4 October 2002 GST/HST Interpretation 39231 - Application of GST to Provincial Non-refundable Environmental Levies on Returnable Containers

Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5XXXXX XXXXX XXXXX XXXXXXXXXX

Case Number: 39231October 4, 2002

Subject:

GST/HST INTERPRETATION Application of GST to provincial non-refundable environmental levies on returnable containers

Dear XXXXX:

Thank you for your letter of XXXXX, (with attachments) to the XXXXX GST/HST Rulings office concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the operations of XXXXX retailers, and the additional information you have provided on XXXXX XXXXX and XXXXX. Your request has been transferred to our office for response.

XXXXX retailers XXXXX XXXXX Retailers may sell beverages such as soft drinks in their retail stores. Refundable deposits and/or non-refundable environmental levies are imposed on sales of beverages in beverage containers in several provinces, including XXXXX XXXXX. There are no deposits or environmental levies imposed on beverage containers in XXXXX.

XXXXX[.] The XXXXX imposes fully refundable deposits on the containers when beverages in containers are sold, and states that the deposit includes any applicable federal and provincial sales tax. XXXXX[.] The brand owners charge the XXXXX, if any, in addition to the deposits when they sell beverages in containers to retailers. The retailers in turn charge the deposits and the XXXXX when they sell beverages in containers to consumers. When a consumer returns the used and empty container to a retailer or a depot, the consumer receives a refund of the deposit, but not the XXXXX. XXXXX[.] The XXXXX does not impose deposits, but does require that retailers clearly advertise the deposit amounts for the beverage containers they sell. The XXXXX imposes a minimum refund that must be paid to consumers and to depot operators for a used and empty container. Most manufacturers charge the minimum refund amount as a deposit. However, if a manufacturer sets a deposit higher than the minimum refund, the XXXXX requires that the refund paid to consumers be equal to the deposit set by the manufacturer.

The manufacturers charge the deposit when they sell the beverages in containers to retailers, XXXXX[.] The retailers in turn charge the deposit when they sell beverages in containers to consumers. The consumer receives a refund of the deposit when the consumer returns the used and empty container to a depot. XXXXX[.] The XXXXX imposes refundable deposits and environmental handling charges XXXXX on the purchase of beverages in beverage containers by consumers. The amounts of the refundable deposits and the XXXXX for each type of container are set out in the XXXXX[.] Retailers are required to collect the refundable deposits and the XXXXX when they sell the beverages in beverage containers to consumers, and are required to remit these amounts to the distributors. The distributors collect the refundable deposits and the XXXXX in respect of the beverage containers when they sell beverages in beverage containers to the retailers, and remit these amounts to the XXXXX government as required by the XXXXX.

XXXXX Consumers receive a refund of the deposit when they return the used and empty containers to a XXXXX depot. The XXXXX is not refunded.

XXXXX The XXXXX imposes a XXXXX levy on the first person to supply beverages in containers to another person in the course of business. There is no refundable deposit imposed on the sale of beverages in containers in XXXXX.

Manufacturers and bottlers of beverages are generally the first person to supply beverages in XXXXX, and the XXXXX levy is imposed on these suppliers. The manufacturers and bottlers may pass the XXXXX levy onto the retailers when they sell beverages in containers to the retailers, and may identify this amount separately. The retailers may, in turn, pass the XXXXX levy onto consumers when the retailers sell beverages in containers, identifying this amount separately.

XXXXX is responsible under the various provincial legislations for collecting the deposits and environmental levies from retailers (i.e. XXXXX is the brand owner, manufacturer, distributor, and bottler for its beverages). XXXXX

Interpretation Requested

1. Are the XXXXX levies subject to GST when charged by a bottler to a XXXXX Retailer, or when charged by a XXXXX Retailer to a consumer?

2. Does the simplified method for returnable containers in section 226 of the ETA apply to the XXXXX levies charged or paid by XXXXX Retailers?

3. Is a bottler required to disclose on their invoices to retailers using the simplified method the amount of GST included in the deposits, XXXXX levies?

4. If a XXXXX Retailer incorrectly remitted the GST it charged to customers on the deposits, XXXXX levies, can the XXXXX Retailer claim a rebate or an adjustment to its net tax? Can XXXXX claim the rebate or the adjustment to net tax on behalf of the XXXXX Retailers?

