9 January 2006 GST/HST Ruling 77007 - Application of GST/HST to Herbal Tea and Energy Tea

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 XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to electricity supplied by eligible generators to a distributor.

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

We understand that XXXXX an eligible generator is to be permitted to convey electricity in excess of the generator's own needs into the distributor's distribution system. An eligible generator may be a GST registrant or a non-registrant. Generators may be residential customers or producers such as farmers or other small or large businesses.

XXXXX the distributor will bill the generator on a net metering basis. The billing amount for a particular billing period will be calculated by subtracting the monetary value of electricity returned to the system by the generator from charges for electricity consumed from the system. Should a generator return more electricity than he consumed in a billing period, he will be billed only for other charges not related to the consumption of electricity and the excess credit would be carried over to the next billing period.

One month in the year is designated as the account-clearing month. In this billing period, the distributor will apply any accrued credits that have not been depleted in a previous billing period in the year. The value of any remaining credits will be reduced to zero. A generator will never receive a cash refund for unused credits. If the credits are not applied against electricity consumption, they are lost.

Interpretation Requested

You would like to know:

1. Do we track GST on the following separately (a) electricity consumed, (b) electricity credited, (c) invoice issued, (d) accrued credits applied on an invoice, and (e) accrued credits cleared from an account XXXXX?

2. Must the GST be shown on a customer's invoice if he/she is not registered for purposes of the GST?

3. How do we handle the fact that a consumer may have accrued credits that would be credited and/or cleared in a different GST fiscal year?

Interpretation Given

The Canada Revenue Agency's position is that the conveyance of electricity by an eligible generator into the distribution system is a taxable supply by way of sale from the eligible generator to the distributor. Therefore, GST applies to sales of electricity where the generator is a GST registrant.

Based on XXXXX, the distributor would be required to charge the generator for the electricity supplied to the generator and the applicable GST less the value of electricity and the applicable GST supplied by the generator who is a GST registrant to the distributor. A generator who is a GST registrant is required to keep books and records and to remit the GST on its supplies made to the distributor. Information on documentary requirements can be found in GST Memoranda 400-1-2 Documentary Requirements, a copy of which is enclosed for your reference.

Persons are required to register for the GST if they make annual taxable supplies in Canada in excess of $30,000. Persons making taxable supplies under $30,000 annually (referred to as small suppliers) are not required to register for the GST but may voluntarily do so. Once registered (whether required or voluntarily), persons must charge, collect and remit the GST on their taxable supplies made in Canada.

Where an eligible generator is a non-registrant (a person who is not required to be registered or a small supplier who has chosen not to register voluntarily), supplies made to the distributor will not be subject to GST. Therefore, a non-registrant generator will not charge, collect or remit GST on its supplies made to the distributor. In such circumstances, the GST is to be applied on the value of the electricity supplied by the distributor to the generator before crediting the generator for electricity supplied to the distributor.

Based on our understanding of XXXXX, there are no GST consequences when, in the clearing month, the accrued credits are cleared.

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) 954-7931.

Yours truly,

Anne Kratz
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

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