1 December 1998 GST/HST Interpretation HQR0001202 - GST/HST Status of Supplies

Thank you for your request to review your response to XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies made by XXXXX as more particularly described below. We agree with your conclusions. This memorandum to you expands on the reasoning while retaining these conclusions.

Interpretation Requested

XXXXX asked if the advice provided in your memorandum of February 5, 1998, concerning the tax status of XXXXX mushroom compost, peat moss and loam, quad mix and pig feed is still valid in view of the additional information provided with his memoranda. XXXXX also requested confirmation that XXXXX mushroom compost, peat moss and loam, and quad mix can be zero-rated when supplies are made on or before April 23, 1996, either in bulk or in containers that contain at least 25 kg of the material, where the total quantity of the material supplied to the recipient, whether in bulk or in containers, is at least 500 kg.

In addition, XXXXX requested confirmation that, if peat moss is considered to be hay or silage, or other fodder crops that are ordinarily used as, or to produce, among other things, feed for farm livestock, it is zero-rated when supplied in a quantity that is larger than the quantity that is ordinarily sold or offered for sale to consumers.

Interpretation Given

The following is based on the information XXXXX provided in his memorandum of December 12, 1997, and the additional details provided with his subsequent memoranda:

GST/HST Memoranda Series 4.4 Agriculture and Fishing provides in par. 19 that "Goods listed in Schedule II to the Fertilizers Act, except for supplies of compost and peat, are zero-rated as fertilizers when supplied in sufficient quantities". According to the Food Inspection Agency ("FIA"), which administers Schedule II to the Fertilizers Regulations to the Fertilizers Act ("Schedule II"), a composition which contains a percentage grade requirement in Column II to Schedule II is considered to be a fertilizer, while a composition which does not contain a grade requirement is considered to be a supplement. Once it is considered by the FIA to be a supplement, it cannot be a fertilizer.

XXXXX

MUSHROOM COMPOST — mushroom compost (waste) collected from mushroom farms and resold to landscapers

In his letter of March 30, 1998, Mr. XXXXX contends that XXXXX Mushroom Compost (Straw Manure) and Peat Moss should be zero-rated as fertilizer since they are not sold as a soil or a soil mixture.

XXXXX states that XXXXX is a mixture of peat moss and mushroom compost, each of which are fertilizers in their own right. However, Schedule II lists the compositions compost (no. 10) and peat (no. 18) as without a grade specification. As a result, they are considered by the FIA to be supplements and not fertilizers. The Department therefore considers each of these individual components to be excluded from zero-rating whether sold separately or when mixed together. Accordingly, XXXXX contention is incorrect.

PEAT MOSS AND LOAM — sold to landscapers and worm growers

Goods listed in Schedule II, except for supplies of compost and peat, are zero-rated as fertilizers when supplied in bulk quantities of at least 500 kg. Supplies are also zero-rated where these supplies are in containers that contain at least 25 kg each of the material provided the total quantity supplied is at least 500 kg. Webster's Ninth New Collegiate Dictionary indicates that loam is, among other things, a soil consisting of a friable mixture of varying proportions of clay, silt, and sand. As a soil, loam is specifically excluded from zero-rating under section 5 of Part IV of Schedule VI to the ETA. In addition, loam is not listed in Schedule II. Accordingly, supplies of loam are not zero-rated.

As stated earlier, while peat may be listed in Schedule II, it does not contain a grade requirement and hence peat, by itself, is not a fertilizer under the Fertilizers Act and Regulations but rather is a supplement and/or soil conditioner. As a result, the Department considers supplies of peat not to be zero-rated.

In addition, there is no evidence that this supply of peat by XXXXX contains any plant nutrient. Peat containing plant nutrient(s) can, generally, be marketed as a fertilizer provided it is not sold as a soil or soil mixture containing fertilizer. This requires a guaranteed analysis showing the percent of each individual plant nutrient. Plant nutrients other than nitrogen, phosphoric acid, and soluble potash must be present in the required minimum levels as required by Agriculture and Agri-Food Canada as to be efficacious.

Accordingly, supplies of peat moss and loam (either separately or mixed) are not zero-rated.

XXXXX points out that XXXXX is not sold as a soil or a soil mixture, but rather as a fertilizer in bulk and contends that, because XXXXX is not sold as a soil or as a soil mixture, it would not be excluded from the zero-rated provision. XXXXX XXXXX has advised that XXXXX is 25% peat moss, 50% mushroom compost, and the balance (25%) sand.

Section 5 of Part IV of Schedule VI to the ETA zero-rates fertilizer other than a good sold as soil or as a soil mixture whether or not containing fertilizer supplied in the required minimum quantities, for supplies made after April 23, 1996. However, this product is chiefly comprised of peat moss and compost (mushroom compost), both of which are specifically excluded from zero-rating, as stated above. Accordingly, it is not zero-rated, notwithstanding that it may have nutritive attributes and may be sold as "fertilizer".

