21 September 1998 GST/HST Interpretation HQR0000155 - The Application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the Operations of with Respect to

                                                                        GST/HST Rulings and Interpretations
Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Road
Vanier, Ontario
XXXXX                                                                                 K1A 0L5

Dear XXXXX

Thank you for your letter concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the operations of XXXXX with respect to XXXXX. We apologize for the delay.

Our understanding of the facts is as follows:

•   XXXXX (the Agency) has entered into a service contract with XXXXX (the Board). You have provided the department with a copy of this agreement.

•   The contract details the responsibilities of the Agency and the Board.

•   XXXXX stations make their declaration of the product to the Board.

•   The Board processes payments to the XXXXX stations for their provincial industrial product. It also sells the product directly to XXXXX in XXXXX[.]

•   The contract requires the Board to remit the net levy contribution (NLC) to the Agency. The NLC is equal to the total national levy collected plus the XXXXX revenue less XXXXX purchase costs.

•   The GST is collected by the XXXXX station and is remitted to the Board. The Board keeps the provincial levy and remits the remainder to the Agency.

•   The Agency also has a service contract with XXXXX (the Federation).

•   The Federation coordinates the removal of industrial product but does not actually buy and sell it.

•   The XXXXX sells the industrial product directly to the XXXXX[.] The XXXXX and the XXXXX then invoice the Federation for the net cost of buying and selling the product.

•   The levies are collected directly from producers by the Federation. The Federation invoices the producer every four weeks for the levy as well as GST and QST.

•   The Federation remits the net levy to the Agency along with GST on that amount.

Interpretations Requested

•   Should the Board remit GST on the gross levy collected or only on the net levy remitted to the Agency? The Board's practice has been to remit the GST on the gross amount.

•   Should the Boards be reporting the total GST they collected and deduct the amount forwarded to the Agency as an ITC on their remittance form? Currently, the Boards report only the amount of net GST relating to their activities, while the Agency reports the GST forwarded by the Board, less its ITCs.

•   Is the methodology used in XXXXX for handling the GST correct?

Interpretations Given

Based on the information provided, we provide the following responses to your queries:

•   The Board is required to remit GST on the gross levy collected.

•   The Board should be remitting the total GST they collected and deduct the amount of GST forwarded to the Agency as an ITC.

•   The methodology used in XXXXX for handling the GST is correct.

Analysis

XXXXX[.] The XXXXX purchases the XXXXX from producers and at that point the XXXXX collects the national and provincial levies. The levies at this point are taxable since they are levies in respect of the supply of marketing services provided by the Board and the Agency. Under provincial legislation, only the Board is authorized to collect the levy in respect of both Board's and the Agency's services. The Board subsequently purchases the XXXXX from the XXXXX and the levies which were collected by the XXXXX are passed on to the Board. The levies at this point are not considered to be in respect of a supply. Since at this point there is no supply, the national and provincial levies and the applicable taxes are simply passed on to the Board without any tax consequences to the XXXXX[.] The Board then keeps the provincial levy portion and the applicable taxes and remits the national levy and the applicable taxes to the Agency. The Board will remit the GST portion of both the provincial and national levy as GST collected and show the GST portion of the national levy as an ITC. The Agency will remit the GST on the national levy to the Department.

XXXXX[.] Under XXXXX legislation, a service contract is required for the levy to be collected by the Federation. The Federation does not actually purchase and take title to the XXXXX[.] The Federation collects the levies from the producers. It must charge and collect GST on the levies since it is collecting the levies in respect of marketing and administrative services provided by the Agency.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Department with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9577 or Duncan Jones at (613) 952-9210.

Yours truly,

Marilena Guerra
Rulings Officer
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate
Policy and Legislation Branch