 + $XXXXX) resulting in $0.097 ($1.94 x 5%). Then applying subsection 165.2(2), the tax will be rounded up to the next cent which is $0.10.
Alternatively, GST can be calculated on each taxable item. In this case, the GST on the chocolate bar would be $0.0945 ($1.89 x 5%), which rounds to $0.09 and the GST on the bag would be $0.0025 ($XXXXX x 5%) which is less than half of a cent and may be disregarded.
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 902-426-6940. 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,
Nancy Jardine
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
Email this Content