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
XXXXX
Case Number: 113819
XXXXX
XXXXX
April 28, 2009
Subject:
GST/HST INTERPRETATION
Dear XXXXX
Thank you for your XXXXX of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to plastic retail shopping bags sold by retailers in the City of XXXXX.
All legislative references are to the Excise Tax Act (ETA).
We understand that the following facts apply to the situation.
The City of XXXXX has established a policy that will require retailers in the city to charge all customers at least XXXXX cents per plastic retail shopping bag supplied to the customer. The draft of the proposed bylaw has yet to be released. It is expected that the bylaw will come into effect on June 12, 2009.
The XXXXX City Council on XXXXX, adopted the following motions.
The Council endorses the goal of a XXXXX.
XXXXX
In its News Release of XXXXX, XXXXX City Council provides the following 'Question & Answer':
XXXXX
It is our understanding that the retailer will retain the amount charged for its supply to customers of plastic bags. The City does not collect any of the amount charged by the retailer.
Interpretation Requested
You would like to know how the GST will apply to the supply by retailers of the plastic retail shopping bags to consumers.
Interpretation Given
Based on the information provided, the supply of the plastic retail shopping bags is a taxable supply and the GST amount payable is calculated at the rate of 5% applied on the consideration for the supply (at least $XXXXX per plastic retail shopping bag).
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.
Explanation
The normal GST rules apply to the charge. Section 154 does not apply, as the amount charged is not a provincial levy or tax. The supplier retains the full amount of consideration charged for the plastic retail shopping bags, which are subject to the GST under subsection 165(1), as there is no relieving provision for them.
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. Pursuant to 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 retail shopping 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%). 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 $XXXXX ($XXXXX x 5%), which is less than half of a cent and may be disregarded.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-1175. 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,
Dwight Kostjuk
Specialty Tax Unit
Financial Institutions & Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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