21 June 2000 GST/HST Ruling 31650 - Packing Services

Dear XXXXX:

This is further to your letter of February 14, 2000, and your subsequent telephone conversations with Patrick McKinnon, Manager, Services and Intangibles Unit, Excise and GST/HST Rulings Directorate, concerning the application of the Goods and Services Tax (GST) to the transaction described below.

Statement of Facts

Our understanding of the facts and the transaction is as follows.

1. You operate a packing service company named XXXXX, which is a registrant.

2. Your company supplies the service to registrant moving companies of packing goods (e[.]g. household items) so that the goods may subsequently be transported by the moving companies.

3. The moving companies include an amount for the packing services in their bill to their customers and pay your company an amount for the packing service that is equal to an agreed-upon percentage of the total amount billed to the moving companies' customer.

Transaction

The supply of the packing service made by your company to the moving companies.

Ruling Requested

You have requested whether the packing service that your company supplies to the moving companies qualifies as a freight transportation service and is consequently zero-rated as an interline settlement under section 11 of Part VII of Schedule VI of the Excise Tax Act (ETA).

Ruling Given

Based on the facts set out above, we rule that the packing service that your company supplies to the moving companies does not qualify as a freight transportation service and consequently does not qualify for zero-rating as an interline settlement under section 11 of Part VII of Schedule VI of the ETA. You are therefore required to collect tax on the supply of the packing services to the moving companies.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST 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 our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

Subsection 123(1) of the ETA defines a "carrier" to mean a person who supplies a freight transportation service. A "freight transportation service" is defined under subsection 1(1) of Part VII of Schedule VI of the ETA to mean a service of transporting goods. It also includes a service of delivering mail, and any other property or service supplied to the recipient of the transportation service by the person who supplies the transportation service, where the other property or service is part of or incidental to the transportation service, whether there is a separate charge for the other property or service.

Section 11 of Part VII of Schedule VI of the ETA zero-rates a supply of a freight transportation service made by a carrier of the property being transported to a second carrier of the property being transported, where the service is part of a continuous freight movement and the second carrier is neither the shipper nor the consignee of the property being transported.

Based on the definition of freight transportation service, when the moving companies supply the packing service to their customer together with a freight transportation service, the supply of the packing service to the customer would be considered to be part of the supply of the freight transportation service to the customer.

The packing service that your company provides to the moving companies is not a service of transporting goods, nor is it incidental to or part of a freight transportation service that you are supplying to the moving companies. Therefore, the packing service does not qualify as a freight transportation service, nor is your company considered to be a carrier as a result of supplying the packing service. It also follows that the packing service would not be zero-rated as an interline settlement under section 11 of Part VII of Schedule VI of the ETA.

Pursuant to subsection 221(1) of the ETA, your company would be required to collect, as an agent of Her Majesty in right of Canada, tax payable on the taxable supply of the packing service to the moving companies. We would like to confirm to you that this legislative requirement to collect the tax is equally applicable to any registrant who merely supplies a packing service in the same circumstances as those of your company.

Subsection 165(1) of the ETA also imposes an obligation on every recipient of a taxable supply made in Canada, such as the moving companies purchasing your packing service, to pay tax to Her Majesty in right of Canada in respect of the supply. To the extent that the moving companies are registrants and satisfy the relevant legislative requirements, such as the documentary requirements, they would be entitled to claim input tax credits in respect of the tax payable on your packing services.

It is important to note that should a recipient of a taxable supply refuse to pay the tax, section 224 of the ETA provides that the supplier may initiate legal action against the recipient for the recovery of unpaid tax in respect of the supply as if the amount were a debt due by the recipient to the supplier. This provision applies provided that the supplier has accounted for the tax payable by the recipient in its net tax calculation and remitted any positive amount of net tax and has properly disclosed the tax to the recipient.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-8815.

Yours truly,

Raymond Labelle
A/Technical Officer
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate