16 October 1997 GST/HST Interpretation HQR0000011 - Returnable Containers

XXXXX

GST/HST Rulings  XXXXX                and Interpretations Directorate  XXXXX                25, McArthur Avenue  XXXXX                Vanier (Ontario)  XXXXX                K1A 0L5

                                                                        File: 11610-7(rl)
Section 226
HQR0000011

                                                                        October 16, 1997

Dear XXXXX

This letter is in response to the memorandum (attached) sent to XXXXX . The facsimile was forwarded to General Operations and Border Issues, GST/HST Rulings and Interpretations Directorate, for a response. The memorandum raised six questions concerning returnable containers, some of which relate to specific fact situations. We apologise for the delay, however we trust that you will forward the contents of our response to XXXXX

Our response is structured in the following manner. First, we will describe, in a general manner, the application of the rules applying to returnable containers. Second, we will cover the fact patterns described in the memorandum and indicate the Department's position in respect of the tax treatment applicable to each of these patterns. Finally, we will directly answer the questions raised by XXXXX We proceed in this manner as it permits us to illustrate the Department's position as it applies to the fact patterns. As your facsimile originates from XXXXX a non-participating province for purposes of the harmonized sales tax (HST), we will assume that where an amount of tax is payable, the rate of tax is 7% (i.e. GST).

I - TAX TREATMENT

A. GUIDING PRINCIPLE

The guiding principle of the rules applying to returnable containers is that the containers, the registrants who subcontract for the filling and sealing of their product or the registrants importing containers as their usual practice, are the ones which have the obligation to remit tax and are entitled to the related input tax credits (real or notional) in the production and distribution chain where these containers circulate.

The other registrants involved in this chain of supplies, which are not directly in the business of bottling, would be relieved from the remittance obligations that would normally result from the supply of containers in the course of their business. Conversely, they would not be entitled to the input tax credits (ITCs) that would otherwise be claimable. The amounts of tax are considered as included in the deposits given for the containers in order to keep the integrity of the deposit amounts intact.

These rules apply in circumstances where the amounts paid for the containers in the perspective of their resupply are to be seen as deposits more than as a profit-making activity. This is the reason the special rules do not apply to the bottlers, or to the registrants who use the services of bottlers for the manufacturing of their product. This is also the reason, generally, the special rules apply where the supplier of a returnable container charges no more for the supply of the container than the amount paid for its acquisition.

B. LEGISLATIVE SCHEME

1. Introduction

Special rules apply to returnable containers. These rules apply to a "returnable container" as the term is defined at subsection 226(1) of the Excise Tax Act (the Act). We will examine the rules applicable to these returnable containers. We will also examine the treatment of containers which are not subject to the special rules.

2. Definition of Returnable Container

Returnable container is defined at subsection 226(1) of the Act as follows:

"In this section, 'returnable container' means a beverage container (other than a container for a beverage the supply of which is included in Part III of Schedule VI) of a class that

(a) is ordinarily acquired by consumers;

(b) when acquired by consumers, is ordinarily filled and sealed; and

(c) is ordinarily supplied empty by consumers for consideration."

An example of a container which is not a returnable container would be where the beverage contained in the container is zero-rated by virtue of Part III of Schedule VI. For example, a container of pure orange juice which is zero-rated (beverage of more than 25% natural juice) would not be included in the definition of "returnable container", even where such container has been subsequently emptied of its zero-rated contents.

The special provisions provided for at section 226 of the Act apply only to returnable containers as defined at subsection 226(1), as included above.

3. "Returnable Containers": Container and Content as Separate Supplies

Subsection 226(2) provides that where a container is a "returnable container", the supply of the returnable container is deemed to be a supply separate from the supply of its contents and section 137 (coverings and containers) does not apply. Consequently, the supply of a filled container is deemed to constitute two separate supplies, one being the supply of the contents, and the other one being the supply of the container. Where the container is supplied with its contents for a single consideration, the supply of the container is deemed to be made for the part of the total consideration that is reasonably attributable to the container.

