12 December 1994 GST/HST Interpretation 11685 - GST Rebate Under Subsection 252(2)

I refer to your letter dated September 16, 1994, concerning the above matter.

You had raised specific questions with respect to subsection 252(2). I will answer the questions in the order in which they were submitted.

1. Question:

What is meant by, "for consumption or use exclusively in the [manufacture or] production of the commercial?"

Response:

In order to answer this question, we must examine each of the words in the phrase individually.

"Consumption" is generally defined as the act or instance of consuming or the process of being consumed. "Consume" is often associated with eating and drinking (i.e., a person consumed an entire pizza or a person consumed two glasses of wine), or using something up, such as time allocated to a particular activity.

"Use" refers to the act or practice of using or employing something. "Use" stresses the practicality of the end, result or purpose for which something was acquired. In the context of subsection 252(2), "use" stresses the purpose for which a service was acquired or performed.

The word "exclusive" is defined in subsection 123(1) of the Act to mean:

(a) in respect of the consumption, use or supply of property or a service by a person that is not a financial institution, all or substantially all of the consumption, use or supply of the property or service, and,

(b) in respect of the consumption, use or supply of property or a service by a financial institution, all of the consumption, use or supply of the property or service.

"All or substantially all" is interpreted by the Department as "90% or greater" for persons other than financial institutions.

"Manufacture" and "production" are not defined in Part IX of the Act. However, in taxing statutes, "manufacture" generally is given its narrower meaning of production of articles from raw and prepared materials by giving them new forms, qualities and properties, or combinations and usually, but not always, excluding repairing or processing for the purpose of restoring an article to it former condition. But there is no absolute rule as to how the word "manufacture" should be construed in a taxing statute. (York Marble, Tile and Terrazzo Ltd. v. The Queen [1966] C.T.C. 355 (Exch.).)

In Compo Company Ltd v. Blue CrestMusic Inc. [1980] 1 S.C.R. 357, 29 N.R. 296; 105 D.L.R. (3d) 249, "manufacture" is given a broader meaning. Per Estey, J.: "In modern usage the word 'manufacture' connotates a large-scale production of the article and/or the production of the article by combining the efforts or creations of two or more contributors by subcontract or otherwise. Thus, the components might be made by several different persons and the final product might be assembled or produced for marketing by the manufacturer. Such a person might also be referred to as the `maker' because the meaning of the word 'making' and 'manufacturing' overlaps in modern language. The difference is that manufacturing is a broader term and might be applied to a person who physically or actually makes, fabricates, assembles, nothing, but who as the 'general contractor' is the coordinator of all the contributing makers of the components or sub-assemblies."

"The word 'produce' means to bring forward; to show or exhibit; to bring into view or notice; as, to present a play, including its presentation in motion pictures.

2. Question:

What are the specific parameters or to what extent are we going to allow a GST Rebate on the costs associated with the production of the commercial? In the case of the commercial produced in Canada for GST — A Guide for Non-Residents, by an American company, will the cost incurred by the company for the producer, the director, the camera man, the actor, etc. qualify for a GST Rebate if 90% of their time is used to produce the commercial?

Response:

In order for the property or services acquired by the non-resident to be eligible for a rebate under subsection 252(2), the supplies must have been "for consumption or use exclusively in the manufacture or production" of the commercial. In order to qualify for the rebate, the property or services must be 90% or greater consumed or used in the production of the commercial. The GST Guide "GST — A Guide for Non-Residents (April, 1993)" (on page 62) and the publication "CICA/Ernst & Young, Non-Resident Rebates" (on paragraph 9,012) have paraphrased the subject phrase (paragraph 4) as "... use or consume solely and directly in the production of goods." This is incorrect. The product or service does not need to be directly used in the production of the film. Under the FST, "exclusively" and "exclusively and directly" had distinct and separate meanings. For example,

Items such as vehicle rental, air charters, fuel purchases and tangible personal property acquired by the non-resident producer may qualify for rebate; these items may have to be considered on a case-by-case basis.

Items such as film processing, video paper, and services such as those performed by the production manager, the camera man, actor, or other contracted services would, in all likelihood, qualify for the GST rebate. Other products or services that are integral to the production of the commercial (i.e. standard costs that would form part of the overall budget of the commercial) would also qualify.

"Other products or services" may include accommodation or meals (if paid for by the company), but would not include any products or services that were not used in the ordinary course of business of the company and primarily used, consumed, or enjoyed in Canada. An example of this would be where a number of the cast and crew decided to go "sightseeing" for a couple of days after completion of the shoot. The sightseeing tour and all costs associated with it (accommodation, meals, etc.) would not form an integral part of the commercial and therefore would not be eligible for the rebate.

The intent of the legislation is to create a "level playing field" where the non-registered non-resident would be no better or no worse off than if he was a resident who was registered for the purposes of the GST.

3. Question:

Would the living and related expenses incurred by those people, as listed on the supplements of the attached claim be eligible for a GST Rebate?

Response:

Personal items, such as accommodations and meals paid for by the individuals for their own non-business use would be excluded from the rebate, as they were not exclusively consumed or used in the manufacture or production of the commercial.

4. Question:

If the expenses do not qualify for a GST Rebate under subsection 252(2), would they qualify under any other section of the Act?

Response:

Several goods, but no services, may qualify under subsection 252(1). Subsection 252(1) states:

252.(1) Non-resident rebate in respect of exported goods — Where a non-resident person is the recipient of a supply of tangible personal property acquired by the person for use primarily outside Canada, other than

(a) used specified tangible personal property acquired by the person by way of purchase for consideration that exceeds the prescribed amount in respect of the property,

(b) excisable goods,

(c) wine, and

(d) gasoline, diesel fuel or other motive fuel, other than such fuel that

(i) is being transported in a vehicle designed for transporting gasoline, diesel fuel or other motive fuel in bulk, and

(ii) is for use otherwise than in the vehicle in which or with which it is being transported,

and the person exports the property within sixty days after it is delivered to the person, the Minister shall, subject to section 252.2, pay a rebate to the person equal to the tax paid by the person in respect of the supply.

Items such as the stuffed animals, maps, batteries, etc. and other personal items may qualify under subsection 252(1) if they are exported within the time frame specified (even though they may not have qualified under subsection 252(2)). A visitor rebate form will be required. These rebates will have to reviewed on a case-by-case basis.

Cigarettes, fuel, jewelry and any other excisable goods that are exported are specifically excluded from being eligible for the GST rebate.

Should you have any questions please contact Karl Marten at 952-2214.

H.L. Jones
Director General
Tax Policy GST
Policy and Legislation

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