20 June 2002 GST/HST Interpretation 41082 - PROPOSED LAW/REGULATION Proposed Amendments for Returnable Containers

Dear XXXXX

Thank you for your letter of June 7, 2002, to the Halifax GST/HST Rulings office, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of beverages made by XXXXX in Prince Edward Island. Your letter has been forwarded to our office for reply.

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. Under the proposed amendments, a refundable deposit for a returnable container is not subject to tax.

In Prince Edward Island, the Litter Control Regulations under the Environmental Protection Act requires that beverages such as soft drinks and beer be sold in refillable containers. Beverage bottlers, distributors and wholesalers ("manufacturers") charge a deposit when they sell beverages in refillable containers to vendors, and the vendors charge the same deposit when they sell the beverages in refillable containers to their customers. The customers may return the used and empty containers to the vendor or a depot for a refund.

Subsection 3(1) of the Litter Control Regulations specifies the minimum refund that vendors or depot operators must pay when an empty refillable container is returned:

(a) $0.17 for a refillable container of a capacity of 500 ml or less;

(b) $0.34 for a refillable container of a capacity of more than 500 ml but not more than 1000 ml; and

(c) $0.70 for a refillable container of a capacity of more than 1000 ml.

Subsection 4(1) of the Litter Control Regulations requires that manufacturers collect the empty containers from vendors and depots, and pay the vendor or depot operator a minimum amount for the container:

(a) $0.20 for a refillable container of a capacity of 500 ml or less;

(b) $0.40 for a refillable container of a capacity of more than 500 ml but not more than 1000 ml; and

(c) $0.80 for a refillable container of a capacity of more than 1000 ml.

The Litter Control Regulations do not impose a deposit on the sale of beverages in refillable containers by a manufacturer or vendor. The manufacturers charge deposits equal to the refunds that the manufacturers are required to pay under subsection 4(1) of the Litter Control Regulations. The vendors charge the same deposit, and pay the same amount as a refund when a consumer returns a used and empty refillable container. If a consumer takes the empty container to a depot, the consumer will receive the refund amount specified in subsection 3(1) of the Litter Control Regulations.

XXXXX sells soft drinks in 355 ml refillable bottles and charges a deposit of $0.20. The vendors also charge a deposit of $0.20 on the sale of XXXXX beverages. Vendors pay a refund of $0.20, while depots pay a refund of $0.17, for the empty 355 ml refillable bottles.

Interpretation Requested

Is XXXXX required to charge GST on the difference between the deposit and the minimum legislated refund on the supply of a beverage in a refillable container in Prince Edward Island?

Interpretation Given

All references are to the proposed amendments to the ETA included in the Notice of Ways and Means Motion of February 8, 2002, unless otherwise noted.

Under subsection 226(1), a "returnable container" in a province means a beverage container of a class of containers that

(a) are ordinarily acquired by consumers;

(b) when acquired by consumers, are ordinarily filled and sealed; and

(c) are ordinarily supplied in the province used and empty by consumers for consideration.

The refillable containers in Prince Edward Island are returnable containers.

Subsection 226(2) outlines deeming provisions that apply when a supplier makes a taxable supply (other than a zero-rated supply) in a province of a beverage in a filled and sealed returnable container 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 of the beverage is deemed, under paragraph 226(2)(a), to be equal to the consideration for the supply as otherwise determined less the returnable container charge. When the returnable container charge exceeds the refund for the returnable container, paragraph 226(2)(b) deems the supplier to have made a taxable supply in the province of a service in respect of the container for consideration, separate from the consideration for the beverage, equal to the amount by which the returnable container charge exceeds the refund for the container.

Subsection 226(1) defines the terms used in section 226. A "returnable container charge," in relation to a returnable container containing a beverage that is supplied at that time in a province, means 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;

and "recycling," in respect of a province, means

(a) the return, redemption, reuse, destruction or disposal of returnable containers in the province or of returnable containers in the province and other goods; or

(b) the control or prevention of waste or the protection of the environment.

The $0.20 deposit charged by XXXXX is the "returnable container charge" in respect of the container.

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 that time in the province, is defined as the greatest of four amounts. For supplies of beverages made by XXXXX the greatest of these amounts is the applicable legislated amount in the province for returnable containers of that class. The "applicable legislated amount" in a province for a returnable container of a particular class means

(a) except if paragraph (b) applies, the legislated consumers' refund in the province for a returnable container of that class; or

(b) if, under an Act of the legislature of the province in respect of recycling, a legislated consumers' refund for a returnable container of that class is specified and an amount (in this paragraph referred to as the "recycler's reimbursement") is also specified that 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, on acquiring it used and empty, paid an amount as the legislated consumers' refund for the container, but no amount is specified as the amount, or the minimum amount, that must be charged by a distributor in respect of the supply of a filled and sealed returnable container of that class, 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 an Act of the legislature of the province 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 $0.17 refund imposed under subsection 3(1) of the Litter Control Regulations is the "legislated consumers' refund." However, this amount is not the "refund" in respect of the container. A consumer in Prince Edward Island who purchases a XXXXX soft drink pays a deposit of $0.20 for the 355 ml refillable bottle, and can receive a refund of either $0.20 or $0.17, depending on where the consumer takes the empty bottle.

Part (b) of the definition of "applicable legislated amount" applies in Prince Edward Island. The "legislated consumers' refund" is specified in subsection 3(1) of the Litter Control Regulations. The "recyclers' reimbursement" is specified in subsection 4(1), and no part of that amount is identified as being in respect of the handling of the container. The Litter Control Regulations do not specify an amount, or minimum amount, that must be charged in respect of the supply of a filled and sealed returnable container. The amount imposed under subsection 4(1) of the Litter Control Regulations is the "applicable legislated amount."

Therefore, the amount imposed under subsection 4(1) of the Litter Control Regulations is the "refund" for a refillable container in Prince Edward Island. For a 355 ml refillable container, the refund is $0.20.

When XXXXX sells its beverages, subsection 226(2) applies to the supply. As the refund is equal to the returnable container charge, paragraph 226(2)(b) does not apply, and no portion of the $0.20 deposit charged by XXXXX is subject to tax.

The foregoing comments represent our general views with respect 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