4. "Returnable Containers": Special Rules

Subject to subsection 226(5), the tax collectible in respect of the supply of "returnable containers" does not have to be remitted and no ITC is claimable on the acquisition of such containers, unless the container is acquired for export or for making a zero-rated supply. These rules arise from the application of subsections 226(3) and (4). (Note that these special rules do not apply in respect of the tax payable on the part of the consideration that is reasonably attributable to the contents of the returnable container.)

5. Circumstances Where Special Rules do not Apply to Returnable Containers

In some circumstances, the supply and the acquisition of returnable containers are not subject to the special rules in subsections 226(3) and (4). These circumstances are outlined in subsection 226(5).

The special rules do not apply to returnable containers when the usual practice of the registrant is the:

1. acquisition of filled and sealed containers from registrants and resupply of filled and sealed containers to registrants: special rules do not apply where the registrants who acquire and resupply these containers resupply the containers for consideration greater than the one at which the containers are acquired (226(5)(a));

2. acquisition of empty containers from registrants and resupply of empty containers to registrants: special rules do not apply where the registrants who acquire and resupply these containers resupply the containers for consideration greater than the one at which the containers are acquired (226(5)(b));

3. acquisition of empty containers from non-registrants and resupply of empty containers to registrants: special rules do not apply where the registrants who acquire and resupply these containers resupply the containers for consideration and tax greater than the consideration at which the containers are acquired 226(5)(c));

4. importation of filled and sealed containers (226(5)(d));

5. engaging of other persons to fill and seal the registrant's containers (226(5)(e)); or

6. manufacturing, producing or filling of returnable containers (226(5)(f)).

6. Effects of the Non-Application of the Special Rules

(a) At Acquisition

(a)(i) From registrants

"Returnable containers" that are not subject to the rules provided for in subsections 226(3) and (4), as well as containers which are not "returnable containers" as defined in subsection 226(1) can be the object of an actual ITC when acquired from registrants, provided the general rules for claiming ITCs are met. Generally, the amounts charged for the containers are considered as tax-included by their suppliers and recipients and such tax-inclusion is reflected in the related documentation. Hence, the related actual ITCs correspond to 7/107ths of the amounts charged for their acquisition.

(a)(ii) From non-registrants

Subsection 176(1) provides that where a registrant is the recipient of a supply of a used container and tax is not payable in respect of the supply, a notional input tax credit is available to the registrant if the following conditions are met:

1. the registrant is the recipient of a supply of a used container which is not normally used to contain a zero-rated product;

2. tax is not payable by the registrant in respect of the acquisition of the container;

3. the used container is acquired for the purpose of consumption, use or supply in the course of the commercial activities of the registrant;

4. the registrant must pay at least the same amount of consideration on acquisition of the container from the non-registrant as the GST included amount charged on the resupply of these containers to registrants.

Where the container is a returnable container as defined under subsection 226(1) that is not supplied by a registrant when filled and sealed, only the first three conditions must be met: the registrant is not subject to the last condition for determining whether the container can be the object of a notional ITC.

(b) On Supply

Where, as a result of these exceptions, subsection 226(3) and (4) do not apply to the supply of a returnable container, the supply is subject to the general taxing provision in subsection 165(1) and is taxable when supplied in Canada in the course of the registrant's commercial activities.

Where a container is not a returnable container as defined in subsection 226(1), the supply of the filled and sealed container as well as its contents are deemed to be a single supply of the contents pursuant to section 137.

Where the special rules do not apply to a returnable container as defined in subsection 226(1), the supply of filled and sealed containers will also be deemed to be a single supply of the contents pursuant to section 137.

II - THE SUBMITTED SCENARIOS

Introduction

We will now examine the scenarios that you submitted to our attention, providing the Department's position in respect of the tax treatment related to these scenarios. References to containers shall be interpreted as references to "returnable containers" as defined under subsection 226(1) unless specifically mentioned otherwise.