The Department of Finance tabled a Notice of Ways and Means Motion on February 8, 2002, to amend the Excise Tax Act (ETA) provisions for returnable containers. These amendments are proposed to come into effect on May 1, 2002, with respect to supplies of filled and sealed returnable containers, and after July 15, 2002, with respect to supplies of used and empty returnable containers and services in respect of the recycling of returnable containers. You have requested that the ruling address the application under the following three periods: old rules, new rules, and transitional rules.

In accordance with Section 1.4 of Chapter 1 of the GST/HST Memoranda Series, 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 transaction 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. We are pleased to issue you an interpretation that will elaborate on how the GST/HST applies to the supplies described in your letter.

Interpretation Given

1. Previous ETA provisions for returnable containers

Are the XXXXX levies subject to GST when charged by a bottler to a XXXXX Retailer, or when charged by a XXXXX Retailer to a consumer?

The XXXXX Retailers pay a deposit and/or an environmental levy on the supply of a beverage in a beverage container from a bottler. Consumers pay a deposit and/or an environmental levy on the supply of a beverage in a beverage container from a XXXXX Retailer.

Pursuant to paragraph 154(2)(b) of the ETA, the consideration for a supply of property or a service includes any provincial levy that is payable by the recipient, or payable or collectible by the supplier, in respect of the supply or in respect of the consumption or use of the property or service, other than a prescribed provincial levy that is payable by the recipient. Subsection 154(1) defines a "provincial levy" as a tax, duty or fee imposed under an Act of the legislature of a province in respect of the supply, consumption or use of property or a service.

The XXXXX imposed under the XXXXX is payable by the purchaser when a beverage in a beverage container is purchased from a vendor such as a XXXXX Retailer, and is collectible by the vendor on the sale. The vendor must remit the XXXXX to the distributor; the distributor is required to collect the XXXXX in respect of the beverage containers it sells and forward these amounts to the XXXXX government under the XXXXX. The XXXXX in XXXXX is not a prescribed provincial levy under the Taxes, Duties and Fees (GST/HST) Regulations. Paragraph 154(2)(b) of the ETA applies to the XXXXX payable by the consumer, and collectible by the XXXXX Retailer, on the supply of a beverage in a beverage container from a XXXXX Retailer, and to the XXXXX collectible by a bottler on the supply of a beverage in a beverage container to a XXXXX Retailer.

The XXXXX levy imposed under the XXXXX is payable by a bottler when the bottler sells beverages in containers. The bottler recovers an amount equal to the XXXXX levy when it sells beverages in containers to retailers such as the XXXXX Retailers. The XXXXX Retailers in turn charge an amount equal to the XXXXX levy when they sell beverages to their customers. The XXXXX levy in XXXXX is not a prescribed provincial levy under the Taxes, Duties and Fees (GST/HST) Regulations. Paragraph 154(2)(b) of the ETA applies to the XXXXX levy payable by the bottler on the supply of a beverage in a beverage container to a XXXXX Retailer.

Therefore, the consideration for a supply of a beverage in a beverage container includes the XXXXX in XXXXX, and the consideration for a supply of a beverage in a beverage container by a bottler includes the XXXXX levy in XXXXX, pursuant to paragraph 154(2)(b) of the ETA.

Section 154 of the ETA does not apply to the XXXXX, as it is not imposed under the provincial legislation. However, the XXXXX is part of the consideration for the supply of a beverage in a container made by the bottler or the XXXXX Retailer.

It is your view that paragraph 20(h) of Part VI of Schedule V to the ETA applies to treat the XXXXX and the XXXXX as consideration for exempt supplies. Paragraph 20(h) of Part VI of Schedule V states that a supply of a service of collecting garbage, including recyclable materials, is exempt when the supply is made by a government, a municipality, or by a board, commission or other body established by a government or municipality. Neither the XXXXX nor the XXXXX is exempt from GST under paragraph 20(h) of Part VI of Schedule V to the ETA. The government of XXXXX is not providing a supply of a service of collecting garbage to a vendor such as a XXXXX Retailer, or to a consumer. A consumer is required to pay the XXXXX when he purchases a beverage in a beverage container from a vendor. The only supply being made to the consumer is a beverage in a beverage container, made by the XXXXX Retailer, and the XXXXX is part of the consideration for that supply. XXXXX Furthermore, the bottlers and the XXXXX Retailers are not making supplies of recycling services when they charge their customers the XXXXX; they are making supplies of beverages in beverage containers.

