24 July 2000 GST/HST Interpretation 8291/HQR0001897 - GST/HST Status of Charges for Handling and Transportation Costs, and Storage Costs Deducted from the Price of

Dear XXXXX:

This letter is in response to the meeting held in Ottawa on July 22, 1999, between yourself and individuals of this Directorate following the issuance by Revenue Canada of interpretation letter HQR0001706 to the XXXXX (the "XXXXX Board") addressed to the attention of XXXXX, dated July 7, 1999. At that meeting issues concerning the handling and transportation costs and the XXXXX storage program were discussed, and you provided additional facts concerning these issues. Based upon these additional facts, you have specifically requested that Revenue Canada, now the Canada Customs and Revenue Agency ("CCRA"), review its July 7, 1999, interpretation concerning the handling and transportation costs, and the storage costs.

Statement of Facts

The following facts have been obtained from interpretation letter HQR0001706, from a facsimile letter received from you dated August 3, 1999, and from discussions with you on and subsequent to the July 22, 1999, meeting:

1. The XXXXX (the "Commission") is given the authority pursuant to the XXXXX to make regulations for the licensing of any and all individuals engaged in the production, marketing or processing of a regulated product, and for the fixing of licence fees.

2. The XXXXX Board has the authority delegated to it by the Commission to be the exclusive seller of XXXXX into commercial markets. This includes XXXXX sales into the export market, XXXXX sales to the domestic XXXXX market, and commercial XXXXX sales for XXXXX. The XXXXX Board is therefore the single seller for all XXXXX and moved into commercial channels.

3. Producers must deliver all XXXXX, with the exception of XXXXX sales, to the XXXXX Board. The XXXXX Board accepts delivery of XXXXX at the following sites:

•   XXXXX; and

•   specified delivery point(s), namely:

•   XXXXX; and

•   XXXXX.

3. Once delivered, title to the XXXXX passes to the XXXXX Board provided that the XXXXX. The XXXXX Board has set specific standards that must be met for XXXXX to qualify as XXXXX. If the delivered XXXXX does not meet these standards, it will be XXXXX, after which title will transfer to the XXXXX Board.

XXXXX sets the annual selling price per XXXXX. This price is adopted by the XXXXX Board as its XXXXX price ("XXXXX Price") for delivered XXXXX. The XXXXX Price is FOB the XXXXX Board's XXXXX or other specified delivery points.

5. When XXXXX is delivered by a producer to a XXXXX XXXXX agent (the "Agent") accepts, on behalf of the XXXXX Board, all of the XXXXX the producer has delivered. In return, the producer receives from the Agent an initial payment which is the XXXXX Price less a deduction for the estimated cost of handling and transporting the XXXXX to the end user. The end user is either a XXXXX. Other amounts which the Agent may deduct from the XXXXX Price are for storage and XXXXX costs, as well as the cost of XXXXX, if applicable. When the Agent advises the XXXXX Board that the XXXXX has been received by it the XXXXX Board will remit to the Agent a payment based upon the XXXXX Price less XXXXX. When the XXXXX is subsequently delivered by the Agent to the end user, the XXXXX Board remits the XXXXX amount to the Agent.

6. When XXXXX is delivered by a producer directly to a XXXXX, the XXXXX Board will pay the XXXXX producer the XXXXX Price, less the cost of any service(s) provided to the producer by the XXXXX, other than transportation costs since XXXXX are end users.

7. Subsequent to a XXXXX producer receiving the initial payment, the XXXXX Board remits directly to the producer an interim and final payment. These subsequent amounts are the profits realized by the XXXXX Board from its various XXXXX. The final payment is remitted by the XXXXX Board once its fiscal year is over and the XXXXX is concluded.

8. Periodically the XXXXX Board will pay storage costs to XXXXX producers who store XXXXX rather than delivering the XXXXX to the XXXXX Board XXXXX. The XXXXX continues to be owned by the producers during the period of time it is so stored.

9. A XXXXX producer may enter into an agreement with a XXXXX, XXXXX, to take delivery of its XXXXX at a specified future date. In the interim, the XXXXX Board may agree to pay the producer storage costs which the producer will receive upon making delivery of the XXXXX to the XXXXX. Should the producer decide not to adhere to its agreement, the XXXXX Board will not pay the XXXXX producer the storage costs.

Interpretation Requested

1. Where a XXXXX producer delivers XXXXX to an Agent, and the Agent deducts, from the XXXXX Price, charges for XXXXX, and the cost of handling and transporting the XXXXX to an end user, are these charges subject to the GST?

2. Where the XXXXX Board adds to the XXXXX Price a charge to compensate a XXXXX producer for the cost of storing XXXXX, is this charge subject to the GST?

Interpretation Given

This interpretation supersedes our interpretation letter of July 7, 1999, (being HQR0001706), to the extent that it relates to questions 1 and 2 raised therein.

1. Amounts deducted from the XXXXX Price representing charges for the cost of XXXXX, and the cost of handling and transporting the XXXXX to an end user, are considered to be price adjustments. As such, the net amount payable to the producer by the Agent, for the XXXXX, would be subject to tax at the rate of zero percent where the supply of the XXXXX complies with the provisions of XXXXX of Schedule VI to the Excise Tax Act (1. Subsection 165(3) of the Excise Tax Act.).

2. Amounts added to the XXXXX Price representing a charge to compensate a XXXXX producer for the cost of storing XXXXX is considered to be part of the total consideration for a single supply of XXXXX. Where the supply of XXXXX complies with the provisions of XXXXX of Schedule VI to the Excise Tax Act the supply would be a zero-rated supply having a tax rate in respect of the supply of zero percent. (Supra, footnote).

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 Canada Customs and Revenue Agency 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) 954-2560.

Yours truly,

Richard Aronoff
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate