3 February 2005 Excise Ruling 53946 - PART I TAX ON INSURANCE PREMIUMS

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.

This refers to your memorandum XXXXX signed on your behalf by XXXXX, requesting a ruling determining whether or not the XXXXX were manufacturers or producers of wine for the period XXXXX to XXXXX for purposes of the Excise Tax Act (ETA).

The further question of whether XXXXX is a producer of wine for purposes of the Excise Act, 2001 has been answered separately by Excise Duty Headquarters under separate cover.

Statement of Facts:

1. XXXXX is a non-profit company incorporated under the Canada Corporations Act.

2. XXXXX are companies incorporated under the XXXXX Business Corporations Act.

3. XXXXX operates wine clubs at XXXXX locations in XXXXX, in space rented from each of the XXXXX, in downtown XXXXX.

4. One of the stated purposes of XXXXX is to XXXXX.

5. XXXXX.

6. XXXXX.

You noted that in addition to the above facts the current procedure at the XXXXX is as follows:

•   Customers transact with the XXXXX first - XXXXX.

•   XXXXX. There is no evidence that members make and bottle the wine as set out in the application form. XXXXX.

•   The XXXXX advises the XXXXX that the work has been performed and the XXXXX. The member can select any type of wines stored at the XXXXX. Each bottle has a $ value and the member pays for each bottle taken home.

•   The XXXXX takes possession of the wine from the member once it has been bottled and boxed.

•   When the member pays for a bottle of wine, XXXXX.

•   The journal entry for the XXXXX in the above transaction is XXXXX. XXXXX does not keep records of the transactions.

•   You also note that if the member goes to the XXXXX to make the standard XXXXX bottles of wine and stores the wine at the XXXXX without taking any home the wine is considered to belong to the member. In actual fact any member may purchase one or more of the other members bottles. For this reason, you believe the wine is not in the possession of the member but of the XXXXX. The XXXXX.

Ruling Requested:

You have asked for a ruling determining whether or not the XXXXX were manufacturing wine for the purposes of the Excise Tax Act for XXXXX to XXXXX.

Ruling Given:

The information you provided in the background and facts of your memorandum are similar to those outlined in the legal opinion XXXXX from Michael Wolff of Legal Services. You have provided more detailed observations based on further investigations. In response to your statements that you believe the wine is in possession of the XXXXX and not the member by virtue of the fact that the XXXXX usually has XXXXX different wines pre-ready for mixing so that the member can save time, the XXXXX responded to you stating that XXXXX. While these statements are open to interpretation and the precise legal relationship between the XXXXX and XXXXX is not clear, it appears that your observations further support Mr. Wolff's original opinion that XXXXX.

XXXXX appears to hold a "sales or other right" in the wine based on the information you have provided about the procedures which are actually followed by the XXXXX.

In our opinion, there may also be evidence to hold the XXXXX as the physical manufacturers of the wine produced. Manufacturing or producing wine involves numerous stages and for purposes of the Excise Tax Act, the action of adding yeast does not determine who the manufacturer of the wine may be. The question of who owns the raw materials and performs the bulk of the major activities involved in making the wine would determine, in our opinion, who the correct manufacturer may be. The Courts have stated very clearly over the years that manufacturing or producing is the production of articles for use from raw or prepared material by giving to these materials new forms, qualities and properties. Wine, in accordance with the definition that was in the Excise Tax Act, is the product of fermentation. In the case at hand, the customer adds the yeast and bottles the wine. The XXXXX appears to own the raw materials and performs the other activities which include responsibility for affixing the fermentation lock, specific gravity readings, determining which additional chemicals be added, racking and clarifying the wine if necessary, determining when fermentation is complete and deciding when the wine can be bottled. Your additional observations that the XXXXX has XXXXX specific types of wines pre-ready for the member to pitch the yeast in further supports this view. You may wish to consider these factors in your investigations.

Since the excise tax on wine was repealed in 2003, perhaps an overall review of all such businesses XXXXX operating under similar circumstances during the period in question, should be considered in the interests of uniformity and fair treatment.

If you have any further questions concerning this matter, please feel free to contact me at (613) 952-0178.

Doug Rollins
Manager
Excise Taxes
Excise Duties and Taxes Division
Excise and GST/HST Rulings Directorate

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