Section 137 of the ETA states that where tangible personal property is supplied in a covering or container that is usual for that class of property, the covering or container shall be deemed to form part of the property so supplied. Therefore, when a beverage is supplied in a beverage container that is the usual container for the beverage, the container shall be deemed to form part of the beverage, and any amount charged in respect of the container, whether or not the amount is a provincial levy, shall form part of the consideration for the beverage.

The deposits and environmental levies are amounts charged in respect of the beverage containers. Both the deposits and the environmental levies are charged on the supply of a beverage in a beverage container to ensure the recovery and recycling of the container. For example, both the XXXXX and the refundable deposit in XXXXX are imposed in respect of the container under the XXXXX. An industry-set environmental levy, such as the XXXXX in XXXXX, is also charged in respect of the container.

Therefore, pursuant to section 137 of the ETA, the deposits, XXXXX XXXXX levies are subject to GST at the same rate as the beverage when charged by a bottler to a XXXXX Retailer, or when charged by a XXXXX Retailer to a consumer, on the supply of a beverage in a beverage container. For a beverage taxable at 7%, the deposit, XXXXX levy is also taxable at 7%. For a beverage taxable at 0% (zero-rated), the deposit, XXXXX levy is also zero-rated.

Does the simplified method for returnable containers in section 226 of the ETA apply to the XXXXX levies paid or charged by the XXXXX Retailers?

Section 226 of the ETA outlines a simplified reporting method for returnable containers. Subsection 226(1) defines a "returnable container" to mean a beverage container (other than a usual container for a beverage the supply of which is included in Part III of Schedule VI) of a class that is ordinarily acquired by consumers, is ordinarily filled and sealed when acquired by consumers, and is ordinarily supplied empty by consumers for consideration.

The beverage containers for beverages in XXXXX that are not zero-rated under Part III of Schedule VI to the ETA are returnable containers under section 226 of the ETA. The beverage containers in XXXXX are not returnable containers, as consumers do not receive refunds for the used and empty containers. Therefore, section 226 does not apply to the XXXXX levies paid or charged by the XXXXX Retailers in XXXXX.

Subsection 226(2) deems that if a person supplies a beverage in a returnable container in circumstances in which the person typically does not unseal the container, (A proposed amendment to subsection 226(2) in the Notice of Ways and Means Motion tabled on February 8, 2002, adds the phrase "in circumstances in which the person typically does not unseal the container" for clarification purposes.)

(a) the provision of the container shall be deemed to be a supply separate from, and not incidental to, the provision of the beverage;

(b) section 137 does not apply to deem the container to form part of the beverage; and

(c) the consideration for the supply of the container shall be deemed to be equal to that part of the total consideration for the beverage and the container that is reasonably attributable to the container.

The non-refundable environmental levy, like the refundable deposit, is an amount paid in respect of the container on the supply of a beverage in a filled and sealed returnable container. Section 226 of the ETA does not require that the consideration attributable to a filled and sealed container be equal to the consideration that a consumer may receive for a used and empty container. The total consideration for the beverage and the container that is reasonably attributable to the container is the total of the deposit and the environmental levy. The supply of the container is deemed to be separate from the supply of the beverage, and the consideration for the supply of the container is equal to the total of the deposit and the XXXXX in XXXXX, the deposit in XXXXX, and the total of the refundable deposit and the XXXXX in XXXXX.

The deeming provisions in subsection 226(2) ensure that, when a beverage is supplied in a returnable container, the simplified reporting method in subsections 226(3) and 226(4) is applied only to the tax in respect of the returnable container. Under subsection 226(3), tax that is collected or that becomes collectible by a registrant in respect of a supply of a returnable container shall not be included in determining the net tax of the registrant. Under subsection 226(4), tax that is paid or that becomes payable by a registrant in respect of a supply or the bringing into a participating province of a returnable container shall not be included in determining an input tax credit (ITC) of the registrant (unless the registrant is acquiring the container or bringing it into the province for the purpose of making a zero-rated supply of the container or a supply of the container outside Canada). Certain registrants are excluded from using the simplified reporting method under subsection 226(5) of the ETA, such as registrants that manufacture, produce or fill and seal returnable containers, or registrants that charge consideration for supplies of filled and sealed containers that exceeds the consideration the registrant pays to registrants for supplies of filled and sealed containers of that class.