1. Window purchases

Customers bring their empty containers to the depot. The staff counts the containers, and the customer receives a container deposit refund based on a set price list. Currently the minimum refund for a container is:

Beverage container (1 litre and less)	.05	.60/dozen
Containers (more than 1 litre)	.20	2.40/dozen

The incoming memorandum indicates that the registrant may pay the customer more than the minimum refund. We assume that the depot pays at least an amount equal to the minimum refund and that the term "minimum refund" refers to the conventional deposit amount for the various containers at issue. We also assume that the depot resupplies the containers for an amount which corresponds to the minimum refund. The deposit amount for refillable containers is regulated under the XXXXX

The Department's Position (1)

Since the amount is regulated as a deposit amount, the amount is treated as consideration for the separate supply of the container at the moment it is originally supplied, when filled and sealed, as well as when it is returned by the customer to the depot.

1(a) Customer who is not a registrant

Where the customer is not a registrant, we have to examine whether paragraph 226(5)(c) applies to determine whether the depot is subject to the special rules provided for in subsections 226(3) and (4). If paragraph 226(5)(c) does apply to the fact pattern, then the special rules do not apply. If paragraph 226(5)(c) does not apply to the fact pattern, then the special rules apply.

Paragraph 226(5)(c) applies to a registrant (here only the depot is a registrant) where the usual practice of the registrant is "to pay consideration for supplies of empty containers of that class received from persons who are not registrants that is less than the total of the consideration that the registrant charges for the supplies of empty containers of that class and tax calculated on that consideration". (emphasis added)

We assumed in the fact pattern description that the depot pays to the customer at least an amount equal to the minimum refund and that the term "minimum refund" refers to the conventional deposit amount for the various containers at issue. Where the customer is not a registrant the amount paid to the customer is attributable to consideration only. We also assumed that the depot resupplies the containers for an amount which corresponds to the minimum refund.

In other words, the depot pays to the customer an amount of consideration for acquiring the containers which is greater than the consideration and tax the depot charges for supplying the containers. In that situation the depot pays consideration for acquiring empty containers that is more than the total of consideration and tax that the depot charges for supplying empty containers. Hence, paragraph 226(5)(c) does not apply to the depot in adopting such an usual practice and is subject to the special rules for returnable containers. The customer, not being a registrant, is not subject to any collection or remittance obligation.

1(b) Customer who is a registrant

Where the customer is a registrant, we have to examine whether paragraph 226(5)(b) applies to the depot and also whether it applies to the customer. If paragraph 226(5)(b) does apply to the fact pattern, then the special rules do not apply. If paragraph 226(5)(b) does not apply to the fact pattern, then the special rules apply. We will first examine whether paragraph 226(5)(b) applies to the depot and then will examine whether paragraph 226(5)(b) applies to the customer.

1(b)(i) Whether paragraph 226(5)(b) applies to the depot

Paragraph 226(5)(b) applies to a registrant where the usual practice of the registrant is "to charge consideration for supplies of empty containers of that class made to other registrants that exceeds the consideration the registrant pays or would pay to other registrants for supplies of empty containers of that class." (emphasis added)

We assumed in the fact pattern description that the depot pays to the customer at least an amount equal to the minimum refund and that the term "minimum refund" refers to the conventional deposit amount for the various containers at issue.

In other words, the depot pays to the customer an amount of consideration for acquiring the containers which is greater than the consideration and tax the depot charges for re-supplying the containers. In that situation the depot charges consideration for supplying empty containers that is less than the consideration that the depot pays for acquiring empty containers. Hence, paragraph 226(5)(b) does not apply to the depot in adopting such an usual practice and is subject to the special rules for returnable containers.

1(b)(ii) Whether paragraph 226(5)(b) applies to the customer

The customer charges consideration to that specific depot that exceeds the consideration the customer pays for acquiring empty containers of the same class. Provided that this is the usual practice of the customer, paragraph 226(5)(b) would apply to the customer who, as a result, would not be subject to the special rules for returnable containers.

However, there are no sufficient elements to determine the usual practice of the customers as the incoming memorandum described the practices of depots. Also, such practices may vary from a customer to an other.

1(c) Non-application of special rules for certain persons

Special rules do not apply to the persons provided for at paragraphs 226(5)(d), (e) or (f).

2. Depots Operated by the XXXXX

 XXXXX

The Department's Position (2)

Since the amount attributable to the supply of the empty container by the customer to the depot is equal to or greater than the amount (consideration and tax) at which it is supplied by the depot to other registrants, the special rules provided for at subsections 226(3) and (4) apply. As a result, the depot will not be entitled to a notional ITC on the acquisition of the containers and will not have to remit tax in respect of their supply.

3(a). Approved Depots

 XXXXX

 XXXXX

The Department's Position (3a)

The special rules provided for at subsection 226(3) and (4) apply to the acquisition and resupply of the containers returned by the consumers pursuant to the agreements between XXXXX and the approved depots. Consequently, no ITC is claimable on the acquisition of these containers by the approved depots and there is no remittance obligation in respect of their resupply. The agreement provides that the consumers must receive the full deposit amount. Since the consumers receive the full deposit amount, the exception rule provided for in subsection 226(5)(c) does not apply. XXXXX arranges and pays the freight for the containers. The commission is for services provided by the depots to the XXXXX and is treated as consideration for the supply of a service which is distinct from the supply of the containers.

3(b). Unapproved Depots, Urban Depots, Licensed Outlets

 XXXXX

 XXXXX

 XXXXX

The Department's Position (3b)

In these circumstances, to cover handling or freight charges, the depots may or may not pay less consideration when acquiring the containers from the consumers than what they receive as consideration and tax on the resupply of the containers to XXXXX the special rules provided for in subsection 226(3) and (4) do not apply as a result of the application of paragraph 226(5)(c). In the case where paragraph 226(5)(c) applies the following rules apply.

At Acquisition

On the acquisition of the containers by these depots from consumers, the depots are entitled to notional ITCs provided for in subsection 176(1) which corresponds to 7/107 of the consideration paid to the consumer. Note that the depots, in these circumstances, are not subject to the condition provided for in paragraph 176(1)(d). In effect, paragraph 176(1)(d) does not apply where the property acquired is a "returnable container (within the meaning assigned by section 226) of a class that is not supplied by the registrant when filled and sealed ...".

On Supply

The supply of the containers by these depots is taxable pursuant to the general taxing provision in subsection 165(1).

Where the depots pay consumers the full deposit amounts, the special rules at 226(3) and (4) apply (i.e., no ITC claimable at acquisition, no tax remittable on supply).

4. Pick-ups where containers are purchased for a higher amount than sold

(a) Fact Pattern 1

The registrant bids on the contracts negotiated with the person who requires the registrant to pick up containers at its premises, such as a hotel or golf course, for example. We assume that the person contracting with the depot is a registrant. The contracts are obtained through a bidding process. Amounts depend on the contract negotiated. XXXXX The memorandum indicates that the registrant does this to get business.

Department's position (4a)

We will take for granted the facts as presented in the incoming memorandum. We must say however that in making the assumption that the depot is a person whose objective is the making of profit, the scenario presented does not explain where profit could be made by acquiring containers at a price greater than the price that they are resupplied by the depot. Further examination of the facts may be useful. We may suppose that the depot charges handling fees to a third party (such as the provincial government for example) following the acquisition of the containers that may cover for the losses on the acquisition and resupply of the containers. The memorandum referred to this practice being made "to get business", without identifying the precise practice referred to by the term "to get business".

In this case, the special rules provided for in subsections 226(3) and (4) apply, assuming that the containers so acquired are resupplied for the full deposit amount. The registrant meets the condition of application that the containers be acquired for consideration equal or greater than the consideration and tax at which it is sold (226(5)(b) does no apply ).

Consequently, no ITC is claimable on the acquisition of the containers from the registrant and no tax is remittable on the resupply of the containers by the registrant.

