3 October 2001 GST/HST Interpretation 30660 - Taxidermy - Service or Tangible Personal Property

This refers to your e-mail message of June 14, 2000, requesting that the Border Issues unit review the tax status of taxidermy XXXXX.

Specifically, you have raised the issue of whether section 12 of Part V of Schedule VI to the Excise Tax Act ("the Act") or subsection 252(1) or (2) of the Act apply in the scenarios described by the client and reproduced below.

Scenario 1

A non-resident hunter harvests an animal in XXXXX. According to the Wildlife Act, the hunter owns the wildlife as long as it was harvested under license and in compliance with the Wildlife Act. The appropriate parts of the harvested animal are left with the taxidermist (i.e., hide, horns or antlers). The hunter contracts with the taxidermist to use those parts in combination with other materials such as glass eyes, wire, foam or wood. The taxidermist is located in XXXXX, where the taxidermy is performed.

The wildlife parts undergo a significant change from what was left by the hunter. The parts left by the hunter constitute only 25% to 50% of the material required to manufacture the taxidermy product. The parts left by the hunter are, in fact, perishable and will retain no value unless dealt with by a tannery or taxidermist. The taxidermy product is for the personal use of the hunter and is exported to the hunter in the U.S. by a commercial carrier.

Scenario 2

A taxidermist, located in XXXXX purchases a hide and produces a taxidermy product in XXXXX. A non-resident purchases that product from the taxidermist for personal use and the taxidermist then ships it to that individual by commercial carrier.

Scenario 3

A non-resident purchases wildlife parts in Canada and contracts with a taxidermist in Canada to use those parts in combination with other materials for a taxidermy product. The taxidermist is located in XXXXX. The wildlife parts left with the taxidermist undergo significant change and constitute only 25% to 50% of the materials used to produce the taxidermy product. The resulting taxidermy product is then shipped, by commercial carrier, from XXXXX to the non-resident, for personal use.

Scenario 4

A non-resident visits XXXXX and purchases a chunk of marble. He contracts with a carver in that province to produce a carving from marble. The carving is for the personal use of the non-resident and the carver ships the product to the non-resident by commercial carrier.

Analysis

A supply of TPP versus a supply of a service?

In each of the scenarios, it is necessary to determine whether the supply is a supply of TPP or a service. In this regard, the key factor to be considered is the substance of the contract for the supply. Specifically, where the substance of the contract is the production of a good to be sold (transfer of property in that good), it would indicate a supply of TPP. Where the substance of the contract is the skill and labour of the supplier in the performance of work for another, it would indicate a supply of a service, (notwithstanding that certain materials may be used as inputs by the supplier in the performance of that work).

In scenarios 1, 3, and 4, the recipient provides the taxidermist or carver with the key tangible component (the animal hide/parts or marble) that is necessary to the making of the supply and retains ownership of that property at all times. In these cases, the supplier is essentially processing or working on property owned by the recipient.

In order to stuff or mount an animal hide or create a marble sculpture from goods supplied by the recipient, the skill, expertise, knowledge and ability of the supplier (a taxidermist or artist) is required and this is what the recipient is seeking from the supplier in such cases.

Based on our analysis, the substance of the contract between the recipient and the supplier in scenarios 1, 3, and 4, is the skill and labour of the supplier in the performance of work for the recipient and our position is consequently that the supplier is making a supply of a service. This is notwithstanding that some accessory materials, in the case of the taxidermist, such as glass eyes, may have to be used by the taxidermist in the course of supplying its service and end up forming part of the property that is ultimately returned to the recipient.

In scenario 2, in which the taxidermist purchases a hide from which he produces a finished product, and then sells the finished product to a non-resident, the substance of the contract is the sale of a good and, is therefore a supply of tangible personal property.

In conclusion, the supply made by the taxidermist or carver in scenarios 1, 3, and 4, is a supply of a service if the recipient of the supply is providing and owns the property in respect of which the supplier is performing the work. However, where the supplier is selling tangible personal property as in scenario 2, the supplier is considered to be supplying TPP.

We note that this treatment is in keeping with the treatment of photocopies as set out in the recently issued Policy Statement P-236, Supply of Photocopies.

Is the service in respect of TPP that is situated in Canada at the time the service is performed?

It has already been established that the supply made in scenarios 1, 3 and 4 is considered to be a supply of a service. To determine whether it is zero-rated when it is supplied to a non-resident person, consideration must be given to whether the service is in respect of TPP and the situs of the TPP at the time the service is performed.

Reference must be made to Policy Statement P-169R to determine whether the service is in respect of the TPP, namely; the animal and the marble.

The CCRA considers a service to be "in respect of" property if there is more than a mere indirect or incidental nexus between the service and the property. If the relationship between the service and the property is sufficiently direct, then the CCRA will consider the service to be "in respect of" the property.

The purpose or objective of the service was stated above. The fact that something is physically done to the TPP to change its form, indicates that the relationship between the service and the property is more direct than indirect.

Section 7 of Part V of Schedule VI to the Act zero-rates a supply of a service made to a non-resident person. However, pursuant to the exclusion in paragraph 7(e) of Part V of Schedule VI to the Act, a service in respect of TPP that is situated in Canada at the time the service is performed, cannot be zero-rated.

Therefore, due to the fact that the service is in respect of TPP situated in Canada at the time the service is performed, the supply of the service cannot be zero-rated due to the exclusion in paragraph 7(e) of Part V of Schedule VI to the Act.

We also note that section 4 of Part V of Schedule VI to the Act would not apply to zero-rate the supplies in question partly because the TPP in respect of which the service is supplied has not been imported as set out in that provision.

Is the supply of the TPP in scenario 2 zero-rated?

In scenario 2, where the taxidermist purchases the hide, it has already been established that the contract is for a sale of goods and not for a service. In this scenario, section 12 of Part V of Schedule VI to the Act would apply because the supplier of the property (taxidermist) delivers the property to a common carrier, or mails the property for export. The supply of TPP is thus zero-rated.

Is the non-resident entitled to a rebate of the tax pursuant to subsection 252(1) of the Act?

Subsection 252(1) of the Act provides for a rebate of the tax paid by a non-resident recipient of a supply of TPP, where the TPP is acquired by the non-resident for use primarily outside Canada and the non-resident person exports the property within sixty days after it is delivered to the person.

If the supply of TPP in scenario 2 were not zero-rated and the non-resident acquired the TPP, as described, the non-resident person may be entitled to a rebate under subsection 252(1) of the Act.

Is the non-resident entitled to a rebate of the tax pursuant to subsection 252(2) of the Act?

The non-resident does not qualify for a rebate of the tax under subsection 252(2) of the Act in any of the scenarios described, partly because the supply is not protected by copyright and the non-resident recipient of the supply is the consumer of the supply.

Conclusion

1. The supply of taxidermy or carving is considered to be a supply of a service in scenarios 1, 3, and 4. A key factor in these cases is that the recipient is providing the property (the carcass/pelt, etc.) in respect of which the service is performed.

2. With respect to scenarios 1, 3, and 4, the supply of a taxidermy service is in respect of TPP situated in Canada at the time the service is performed and is excluded from zero-rating under paragraph 7(e) of Part V of Schedule VI to the Act.

3. With respect to scenario 2, the supply is a supply of TPP. The supply may be subject to the zero-rating provisions of section 12 of Part V of Schedule VI to the Act, provided the conditions of that section are met.

Should you have any questions, please do not hesitate to contact me at (613) 952-6743.