Retailers are generally subject to the simplified reporting method in subsections 226(3) and 226(4) of the ETA. It is assumed that the XXXXX Retailers charge the same deposits and environmental levies to their customers as they pay to their suppliers, and as a result, the XXXXX Retailers would be subject to the simplified reporting method. The simplified reporting method in section 226 of the ETA applies to the XXXXX and XXXXX, as well as to the refundable deposits, paid or charged by the XXXXX Retailers.

Is a bottler required to disclose on their invoices to retailers using the simplified method the amount of GST included in the deposits, XXXXX levies?

Subsection 223(1) of the ETA states that if a registrant makes a taxable supply, other than a zero-rated supply, the registrant shall indicate to the recipient, either in prescribed manner or in the invoice or receipt issued to, or in an agreement in writing entered into with, the recipient in respect of the supply, the consideration paid or payable by the recipient for the supply and the tax payable in respect of the supply in a manner that clearly indicates the amount of the tax, or that the amount paid or payable by the recipient for the supply includes the tax payable in respect of the supply. The Disclosure of Goods and Services Tax Regulations states that the prescribed manner is giving clearly visible notice to the recipient of a taxable supply at the place where the supply is made.

Subsection 223(1.1) of the ETA states that if a registrant makes a taxable supply, other than a zero-rated supply, and, in an invoice or a receipt in respect of the supply issued to the recipient or in an agreement in writing in respect of the supply, the registrant indicates the tax payable or the rate or rates at which tax is payable in respect of the supply, the registrant shall indicate in that invoice, receipt or agreement the total tax payable in respect of the supply in a manner that clearly indicates the amount of that total, or the total of the rates at which tax is payable in respect of the supply.

Generally the first person to charge the deposit and environmental levy on returnable containers, such as bottlers, are the only suppliers not subject to the simplified reporting method under section 226 of the ETA. For the recipient of that supply, such as retailers, the supply of the container is deemed to be separate from the supply of the beverage. Publications by CCRA have stated that the bottlers could report a tax-included deposit amount on their invoices, rather than including the tax with respect to the containers with the tax in respect of the beverage, to assist their customers in applying the simplified reporting method. However, the bottler is required under subsections 223(1) and 223(1.1) of the ETA to provide information to indicate that the deposits and the environmental levies on its invoices are tax-included amounts, and the rate at which tax applies.

If a XXXXX Retailer incorrectly remitted the GST it charged to customers on the deposits, XXXXX levies, can the XXXXX Retailer claim a rebate or an adjustment to its net tax? Can XXXXX claim the rebate or the adjustment to net tax on behalf of the XXXXX Retailers?

Some of the XXXXX Retailers may not have followed the simplified reporting method in section 226 of the ETA, although required to do so with respect to supplies of returnable containers. These XXXXX Retailers remitted any GST that they charged to their customers on the deposits and environmental levies, and claimed ITCs for the tax they paid to their suppliers on these amounts. As a result, these XXXXX Retailers may have been over-remitting tax XXXXX The deposits and environmental levies are subject to GST, and the XXXXX Retailers were required to pay and charge tax on these amounts. Subsection 226(4) of the ETA prevents a XXXXX Retailer from claiming an ITC of the tax paid to its suppliers on the deposits and environmental levies on returnable containers. As tax was correctly charged to its customers on these amounts, an adjustment to net tax would not be made. However, under subsection 226(3) of the ETA, the tax on the deposits and environmental levies that is collected or that becomes collectible by a XXXXX[.] Retailer in respect of supplies of returnable containers should not be included in determining its net tax. A XXXXX Retailer may be able to claim a rebate under section 261 of the ETA if the XXXXX Retailer incorrectly remitted the GST charged to its customers on the deposits and environmental levies on returnable containers, and did not claim corresponding ITCs for the tax charged by their suppliers on these amounts.

Subsection 261(1) of the ETA states that where a person has paid an amount as or on account of, or that was taken into account as, tax, net tax, penalty, interest or other obligation under Part IX of the ETA in circumstances where the amount was not payable or remittable by the person, whether the amount was paid by mistake or otherwise, the Minister shall, subject to subsections (2) and (3), pay a rebate of that amount to the person.