(b) Fact Pattern 2

We understand the fact pattern presented in the incoming letter as follows. Besides the usual practice described immediately above, a registrant may negotiate a set price, per pick up operation, regardless of the quantity of containers. XXXXX for acquiring an indeterminate quantity of empty containers at a determined site, such as a hotel or golf course. The amount is paid to a registrant operating the determined site.

According to XXXXX a registrant breaks its agreement with XXXXX by picking up beer containers from hotels or licensed premises. XXXXX representatives indicated that it was difficult to monitor all the depots' activities.

Department's position (4b)

Returnable containers are, in this fact pattern, subject to the application of subsections 226(3) and (4) assuming the practice described in the fact pattern is not the usual practice of the depot. Returnable containers that are not subject to the special rules are the ones referred to in subsection 226(5). Subsection 226(5) determines conditions of exception referring to the "usual practice" of the registrant. Therefore, when examining a practice of the registrant which is not a usual practice of the registrant, subsection 226(5) does not apply and the special rules of subsections (3) and (4) apply.

5. XXXXX XXXXX depends on the amount negotiated in the contract. Typically, a registrant pays XXXXX

Department's position (5)

As already stated under subtitle "Department's Position (4(a))", we will take for granted the facts as presented in the incoming memorandum.

The special rules provided for in subsection 226(3) and (4) apply to the acquisition and resupply by the depot of returnable containers as defined in subsection 226(1).

Consequently, the depot is not entitled to claim input tax credits for the tax payable on the acquisition from XXXXX of the empty containers and does not have an obligation to remit tax on the resupply of these containers.

6. Non-profit organizations

Depending on the organization, the organization will either bring the containers to the depot, or the depot will pick them up. Generally, the depots pay the minimum refund or full deposit amount plus a 10% commission or donation.

The Department's position (6)

As already stated under subtitle "Department's Position (4(a))", we will take for granted the facts as presented in the incoming memorandum.

The special rules provided for in subsections 226(3) and (4) apply to the case at issue, whether or not the non-profit organization is a registrant. The amounts paid as a commission or donation are considered as not being consideration for the acquisition of the containers. Nevertheless, the special rules would still apply even if these amounts were considered as included in the consideration for the empty containers (226(5)(b) and (c) do not apply).

The tax treatment of the 10% will vary depending on whether it is a commission or a donation and of course, on whether the organizations are registrants or not. As the object of the current queries are in respect of returnable containers and these variables do not impact significantly on the treatment of the returnable containers, we will remain silent on this aspect of the question.

7. Empty Containers usually containing zero-rated products when filled: Tax Treatment

The memorandum we are responding to indicates that "the registrant sorts the containers, into various types and kinds of containers. They accept pop containers, beer containers, beer cans, plastic containers. Included in the plastic containers are the 500 ml to 4 litres containers that water and juices are sold in. They do not accept milk containers." (p. 3).

Department's Position (7)

The Department's position on the question of empty containers usually containing zero-rated products when filled, is as follows.

Such goods are excluded from the definition of "returnable containers" as a usual container for a beverage the supply of which is included in Part III of Schedule VI. Section 226 does not apply to containers which are not "returnable containers". For example, a two-litre plastic container that contained zero-rated orange juice would not be considered as a "returnable container" for the purposes of section 226 and would consequently not be subject to the special rules provided for at subsections 226(3) and (4).

Since the acquisition of such a product is zero-rated, no ITC can be claimed on its acquisition when acquired from a registrant. No notional ITC can be claimed on its acquisition when acquired from a non-registrant as it is excluded by paragraph 176(1)(a) of the Act.

The supply of the empty container by the depot is taxable at 7% pursuant to the general taxing provisions (subsection 165(1)).

III - Questions

Introduction

 XXXXX the author of the incoming memorandum, concludes by asking some questions, some of them related to a contextual introduction and others not, some implicitly referring to the fact patterns described earlier and others not. We will reproduce in text to the questions. In some cases, we will indicate our understanding of the questions. Finally, we will provide the answers to the questions.