Accordingly, the advice provided in your memorandum of February 5, 1998, concerning the tax status of these goods is still valid. Supplies of XXXXX mushroom compost, peat moss and loam, and quad mix would not have been zero-rated as fertilizer even when supplied on or before April 23, 1996, in sufficient quantities. These sufficient quantities being either in bulk or in containers that contain at least 25 kg of the material, where the total quantity of the material supplied to the recipient, whether in bulk or in containers, is at least 500 kg.

STRAW MANURE — horse manure collected from horse farms and resold to mushroom farms as fertilizer

Manure is a composition described in Schedule II as requiring a grade and is therefore a fertilizer. In order for a product to be marketed and sold as manure, pursuant to Schedule II (no. 16), the product must be "dried and ground excreta of animals or birds with or without litter, containing not less than 50 percent organic matter, and designated as to kind and condition." A product containing less than 50 percent organic matter cannot be marketed and sold as manure, however, it can nevertheless be sold as a fertilizer provided that a guaranteed analysis is performed and the product contains the required minimum plant nutrients as required by Agriculture and Agri-Food Canada, as discussed earlier.

Horse manure can therefore be marketed and sold as such provided it meets the requirements as specified in composition no.16 of Schedule II and a guaranteed analysis has been done. If so, the supply of manure can also be zero-rated when supplied in sufficient quantities as provided by section 5 of Part IV of Schedule VI to the ETA (mentioned above), and provided that, after April 23, 1996, it is not sold as a soil or as a soil mixture.

MIXED PEAT AND XXXXX says that, on occasion, XXXXX will mix a variety of fertilizers to the specification of the customer. (Invoice XXXXX shows peat and XXXXX are mixed on a XXXXX and sold in bulk to a greenhouse for use in their growing and agricultural activities.) XXXXX indicates that this combination of fertilizers is used as such by the customer. However, the product described on the above-noted invoice is comprised of peat moss and XXXXX (peat moss and mushroom compost), both of which are specifically excluded from zero-rating, as stated above. Accordingly, it is not zero-rated, notwithstanding that it may have nutritive attributes and may be sold as "fertilizer".

PEAT FEED — grass peat supplied in bulk as pig feed

Subsections 2(b) and (c) of Part VI of Schedule VI to the ETA zero-rate a supply of (b) hay or silage, or (c) other fodder crops, that are ordinarily used as, or to produce, food for human consumption or feed for farm livestock or poultry, when supplied in a quantity that is larger than the quantity that is ordinarily sold or offered for sale to consumers, but not including grains or seeds or mixtures thereof that are packaged, prepared or sold for use as feed for wild birds or as pet food.

XXXXX memorandum indicates that XXXXX advised him that peat has enzymes and bacteria which help digestion and is used as a diet supplement and that, while XXXXX farmers who are experimenting with peat moss as feed are considered to be innovators, there is a much longer history of feeding pigs with peat moss in XXXXX advised that, while peat moss is not commonly used as a pig feed in XXXXX it may be used as such more extensively in Europe.

XXXXX confirmed that he started an experiment about two years ago, wherein peat moss was fed to piglets for approximately four weeks. The piglets fed with peat moss tended to grow faster than the control. He also indicated while peat moss as a pig feed in XXXXX is still at an experimental stage, farmers in France tend to use peat moss as pig feed more extensively. In the past, peat moss was used more extensively in XXXXX Europe XXXXX but was later abandoned because of hygienic problems, however, it appears to be becoming popular again.)

From the information researched and obtained on the use of peat moss as pig feed, in Canada, it is experimental with few farmers actually using it to raise their pigs and therefore its use cannot be considered to be ordinary. In Europe, while there is a much longer history of feeding peat moss to pigs, it was abandoned because of hygienic problems. Although its use in Europe may now be on the rise, it is currently not at the stage of widespread usage where the Department considers this use to be ordinary.

In addition to the above, the taxpayer argued that section 10 of Part IV to Schedule VI applies to zero-rate the supply of peat as pig feed. Section 10 refers to the Agricultural and Fishing Property (GST) Regulations and more specifically, subsection 1(2) of this regulation. Subsection 1(2) essentially provides three criteria which must be met in order to be zero-rated. These are:

1) the feed must be a "complete feed, supplement, macro-premix or micro-premix" as defined in the Feeds Regulations;

2) it must be labeled in accordance with the Feeds Regulations; and

3) it must be designed for a unique species of livestock.

The Feeds Regulations define a "complete feed" as a feed which, when used for this livestock, provides all of the nutritional requirements necessary for maintenance of life. No evidence has been provided by the taxpayer showing that peat moss is a complete feed for pigs. In addition, peat moss grows naturally in the environment, and as such, has not been designed for a unique species of livestock, in this case, pigs.

As a result, it is the Department's interpretation that peat moss when used as pig feed is not zero-rated.

XXXXX