GST/HST Ruling

Dear Sir:

We are responding to the letter submitted by XXXXX, on your behalf, dated XXXXX (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the products described below.

Statement of Facts

Our understanding of the facts, is as follows:

1. XXXXX (Product A)

•   Product A is sold in packages of XXXXX capsules

•   Product A states "Note: For therapeutic use only"

•   Product A directions state XXXXX

2. XXXXX (Product B)

•   Product B is sold in packages of XXXXX flavoured wafers

•   Product B states "Note: For therapeutic use only"

•   Product B directions state, XXXXX

•   Product B is labelled as a vitamin and mineral supplement.

3. XXXXX (Product C)

•   Product C is a XXXXX energy bar

•   The flavours of Product C are: XXXXX

•   All of the flavours of Product C are XXXXX chocolate-coated.

4. XXXXX (Product D)

•   Product D is a XXXXX energy bar.

•   Product D is available in XXXXX flavours.

•   All of the flavours of Product D are chocolate-coated.

5. XXXXX (Product E)

•   Product E is a XXXXX bar labelled as a nutritional supplement.

•   Product E is available in XXXXX flavours.

•   All of the flavours of Product E are chocolate-coated.

6. XXXXX (Product F)

•   Product F is an XXXXX flavoured powder

•   Product F states "Note: For therapeutic use only"

•   Product F directions state, XXXXX

•   Product F is labelled as a vitamin and mineral supplement

7. XXXXX (Product G)

•   Product G is an XXXXX powder

•   Product G states "Note: For therapeutic use only"

•   Product G directions state, XXXXX

•   Product G is labelled as a vitamin and mineral supplement

8. XXXXX (Product H)

•   Product H is available in XXXXX flavoured powder

•   Product H states "Note: For therapeutic use only"

•   Product H directions state, XXXXX

•   Product H is labelled as a vitamin and mineral supplement

9. XXXXX (Product I)

•   Product I is an XXXXX powder

•   Product I states "Note: For therapeutic use only"

•   Product I directions state XXXXX

•   Product I is labelled as a vitamin and mineral supplement

10. XXXXX (Product J)

•   Product J is available in XXXXX flavoured powder

•   Product J states "Note: For therapeutic use only"

•   Product J directions state, XXXXX

•   Product J is labelled as a vitamin and mineral supplement

11. XXXXX (Product K)

•   Product K is sold in XXXXX containers.

•   Product K states "Note: For therapeutic use only"

•   Product K directions state, XXXXX

Ruling Requested

You have requested a ruling on the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplements in powder, bar, wafer and capsule form.

Ruling Given

Based on the facts set out above, we rule that:

1. Products C and D are excluded from zero-rating pursuant to paragraph 1(e) of Part III of Schedule VI to the Excise Tax Act (ETA) and are therefore taxable at 7% GST (or 15% HST, as applicable).

2. Product E is a zero-rated (taxable at 0%) supply pursuant to section 1 of Part III of Schedule VI to the ETA.

3. Products A, B, F, G, H, I, J and K are taxable at 7% GST (or 15% HST, as applicable) pursuant to section 165 of the ETA.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

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%.

The supply of basic groceries, which includes the majority of supplies of food and beverages marketed for human consumption (including sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such food or beverages), is zero-rated pursuant to Part III of Schedule VI to the Excise Tax Act (ETA). Paragraph 1(e) of Part III excludes from zero-rating supplies of candies, confectionary that may be classed as candy, or any goods sold as candies, such as candy floss, chewing gum and chocolate, whether naturally or artificially sweetened, and including fruits, seeds, nuts and popcorn when they are coated or treated with candy, chocolate, honey, molasses, sugar, syrup or artificial sweeteners. Therefore, Products C (all flavours) and D (all flavours) are taxable at the GST rate of 7% or the HST rate of 15% in participating provinces pursuant to section 165 of the ETA.

It is our view that products that qualify and are labelled as "nutritional supplements" or "meal replacements" pursuant to the Food and Drugs Act (FDA) and Regulations are considered food or beverages for purposes of section 1 of Part III of Schedule VI to the ETA. Moreover, they are not subject to the exclusions under paragraphs 1(a) to 1(r) of Part III and, therefore, are zero-rated. The supply of Product E, a "nutritional supplement", is a zero-rated supply.

