File: 11845-2
XXXXX
XXXXX July 18, 1995
This refers to our previous letter of May 5, 1995, XXXXX in which we discussed the application of the Goods and Services Tax (GST) to supplies of services made by farmers to a feed mill. Since the letter of May 5, 1995, you have discussed this matter with Ken Syer of this office. This letter is to clarify the Headquarters response.
In the case at hand there are two issues to be examined. The facts of the case are as follows:
• A feed mill owns chickens or pullets.
• The farmer contracts to provide the service of caring for and maintaining the flock. The chickens are housed at the farmer's location where he also provides water, heat and light.
• The feed mill provides the farmer with the feed for the chickens. The farmer does not have title to the feed at any time.
• The remuneration in some situations is based upon a set amount per hen raised.
• Under an alternative method of remuneration, the farmer is paid a growing fee equal to 39% of the egg revenue for the duration of the agreement. The farmer also receives 100% of the profit from the contract according to a predetermined calculation.
The issues to be addressed are:
1) What is the GST status of the supply of the service made by the farmer of raising and maintaining the flock of chickens?
2) What is the GST status of the remuneration received by the farmer for the supply of the eggs?
It is our opinion that the farmer is providing a service of raising and maintaining the flock on behalf of the owner. As you know, this service is not zero-rated under Schedule VI to the Excise Tax Act and is a service that is subject to the GST at 7%. Therefore, the remuneration in the form of a set amount per chicken raised is consideration in respect of the supply of a taxable service.
Further, we do not consider the remuneration which the farmer receives from the supply of the eggs to be consideration for the supply of the eggs. The farmer does not have title to the eggs. When he receives part of the consideration which the feed mill receives for the supply of the eggs, it remains consideration in respect of the supply of the services of maintaining the flock. It is not consideration for the supply of zero-rated eggs. It is merely a method of determining consideration for the supply of the service.
Therefore, the remuneration received by the farmer from the feed mill's supply of eggs is remuneration for the supply of a taxable service and GST at 7% should properly apply.
I hope this clarifies our position on this case. If you would like to discuss this case further, please do not hesitate to contact Ken Syer, Tax Policy Officer at (613) 952-9590.
Yours truly
Enikö Vermes
Manager
Health Care, Goods and Services
GST Rulings and Interpretations
c.c.: K. Syer
M. Brulé
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