February 7, 1995
11845-1(PDL)
CN1014
XXXXX
I am responding to your electronic message of September 22, 1994 addressed to Pamela Lafrance, concerning the additional charges itemized on invoices for livestock sold domestically. Please excuse the delay in our reply.
When livestock is sold at auctions, deductions are made from the producers settlement for various supplies made by the auction house. These deductions may include charges for branding, veterinary services, feeding services and freight. In certain cases purchasers or suppliers of livestock may be required to pay for some of these services. Other charges are added to the purchase price of the livestock. In both cases, the deductions or additions are clearly indicated on the invoice. It is necessary to evaluate each deduction or addition and the manner in which it is supplied in order to determine the tax status.
Deductions/additions such as commissions, branding, veterinary services, feeding services, freight and other charges (i.e. hay) are treated as consideration for services and are taxable at the rate of 7%. However, such supplies could be exempt from the GST under section 6 of Part VI of Schedule V to the Excise Tax Act provided the following conditions are met
1) The person conducting the livestock auction can be considered a non-profit organization as defined in subsection 123(1) of the Excise Tax Act. Subsection 123(1) defines a non-profit organization as "a person (other than an individual, an estate, a trust, a charity, a municipality or a government) that was organized and is operated solely for a purpose other than profit, no part of the income of which is payable to, or otherwise available for the personal benefit of, any proprietor, member or shareholder thereof unless the proprietor, member or shareholder is a club, a society or an association the primary purpose and function of which is the promotion of amateur athletics in Canada;"
2) Each service was contracted from an outside supplier by the non-profit organization and the cost of the service was not marked up when passed to the seller or purchaser.
Input tax credits could not be claimed by the non-profit organization to the extent that they relate to exempt activities. Therefore, any GST incurred by the organization to provide these services (i.e. overhead) could not be recovered.
An insurance policy is considered to be an exempt supply where the policy or contract of insurance is made by an insurer or an agent of an insurer. Section 123(1) of the Excise Tax Act defines an insurer as
"a person who is licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada an insurance business or under the laws of another jurisdiction to carry on in that jurisdiction an insurance business;"
An insurance policy will also be considered an exempt supply if the policy or contract is in the nature of accident, sickness or dental insurance regardless of whether or not the policy is provided by an insurer. As indicated above, input tax credits are not allowed in respect to exempt activites.
You may contact Pamela Lafrance, Tax Policy Officer, Goods at (613) 957-9152 if additional information or assistance is required.
Yours truly
Enikö Vermes
A/Manager
Goods and Health Care Services
GST Policy and Legislation
| c.c.: |
District I & S Manager
XXXXX
P. Lafrance |
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