Telephone #: (613) 954-8585
Fax #: (613) 990-1233
XXXXX File #: 11680-1(glr)
XXXXX s. 123, 142, 143, 217
XXXXX August 12, 1996
Dear XXXXX
I refer to your facsimile message of June 19, 1996, your telephone conversation with Mr. Garry Ryhorchuk of my staff on July 24, 1996, and your facsimile message of May 27, 1996, to XXXXX concerning the status for Goods and Services Tax (GST) purposes of royalties and administration/overhead costs.
I understand that none of the issues herein is being considered by a Revenue Canada Tax Services Office in connection with a GST return already filed and none of the issues is under objection or appeal.
Our understanding of the facts and transactions is as follows:
Statement of Facts
1. XXXXX is registered resident (GST Registration XXXXX located in XXXXX[.]
2. XXXXX entered a XXXXX [the Agreement] with XXXXX, a non-resident located in XXXXX relating to the growing and marketing of a particular type of XXXXX[.]
3. XXXXX is not registered for GST purposes. In addition, the supply of the growing and marketing rights is not a supply that is being made in the course of a business carried on in Canada by XXXXX[.] Rather, the supply of the rights is being made in the course of a business carried on in the XXXXX[.]
4. XXXXX of the Agreement states that: "This agreement shall commence when executed by both parties and continue for a period equal to the duration of the XXXXX for each variety set forth on Exhibit A or until the expiration or termination of the trademark, whichever is later unless earlier terminated as provided below.
The Agreement was signed by XXXXX[.]
5. XXXXX obtained its licence from the XXXXX, the licensor. XXXXX licence covers XXXXX Canada XXXXX.
6. The territory covered by XXXXX non-exclusive sublicence is Canada.
7. Paragraph XXXXX of the Agreement outlines the payments to be made by XXXXX to XXXXX as follows:
• A set royalty of XXXXX Canadian for each XXXXX sold and for each XXXXX top worked using XXXXX sold by XXXXX of the XXXXX constituting the subject matter of this agreement sold during each reporting period during the term of this agreement and after the term of this agreement.
• No royalty shall be payable on replacement XXXXX provided a customer of XXXXX nor upon XXXXX destroyed for any reason.
• In the event the average price per XXXXX (excluding royalty) charged by XXXXX Canadian, then the royalty set forth above shall be increased to XXXXX of the price XXXXX charges for XXXXX excluding royalty.
8. Paragraph XXXXX of the agreement allows XXXXX compensation in an amount equal to XXXXX of the royalty payable by XXXXX to XXXXX as calculated in paragraph XXXXX (as outlined in item 6 above) to cover XXXXX administrative costs and overhead.
9. In your letter of May 27, 1996, you state that the plant material is either purchased directly from the owner for resale, or propagated in XXXXX XXXXX to XXXXX Canadian customers. The customer is charged for XXXXX of the material and also charged separately for royalties.
10. During your conversation with Mr. Ryhorchuk, you advised that XXXXX is not an agent of XXXXX[.]
Ruling Requested
1. The amount identified as a royalty, which is charged by XXXXX to its resident customers, is zero-rated (i.e., subject to the GST at 0%).
2. The royalty payments made by XXXXX to XXXXX are zero-rated.
3. The XXXXX deduction from the royalty payments XXXXX pays to XXXXX to cover XXXXX administration and overhead costs, is not consideration for a supply from XXXXX to XXXXX[.]
Ruling Given
Based on the facts (and the transactions contemplated as set out above), we rule that:
1. The amount XXXXX charges separately to its Canadian customers, which is identified as a royalty, is part of the consideration of XXXXX supply of tangible personal property, XXXXX[.] The consideration for the supply XXXXX which includes the XXXXX as well as the royalty, is subject to the GST at 7% under Division II of the Excise Tax Act (Act).
2. The supply by XXXXX to XXXXX of the growing and marketing rights to XXXXX is a supply of intangible personal property. This supply is deemed to be made outside Canada under the provisions of subsection 143(1) of the Act. The supply from XXXXX to XXXXX is, therefore, not subject to the GST under Division II. There is no requirement for XXXXX to self-assess the GST under Division IV of the Act because the XXXXX marketing rights are acquired by XXXXX for consumption, use or supply exclusively in its commercial activity.
3. The XXXXX deduction to cover XXXXX administration costs and overhead is a reduction in the consideration for the supply by XXXXX to XXXXX and is not consideration for a supply from XXXXX to XXXXX This ruling is subject to the general limitations and qualifications outlined in Section 1.4 of the GST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection or appeal, there are no relevant changes in future to the Act, and you have fully described all necessary facts and transactions for which you requested a ruling.
If you have any questions or require further information, please contact Mr. Ryhorchuk at (613) 952-6743 or Mr. Randy Nanner at (613) 952-8810.
Yours sincerely,
H.L. Jones
Director
General Applications Division
GST Rulings and Interpretations
Policy and Legislation Branch
GAD #: 1774(REG)
Email this Content