If a XXXXX Retailer has included the tax on the deposits and environmental levies charged to its customers on the supply of beverages in returnable containers in determining its net tax and has not claimed a corresponding ITC, the XXXXX Retailer should be entitled to a rebate of that GST under section 261 of the ETA. However, subsections 261(2) and 261(3) impose restrictions on the amounts that may be claimed as a rebate and the time for filing a rebate claim.

Subsection 261(2) of the ETA states, in part, that a rebate in respect of an amount shall not be paid to a person to the extent that the amount was taken into account as tax or net tax for a reporting period of the person and the Minister has assessed the person for the period under section 296, or the amount paid was tax, net tax, penalty, interest or any other amount assessed under section 296.

Subsection 261(2) will restrict a rebate claim made by a XXXXX Retailer if the XXXXX Retailer has been assessed under section 296 of the ETA. In that case, the XXXXX Retailer will have to follow the applicable assessment and appeal procedures to recover the amount, since section 296 of the ETA requires that any amount that would have been allowable as a rebate is generally to be taken into account in assessing the net tax of the person.

Subsection 261(3) states that a rebate in respect of an amount shall not be paid to a person unless the person files an application for the rebate within two years after the day the amount was paid or remitted by the person.

A XXXXX Retailer may claim a rebate for the tax on the deposits, the XXXXX and the XXXXX that it charged to its customers and remitted in error within the last two years, if the XXXXX Retailer did not claim a corresponding ITC.

With respect to the XXXXX levies, which are not paid in respect of returnable containers, the XXXXX Retailers may be entitled to claim an ITC under subsection 169(1) of the ETA. Subsection 169(1) states that where a registrant acquires property or a service, the registrant is generally eligible to claim an ITC for the amount of GST paid or payable in respect of the supply, to the extent that the property or service is acquired for consumption, use or supply in the course of the commercial activities of the registrant.

Paragraph 169(4)(a) states that a registrant may not claim an ITC for a reporting period unless, before filing the return in which the credit is claimed, the registrant has obtained sufficient evidence in such form containing such information as will enable the amount of the ITC to be determined, including any such information as may be prescribed. Subsection 223(2) states that a person who makes a taxable supply to another person shall, on the request of the other person, forthwith furnish to the other person in writing such particulars of the supply as may be required to substantiate a claim by the other person for an ITC or rebate in respect of the supply. If the invoices do not contain all of the required information, a XXXXX Retailer may request the necessary documentation from XXXXX to support the claim for an ITC.

Paragraph 225(4)(b) outlines the time limit for claiming an ITC that applies to most registrants: An ITC of a person for a particular reporting period of the person shall not be claimed by the person unless it is claimed in a return filed by the person on or before the day that is the day on or before which the return is required to be filed for the last reporting period of the person that ends within four years after the end of the particular reporting period.

A XXXXX Retailer may claim an ITC in respect of the XXXXX levies charged by XXXXX if the XXXXX Retailer obtains the required documentation to support the claim and makes the claim in a return filed within four years from the end of the reporting period in which the tax was first paid or payable.XXXXX has requested that it be allowed to claim any allowable rebates or net tax adjustments on behalf of all the XXXXX Retailers. Subsection 261(1) of the ETA allows a rebate to be claimed by a person for tax paid or remitted in error by that person. Subsection 169(1) allows an ITC to be claimed by a registrant for tax paid or payable by that registrant. Since XXXXX did not pay the tax, it is not entitled to make the rebate or ITC claims in lieu of the XXXXX Retailers.

2. Proposed amendments to the ETA provisions for returnable containers

The proposed amendments to the ETA provisions for returnable containers in the Notice of Ways and Means Motion tabled on February 8, 2002, are proposed to come into effect on May 1, 2002, with respect to supplies of filled and sealed returnable containers, and after July 15, 2002, with respect to supplies of used and empty returnable containers and services in respect of the recycling of returnable containers. All references, unless otherwise noted, are to the proposed amendments to the ETA included in this Notice of Ways and Means Motion.

Are the XXXXX and XXXXX subject to GST when charged by a bottler to a XXXXX Retailer, or when charged by a XXXXX Retailer to a consumer, under the proposed amendments?

Subsection 226(1) defines certain terms for purposes of section 226. A "returnable container" in a province means a beverage container of a class of containers that are ordinarily acquired by consumers, are ordinarily filled and sealed when acquired by consumers, and are ordinarily supplied in the province used and empty by consumers for consideration.

The beverage containers in XXXXX are returnable containers under this definition, while the beverage containers in XXXXX are not.

