17 January 2001 GST/HST Interpretation 30254 - Application of the GST/HST to the Bulk Supplies of Rolls of Netting

Background

The company is a GST/HST registrant. The company is a manufacturer of nylon webbing, mesh, and netting (collectively its "finished products") for various applications including aquaculture, sports and recreation and construction safety netting. In most cases, when the company supplies its finished products to its customers, it is known how the finished product will be used and the company charges GST/HST accordingly. In particular, when the company supplies rolls of netting in bulk to its customers in the aquaculture business, it treats the supply as prescribed property for fishing pursuant to the Agriculture and Fishing Property (GST/HST) Regulations and zero-rates the supply. The company has applied the GST/HST in this manner to supplies made to its aquaculture customers for a number of years.

In August, 1999, XXXXX of the XXXXX questioned whether the company was correct in zero-rating bulk supplies of netting to its aquaculture customers. The Excise and GST/HST Rulings Directorate in Ottawa was consulted on this issue.

Comments

The Excise Tax Act ("ETA") provides that, generally, every recipient of a taxable supply made in Canada shall pay to Her Majesty in right of Canada tax in respect of the supply calculated at the GST rate of 7% (or HST rate of 15%, as applicable) on the value of the consideration for the supply. Where, however, a supply is a zero-rated supply, the tax rate in respect of that supply is 0%.

Section 10 of Part IV of Schedule VI to the ETA provides that a supply of prescribed property is a zero-rated supply. The Schedule to the Agriculture and Fishing Property (GST/HST) Regulations (the "Schedule") lists property that, when supplied by way of sale, is prescribed property for the purposes of section 10. Subsection 2(2) of the Schedule provides that the following products are zero-rated when supplied by way of sale:

"Fishing nets and related items

(a) Gill-nets, webbing for gill-nets, leadline for gill-nets, corkline (top rope) for gill-nets and floats for gill-nets

(b) Seines, webbing for seines, leadlines for seines, corkline (top rope) for seines and floats for seines

(c) Trawl-nets, webbing for trawl-nets, leadlines for trawl-nets and corkline (top rope) for trawl-nets

(d) Gill-net drums, seine drums, trawl-net drums and long-line drums

(e) Entrapment webbing and predator webbing

(f) Trawl-net doors".

A review of the material submitted by the company to the Canada Customs and Revenue Agency (the "CCRA") indicates that the company produces specific styles of netting for use by its aquaculture customers in their aquaculture business. It is the position of the CCRA that supplies of these specific styles are considered to be zero-rated supplies of "entrapment webbing" or "predator webbing", pursuant to paragraph 2(2)(e) of the Schedule. We emphasize that these supplies qualify for zero-rating because the netting is specifically produced for aquaculture purposes and not simply because the netting is sold to customers in the aquaculture business. The supply of these specific styles would remain zero-rated regardless of their end use.

However, please note that supplies of relatively small quantities of webbing, mesh, and netting, made to consumers, including sport fishers, are excluded from zero-rated status under paragraph 2(2)(e) of the Schedule.

I hope you find the foregoing information useful. If you have further questions or comments, please do not hesitate to contact me at (613) 952-9585.