4 January 2007 GST/HST Ruling 86262 - Supply of a Right to Use a Municipal Road

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:

Application of GST to Container Recycling Fees

Thank you for your fax XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to Container Recycling Fees (CRFs) that XXXXX (the Company) charges on its sales of XXXXX (the Beverage).

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

Statement of Facts

Our understanding of the facts is as follows:

1. The Company sells several beverage products, including the Beverage.

2. The Beverage is a carbonated water that is sold in cases of XXXXX bottles.

3. For sales of the Beverage XXXXX, the XXXXX bottle is subject to a $XXXXX refundable deposit and a $XXXXX non-refundable CRF.

4. The Company charges GST on the consideration for the Beverage and on the CRF, but not on the refundable deposit.

Ruling Requested

You would like to know whether GST applies to the CRFs charged in respect of the XXXXX bottles of the Beverage.

Interpretation Given

The Department of Finance tabled a Notice of Ways and Means Motion on November 27, 2006, to amend several ETA provisions including those for returnable containers; these amendments were previously announced on February 8, 2002.

As stated in Section 1.4 of GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the CRA does not issue GST/HST rulings on proposed or draft legislation, draft regulations, federal budget proposals, or Notices of Ways and Means motions. However, the CRA may issue interpretations based on these documents. Accordingly, we are pleased to provide you with the following interpretation.

Based on the information provided, the CRFs charged in respect of the XXXXX bottles of the Beverage are subject to GST of 6%.

Explanation

Under the proposed amendments to the ETA provisions for returnable containers, a refundable deposit for a returnable container is not subject to tax. All references to section 226 of the ETA are to these proposed amendments to the ETA included in the Notice of Ways and Means Motion of November 27, 2006, unless otherwise noted.

Subsection 226(2) outlines deeming provisions that apply when a supplier makes a taxable supply (other than a zero-rated supply) of a beverage in a filled and sealed returnable container and charges a returnable container charge in respect of the container. The consideration for the supply of the beverage is deemed to be equal to the consideration for the supply as otherwise determined less the returnable container charge. When the returnable container charge exceeds the refund for the returnable container, the supplier is further deemed to have made a taxable supply in the province of a service in respect of the container for consideration, separate from the consideration for the beverage, equal to the amount by which the returnable container charge exceeds the refund for the container.

Subsection 226(1) defines the terms used in section 226. A "returnable container" in a province means a beverage container of a class of containers that

(a) are ordinarily acquired by consumers;

(b) when acquired by consumers, are ordinarily filled and sealed; and

(c) are ordinarily supplied in the province, used and empty, by consumers for consideration.

The "returnable container charge," in relation to a returnable container containing a beverage that is supplied at that time in a province, means the total of all amounts, each of which is charged by the supplier

(i) as an amount in respect of recycling in the province,

(ii) for the purpose of recovering an amount equivalent to the amount referred to in subparagraph (i) that was charged to the supplier, or

(iii) for the purpose of recovering an amount equivalent to the amount that was charged to the supplier by another supplier for the purpose referred to in subparagraph (ii) or for the purpose referred to in this subparagraph;

and "recycling," in respect of a province, means

(a) the return, redemption, reuse, destruction or disposal of

(i) returnable containers in the province, or

(ii) returnable containers in the province and other goods; or

(b) the control or prevention of waste or the protection of the environment.

The "refund" for a returnable container in a province is generally the legislated consumers' refund in the province for returnable containers of that class, which means the amount, or the minimum amount, that, under an Act of the legislature of the province in respect of recycling, must be paid in certain circumstances for a used and empty returnable container of that class to a person of a class that includes consumers.

Supplies of the Beverage are taxable at 6%; they are not zero-rated under Part III of Schedule VI to the ETA since the Beverage is carbonated. Subsection 226(2) will apply to the supplies of the Beverage made by the Company.

The XXXXX bottle for the Beverage is a returnable container under section 226 when sold XXXXX, and the refundable deposit and the CRF are amounts charged in respect of the recycling of the container. The total of these amounts is the returnable container charge when the Company sells the Beverage in the XXXXX bottle XXXXX. The refundable deposit is the refund for the XXXXX bottle. Subsection 226(2) deems that when the Company makes a supply of the Beverage in the XXXXX bottle, the deposit and the CRF are not part of the consideration for the beverage. Subsection 226(2) further deems that the CRF will be consideration for a taxable supply of a service in respect of the returnable container. The Company should not charge GST on the deposit, but should charge GST on the CRF.

These amendments to section 226 are proposed to come into force on May 1, 2002, and apply to supplies for which consideration becomes due, or that is paid without having become due, on or after that day.

The foregoing comments represent our general views with respect to the proposed amendments to the Excise Tax Act as they relate to the subject matter of your request. Any change to the wording of these proposed amendments or any future 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 GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation.

For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service.

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, CGA
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2007/01/23 — RITS 86499 — Supplies of Independent Medical Examinations