Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
[Addressee]
Case Number: 199706
Dear [Client]:
Subject: GST/HST RULING
[…][Reusable Cup] Program
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to a […][reusable cup] program in […][Province X]. We apologize for the delay in this response.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
Based on the information provided in your correspondence, we understand the following:
STATEMENT OF FACTS
1. You are helping to coordinate a […][reusable cup] program in […][Province X] that operates on a deposit/return system.
2. Upon request, participating […][businesses] provide […][a beverage] for takeaway to customers in a reusable […][cup] (instead of a […][single-use] cup). Employees of the participating [businesses] fill the [cup] with [the beverage] and cover the [cup] with a lid before giving it to a customer.
3. The participating [businesses] charge a $[…] refundable deposit to customers to encourage the return of the [cups] and lids. When a customer returns a [cup] and lid, the participating [businesses] refund the $[…] deposit.
4. If a customer loses or breaks the [cup] and lid, or otherwise does not return it to a participating [business], then the deposit is forfeited.
5. Upon return, the [cups] and lids are washed and used by the participating [businesses] for sales of beverages to other customers.
RULING REQUESTED
You would like to know if the definition of “returnable container” under subsection 226(1) would apply to your [reusable cup] program and how the GST/HST should apply in your situation.
RULING GIVEN
Based on the facts set out above, we rule that the definition of “returnable container” under subsection 226(1) does not apply to the [cups] in your [reusable cup] program. Therefore, the GST/HST applies to the consideration (i.e., price) payable by customers for the [cups].
EXPLANATION
Under section 226, subject to specific exceptions, the GST/HST does not apply to a refundable deposit when a taxable beverage (other than a zero-rated beverage) is supplied in a returnable container and the supplier charges a refundable deposit in respect of the refundable container.
Pursuant to 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 definition of a returnable container specifies its applicability is “in a province”. This means that a container of a particular class (e.g., a 355ml aluminium can or a 2 litre plastic pop bottle) may be a returnable container in one province but not in another depending on the rules of each province. Furthermore, where a taxable beverage is sold in a container that is not subject to a refundable deposit in a particular province, that container is not a returnable container for the purposes of section 226. Consequently, to determine if an item is a returnable container in […][Province X], it is necessary to verify the requirements of the […] [applicable provincial act].
Subsection 226(2) generally applies to determine the consideration payable for taxable supplies (other than zero-rated supplies) of beverages supplied in a 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 Canada Revenue Agency (CRA) interprets the term “sealed” in the context of returnable containers as a type of closure that must be broken to access the contents, thereby providing a clear indication of tampering. Any alterations to the returnable container must result in permanent and visible evidence of tampering on the returnable container seal. In essence simply adding a lid to container and hand tightening that lid would not qualify as “sealed” for purposes of the definition of a returnable container.
Examples of returnable containers that the CRA recognizes as being sealed in a permanent manner when acquired by a consumer include aluminum or other metal soda cans, where the opening must be pierced and permanently broken and visible to access the liquid. Plastic bottles featuring a tamper-resistant seal that must be irreversibly broken to reach the contents. Some aseptic boxes where any alteration to access the beverage inside leaves permanent evidence of opening are all illustrative of what may constitute, subject to specific conditions, a returnable container under subsection 226(1).
Based on the information provided regarding the containers for use in the [reusable cup] program, the CRA’s opinion is that the containers (i.e., the [cups] and lids) supplied under this program, do not meet all the required conditions to be considered returnable containers under subsection 226(1). As a result, GST/HST applies to the sale of the [cups] by participating [businesses] to customers.
When a [cup] and lid is returned to a supplier and in return the purchaser receives a beverage in a new [cup] under the [reusable cup] program, subsection 153(4) may apply to reduce the amount of tax applicable to the consideration charged for the new [cup] and lid. This particular subsection is relevant in scenarios where a registrant supplier supplies tangible personal property (TPP) and, in return, accepts from a non-registrant as full or partial consideration for that supply, used TPP which will be utilized in the supplier’s commercial activities. The GST/HST is charged on the consideration payable for the supply of the purchased TPP less the value attributable to the used property.
In the context of the [reusable cup] program, when a customer elects to purchase a beverage at a participating [business] in a [cup] and simultaneously returns a used [cup], subsection 153(4) allows the participating [business] to deduct the value of the returned [cup] ($[…]) from the payment for the supply of the new [cup] ($[…]). As a result, since the value of the returned [cup] and the value of the new [cup] are identical for the participating [business], no additional payment or GST/HST is required on the acquisition of a new [cup].
If a customer chooses to return the [cup] without making an additional purchase and the participating [business] refunds the $[…] paid by the customer, then pursuant to subsection 232(1), the participating [business] can also refund the amount of tax collected on the initial supply if the refund is made within two years of the original purchase. Should a tax refund be issued, the participating [business] is required to provide a credit note containing the prescribed information including: an indication that the document is a credit note, the names of the supplier and the recipient, the date on which the note is issued and the amount of the refund. Consequently, the participating [business] may adjust the net tax in the tax return for the reporting period during which the refund was made.
For more information, including the prescribed information to be included on a credit note, please refer to GST/HST Memoranda Series 12.2, Refund, Adjustment, or Credit of the GST/HST Under Section 232 of the Excise Tax Act, available on CRA's website.
DISCLAIMER
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 819-271-8708. Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Sincerely,
Joseph Zeidan
Senior Rulings Officer
General Operations Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate
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