The terms "food" and "beverage" are not defined in the ETA. The CCRA position is that these terms are to be construed according to their ordinary meaning. That is, a food or a beverage is a good that an average consumer would recognize and purchase as a food or beverage in the ordinary course of buying basic groceries. Products that meet special dietary needs of certain segments of the population such as those with restricted or special purpose diets, high performance athletes and dieters may not necessarily be viewed by the average consumer as a food or a beverage.

Consumers usually consume food for enjoyment or to allay hunger, while beverages are usually consumed for enjoyment or to quench thirst. Therefore, the CCRA generally considers 'food' and 'beverages' as goods consumed to sustain or maintain life, to allay hunger or thirst, or for enjoyment rather than for therapeutic or preventative effects or to achieve specific beneficial effects related to performance or physique. Products A, B, F, G, H, I, J and K are identified as being "For therapeutic use only".

Products that are labelled or marketed as products to be consumed to facilitate the intake of certain ingredients (nutritive or otherwise) or which place an emphasis on claims relating to the benefits of the product are not considered to be products that an average consumer would ordinarily purchase in the course of buying food or beverages. For example products that claim to have therapeutic or preventative effects, or claim to enhance performance or physique are represented as being for another purpose and so are not considered to be basic groceries.

Additionally, a product that is marketed for its beneficial effects, and that is added to a food or beverage simply as a means of consuming it, would not be considered by an average consumer as an ingredient simply because it is ingested in this manner.

There are a number of factors that the CCRA considers in determining whether a product would be considered by an average consumer to be a food, beverage or ingredient.

One factor that is considered in determining whether a product is a food, beverage or ingredient is whether the product identifies itself as a 'supplement', 'dietary supplement', 'food supplement' or other type of similar supplement. (Note that this factor does not apply to products that are labelled in accordance with the FDA as "nutritional supplements".) Such identification may be an indication that the product is consumed for the purpose of enhancing or improving a person's state of health and not as a food, beverage or ingredient. Products B, F, G, H, I, and J identify themselves as a vitamin and mineral supplement.

Directions for use or restrictions relating to the amount to be consumed are generally not characteristics of products that the average consumer would consider to be a food, beverage or ingredient. Such directions or restrictions indicate that the product is being consumed for a purpose other than as a food, beverage or ingredient. Products A, B, F, G, H, I, J, and K have directions of use or restrictions.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-5124.

Yours truly,

Nicole Thomas
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

Legislative References:

NCS Subject Code(s):

Dear XXXXX:

This letter is further to our letter dated XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to chocolate flavoured XXXXX powdered drink mix ("the product").

Statement of Facts

Our understanding of the facts is as follows:

•   Product labelling indicates that the product is marketed as a food supplement, designed to provide users with high-quality protein and carbohydrates, as well as vitamins, minerals and other important micronutrients. The product is available in XXXXX packets. Directions for use indicate that a packet is to be mixed with XXXXX of partly skimmed milk and mixed in a blender or shaker.

Ruling Requested

You requested a ruling as to whether the chocolate flavour of the product was zero-rated, pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act (ETA).

Previous Ruling Given

XXXXX the CCRA ruled that the chocolate flavour of the product was zero-rated, pursuant to section 1 of Part III of Schedule VI to the ETA.

Having reviewed the facts of this case, we are pleased to provide you the following revised ruling.

Revised Ruling Given

Based on the facts set out above, we rule that the supply of the chocolate flavour of the product is taxable at 7% GST (or 15% HST, as applicable) pursuant to section 165 of the ETA.

This ruling supersedes our previous ruling dated XXXXX.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Explanation

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%.

The terms "food" and "beverage" are not defined in the ETA. However, the CCRA position is that these terms are to be construed according to their ordinary meaning. That is, a food or a beverage is a good that an average consumer would recognize and purchase as such in the ordinary course of buying basic groceries. Additionally, a product that is marketed for its beneficial effects, and that is added to a food or beverage simply as a means of consuming it, would not be considered as an ingredient to a food or beverage simply because it is ingested in this manner.

In addition, if a product identifies itself as a 'supplement', 'dietary supplement', 'food supplement' or other type of similar supplement, this is an indication that the product is consumed for the purpose of enhancing or improving a person's state of health and not as a food, beverage or ingredient.

The CCRA considers such things as labelling, packaging and marketing when determining a products tax status. As previously stated, the product, which is labelled and marketed as a food supplement, designed to provide users with high-quality protein and carbohydrates, as well as vitamins, minerals and other important micronutrients, is in powdered form and must be mixed with a specified quantity of milk in order to be consumed. It is the CCRA's position that this product is not considered to be a food, beverage or ingredient and is therefore taxable at 7% (or 15% as applicable).

