22 April 2002 GST/HST Interpretation 39897 - Export Distribution Centre Program (the EDC Program) and Export Trading House Program (the ETH Program)

This refers to the e-mail message you sent to Patrick McKinnon on March 28, 2002 concerning the similarities and the differences between the ETH Program and the new EDC Program.

You have asked why the ETH Program is still required with the introduction of the EDC Program given that it appears that any person who qualified for the ETH Program would qualify for the EDC Program and that the EDC Program seems to provide more relief.

We agree that the EDC Program can be more beneficial to the extent that the EDC Program provides relief of both the GST payable on the importation of goods and the GST/HST payable on goods purchased in Canada, whereas the ETH Program only provides relief of the GST/HST payable on goods purchased in Canada. The EDC Program is also more beneficial in that it allows for the limited processing of goods, while the ETH Program does not.

We agree with your comment that most of the persons who qualify for the ETH Program would also qualify for the EDC program. However, there are a few situations where a person would qualify for the ETH Program and would not qualify for the EDC Program. For example, one of the eligibility conditions under the EDC Program is that it must be reasonable to expect that the person will not engage in the substantial alteration of property (as that term is defined under subsection 273.1(1) of the Excise Tax Act (ETA). A company that has one division involved in the manufacturing of goods and another division involved in buying goods for export without any processing may qualify for the ETH Program but would not qualify for the EDC Program.

As you pointed out in your e-mail, another EDC eligibility condition is that the person must be engaged exclusively in commercial activities. Although most persons who qualify for the ETH Program would typically be engaged exclusively in commercial activities, this is not a condition under the ETH Program.

In addition, as you have indicated, for a supply to be zero-rated under the EDC Program, paragraph 1.2(b) of Part V of Schedule VI requires that the total amount of the consideration for that supply and for all other eligible supplies included in a single invoice or agreement made to the recipient be at least $1,000. There is no such requirement under the ETH Program.

Although the two programs are similar, the ETH Program has not been cancelled because, as stated above, there are situations where a person who qualifies for the ETH Program does not qualify for the EDC Program. We note that with the introduction of the EDC Program on January 1, 2001, several legislative changes were introduced with respect to the ETH Program to align its rules with those of the EDC Program and thus ensure consistency between the two programs. These changes included the introduction of section 236.2 of the ETA to ensure that a net tax adjustment is made to recapture the cash-flow benefit of using the ETH program where the ETH Program export certificate has been invalidly used or where the person's authorization to use the certificate has been deemed to have been revoked.

A person who has been authorized under the ETH Program (i.e. the person buys and resells goods without adding any value) may apply for the EDC Program under subsection 273.1(7) of the ETA if the person is engaged exclusively in commercial activities and satisfies the other conditions for the program. These conditions include a reasonable expectation for the fiscal year that the person will not engage in substantial alteration of property in the year through any of its divisions, that either of the person's percentage value added thresholds for the year will not be exceeded, and that the person's export revenue percentage for the year will be at least 90%.

Should you have any questions, please do not hesitate to call me at (613) 954-4291.

B. Mulinda
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate