18 October 2005 GST/HST Interpretation 61120 - Acquiring Tobacco on a Tax-free Basis for Resale

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.

Dear XXXXX:

Thank you for your fax XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to tobacco products. I apologize for the delay in responding to your inquiry.

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

The following facts were provided in your letter:

•   XXXXX;

•   One of your XXXXX would like to purchase tax-free tobacco XXXXX;

•   The tobacco is for resale for profit to fund XXXXX.

•   A is a XXXXX under the authority of the XXXXX;

•   A is not situated on a reserve pursuant to the Indian Act;

•   B is a registered Indian who is the holder of an Indian Status card and is entitled to tax relief under section 87 of the Indian Act;

•   Cs are Indian and non-Indian XXXXX;

•   Between A and B there is mutual consent that B will act as an agent for A;

•   Upon the request of A, B will purchase a supply of tobacco XXXXX;

•   Once A is in possession of the tobacco, the tobacco will be resold XXXXX to Indian Cs XXXXX.

Interpretation Requested

You have asked the following questions:

1. Is this proposal valid? Must tax be charged on the tobacco products when resold XXXXX by A to the Indian XXXXX?

2. If B is not the agent of A, can A acquire the tobacco products from B without paying the GST/HST? Can B acquire the tobacco tax free as an independent Indian agent, solely acting for the Indian Cs who will provide the funds for the tobacco purchase directly?

3. Does the dollar amount matter? That is, does it make a difference if the resale value of the cigarettes sold by A is less than $30,000 per year?

4. Would the responses to the above questions be the same for all As regardless of the province they are located in?

Interpretation Given

1. Where an agency relationship exists between A (principal) and B (agent), and B purchases the tobacco products on a reserve while acting on behalf of A, the agent is not making the purchase of the tobacco products as an Indian but, as A, the principal. The purchase of tobacco products by B as an agent of A would not be relieved of GST/HST unless A is relieved of paying tax under the ETA or some other legislation. Therefore, B would have to pay the GST/HST on the acquisition of the tobacco products purchased for A while acting in the capacity as the agent of A.

The federal government is a public sector body that is registered for GST/HST purposes as one entity consisting of all organizations considered to be departments within the meaning of section 2 of the Financial Administration Act (the FAA). Section 2 of the FAA defines "department" to mean, in part, "any departmental corporation". "Departmental corporation" is also defined in section 2 of the FAA as "a corporation named in Schedule II". The XXXXX is named in Schedule II and is, therefore, a department. All federal government departments are required to pay the GST/HST on all of their taxable purchases. Departments do not claim input tax credits (ITCs); however, departments are fully relieved from the GST/HST they must pay on their taxable purchases under the GST Federal Government Departments Remission Order dated December 21, 1990. To claim this relief from tax, departments may use the administrative procedures for the Refundable Advance Account (RAA). Treasury Board's Policy on the Application of the Goods and Services Tax and the Harmonized Sales Tax in the Departments and Agencies of the Government of Canada provides for the appropriate use of the RAA.

As a GST/HST registrant, A is required to charge tax on sales of tobacco products to Indian and non-Indian XXXXX when the XXXXX is not located on a reserve. If A were located on a reserve, it would not be required to charge GST/HST on the sale of tobacco products to Indian XXXXX.

Section 87 of the Indian Act (IA) provides relief for "the personal property of an Indian or a band situated on a reserve". The Canada Revenue Agency (CRA) extends this relief to goods acquired off a reserve where the goods are delivered to a reserve by the vendor or the vendor's agent. Therefore, Indians and bands are eligible for relief from the GST, and HST in the harmonized provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador, on goods purchased on a reserve or delivered to a reserve by the vendor or the vendor's agent. The GST/HST must be paid on goods acquired off a reserve that are not delivered to a reserve unless the goods are relieved of tax under some other provision of the ETA (e.g. exempt goods included in Schedule V to the ETA such as prepared food supplied by a public sector body to seniors in their homes under a program established and operated for the purpose of providing prepared food to such individuals). Please refer to the enclosed GST/HST Technical Information Bulletin B-039R: GST Administrative Policy - Application of GST to Indians (B-039R) for details on providing GST/HST tax relief to Indians.

2. Where A is acquiring tobacco products from a GST/HST registrant, A is required to pay the appropriate tax, GST/HST. If A is acquiring tobacco products from a person who is not a GST/HST registrant, that person is not required to charge GST/HST on the value of consideration for the tobacco products. A GST/HST registrant is a person who is registered, or who is required to be registered, under the ETA.

For information regarding taxes imposed by a Province, the particular Provincial Tax Office should be contacted.

Section 87 of the IA relieves from taxation personal property of an Indian or Indian band situated on a reserve. This benefit is not transferable to another person. The personal right to tax relief is not a transferable right, and therefore, purchases made on behalf of an Indian are subject to tax even if they are for the use of the Indian.

The CRA has published a GST/HST Policy Statement P-182R: Agency (P182R) that contains details on agency relationships (copy enclosed). Whether or not an agency relationship exists between B and the Cs is a question of fact and an application of principles of law and cannot be determined based on the information provided in your letter. Under the heading "Agency - Essential Qualities and Indicators" in the enclosed P-182R are guidelines that can be used when attempting to make a determination on whether an agency relationship exists.

3. As A is registered for GST/HST purposes, the GST/HST must be charged on taxable sales of goods regardless of the sales volume of a particular good such as tobacco products. That is, sales of tobacco products cannot be separated from the sales of other goods for purposes of the small supplier threshold. Also, any person making taxable supplies in Canada that exceeds the small supplier threshold, as set out in section 148 of the ETA, is required to register for the GST/HST. Section 148 applies to all persons, including Indians.

4. The responses to the above questions would be the same for all As regardless of their location. However, the tax to be charged on supplies made by As located in the harmonized provinces would be the HST at the rate of 15%.

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, Goods and Services Tax Rulings, 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.

For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Goods and Services Tax Rulings.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-7954.

Yours truly,

K. Chesterman
Aboriginal Affairs Unit
Public Service Bodies & Governments Division
Excise and GST/HST Rulings Directorate

2005/11/16 — RITS 61756 — Internet Sales to Indians