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-5124.

Yours truly,

Nicole Thomas
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

Dear XXXXX

This letter is further to our letter dated XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to XXXXX powdered drink mix (the Product).

Statement of Facts

Our understanding of the facts is as follows:

1. Your client, XXXXX, sells the Product in XXXXX flavour.

2. The Product is marketed as XXXXX. The advertising for this Product indicates that it is formulated to XXXXX.

3. The directions on the label recommend the following ways to mix the powder to form a mixture for consumption XXXXX:

XXXXX

4. XXXXX

5. The XXXXX TIS office of the Canada Customs and Revenue Agency ("CCRA") issued an interpretation on the Product to the company, dated XXXXX. The interpretation stated that the Product was a zero-rated milk based beverage. Based on this, the company supplied the Product on a zero-rated basis.

6. XXXXX determined that the Product was actually taxable at 7% GST or 15% HST, as applicable. In a letter to the company dated XXXXX confirmed that, effective XXXXX, the company had agreed to charge, collect and remit tax on the Product. XXXXX also advised the company that, effective XXXXX, the interpretation letter dated XXXXX, was inoperative.

7. As per the agreement with the CCRA, the company has been collecting tax on the Product since XXXXX.

Ruling Requested

That the supply of the Product is zero-rated, pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act (ETA).

Previous Ruling Given

Based on the facts set out above we ruled that the supply of the Product was taxable at the rate of 7% GST or 15% HST, as applicable, pursuant to paragraph 1(d) of Part III of Schedule VI to the ETA.

Revised Ruling Given

Having reviewed the facts of this case, we confirm that the supply of the Product is taxable at 7% or 15%, as applicable. However, it should be noted that this Product is taxable pursuant to section 165 of the ETA and not section 1(d) of Part III of Schedule VI to the ETA as previously indicated.

This ruling supersedes our previous ruling dated XXXXX.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the ETA, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Revised Explanation

The terms "food" and "beverage" are not defined in the ETA. However, the CCRA position is that these terms are to be construed according to their ordinary meaning. That is, a food or a beverage is a good that an average consumer would recognize and purchase as such in the ordinary course of buying basic groceries.

Pursuant to GST/HST Policy Statement P-240, Application of GST/HST to Products Commonly described as "Dietary Supplements", if a product identifies itself as a 'supplement', 'dietary supplement', 'food supplement' or other similar type of supplement, this is an indication that the product is consumed for the purpose of enhancing or improving a person's state of health and not as a food, beverage or ingredient.

Among other factors, the CCRA will consider labelling, packaging and marketing to determine whether a product would be considered a "food", "beverage", or "ingredient".

Directions for use for the Product are to XXXXX. These types of directions or restrictions relating to the amount to be consumed generally indicate that the product is being consumed for a purpose other than as a food, beverage or ingredient.

The Product is marketed XXXXX. Products that place an emphasis on claims relating to the benefits of the product such as therapeutic or preventative effects, or claim to enhance performance or physique are not considered to be a food or beverage.

As a result of the above, the CCRA considers that the Product is not a food, beverage or ingredient and is therefore taxable at 7% GST or 15% HST, as applicable, pursuant to section 165 of the ETA.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-5124.

Yours truly,

Nicole Thomas
Rulings Officer
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

Dear XXXXX:

Thank you for your letter dated XXXXX (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the products described below.

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX Salad (Product A)

•   Product A is described as XXXXX

•   Sold in bulk XXXXX containers

•   Containers are either plastic tubs or tetra packs

•   Suitable for immediate consumption

•   Stored in coolers to maintain shelf life of XXXXX days

2. XXXXX Salad (Product B)

•   Product B is described as: "XXXXX"

•   Sold in bulk XXXXX containers

•   Containers are either plastic tubs or tetra packs

•   Suitable for immediate consumption

•   Stored in coolers to maintain shelf life of XXXXX days

3. XXXXX Salad (Product C)

•   Product C is described as: "XXXXX"

•   Sold in bulk XXXXX containers

•   Containers are either plastic tubs or tetra packs

•   Suitable for immediate consumption

•   Stored in coolers to maintain shelf life of XXXXX days

Ruling Requested

You have requested a GST/HST ruling regarding the tax status of the above products.

