File no. 11755-20 XXXXX
October 25, 1995
This is in reply to your letter of November 21, 1994 in which you inquired about the transactions entered into by XXXXX. I apologize for the delay in answering to your letter.
Background
XXXXX operates a smelter where it reduces material containing gold and/or silver. It receives scrap products containing gold and/or silver and determines the gold and/or silver content and credits his customers' inventory accordingly. At a subsequent time, when a customer takes possession of gold or silver XXXXX debits the inventory of the customer. They charge their customers a service fee for smelting the scrap and they only charge GST on the value of their service. They do not charge an amount for the transfer of the gold or silver to their customers.
In your letter, you indicated that XXXXX stated that they do not obtain legal ownership of the goods when they take physical possession of the scrap. They consider that they are not making a supply of goods but are only making a supply of a service.
You inquired as to whether it is acceptable for XXXXX not to account for tax on the precious metal content when they transfer goods to their customers and for the customers not to account for tax when they transfer scrap to XXXXX[.]
ANSWER
I reviewed the material that you forwarded with your letter and, based on this information, I could not make a determination as to whether XXXXX actually obtains title to the goods when their customers provide them with scrap. I also researched the issue raised in your letter and did not find specific material that would support or be contrary to the registrant's position.
However, if you are satisfied with the contention that XXXXX does not obtain legal ownership of the goods, l agree that XXXXX is merely providing a service to their customers and is not selling goods. During a telephone conversation held October 25, 1995 XXXXX, of XXXXX, informed me that, after Audit and Tax Services met with them in November 1994, Department's officials were satisfied that no title passes from the customers to XXXXX when XXXXX acquires scrap.
If this is not the case and you want to obtain further evidence that title does not pass, Audit might wish to ask for additional information, such as the contracts entered into by XXXXX and their customers. If it is determined that XXXXX actually obtains legal title to the goods provided to them by their customers, they would therefore sell goods when subsequently providing gold or silver to their customers.
I hope that the above will be useful to you. If you wish to discuss this issue further, please do not hesitate to contact me at (613) 952-9580.
Serge Bernier
XXXXX A / Senior Policy Officer
Taxing Provisions
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