Question 1:

The memorandum states:

"My understanding of the Excise Tax Act, Section 176, is that if the container depot pays their customer the same amount of deposits as they receive from the bottler/manufacturer, then the customer and depot do not account for the GST. The depot would collect and remit GST on the commission or handling charge only. However if the customer is paid an deposit amount that is less than the amount the depot receives from the bottler/manufacturer, then the depot is entitled to an ITC on deposit paid to registrants, and a notional ITC for deposit paid to non-registrants.

1. What are the GST implications when the registrant pays the customer more than what they receive from the bottlers/manufactures? Would the registrant also be entitled to an ITC or NITC? Or would the premium be considered a taxable supply by a registered customers, such as handling or commission? The registrant pays a couple cents more (to hotels or golf courses) or a certain percentage more (to XXXXX charities and non profits) to get business."

Answer to Question 1:

We treated this question in detail under the subtitles "Department's Position" 4(a) and 4(b).

Where the registrant pays the customer more than received from the bottler in respect of returnable containers as defined at subsection 226(1), the special rules provided for at subsections 226(3) and (4) continue to apply. Please refer to "Guiding Principle" and "Legislative Scheme", however, the general idea is that where a registrant acquires and resupplies the container for an amount higher than the one at which it was acquired, the Department wants to apply the same general rules as they apply for all other taxable supplies.

The rules specific to returnable containers apply where the container is acquired for an amount equal to or greater than the one at which it is resupplied. Where these specific rules apply, no ITC (real or notional) is claimable on the acquisition of the container and no tax is remittable on the resupply of the container.

It is a question of fact whether the difference in amounts attributable to acquisition and resupply of containers could in fact constitute consideration for the acquisition of a supply other than a supply of containers.

Question 2:

The memorandum states:

"This registrant's business activities does not always allow the container's minimum refund or full deposit to flow through as described in TIB 002. On the registrant's premises there would be containers which an ITC or NITC was claimed, and some containers which no ITC or NITC was claimed. A problem arises, when the registrant sells the containers to the various bottlers/manufacturers. The registrant is required to calculate GST on the deposit amount for containers which an ITC or NITC was claimed. This would be very difficult for the registrant to account for and Revenue Canada to ensure the registrant is doing correctly.

2. Is there any override rule to make the accounting in this situation easier? Such as, if the registrant pays a premium or discounted deposit to some customers, then can they calculate ITC or NITC (on the amount paid to customer) and report GST (on amounts received from bottlers/manufacturers) for all containers?"

We understand this question as follows:

The fact that some containers may be subject to the special rules provided for at subsections 226(3) and (4) and others not, depending of the transaction, may complicate the registrant's compliance with the Act. In effect, some containers can be the object of input tax credit claims (notional or actual) and others not. Tax must be remitted on the resupply of the containers on which an ITC was claimable, and tax must not be remitted on the resupply of the returnable containers on which no ITC was claimable on their acquisition. At the moment of the resupply, identifying the containers subject to the special rules may be difficult, as the containers would be classified by physical size or type rather than by the type of transaction by which they were acquired. XXXXX has asked if there is any override rule which would simplify the fulfillment of the registrant's obligations such as permitting the registrant to use the general rules rather than the special rules for all containers, regardless of the conditions in which they were acquired and resupplied?

Answer to Question 2:

There is no override rule permitting the registrant to treat the containers differently depending of the conditions of their acquisition and resupply, as described previously. Where the conditions for the application of subsection 226(3) and (4) exist, the application of these provisions is mandatory.

As for the compliance and verification difficulties raised in your question, we will make some comments and explore some tracks that may be submitted to Audit, since these issues fall within their purview. The remittance obligation may be calculated in relation to the notional or real ITCs that were claimed by the registrant. Certainly the registrant can retrace the ITCs claimed in respect of the containers. The containers in respect of which ITCs (actual or notional) are claimable are subject to tax remittance on resupply. Therefore, it is possible to project the amounts related to the taxable sales of containers from the ITCs claimed at their acquisition.