Ruling Given

Based on the facts set out above, we rule that all of the above products are taxable at 7% (or 15% as applicable), pursuant to section 1(o.1) of Part III of Schedule VI to the Excise Tax Act (ETA).

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

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%.

Paragraph 1(o.1) excludes from zero-rating supplies of "salads not canned or vacuum sealed".

As Products A, B and C all fall within this description they are excluded from zero-rating and are therefore taxable at 7% (or 15% as applicable).

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-5124.

Yours truly,

Nicole Thomas
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

Dear XXXXX:

Thank you for your letter of XXXXX concerning the application of the Goods and Services Tax (GST) to the supply of guest suites by the XXXXX Condominium Corporation XXXXX (the Condo Corporation).

All legislative references below are to the Excise Tax Act ("the ETA").

Statement of Facts

Our understanding of the facts is as follows:

1. There are XXXXX units in the subject condominium complex, and of these, XXXXX are guest suites. The other units are owned by non-registrant individuals ("unit owners").

2. The Condo Corporation owns and manages the guest suites. The Condo Corporation also owns and manages other facilities XXXXX[.]

3. The guest suites cannot be booked by anyone other than unit owners. While restrictions on the type of guests is not formalized in writing, it is clearly understood by the unit owners that the use of guest suites is restricted to visiting family and friends of the unit owners.

4. When booking a room, a unit owner must complete a "XXXXX" agreement form and submit it to the Condo Corporation. The form sets out the fee XXXXX per night), dates of use, and other terms; XXXXX[.]

5. Since substantially all of the guest suites are provided for periods of continuous occupancy by guests of less than 60 days, the suites do not meet the definition of "residential complex" in the ETA.

6. The Condo Corporation is not registered for the GST/HST. It has not been collecting GST on the consideration payable for the guest suites. Its revenues from this source exceed $50,000 annually.

Ruling Requested

The Condo Corporation requests a ruling as to whether it is required to charge GST on the consideration payable for the supply of guest suites.

Ruling Given

Based on the facts set out above, we rule that the supply of the guest suites is a taxable supply. Since the Condo Corporation is not a small supplier, it is required to register and to collect and remit the GST on the consideration payable by unit owners for the supply of guest suites.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Explanation

A "supply" is defined under subsection 123(1) of the ETA as "the provision of property or a service in any manner ..." and if no exemption applies to a supply, it is taxable (Note definitions of "taxable supply" and "commercial activity" pursuant to subsection 123(1)). Since, in our view, no exemption applies to the supply of guest suites by the Condo Corporation, this supply is taxable. Accordingly, the Condo Corporation is required to be registered (Subsection 240(1)) for the GST/HST, and to collect (Subsection 221(1)) and remit (Subsection 228(2)) tax on the fees payable by the unit owners for the use of the guest suites.

We should note that a common exception to the requirement to register and to charge tax on taxable supplies involves taxable supplies made by a small supplier. A small supplier (Subsection 148(1)), in brief, is a person whose revenues from taxable supplies do not exceed $30,000 over four consecutive calendar quarters (for "public service bodies" such as non-profit organizations, this threshold is $50,000). Small suppliers may choose (A small supplier who chooses to register will then be required to charge tax on revenues from taxable supplies, but would also be entitled, by claiming input tax credits, to recover the tax payable on purchases related to making taxable supplies. Conversely, a small supplier who chooses not to register will not charge tax on revenues from taxable supplies, but will also be precluded from claiming input tax credits.) not to register for the tax, and if they so choose, are not required to charge tax on their taxable supplies. (Section 166) Since you have advised that the Condo Corporation's revenues from the guest suites exceed $50,000 per year, it is apparent that it is not a small supplier.

The exempting provisions are set out under Schedule V of the ETA. As noted above, it is our view that none of these exemptions apply to a supply of guest suites in the situation you have described. We did examine one exemption in particular. Section 13 of Part I of Schedule V provides the following exemption:

13. A supply of property or a service, made by a corporation or syndicate established upon the registration, under the laws of a province, of a condominium or strata lot plan or description or similar plan or description, to the owner or lessee of a residential condominium unit described by that plan or description, if the property or service relates to the occupancy or use of the unit.

