8 June 2006 GST/HST Ruling 63889 - Tax Status of Crating and Packaging

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 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of crating and packaging provided by your company, XXXXX.

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

We understand the following information from your letter and telephone conversation XXXXX.

•   XXXXX company, which specializes in packaging and crating XXXXX. XXXXX is registered for GST/HST purposes.

•   A freight forwarding company XXXXX has contracted with XXXXX to perform crating and packaging XXXXX.

•   In order to crate and package XXXXX. XXXXX, as well as the labour to perform those services.

•   XXXXX.

•   XXXXX.

•   XXXXX customer, the freight forwarder, will provide XXXXX with the appropriate export bills of lading, B13's, and any other export documents when that company exports XXXXX from Canada.

Interpretation Requested

You would like to know whether the goods and services provided by XXXXX are zero-rated under section 6 of Part VII of Schedule VI to the ETA. In this regard, you have made reference to the decision rendered in the Tax Court of Canada case of Bam Packaging Ltd. v. The Queen [2001] 2921 ETC.

XXXXX.

Interpretation Given

In accordance with GST/HST Memoranda Series Section 1.4, 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 that will elaborate on how the GST/HST applies to the supply described in your letter.

The Minister of Finance announced in the Federal Budget of May 2, 2006, a proposal to reduce the rate of the GST and the federal portion of the HST by 1%, effective July 1, 2006. The general rule is that the rate of GST will be reduced from 7% to 6% and the rate of the HST from 15% to 14% on 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.

Based on the information provided, the supply of goods and services provided by XXXXX is not zero-rated under section 6 of Part VII of Schedule VI to the ETA.

Section 6 of Part VII of Schedule VI to the ETA states that a supply of a freight transportation service in respect of the transportation of tangible personal property from a place in Canada to a place outside Canada is zero-rated where the value of the consideration for the supply is $5 or more. For purposes of this Part, "freight transportation service" means a particular service of transporting tangible personal property and, for greater certainty, includes any other property or service supplied to the recipient of the particular service by the person who supplies the particular service, where the other property or service is part of or incidental to the particular service, whether there is a separate charge for the other property or service.

The service provided by XXXXX is not considered to be a freight transportation service by definition of that term. XXXXX is providing a service of packaging and crating to the recipient, the freight forwarding company, rather than a supply of transporting tangible personal property. A supply of a service of packaging and crating can only possibly be considered to be part of a supply of a freight transportation service if it is made by a person who is making a supply of transporting the goods. The "recipient" of a supply of property or a service, as defined in subsection 123(1) of the ETA, means where consideration for the supply is payable under an agreement for the supply, the person who is liable to pay that consideration. Therefore, by definition, the recipient of the packaging and crating service is the freight forwarding company, who under an agreement with XXXXX, pays for the supply. The actual supply of transporting XXXXX is provided by another company; the recipient of that supply being the company who contracted with the freight forwarder for the transportation of XXXXX. The supply of transporting XXXXX is considered to be a supply of a freight transportation service.

XXXXX. Notwithstanding this, the broad interpretation of the meaning of the term "freight transportation service" in section Part VII of Schedule VI to the ETA set out in the decision in the Bam Packaging Ltd. Tax Court of Canada case does not reflect the Canada Revenue Agency's interpretation of the meaning of that term. It is important to note that the decision in the Bam Packaging Ltd. case is not considered to be precedent-setting as it was heard under the Informal Procedure of the Tax Court.

XXXXX.

A taxable supply that is made in Canada is subject to GST at the rate of 7%, or HST at a rate of 15% where the supply is deemed to be made in a participating province unless the supply is zero-rated (taxed at 0%). The three participating provinces are Nova Scotia, New Brunswick, and Newfoundland and Labrador.

Paragraph 142(1)(g) of the ETA deems a supply of a service to be made in Canada if the service is, or is to be, performed in whole or in part in Canada. Paragraph 142(2)(g) of the ETA deems a supply of a service to be made outside Canada if the service is, or is to be, performed wholly outside Canada.

The supply of the packaging and crating service made by XXXXX to the freight forwarder is made in Canada as it is performed in Canada XXXXX. There is no provision that would zero-rate the supply. As a result, XXXXX is required to collect GST in respect of the supply.

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) 952-6743.

Yours truly,

Cheryl R. Leyton
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/05/12 — RITS 77757 — XXXXX Joint Venture