File: 11845-2(MB)
Doc: 1414R
Ref: S 5 of Pt IV to Sch VI
Dear Mr. XXXXX
This is in reply to your request of August 30, 1995 requiring clarification on the application of the Goods and Services Tax (GST) to supplies of "fertilizer" in the context of section 5 of Part IV to Schedule VI of the Excise Tax Act (ETA).
Statement of facts:
Pertinent facts are taken from the correspondence provided and telephone conversations between yourself and members of my staff.
1) AMMONIUM NITRATE and UREA are products sold for agricultural and non-agricultural use by XXXXX[.] All products are sold as zero-rated goods for GST purposes where zero-rating conditions are met.
2) XXXXX manufactures basic types of fertilizers such as UREA (46-00-0) and AMMONIUM NITRATE (34.5-0-0).
3) Some products are manufactured in various grades and are identified by product code, description and chemical composition. They are not labelled as "fertilizer" or "non-fertilizer". UREA is manufactured in at least two grades: as a regular fertilizer grade and in the form of smaller pellets for use as feed. For example:
• UREA (46-0-0) SGN - uniform grade for export.
• UREA (46-0-0) MP - for mixing in cattle feed. Prills or granules are smaller and softer than the regular fertilizer grade. MP stands for Micro Prill.
• UREA (46-0-0) FINE - fertilizer grade.
• UREA (46-0-0) SC - special fertilizer grade.
• UREA (46-0-0) FEED - feed stock grade.
4) Over 90% of the fertilizers are sold in bulk and are neither labelled nor packaged.
5) The majority of XXXXX customers are in the agricultural sector.
6) Some fertilizers have industrial uses as follows:
i) AMMONIUM NITRATE: used by mining companies as an ingredient for making explosives.
ii) UREA: used in the manufacturing of resin (urea formaldehyde resin) or plastics;
• as an ingredient for glue used in the manufacturing of particle board;
• as a supplement to cattle feed as a non protein source of nitrogen.
(It is our understanding, following a telephone conversation, that you do not wish a ruling regarding UREA used for resin, plastics and glue.)
7) XXXXX has separate marketing departments for agricultural and non-agricultural use.
8) Pricing of fertilizer varies significantly according to its use. For example, the product AMMONIUM (82-0-0)" is sold at the following varying prices:
XXXXX (Fertilizer for agricultural use is a seasonal product incurring storage expenses which may account for some of the variation in price.)
9) XXXXX manufactures three grades of AMMONIUM NITRATE:
• AMMONIUM NITRATE 34.5-0-0: the regular fertilizer grade;
• AMMONIUM NITRATE 34.5 MN: explosive grade for use in making explosives (mini prill);
• AMMONIUM NITRATE 34.5 LQ: explosive grade for use in making explosives (liquor form).
10) Both 34.5 MN and 34.5 LQ are manufactured differently.
XXXXX AMMONIUM NITRATE 34.5 MN has smaller size prills than the regular fertilizer grade as required by a customer's specification. The smaller prill provides more surface for a better explosion.
• The "explosive" grade is produced separately from the regular fertilizer grade because of the shorter coating process required to make smaller size prills. The finished product is stored in a storage tower that is used exclusively to store the "explosive" grade nitrate.
• Both 34.5 MN and 34.5 LQ are sold exclusively to a group of customers in the industrial sector such as:
XXXXX
11) All three AMMONIUM NITRATE products, although having the same chemical composition, are manufactured differently, that is, 34.5-0-0 (regular fertilizer grade), 34.5-0-0 MN (mini prill) and 34.5-0-0 LQ (sold in liquor form).
12) All three products are sold in quantities to meet the total bulk quantity requirement in section 5 of Part IV to Schedule VI of the ETA.
Issue:
Are supplies of UREA and AMMONIUM NITRATE, manufactured and sold by XXXXX zero-rated supplies for GST purposes pursuant to section 5 of Part IV to Schedule VI of the ETA?