While this provision will exempt many of the supplies made by a condominium corporation, it is our view that it does not apply to the supply of guest suites in the present circumstances. As noted above, in order to qualify for the exemption, the supply by a condominium corporation of property or services to the owner of a condominium unit must relate to the "occupancy or use" of that unit. Since a guest suite is, in fact, a unit in and of itself, and is provided for the use of guests, in our view it is not a supply that "relates to the occupancy or use" of the owner's condominium unit. Accordingly, the requirements of the exemption are not met.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9587.

Yours truly,

Michael Place
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

Dear XXXXX:

We refer to letters of XXXXX and XXXXX (with attachments) from XXXXX, and to your letter of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below. We apologize for the delay in our response.

Please be advised that while the original request for a GST/HST ruling was received from XXXXX, we have not received authorization from you to disclose information to that firm. We are therefore addressing our response directly to you. Further, as discussed in our telephone conversations, we will restrict our response to funding received from the federal government as we have not been provided with agreements outlining the funding received from the provincial government or other XXXXX.

All legislative references are to the Excise Tax Act (the Act).

Statement of Facts

Our understanding of the facts and transactions is as follows:

1. XXXXX (the Home) is operated by XXXXX (the Operator), which is owned by XXXXX which in turn is owned by XXXXX.

2. The Operator makes the Home available to individuals XXXXX who are XXXXX and who are temporarily in XXXXX to receive medical treatment. The medical treatments are not performed at the Home, but the Home serves as the individual's temporary place to stay while receiving medical treatment. The majority of persons using the Home and its services are XXXXX travelling to XXXXX from their XXXXX

3. The Home is located at XXXXX and is comprised of XXXXX suites with a XXXXX person capacity. Each suite has a kitchenette and a full private bathroom. The Home also has a dining room, playroom, common room, a recreational area, lounge areas and a laundry facility.

4. The Home operates in accordance with XXXXX (the Agreement) for the provision of boarding services which Health Canada is required to provide to XXXXX. The Agreement is between the Operator and Public Works and Government Services Canada (PWGSC) and makes the following provisions:

(a) Paragraph 1 of Part II provides that the Operator will provide services to XXXXX people temporarily in XXXXX for medical attention on an "if-and-when-requested" basis in accordance with the terms and conditions and for the fees set out in the Agreement.

([b]) XXXXX to the Agreement sets out the responsibilities of the Operator which, in addition to accommodations, include

XXXXX XXXXX XXXXX XXXXX XXXXX

5. The Operator is not registered for GST/HST purposes and is not a "public service body" as that term is defined in the Act.

6. A minor portion of the Operator's revenues come from XXXXX who acquire accommodations and meals for their XXXXX where the amount is not paid by PWGSC. Further, some revenues come from the XXXXX for accommodations and meals for XXXXX. These fees are paid on a per occupancy basis.

7. Based on certain information submitted to us, for the period of XXXXX to XXXXX, the following observations are made:

(a) One individual stayed in the Home continuously for a period of 11 months. Three other individuals stayed in the Home continuously for periods of 8 months, 7 months and 4 months.

(b) One couple (two family members) stayed in the Home continuously for a period of 3 months, another couple also stayed for 3 months, while another couple stayed for two two-month periods (with a one-month break in between).

As such, at least XXXXX (and possibly as many as XXXXX) of the suites in the Home were occupied continuously for periods of at least 60 days. Nonetheless, no specific rooms in the Home are held for persons who will stay there for periods of 60 days or more (or who you expect will stay there for 60 days or more at the time of their admittance to the Home).

Ruling Requested

You are requesting a ruling on the GST status of payments made to you by PWGSC under the Agreement.

Rulings Given

Based on the facts set out above, we rule that:

1. In respect of individuals who are given continuous occupancy of a suite in the Home for a period of at least one month, you are making an exempt supply to PWGSC under the Agreement. This is the case whether the individual receives "Care" services or "Additional Care Support" as set out in XXXXX to the Agreement.

2. In respect of individuals who are not given continuous occupancy of a suite in the Home for a period of at least one month, you are making taxable supplies to PWGSC under the Agreement. This is the case whether the individual receives "Care" services or "Additional Care Support" as set out in XXXXX to the Agreement.

3. In respect of individuals who are provided meals only (or a bagged lunch), and do not stay overnight at the Home, you are making taxable supplies to PWGSC under the Agreement.

These rulings are subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by the rulings provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Explanation

The first matter to be determined is whether the funds received from PWGSC are consideration for a supply or a grant. If the funds are consideration for a supply, then it will be necessary to determine whether the supply is taxable or exempt. If the funds are a grant, no GST will apply and no further analysis is necessary. The enclosed Technical Information Bulletin B-067, Goods and Services Tax Treatment of Grants and Subsidies, must be reviewed in determining whether the funds are consideration for a supply or a grant.

