30 June 2006 GST/HST Ruling 58143R - Interest on outstanding rent

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:

This letter is to inform you that the Canada Revenue Agency (CRA) has recently clarified its position on the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to sales aids. Accordingly, this letter replaces our previous letter to you XXXXX.

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. Bill C-13 was tabled in Parliament on May 2, 2006, and received royal assent on June 22, 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.

Statement of Facts

Our understanding of the facts, the transactions, and the purpose of the transactions is as follows:

•   XXXXX (the Company) is registered for GST/HST XXXXX.

•   The Company is an independent sales contractor (ISC) XXXXX.

•   XXXXX has been approved by the CRA to use the Alternate Collection Method (ACM) for direct sellers.

•   The Company purchased training materials that included books, CDs, tapes and pamphlets (the Books) on improving business and sales skills.

•   We have a copy of the Company's purchase invoice XXXXX that lists Books that have been purchased. XXXXX.

•   The Company sold the Books to other ISCs XXXXX and to other persons in Canada.

•   Some Books may have been given away free of charge by the Company.

•   XXXXX.

•   XXXXX.

Ruling Requested

You would like to know the tax status of the Books that were sold by the Company.

Interpretation Given

We are replacing the previous interpretation XXXXX with the following:

Under subsection 178.5(5) of the Excise Tax Act (ETA), where at any time when an approval to use the ACM by a direct seller is in effect, the direct seller or an ISC of the direct seller makes in Canada a taxable supply by way of sale of a "sales aid" to another ISC, the supply does not attract tax. A "sales aid" is defined under section 178.1 of the ETA as personal property that is acquired, manufactured or produced by the direct seller or an ISC of the direct seller, to assist in the promotion, sale or distribution of exclusive products of the direct seller. Sales aids include customized business forms, samples, demonstration kits, catalogues, promotional items, instructional items or other property. The definition of sales aids also includes shipping, handling and order processing services relating to exclusive products of the direct seller or to items included in the definition of sales aid. However, the definition of sales aids specifically excludes exclusive products of the direct seller and property acquired by an ISC for use as capital property.

It is a question of fact whether a particular Book that is sold by the Company meets the definition of a sales aid. For instance, a general self-help book that helps a person become a better salesperson is included in the definition of a sales aid as it assists in the promotion, sale or distribution of exclusive products of the direct seller.

XXXXX.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the CRA with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-9700.

Yours truly,

Michèle Routhier, CMA
Technical Analyst
Services and Intangibles Unit
General Operations & Border Issues Division
Excise and GST/HST Rulings Directorate

2006/05/23 — RITS 63257 — Application of GST/HST to the Processing of Wild Game