A "returnable container charge" at any time means, in relation to a returnable container of a particular class containing a beverage that is supplied at that time in a province, the total of all amounts, each of which is charged by the supplier

(i) as an amount in respect of recycling in the province,

(ii) to recover an amount equivalent to the amount referred to in subparagraph (i) that was charged to the supplier, or

(iii) to recover an amount equivalent to the amount charged to the supplier by another supplier for the purpose referred to in subparagraph (ii) or in this subparagraph;

where "recycling", in respect of a province, means the return, redemption, reuse, destruction or disposal of returnable containers in the province or of returnable containers in the province and other goods, or the control or prevention of waste or the protection of the environment.

The definitions of "recycling" and "returnable container charge" do not refer to provincial legislation, and therefore are not limited to amounts imposed under such legislation. In XXXXX, the brand owners charge the deposit and the XXXXX as amounts in respect of the recycling of the containers, and the retailers charge the deposit and XXXXX to recover the amounts paid to the brand owners. The total of the deposit and the XXXXX is the "returnable container charge" in respect of the container when a brand owner or a XXXXX Retailer supplies a beverage in a returnable container in XXXXX. In XXXXX, the manufacturers charge the deposit as an amount in respect of the recycling of the containers, and the retailers charge the deposit to recover the amount paid to the manufacturers. As of XXXXX, the manufacturers will also charge the XXXXX as an amount in respect of the recycling of the containers, and the retailers will also charge the XXXXX to recover the amount paid to the manufacturers. The deposit is the "returnable container charge" in respect of the container when a manufacturer or a XXXXX Retailer supplies a beverage in a returnable container in XXXXX; beginning XXXXX, the total of the deposit and the XXXXX is the returnable container charge. In XXXXX, the distributors charge the deposit and the XXXXX as amounts in respect of the recycling of the containers, and the retailers charge the deposit and the XXXXX to recover the amounts paid to the distributors. The total of the deposit and the XXXXX is the "returnable container charge" in respect of the container when a distributor or a XXXXX Retailer supplies a beverage in a returnable container in XXXXX.

Referring to the definition in subsection 226(1), the "refund" in relation to a returnable container of a particular class that is supplied used and empty, or that is filled with a beverage that is supplied, at any time in a province, is usually the greatest of the applicable legislated amount and the amount paid by the supplier in the ordinary course of business for a used and empty container acquired from a consumer. It is assumed that the XXXXX Retailers do not accept used and empty returnable containers from consumers for refunds, or that if any XXXXX Retailers do, the XXXXX Retailers do not pay an amount for the container that exceeds the applicable legislated amount. As a result, the refund for a returnable container supplied by a XXXXX Retailer will be the applicable legislated amount in the province for returnable containers of that class.

Under subsection 226(1), the "applicable legislated amount" in a province for a returnable container of a particular class means the legislated consumers' refund in the province for a returnable container of that class, except when a provincial Act in respect of recycling does not specify an amount that must be charged by a distributor in respect of the supply of a filled and sealed returnable container of that class, but does specify a legislated consumers' refund and a recycler's reimbursement for a returnable container of that class. In that case, the "applicable legislated amount" is the recycler's reimbursement.

The "legislated consumers' refund" in a province for a returnable container of a particular class means the amount, or the minimum amount, that, under a provincial Act in respect of recycling, must be paid in certain circumstances to a person of a class that includes consumers for a used and empty returnable container of that class. The "recycler's reimbursement" in a province for a returnable container of a particular class is the amount that, under a provincial Act in respect of recycling, must be paid, otherwise than specifically in respect of the handling of the container, for a used and empty returnable container of that class when supplied by a person who paid an amount as the legislated consumers' refund to acquire the used and empty container.

In XXXXX, the "legislated consumers' refund" is the amount that the depots pay consumers and is equal to the deposit; this amount is also the "applicable legislated amount" and the "refund" in XXXXX. In XXXXX, the "legislated consumers' refund" is the amount that the depots pay consumers and is equal to the deposit. The "recyclers' reimbursement" in XXXXX is equal to the "legislated consumers' refund" since this is the amount, other than the handling commission, that must be paid to the depots; this amount is also the "applicable legislated amount" and the "refund" in XXXXX, since the XXXXX XXXXX imposes both a legislated consumers' refund and a recycler's reimbursement, but does not impose a deposit. In XXXXX, the "legislated consumers' refund" is the amount that the depots pay consumers and is equal to the refundable deposit; this amount is also the "applicable legislated amount" and the "refund" in XXXXX.

