1 September 2006 GST/HST Interpretation 78139 - Independent Medical Examinations and Other Independent Assessments

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 letter XXXXX in which you requested a ruling concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to different fees charged by XXXXX auctioneers XXXXX. Your request has been transferred to us for reply. We apologize for the lateness of this response.

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

Effective July 1, 2006, the rate of the GST has been reduced from 7% to 6% and the rate of the HST from 15% to 14%. The new rates apply to supplies for which the GST/HST is paid on or after July 1, 2006, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to Reduction in the Rate of the GST/HST - Questions and Answers (http://www.cra-arc.gc.ca/agency/budget/2006/gstrateqa-e.html) on the CRA Web site.

Statement of Facts

In accordance with the information you submitted XXXXX to Christopher Lewis, and our recent conference call XXXXX, we understand the facts as follows:

1. XXXXX livestock auctioneers, XXXXX.

2. XXXXX auctioneers charge the following fees:

a) selling commission, which is a charge made by an auctioneer to the seller, that is charged separately for the auctioning of the seller's livestock;

b) passing charge, which is a fee charged to the seller for the auction service, normally at a lower rate than the auctioneer's commission, when a particular animal is not sold at auction;

c) ear tagging charge to sellers, which is a fee charged by the auctioneer for the installation of an ear tag, which is required under government regulations;

d) branding charge to sellers, which is a fee charged by the auctioneer in respect of branding livestock under government regulations;

e) veterinary services (pregnancy testing for bred cows), which is a fee charged by the auctioneer to sellers of bred cows;

f) weigh charge, which is a fee charged to a buyer by the auctioneer for the supply of weighing cattle;

g) straw (bedding), which is a fee charged either to the buyer or seller for the straw used for bedding in cattle pens;

h) hay, which is a fee charged by the auctioneer to either a buyer or seller for the supply of hay while the animals are at the auctioneer's premises, normally for one or two days; and

i) feed, which is a fee charged to either the buyers or sellers for the supply of feed while the animals are at the auctioneer's premises, normally for one or two days.

Ruling Requested

You would like to know how the GST/HST applies to the above fees.

In accordance with GST/HST Memorandum 1.4 of the GST/HST Memoranda Series, copy enclosed, an application ruling can only be issued with reference to a clearly defined fact situation of a particular registrant. Rulings are issued upon request and where the taxpayer has presented all the relevant facts such as the nature of the transactions undertaken, detailed descriptions of services or property involved, the parties involved in all transactions and relevant documentation such as invoices, contracts and other pertinent agreements. Where all the relevant facts are not provided, an interpretation may be issued. We are pleased to issue you an interpretation, which will elaborate in detail on how the GST/HST applies to the questions raised in your letter.

Interpretation Given

1. Fees Charged to Seller

Livestock sold at auction

No tax to be collected:

When livestock is sold at auction on behalf of the seller, the CRA's position is that a registrant livestock auctioneer is not required to collect the GST/HST on the following charges to the seller, as they all form part of the auctioneer's service to the seller:

•   selling services, including charges for:

•   ear tagging;

•   branding;

•   pregnancy testing;

•   feed;

•   straw; and

•   hay.

Livestock not sold at auction

Tax to be collected

The following fees/charges invoiced to a seller for livestock that are presented for auction but not sold are subject to either the GST rate of 6% or the HST rate of 14%, as applicable:

•   auctioneer's services, including charges for:

•   passing charge;

•   ear tagging;

•   pregnancy testing;

•   branding;

•   feed;

•   straw; and

•   hay.

The passing charge is a fee charged by an auctioneer of livestock to a seller, at a reduced rate, where the auctioneer provided its auctioneer services and an animal was not sold. An auctioneer's service may include providing straw, hay or feed to livestock. Because the special rules in the ETA only apply when an animal is offered for sale at auction is actually sold at the auction, the passing charge together with any other fees that are part of the total amount due the auctioneer for the auctioneer's services are subject to tax at 6%/14%, as applicable.

