26 June 1998 GST/HST Interpretation HQR0000562 - Services Provided by the Pest Control Regulatory Agency

                                                                        GST/HST Rulings and Interpretations
 Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Avenue
Vanier, Ontario
Pest Management Regulatory Agency                            K1A 0L5              
2250 Riverside Drive
Ottawa, Ontario                                                                   Case: HQR0000562
K1A 0K9                                                                              

Dear XXX:

Thank you for your letter of February 12, 1997 with attachments concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below.

Our understanding of the facts, is as follows.

Statement of Facts

1. The Pest Management Regulatory Agency ("Agency") is part of Health Canada and is responsible for the administration of the Pest Control Products Act (PCPA) and Regulations (PCPR).

2. Under subsection 4(1) of the PCPA, "No person shall manufacture, store, display, distribute or use any control product under unsafe conditions."

3. In accordance with subsection 5 (1)(a) of the Act, "No person shall sell in or import into Canada any control product unless the product

(a) has been registered as prescribed ..."

4. Section 12 of the PCPR sets out the "Fees for Registration".

5. Section 14 of the PCPR sets out the renewal fees applicable for control products which are not 'devices'. Subsection 14(1) states, "Subject to section 20, and unless otherwise provided in a certificate of registration, the registration of a control product ...

(b) that is not a device expires on December 31, in the year designated by the Minister, which designated year shall not be later than five (5) years from December 31 in the year in which the control product is registered."

6. In addition to the fees for registration, subsection 8(1) of the Regulations Prescribing the Fees to be paid in relation to the administration of the Pest Control Products Act and the Regulations made thereunder ("Fee Regulations") states that "A registrant shall pay, in respect of each pest control product that on April 1 in a year is registered in the name of the registrant, an annual fee ...". The purpose of the annual fee is to recover the costs of administering the pest control regulatory program for registered products.

7. Section 6 of the PCPR states that "Subject to section 5, every control product imported into, sold or used in Canada or used or contained in another control product in Canada shall be registered in accordance with these regulations".

8. Subsection 5(1) of the PCPR states that "Subject to subsection (2), a control product is exempt from registration if it is ...

(b) for use by a person for research purposes

i) on premises owned and operated by that person, or

ii) on any other premises not owned ..., if such use has been approved by the Director General ...

(d) a control product that is registered in a country other than Canada... and that...

i) does not contain a formulant on List I of the "Lists of Inert Pesticide Ingredients of Toxicological Concern" issued by the United States Environmental Protection Agency,

ii) has been determined by the Minister, based on the criteria set out in subsection (3), to be equivalent to a control product (in this section referred to as a "Canadian-registered control product") ...

iii) is imported solely for the importer's own use and is a control product in respect of which a permit has been issued to the importer by the Minister for use by the importer, and

iv) bears, in addition to any other label, a label approved by the Minister under subsection 27(1)."

9. Subsection 5(2) of the PCPR sets out control products which are not exempt from registration.

10. Subsection 5(3) of the PCPR sets out the criteria used by the Minister to determine whether a foreign-registered control product is equivalent to a Canadian-registered control product.

11. The Agency evaluates products to determine if they are exempt from registration and, therefore, whether a permit may be issued. The fees for the Own Use Import determination are set out in Schedule II of the Fee Regulations. The services provided are:

•   an evaluation to determine if the product meets the criteria set out in paragraph 5(1)(d);

•   an evaluation to determine equivalency as required by subparagraph 5(1)(d)(ii) according to the review criteria in subsection 5(3); and

•   a review of the label, as required under subparagraph 5(1)(d)(iv), to ensure it meets the labeling requirements under subsection 27(1).

12. The Agency evaluates proposed research projects, taking into consideration the product and research site, to determine if the primary purpose of the Act as set out in subsection 4(1) can be achieved. The 'research permit' fee charged for this evaluation is an administrative fee for the services provided in processing an application for a research permit. The amount of this fee is set out in Schedule II of the Fee Regulations.

13. The Agency also provides an evaluation service to pest control registrants to determine the level at which a pest control product can be present in food without it posing a health risk to consumers. This evaluation results in an Import Maximum Residue Limit being established and incorporated into Schedule 1000 of the Food and Drug Regulations. Food commodities containing a pest control product must be within this limit in order to be imported into Canada. The fee for the evaluation service is set out in Schedule II of the Fee Regulations.

Rulings Requested

1. Does the GST apply to the fee charged for an evaluation service required by the PCPA and PCPR in order to supply a permit which confers to an individual the right to import an unregistered pest control product for their own use?

2. Does the GST apply to the administrative fee charged for an evaluation service required by the PCPA and PCPR in order to supply a permit which confers the right and privilege to use an unregistered pest control product for the purpose of research in Canada?

3. Does the GST apply to an annual fee charged pursuant to the Regulations Prescribing the Fees to be paid in relation to the administration of the Pest Control Products Act and the Regulations made thereunder in respect of the right and privilege to manufacture or sell a pest control product in Canada?

4. Does the GST apply to a fee paid in respect of the supply of an evaluation service, provided by the PCRA, to establish the maximum level of pest control product residue that can be present in food without posing a health risk to consumers?

Rulings Given

Based on the facts set out above we rule that:

1. The supply of a service, required by the PCPA and PCPR, related to the supply of a permit which confers to an individual the right to import an unregistered pest control product into Canada for their own use is an exempt supply pursuant to paragraph 20(c) of Part VI of Schedule V to the Excise Tax Act (ETA).

2. The supply of a service required by the PCPA and PCPR related to the supply of a permit which confers the right to import and use an unregistered control product for the purpose of research in Canada is an exempt supply pursuant to paragraph 20(c) of Part VI of Schedule V to the ETA.

3. The annual fee charged by Health Canada in respect of the right and privilege to manufacture or sell a pest control product in Canada is deemed to be consideration for an exempt supply, pursuant to section 189.1 of the ETA, and is, therefore, not subject to the GST.

4. The consideration paid for the evaluation service required to determine at what level a pest control product can be present in the food without it posing a health risk to consumers is deemed to be in respect of a commercial activity by virtue of section 146 of the ETA. Therefore, this service is a taxable supply and is subject to the GST pursuant to section 165 of the ETA.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 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; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Explanation

Regarding the evaluation to establish a maximum residue limit for an import product, your submission states that this service confers a right to import a food commodity which has been treated with a pest control product. However, the evaluation is provided to a registrant of a control product and not to an importer. It is apparent that the evaluation provides no right to import a product, it only serves to establish a limit that must be met by future imports of a commodity treated with the particular control product. As per the ruling, the supply of this type of service is specifically dealt with under section 146 of the ETA. This provision deems a supply of a service of "testing or inspecting any property for the purpose of verifying or certifying that the property meets particular standards of quality or is suitable for consumption, use or supply in a particular manner", when made for consideration by government, to be made in the course of a commercial activity. Therefore, the service is deemed to be a taxable supply and is subject to section 165 of the ETA.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact Brent Fleming, Governments Officer, at (613) 952-9218.

Yours truly,

Brent Fleming
Governments Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate

Legislative References: s. 146, s. 165, s. 189.1, V.VI.20(c)