Reply:
UREA as fertilizer:
Section 5 of Part IV to Schedule VI of the ETA zero-rates:
A supply of fertilizer made at any time to a recipient when the fertilizer is supplied
(a) in bulk, or
(b) in a container that contains at least 25 kg of fertilizer,
where the total quantity of fertilizer supplied at that time to the recipient is at least 500 kg.
As the ETA does not provide a definition for "fertilizer", a product must fall within the definition of "fertilizer" under the Fertilizers Act and be included in Schedule II to this Act to qualify as "fertilizer" for purposes of the GST. Section 2 of the Fertilizers Act defines fertilizer as follows:
"fertilizer" means any substance or mixture of substances containing nitrogen, phosphorous, potassium or other plants and supplied in quantities of at least 500 kg, it is considered a zero-rated supply of fertilizer for GST purposes pursuant to section 5 of Part IV to Schedule VI of the ETA, regardless of its intended use. The products UREA SGN, UREA FINE, and UREA SC are manufactured, sold and represented as plant nutrients and therefore zero-rated as fertilizers.
UREA as feed:
Where XXXXX manufactures UREA in a different form, that is, as a product with softer and smaller prills for use as an ingredient for livestock feed, which XXXXX sells and represents as other than fertilizer, then this product no longer meets the definition of fertilizer in section 2 of the Fertilizers Act. Rather, the manner in which UREA SGN and UREA FEED are manufactured, represented and sold distinguishes these two products as feed for livestock.
Subsection 1(2) of the Agriculture and Fishing Property (GST) Regulations, zero-rates:
Feed, when sold in bulk quantities of at least 20 kg (44 lbs) or in bags that contain at least 20 kg (44 lbs), that
(a) is a complete feed, supplement, macro-premix or micro-premix, all as defined in the Feeds Regulations,
(b) is labelled in accordance with the Feeds Regulations, and
(c) is designed for a unique species or class of farm livestock, fish or poultry that are ordinarily raised or kept to produce, or to be used as food for human consumption or to produce wool.
Under the Feeds Regulations, UREA is considered a "single ingredient feed" which is defined as "any substance or mixture of substances that is assessed or evaluated as being acceptable for use in feeds and that is described in an item of Schedule IV or V;"
As a "single ingredient feed" UREA will not meet the requirements for zero-rating pursuant to paragraph 1(2)(a) of the Agriculture and Fishing Property (GST) Regulations which require that UREA be "... a complete feed, supplement, macro-premix or micro-premix, all as defined in the Feeds Regulations"; therefore, the supplies of UREA MP and UREA FEED x sold as an ingredient for livestock feed are subject to GST at a rate of 7 per cent pursuant to subsection 165(1) of the ETA.
AMMONIUM NITRATE as fertilizer:
AMMONIUM NITRATE is included in Schedule II to the Fertilizers Act; however this product must also meet the definition of fertilizer as a product: "... manufactured, sold or represented for use as a plant nutrient".
Where XXXXX manufactures AMMONIUM NITRATE as a regular fertilizer grade, sells or represents this product for use as a plant nutrient, supplied in quantities of at least 500 kg, it is a zero-rated supply of fertilizer for GST purposes.
AMMONIUM NITRATE with non-fertilizer uses:
Where XXXXX manufactures AMMONIUM NITRATE in a different form, that is, in liquor form or in smaller size prills specified by a customer, for use in making explosives, then this supply no longer meets the definition of fertilizer for use as a plant nutrient under section 2 of the Fertilizers Act, but rather, a product for use in the making of explosives. Where AMMONIUM NITRATE MN and LQ are manufactured, sold or represented for use in the making of explosives they are subject to GST at a rate of 7 per cent pursuant to subsection 165(1) of the ETA.
If you have any comments or questions concerning the above, please do not hesitate to contact Michèle Brûlé at (613) 952-9208.
Yours truly
J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations
| c.c.: |
Enikö Vermes
Michèle Brûlé
Ken Syer
XXXXX |
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