Consideration for a Supply or a Grant?

It is our view that Technical Information Bulletin (TIB) B-067 does not apply to the payments provided by PWGSC to the Operator, i.e. that the payment is consideration for a supply and not a grant.

There are several indications that PWGSC makes the payments for a purchase purpose.

When the Government of Canada uses a Standing Offer and Call-up Document, the payments made under that offer come from a department's vote (amounts appropriated by Parliament for specific purposes) for purchases. When the government uses a contribution or grant agreement, the payments come from a department's transfer payment vote. According to the financial policy of the government, this vote is only to be used when the government does not receive any goods or services for the payment.

PWGSC's use of a standing offer is an indication that the payment is for a purchase purpose. This, by itself, is not sufficient to determine that the payment is linked to a supply provided by a boarding home. However, there are other indications as well.

The TIB acknowledges that a purchase purpose may apply even if the grantor is a public sector body and some public benefit results, and that when a grantor is "contracting-out" the payments are very likely made for a purchase purpose. In this case, it is our view that PWGSC is contracting-out or purchasing an input to its own programs rather than financially supporting the activities of the Home.

In order to use a boarding home, an individual must first approach Health Canada and receive its approval. PWGSC will then purchase the services of the Operator as required under the Standing Offer through a call-up document. In the Standing Offer-the Operator offers to provide (on the behalf of Health Canada), on an "if and when requested" basis, XXXXX and associated services to XXXXX people temporarily in XXXXX for medical attention. It is important to note that the documentation states the offeror provides services to XXXXX people "on behalf of Health Canada".

It is also important to note that Health Canada sets the standards and requirements of the Home's services and standards of care and operation. Under the standing offer, Health Canada Medical Services Branch (MSB) coordinates patient placement to XXXXX in accordance with the patient's preference needs. In any case, the MSB identifies the patient being referred to the Home including the name, date of birth, sex, XXXXX and, if applicable, information on the patient's escort. MSB will advise the Operator of the time of patient arrival, expected departure and patient's medical appointment (doctor, time, place). MSB also advises the Operator when the patient needs a bag lunch. Additionally, all patients and escorts admitted to the Home must be approved by MSB.

The following is a summary of the indicators that lead us to believe this is a purchase or an input for MSB and that the payments made under the Standing Offer are consideration:

-    the standing offer sets out the agreement to be a purchase by the federal government

-    the MSB determines which clients or patients stay at the Home

-    the services are offered if and when requested by MSB and not by the patient

-    MSB sets the specifications of the Home

-    The Operator provides services on behalf of MSB

As PWGSC is liable under the combination of the Standing Offer and the Call-up Document to pay for the supplies provided by the Operator, PWGSC is the recipient of the supply and will be required to pay the tax (if the supply is taxable).

In a situation where a supplier provides several goods and services together, it is necessary to determine whether the supplier is making a single supply or separate supplies. The enclosed policy paper P-077, "Single and Multiple Supplies", provides assistance in making this determination.

Single supply or multiple supplies?

It is necessary to determine whether, under the Agreement, the Operator is making a single supply or multiple supplies in light of P-077.

It is our view that the Operator is making a single supply based on the following observations:

1. The Operator agrees to provide all the properties and services set out in XXXXX. PWGSC pays one all-inclusive fee on a per patient per day basis to the Operator in respect of the Operator's supply of services. It is not possible for the Operator to provide only some of the services to the exclusion of others, at least in respect of those patients who stay overnight. For example, it is not possible for the Operator to supply a room but no meals. (The Operator does supply "Meals-only" to some patients, but just to those who are in XXXXX only for the day and are not staying overnight at the Home. In such cases a separate fee is payable for each meal consumed by the day patient.) PWGSC will pay a higher fee where the Operator supplies Additional Care Support services. This fee varies depending on the extent of the additional care services.

2. There is one supplier (the Operator) and one recipient (PWGSC).

3. The purpose of PWGSC acquiring the services of the Operator is to fulfill Health Canada's obligations to temporarily house XXXXX in XXXXX for medical treatment. In the context of PWGSC's needs, any one element supplied on its own would be of little or no use to PWGSC. Similarly, for patients staying at the Home, they are looking to have all of their accommodation needs met.