Subsection 226(2) generally applies to taxable supplies (other than zero-rated supplies) of beverages in filled and sealed returnable containers in a province in circumstances in which the supplier typically does not unseal the container, and the supplier charges the recipient a returnable container charge in respect of the container. The consideration for the supply is deemed to exclude the returnable container charge, and if the returnable container charge exceeds the refund for the container, the supplier is also deemed to have made a taxable supply in the province of a service in respect of the container to the recipient. In the non-participating provinces, such as XXXXX, the consideration for that supply is deemed to be separate from the consideration for the beverage, and equal to the amount by which the returnable container charge exceeds the refund for the container.

Subsection 226(2) applies to the supplies of returnable containers made to or by the XXXXX Retailers. Section 137 of the ETA deems that the container shall form part of the beverage supplied, such that the returnable container charge is part of the consideration for the beverage, without reference to section 226. Paragraph 226(2)(a) has the effect of reversing section 137 of the ETA, by excluding the returnable container charge from the consideration for the supply of the beverage. The returnable container charge for the container exceeds the refund for the container in XXXXX, and, beginning XXXXX XXXXX, and paragraph 226(2)(b) will apply to deem the supplier to have made a taxable supply in the province of a service in respect of the container to the recipient, for consideration equal to the amount by which the returnable container charge exceeds the refund for the container, in those provinces.

When a brand owner or a retailer supplies beverages in returnable containers in XXXXX, the XXXXX is subject to GST at the same rate as the beverage, while the deposit is not subject to tax. When a manufacturer or a retailer supplies beverages in returnable containers in XXXXX, the deposit amount is not subject to GST; for supplies made after XXXXX, the XXXXX will be subject to GST at the same rate as the beverage. When a distributor or a retailer supplies beverages in returnable containers in XXXXX, the XXXXX is subject to GST at the same rate as the beverage, while the refundable deposit is not subject to tax. For a beverage taxable at 7%, the XXXXX or the XXXXX is subject to GST at 7%. For a zero-rated beverage, section 137 of the ETA applies, such that the XXXXX or XXXXX is also zero-rated.

Therefore, the XXXXX and XXXXX are subject to GST when charged by a bottler to a XXXXX Retailer, or when charged by a XXXXX Retailer to a consumer.

Does the simplified method for returnable containers in section 226 of the ETA apply to the XXXXX and XXXXX charged or paid by XXXXX Retailers under the proposed amendments?

Special rules for the tax in respect of returnable containers are outlined in subsections 226(8) and 226(9), and apply to supplies made in one of the participating provinces, i.e. Nova Scotia, New Brunswick, or Newfoundland and Labrador. The XXXXX Retailers will account for the tax on the XXXXX and the XXXXX under the normal ETA provisions. Tax that is paid or payable may be claimed as an ITC under subsection 169(1) of the ETA, and tax that is collected or collectible must be included in the determination of net tax under subsection 225(1) of the ETA.

Part 3 - Transitional rules for the proposed amendments to the ETA

There are different coming into force dates for supplies of filled and sealed returnable containers, and supplies of used and empty returnable containers and services in respect of the recycling of returnable containers.

The XXXXX Retailers cease to pay and charge GST on the refundable deposits on returnable containers in XXXXX for supplies for which consideration becomes due on or after May 1, 2002, or is paid on or after that day without having become due. The environmental levies remain subject to GST, and the XXXXX Retailers will continue to pay and charge GST on the XXXXX and XXXXX. However, the special rules in section 226 will no longer apply to environmental levies on returnable containers that become due on or after May 1, 2002, or are paid on or after that day without having become due. The XXXXX Retailers will report the GST on the XXXXX and the XXXXX under the normal ETA provisions.

The foregoing comments represent our general views with respect to the subject matter of your letter, and to the proposed amendments to the Excise Tax Act as they relate to the subject matter of your letter. Any change to the wording of these proposed amendments or any future 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.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 957-8253.

Yours truly,

Jacqueline Russell
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

c.c.:

Donna Harding Jacqueline Russell Catherine Seguin-Oimet

Legislative References:	226, 137, 154, 223, 261, 169
NCS Subject Code(s):	I-11735-13, 11755-23, 11650-10