11830-2(on)
c.n. 890(REG)
Sch. V/VI/2
I refer to the facsimile transmissions of September 14, 1994, and April 10, 1995, from XXXXX of your office, addressed to Mr. Neil Minken and Mr. Owen Newell of Special Sectors. The assistance of Special Sectors was requested on an issue involving supplies made by a registered charity.
Statement of Facts
1. XXXXX entered into an agreement (the Agreement) on June 3, 1991, with the XXXXX XXXXX to provide recycling services to XXXXX for the period June 1, 1991, to May 31, 1996, with an option to renew the Agreement.
2. XXXXX is a registered charity under the Income Tax Act (ITA) and has two distinct operations. The first operation is a training program for disadvantaged youths, and is partially funded through a federal government employment program. The second operation involves the recycling activities.
3. XXXXX of the Agreement, XXXXX is to collect, receive, process, store as required, and market recyclables generated within the boundaries of XXXXX[.] Recyclables are defined in the Agreement as those items and materials generated within XXXXX to the Agreement contains a list of items that are currently considered recyclables and items that will eventually be considered recyclables. Included in the schedule are items such as newspapers, food and beverage cans of steel and aluminum, glass bottles and jars, corrugated cardboard, telephone books, etc.
4. XXXXX of the Agreement contains provisions of the responsibilities and obligations of XXXXX[.] Paragraph XXXXX specifies that XXXXX is to prepare recyclables in a manner that minimizes the net cost to XXXXX by maximizing revenues, and/or minimizing costs. Preparation of recyclables includes removal of the contaminants, magnetic separation and manual and mechanical sorting. Newsprint, magazines and similar items, once delivered to the recycling centre, are unbundled, if tied, and/or removed from plastic bags. The items are loaded into a transport trailer and shipped to market. Glass bottles, clear and coloured, are separated and also loaded into a transport trailer for shipment to market. Steel and aluminum cans are separated and also loaded into a transport trailer for shipment to market. Plastic jugs are bundled for transport.
5. XXXXX of the Agreement, XXXXX shall pay XXXXX a contract fee based on XXXXX annual operating budget as approved by XXXXX[.] The contract fee as defined in XXXXX of the Agreement, shall be paid in twelve monthly installments. The contract fee means the operating deficit of the Contractor XXXXX which is calculated by taking all gross operating costs of the contractor less all revenues received by the Contractor related to the Recycling Program, including but not limited to, revenues received from the marketing of recyclables. The contract fee shall be approved as part of the Contractor's annual operating budget. The annual operating budget is defined in XXXXX of the Agreement as XXXXX forecast of all gross operating costs and revenues for a calendar year of operating the recycling program.
Interpretations Requested
1. Is XXXXX making a supply of a service to XXXXX or a supply of the service and a supply of tangible property to interested buyers?
2. Are the recycled goods "acquired by" the charity for purposes of paragraph 2(e) of Part VI of Schedule V to the Act?
3. Was the recycled property donated to XXXXX[?]
4. Are the recycled goods used tangible property for purposes of paragraph 2(e) of Part VI of Schedule V to the Act?
Interpretations Provided
1. It is our view that XXXXX is making two supplies; a supply of a service to XXXXX and a supply of tangible property to interested buyers.
XXXXX of the Agreement states that XXXXX employs XXXXX to collect, receive, process, store as required, and market recyclables. XXXXX is therefore supplying a single supply of a service requiring collecting, receiving, processing, storing and marketing recyclables. The supply of this service made by a charity is exempt, pursuant to section 2 of Part VI of Schedule V to the ETA.
With respect to the supply of a basic garbage collection service, XXXXX is making an exempt supply of a basic garbage collection service, pursuant to paragraph 20(h) of Part VI of Schedule V to the ETA. The contracted service of collecting recyclables supplied by XXXXX is an input to this service.
In addition to making a supply of a service to XXXXX is making supplies of tangible property when it supplies the transformed recyclables to recipients either by contract or on the open market.
2. It is our opinion that XXXXX has acquired property from XXXXX[.] The Dictionary of Canadian Law defines acquire as:
"1. to obtain by any method and includes accept, receive, purchase, be vested with, lease, take possession, control or occupation of, and agree to do any of those things; but does not include expropriate."
As XXXXX takes possession of the recyclables, we believe that they acquire the property.
3. It is our opinion that pursuant to paragraph 2(e) of Part VI of Schedule V to the ETA, and in accordance with policy on donated goods currently being administered under the ITA, the tangible property was not donated by persons to XXXXX In the scenario involving curbside pick-up, XXXXX does not issue receipts to those households from whom recyclable property has been collected. This is in accordance with Income Tax administrative policy on donated goods and the issuance of receipts. For example, where a registered charity is collecting waste paper and/or other recyclables from taxpayers to sell to recycling outlets, the Department has taken the position that the charity may issue an official receipt for income tax purposes to the taxpayer for the fair market value of the recyclable material. The amount of the receipt would equal the value received by the charity from the recycling depot for the material. This policy is applicable to those situations where the charity knows both the quantity of the recyclable property acquired from the taxpayer and the value of consideration received from the supply of the property. Based upon income tax policy where recycled materials is only considered donated in specific situations as described above, and is not considered donated goods when disposed of in blue boxes, it is our opinion that households are not making donations of recyclable property to XXXXX[.]
4. It is our opinion that the recyclable property is used tangible personal property. Used tangible personal property as defined in subsection 123(1) of the Act means "tangible personal property that has, at any time, been used in Canada."
The property under discussion, such as cans, bottles, etc. have been used in Canada to contain liquids and therefore, by definition, are used tangible personal property. Administrative policy with respect to what constitutes used property for supply has been developed by the Department (for purposes of the notional input tax credit Policy Statement P-158). Used property acquired for supply must meet certain conditions in order to be considered used. The property must not be:
(a) substantially transformed or altered
(b) incorporated into something else where the property loses its identity in the process
(c) manufactured, processed or produced into a new good
(d) fundamentally changed, altered or transformed of the form, nature or fundamental characteristics of the property
(e) improved property beyond its original condition
(f) physically or chemically changed
(g) consumed in the process of the formation of a new product
It is our opinion that XXXXX does not transform the used property into different tangible personal property when it processes the recyclable property for sale on the market. The bottles, plastics and newspapers are not crushed or processed for the purposes of supply. As stated above in the statement of facts, the recyclable property is placed in bins for transport to market.
Therefore, it is our opinion that XXXXX is acquiring used tangible property and is supplying the same used tangible property. The supply of the recycled property by XXXXX is an exempt supply pursuant to paragraph 2(e) of Part VI of Schedule V to the Act.
Should you have any further questions, please contact Ms. Joanne Houlahan, Manager, Public Service Bodies at (613) 954-7945, or Mr. Owen Newell, Policy Officer, Municipalities at (613) 954-4280.
J.A. Venne
Director
Special Sectors
GST Rulings and Interpretations
| c.c.: |
J. Houlahan
N. Minken
O. Newell
M. Matthews
R. Courneyea, Audit |
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