Let us illustrate by an example:

A container depot claimed $2,100 of ITCs in respect of containers for the month of March 1997. Since $2,100 represents 7/107 of the consideration for the acquisition, the consideration for the acquisition is equal to $2,100 x 107/7i7, i.e., $32,100. Let us say that the normal period of storage between acquisition and resupply is one month, and that all the taxable containers are taxable because they are supplied at a price superior to the ones they were acquired, let us say, with a mark-up of 10%, that means that the month after the acquisition, there should have been a taxable supply of empty containers corresponding to a tax-included amount of $32,100 + ($32,100 x 10%), which is $32,100 + $3,200, i.e., $35,300. This amount being tax-included, the tax remittable on these supplies is

7/107 X $35,300, i.e., $2,309.

Also, note that the exceptions to special rules applicable to the treatment of

"returnable containers" refer to the "usual practice" of the registrant. Hence, where a registrant has a usual practice and occasionally deviates from this usual practice, the occasional deviation does not modify the tax treatment of the related returnable containers.

The previous example only illustrates that, from certain inferences projected from the usual practice of a specific registrant, there are means to determine whether the registrant's remittance obligation can reasonably be established. It is a question for Audit the extent to which inferences from projections are acceptable in different circumstances. For guidance on these audit issues we suggest that XXXXX

Questions 3 and 4:

The memorandum states:

"The depot has some contracts for a flat fee pick up. In these cases, it is very difficult, to determine the actual amount of the refund or deposit the registrant has paid the hotel or golf course.

3. In these cases, what are the tax implications.

4. Are they entitled to an ITC."

Answer to Questions 3 and 4:

We treated this question in a more detailed manner under subtitle II-3(b) of the present letter.

We assumed that either no amount was paid to the depot's client or that the amount was less than the amount charged by the depot on the resupply of the containers. Even though the depot may have some difficulties retracing the amounts charged to the client at the occasion of the operations here described, the depot could easily determine whether the amounts charged are less than, equal to or greater than the amounts related to the sale of the same containers.

We have the impression that the amounts for which the containers are acquired, if any, would be less than the ones charged at resupply, since it appears that essentially, the clients such as hotels or golf courses, would contract with the depot for the disposition of their empty containers rather than making the commerce of it.

If the amounts paid for the acquisition of the empty containers are less than the amounts charged on the resupply, then the registrant is entitled to the related input tax credit. Conversely, tax has to be remitted on the resupply of these containers. These input tax credits can be used to infer the amounts related to the resupply of these containers by projections of the type described in our comments related to the previous question.

Question 5:

How could we enforce the tax treatment of containers designed for containing zero-rated products, especially given that the containers are sorted by characteristics independent from the content such as the size or the material of the container for example.

Answer to Question 5:

Essentially, this is an Audit question. Since no ITC is claimable in respect of the acquisition of these zero-rated containers, these containers may be erroneously considered in the same manner as the containers subject to the special rules at the moment of their resupply, on which also no ITC is claimable on acquisition. Projections could be made by inferring the proportion of zero-rated containers normally acquired during a certain period for example, inasmuch as the method is reasonable. Again, the specific methods for using projections and the extent to which inferences are acceptable is an Audit issue. For guidance on these audit issues we suggest that you contact the headquarters of Verification, Enforcement and Compliance Research.

Question 6:

Does the tax treatment change if the container is refillable or non refillable?

Answer to Question 6:

The fact that a container is refillable or non-refillable is not a factor which requires examination in determining whether a container is a "returnable container" as defined in section 226.

The following five conditions, and only these conditions, must be met for a container to be considered as a returnable container for the purposes of section 226. These conditions are set out in subsection 226(1):

1. the container is not a container for a beverage the supply of which is included in Part III of Schedule VI;

2. the container is a beverage container;

3. the container is of a class that is ordinarily acquired by consumers;

4. the container is ordinarily filled and sealed when acquired by consumers; and

5. the container is ordinarily supplied empty by consumers for consideration.

If you have any questions, please do not hesitate to call the undersigned at (613) 952-8815.

Raymond Labelle
A/Rulings Officer
Industries Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate

Att.
c.c.:      S. Mailer
R. Labelle