1 November 2001 GST/HST Interpretation 32278 - Boarding of Bison in Canada

Dear XXXXX:

Thank you for your letter of July 25, 2000 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the operations of the bison industry in Canada.

We understand that custom boarding is an important part of the bison industry in Canada. Boarding agreements can vary from a daily rate per head to a calf share on offspring on an annual basis. There are a number of livestock classes that are being custom boarded. These include:

•   Bulls in feedlot conditions

•   Cow-Calf pairs

•   Back grounding animals (yearling heifers, bulls and mature stock).

Within the various agreements that exist, there are a number of factors to consider including the actual costs of the feed component, depreciation, interest, labor costs etc. Depending on the circumstances, the feed component may or may not be the principle cost in the arrangement.

Within your XXXXX there have been concerns raised related to custom boarding agreements for animals other than those intended to be fed in a feedlot, especially with respect to the boarding of bison.

In accordance with GST/HST Memoranda Series Section 1.4, an application ruling can only be issued with reference to a clearly defined fact situation of a particular registrant. Rulings are issued upon request and where the taxpayer has presented all the relevant facts such as the nature of the transactions undertaken, detailed descriptions of services or property involved, the parties involved in all transactions and relevant documentation such as invoices, contracts and other pertinent agreements. Where all the relevant facts are not provided, an interpretation may be issued. I am pleased to issue you an interpretation which will elaborate on how the GST/HST applies to the supplies described in your letter.

Interpretation Requested

1. What is the tax status of a boarding agreement?

2. How is a calf share agreement treated for GST purposes?

3. How does the bison industry differentiate between what is feedlot and what is an extensive grazing situation?

4. Should invoices be developed which separate the feed component from the service component of a cash boarding agreement?

5. Is labour zero-rated for GST?

6. How are the special handling and fencing requirements for bison treated in terms of the calculation of GST on services?

Interpretation Given

Based on the information provided, we offer the following comments:

1. What is the tax status of a boarding agreement?

Boarding is considered to be a service for GST/HST purposes. A supply of a service made in Canada is taxable for GST/HST purposes at the rate of 7% (15% where the supply is made in a participating province: Nova Scotia, New Brunswick, or Newfoundland) unless the supply is zero-rated. As there is no provision to zero-rate boarding, the supply will be taxable.

2. How is a calf share agreement treated for GST purposes?

Generally, a barter transaction involves an exchange of property (or services) between two persons. For GST/HST purposes, this exchange consists of two supplies, one made by each of the persons. Under the relevant legislation, the Excise Tax Act ("the Act"), the GST/HST is generally payable by the recipient of a taxable supply made in Canada at the rate of 7% (15% in participating provinces) of the value of the consideration for the supply.

Where a barter transaction occurs, the value of the consideration for the supply made by one person is normally the fair market value of the property and/or services received from the other person.

3. How does the bison industry differentiate between what is feedlot and what is an extensive grazing situation?

For GST/HST purposes, a feedlot is considered to be a confined space (such as a pen, corral or a barn) where livestock are fed a concentrated diet for the purposes of producing a marketable animal. Where the intent of the boarding is for a different purpose than producing a marketable animal, and, where livestock are free to roam on pastureland and graze, the supply is not considered a feedlot operation for GST/HST purposes.

4. Should invoices be developed which separate the feed component from the service component of a cash boarding agreement?

If the supply is considered a single supply of boarding, (where it is for purposes other than a feedlot operation) the supply is subject to GST/HST calculated on the total charge for the supply.

For your information, I have attached the "Input Tax Credit Information Regulations" which provides the information that is required for input tax credits entitlement.

As you know, there are special rules that would require the feed component to be separate from the total charge, but these rules apply only in the case of a feedlot operation. For your convenience, I will provide you information on supplies by a feedlot:

Section 164.1, in combination with section 2.1 of Part IV of Schedule VI to the Act, allows that a portion (up to 90%) of a feedlot's total charge for taxable services that is reasonably "attributable to feed", be zero-rated.

In particular, pursuant to 164.1(2) of the Act, where, in the course of operating a feedlot that is a farming business within the meaning of the Income Tax Act, a person makes a supply of a service and the consideration for the supply (in this subsection referred to as the "total charge") includes a particular amount that is identified in the invoice or agreement in writing for the supply as being attributable to feed,

(a) the provision of the feed shall be deemed to be a supply separate from the supply of the service and not to be incidental to the provision of any other property or service;

(b) the portion, not exceeding 90%, of the total charge that is reasonably attributable to the feed and is included in the particular amount shall be deemed to be the consideration for the supply of the feed; and

(c) the difference between the total charge and the consideration for the supply of the feed shall be deemed to be the consideration for the supply of the service.

5. Is labour zero-rated for GST?

Section 165 of Act requires every recipient of a taxable supply made in Canada to pay to Her Majesty the GST/HST on the value of the consideration for the supply except where the supply is zero-rated. A "taxable supply" is defined under subsection 123(1) of the Act to be any supply made in the course of a commercial activity, where the definition of "commercial activity" includes a business carried on by a person except to the extent to which it involves the making of exempt supplies. Therefore, in accordance with section 165 of the Act, labour services are taxable at 7% (15% in a participating province).

6. How are the special handling and fencing requirements for bison treated in terms of the calculation of GST on services?

There are no special rules in the Act regarding handling and fencing requirements which are inputs to a supply of a boarding service.

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) 954-5124.

Yours truly,

Gabrielle Nadeau
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate