signed 950118
File: 11995-1
File: 11995-5
Doc: 1078
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Subject:
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Freight Transportation Using a "Schnabel"
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I refer to your facsimile transmissions of January 20 and March 15, 1995, by which you sent contractual information between XXXXX (hereinafter referred to as XXXXX) and XXXXX (hereinafter referred to as XXXXX). In you telephone conversations with a member of my staff, namely Tom Alley, you enquired whether the supply made by XXXXX could be considered a zero-rated freight transportation service pursuant to either section 6 or 7 of Part VII of Schedule VI to the Excise Tax Act.
Facts
1. XXXXX has a contract to supply XXXXX replacement steam generators (RSGs) manufactured by XXXXX to XXXXX power plants owned by XXXXX (hereinafter referred to as XXXXX) in XXXXX[.]
2. The RSGs will be delivered by rail and, because of their size, shape and need to be vertical, require a custom built cradle (referred to as a "schnabel") with two saddles to support the RSGs (the schnabel attaches between two heavy duty rail cars and will be practically useless for any other purpose);
3. The agreement is effective from March 15, 1994 to June 1, 1997, with four shipments in each of 1995, 1996 and 1997 to the XXXXX power plants respectively;
4. The price is XXXXX in 1994 dollars to be paid in a series of payments starting with an advance before the agreement is signed followed by payments:
• on submission of certified design drawings
• on completion of successful pre-trip system check
• on mobilization of the schnabel and shipping saddles on XXXXX property
• on delivery of each of [(]XXXXX RSGs)
5. The price is exclusive of all sales and excise taxes, duties or other taxes;
6. XXXXX shall provide all railway cars and arrange for rail transportation by XXXXX of the schnabel and RSGs including being responsible for
• obtaining all railway clearances, permission and approval for the transport by rail of the schnabel,
• satisfying all conditions imposed by any railway company,
• paying all railway freight charges including line haul charges and special train charges,
• establishing the route, and
• any modification or improvement to track or the right of way, all at XXXXX own expense;
7. XXXXX will take out and maintain cargo insurance for not less than XXXXX on each RSG shipped;
8. XXXXX shall take out and maintain insurance but the premiums will be paid by XXXXX will be named as the co-insured. The insurance taken out by XXXXX is to include:
• general liability insurance for damage because of bodily injury including death of any person caused by the schnabel;
• property damage insurance for direct physical loss up to full replacement cost of the schnabel;
• workers' compensation or similar XXXXX insurance;
• contractor's equipment insurance to cover equipment used in performing XXXXX responsibilities;
• automobile third party liability insurance to cover all motor vehicles owned, hired or used by XXXXX for all claims for bodily injury including property damage and passenger hazard with limits of not less than XXXXX per occurrence.
9. XXXXX will not act as XXXXX's agent or representative;
10. XXXXX will maintain title to the schnabel even though it will be affixed to XXXXX rail cars and it;
11. XXXXX will provide for the design and manufacture of the schnabel and two saddles to support the RSGs on the schnabel, install the schnabel on two rail cars, provide skilled personnel and expertise to assist in loading, transporting and off loading the XXXXX RSGs and assist in the disassemble of the schnabel when each delivery is complete;
12. XXXXX is expected to write off the cost of the schnabel over the XXXXX deliveries;
13. By a separate agreement, XXXXX will provide for the manufacture of a second schnabel as a form of insurance and will be kept on XXXXX property until the deliveries are complete.
14. Under an agreement for the supply of the RSGs, title to the RSGs will pass to the XXXXX on delivery by XXXXX at its manufacturing facility (i.e., F.O.B. the manufacturing facility). However, risk of loss of damage to the RSGs shall remain with XXXXX until inspected by the XXXXX prior to unloading at the power plants.
Analysis
In determining whether XXXXX is providing a zero-rated freight transportation service, it is important to compare the responsibilities of XXXXX does not sell the schnabel to XXXXX is responsible for a combination of the rental of the schnabel and the services of personnel who are experts on how to use the schnabel. Although XXXXX is required to take out insurance, XXXXX is to pay for it and the scope of the insurance taken out by XXXXX will not cover the RSGs themselves.
It appears that XXXXX retains all responsibility for the transportation of the RSGs and determines what insurance is required to cover the schnabel. The schnabel is attached to rail cars owned by XXXXX and is used to transport XXXXX property. XXXXX is responsible for all rail charges and assumes the risk of loss or damage to the RSGs.
Ruling
It does not appear that XXXXX has direct responsibilities or assumes risk for the goods being transported. XXXXX is the carrier of XXXXX freight and the schnabel. Therefore, XXXXX cannot be considered to be providing a zero-rated freight transportation service as listed in either of section 6 or section 7 of Part VII of Schedule VI to the Excise Tax Act and the supply by XXXXX is a taxable supply subject to the GST at a rate of 7%.
If you have any comments or questions, please do not hesitate to contact Tom Alley, Tax Policy Officer at (613) 952-9218.
Tony D'Abramo
Manager, Services Unit
Special Sectors
GST Rulings and Interpretations
| c.c.: |
Adam Belyea
Dwayne Moore
Tom Alley |
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