23 May 2006 GST/HST Interpretation 63257 - Direct Sellers - Sales Aids

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, to the XXXXX GST/HST Rulings Office, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the processing of wild game. Your request has been transferred to our office for reply.

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

We understand you have a client that is a butcher. The butcher sells domestic meats such as sausages, smoked turkeys etc., which are zero-rated.

In addition, the butcher processes wild game for individuals. (The butcher cannot sell wild game.) A customer will bring wild game such as deer or moose to the butcher. Approximately 20% of the animal will be cut and wrapped into steaks, roasts, etc. for the customer. The remaining 80% of the animal is returned to the customer in the form of various types of sausages. In making these sausages, the butcher estimates that only one-half of the finished product comes from the animal and the other half is various ingredients added by the butcher such as pork, spices, apples, casings, etc. The majority of the butcher's revenue is determined on a per pound basis based on the total weight of each finished product.

For example, if a customer brings in a 100-pound animal, they will typically end up with 20 pounds of steak and roasts, and approximately 160 pounds of sausage. The butcher will charge one per pound rate for cutting and wrapping the steaks and roasts, and another per pound rate for the sausages.

Interpretation Requested

You would like to know whether the cutting and wrapping of the animal into steaks and roasts is the provision of a taxable butcher service, and whether the supply of the sausages could be considered zero-rated, given the fact that the butcher is adding several ingredients to the animal to arrive at the finished product.

Interpretation Given

Generally, every recipient of a taxable supply made in Canada shall pay tax calculated at the rate of 7% on the value of the consideration for the supply, or 15% in a participating province, unless the supply is zero-rated, pursuant to section 165. The tax rate in respect of a zero-rated supply is 0%, where a zero-rated supply is a supply that is included in Schedule VI.

Please note that on July 1, 2006, the GST rate is to be reduced 6%, and the HST rate is to be reduced to 14%. If GST/HST becomes payable on or after July 1, 2006, without having been paid before that day, or is paid on or after July 1, 2006, without having become payable before that day, the 6% GST rate or the 14% HST rate will apply.

There is no provision in Schedule VI that would apply to zero-rate the services of cutting and wrapping of the animal into steaks and roasts. As such, the supply of these services will be taxable at 7%/15% (6%/14% as of July 1, 2006, as noted above).

Under Part III of Schedule VI, certain supplies of basic groceries are zero-rated. Section 1 of Part III of Schedule VI zero-rates supplies of food or beverages for human consumption (including sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such food or beverages), other than supplies included in paragraphs (a) to (r) of that section. None of the supplies made by the butcher would be included in any of the paragraphs (a) to (r).

The tax status of the supply with respect to the sausages will depend on whether they are primarily composed of ingredients provided by the butcher, or primarily composed of ingredients provided by the customer. The butcher will be considered to be making a supply of the sausages (a zero-rated supply of basic groceries) when 50% or more of the ingredients for the sausages are owned and supplied by the butcher, and will be considered to be making a taxable supply of services when more than 50% of the ingredients are owned and supplied by the individual who brings the animal to the butcher for processing.

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.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 957-8253.

Yours truly,

Jacqueline Russell
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/05/16 — RITS 80170 — Application of GST/HST to Imported Goods