In the CRA's view, straw, hay and/or feed are usually not provided separately to a seller. Instead, even though charges for straw, hay and/or feed may be set out separately on an invoice, they are likely part of an overall supply of a service taxable at 6% or 14%. This service could include feed and yardage (i.e., the combined act of providing feed for the livestock and use of the stockyard for reasons of shelter and bedding), or it could just be included in the auctioneer's passing charge.

When an invoice sets out charges for straw, feed and hay instead of including the amounts in the charge for the auctioneer's services, and further, does not break down the amounts between the charge for the animals sold at auction and the charge for those not sold at auction, then the auctioneer will have to reasonably allocate the charge between the charge for livestock sold at auction and the livestock that was not. XXXXX.

No tax to be collected

In the event that straw, feed or hay do not form part of a service performed by an auctioneer and are sold separately, then a registrant livestock auctioneer is not required to collect the GST/HST on the following charges to the seller when livestock is not sold at auction:

•   straw;

•   feed sold in quantities of at least 20 kg that meets the conditions set out in the Agriculture and Fishing Property (GST/HST) Regulations. See pages 11 and 12 of the enclosed Memorandum 4.4 Agriculture and Fishing; and

•   hay that is ordinarily used as feed for farm livestock, when provided in a quantity larger than what would ordinarily be sold or offered for sale to consumers.

Hay is ordinarily sold in bales, which can be different sizes and shapes. Tax is not charged on hay sold in a quantity larger than one large round bale or an equivalent to this amount. A single large round bale is one that weighs at least 750 kg (1650 lbs). If the hay were sold in square bales, each weighing 50 kg (110 lbs), no tax would be charged on hay sold in quantities of 16 or more bales.

2. Fees Charged to Buyer

Tax to be collected

•   branding;

•   weighing; and

•   feed and yardage;

As previously noted, in the CRA's view, straw, hay and/or feed are usually not provided separately to a buyer. Instead, even though charges for straw, hay and/or feed may be set out separately on an invoice, they are likely part of an auctioneer's overall supply of a service to a buyer taxable at 6% or 14%. This service could include feed and yardage.

The following fees charged by an auctioneer to a buyer are also subject to either the GST rate of 6% or the HST rate of 14%, as applicable, if sold separately:

•   feed sold in a quantity that is less than 20 kg (44 lbs);

•   feed sold in a quantity of at least 20 kg (44 lbs) that does not meet the conditions set out in the Agriculture and Fishing Property (GST/HST) Regulations. See pages 11 and 12 of the enclosed Memorandum 4.4 Agriculture and Fishing;

•   hay that is ordinarily used as feed for farm livestock, when supplied in a quantity that is not larger than what would ordinarily be sold or offered for sale to consumers;

Where an auctioneer provides goods or services to a buyer, not included in the above, the charges for those goods or services are also taxable under the normal GST/HST rules.

No tax to be collected

In the event that straw, feed or hay do not form part of a service performed by an auctioneer and are sold separately, then a registrant livestock auctioneer is not required to collect the GST/HST on the following charges to the buyer:

•   straw;

•   feed sold in quantities of at least 20 kg that meets the conditions set out in the Agriculture and Fishing Property (GST/HST) Regulations. See pages 11 and 12 of the enclosed Memorandum 4.4 Agriculture and Fishing for more information; and

•   hay that is ordinarily used as feed for farm livestock, when supplied in a quantity larger than what would ordinarily be sold or offered for sale to consumers.

3. Auction of Horses - Election

As you know, an election can be made between a GST/HST registrant auctioneer and owner who is a GST/HST registrant when horses are auctioned off. Provided certain conditions are met, an auctioneer and an owner of horses may jointly elect to have the owner charge and account for the tax on the sale of auctioned horses.

Usually, the auctioneer collects the tax on the owner's behalf and passes it back to the owner who must include the amount in its GST/HST return. The auctioneer charges the owner GST/HST for the services provided by the auctioneer. A copy of the election form GST502 E is enclosed.

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 information we have also enclosed a copy of our Info Sheet GI-010, entitled Auctioneers.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 957-8223.

Yours truly,

Daniel Chamaillard
Senior Rulings Officer
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/09/21 — RITS 79906 — [Application of the GST/HST to Early Payment Discounts]