4. Once a patient is admitted to the Home, the individual receives or has the right to receive all of the services as set out in XXXXX to the Agreement. Contractually, PWGSC has the right to have the Operator supply all the services set out in XXXXX.

Having determined that this is a single supply, it is necessary to characterize the supply. That is, it must be determined what the Operator supplies in return for the payments PWGSC makes under the Agreement.

Characterization of the Supply

The objective of the Operator in making the supply appears to be set out in XXXXX of the Agreement in the section entitled, XXXXX wherein the Operator agrees to provide XXXXX and associated services to XXXXX XXXXX people temporarily in XXXXX for medical attention. The root of the transaction in this case appears to be the supply by the Operator of the right of a patient to stay in a suite in the Home. While the Operator makes other services available to patients of the Home, XXXXX the dominant element of the supply appears to be that of making a suite in the Home available to patients of the Home. The other property and services supplied are not sufficient in this case to change the characterization of the supply from being that of the right to a suite in the Home to that of receiving personal or medical care services, as may be the case in other situations where a combination of accommodations and services are provided. From a patient's perspective, it would appear that, in staying at the Home, they are chiefly satisfying the need for a place to stay while temporarily in XXXXX for medical treatments.

Accordingly, we view the supply by the Operator as a right given to patients to stay in the Home or, more broadly, a supply of real property. Having made this determination, it is necessary to consider whether any exempting provisions apply to the supply.

Determining the Tax Status of the Supply

Paragraph 6(b) of Part I of Schedule V to the Act exempts the supply of a residential unit by way of lease, licence or similar arrangement for the purpose of its occupancy as a place of residence or lodging by an individual, where the consideration for the supply does not exceed $20 for each day of occupancy. The consideration for the supply, which is paid by PWGSC, exceeds $20 for each day of occupancy and hence, this exemption does not apply.

Paragraph 6(a) of Part I of Schedule V to the Act exempts a supply of a residential complex or a residential unit in a residential complex by way of lease, licence or similar arrangement for the purpose of its occupancy as a place of residence or lodging by an individual, where the period throughout which continuous occupancy of the complex or unit is given to the same individual under the arrangement is at least one month. Therefore, if the Home, or part of it, qualifies as a residential complex, supplies to patients of one month or more that are made in the Home, or in that part of the Home that is a residential complex, will be exempt under paragraph 6(a) of Part I of Schedule V. Supplies of less than one month will not be exempt under paragraph 6(a).

The definition of "residential unit" in subsection 123(1) includes

"(b) a suite or room in a hotel, a motel, an inn, a boarding house or a lodging house or in a residence for students, seniors, individuals with a disability or other individuals, or

(c) any other similar premises, or that part thereof that

(d) is occupied by an individual as a place of residence or lodging,

(e) [i]s supplied by way of lease, licence or similar arrangement for the occupancy thereof as a place of residence or lodging for individuals ...".

Subsection 123(1) defines a "residential complex", in part, as

"(a) that part of a building in which one or more residential units are located, together with

(i) that part of any common areas and other appurtenances to the building and the land immediately contiguous to the building that is reasonably necessary for the use and enjoyment of the building as a place of residence for individuals, and

(ii) that proportion of the land subjacent to the building that that part of the building is of the whole building ...

but does not include a building, or that part of a building, that is a hotel, a motel, an inn, a boarding house, a lodging house or other similar premises, or the land and appurtenances attributable to the building or part, where the building is not described in paragraph (c) and all or substantially all of the leases, licences or similar arrangements, under which residential units in the building or part are supplied, provide, or are expected to provide, for periods of continuous possession or use of less than sixty days".

In determining whether the Home is a "hotel, motel, inn ..." the guidelines in enclosed policy paper P-099, "The Meaning Of 'Hotel', 'Motel', 'Inn', 'Boarding House', 'Lodging House' And 'Other Similar Premises, As Used In The Definition Of 'Residential Complex' And 'Residential Unit'", must be considered. These guidelines are as follows:

•   the establishment normally provides temporary accommodation rather than a permanent place of residence;

•   where required by municipal and/or provincial regulations, the establishment is licensed for business for the purpose of providing a temporary place to stay;

•   the establishment is available for rental to the public on a temporary [transient] basis

[For this purpose, the public is considered to be either the community as a whole or a defined class of the public, such as students or senior citizens. Excluded from this concept of the public is a limited group of persons, where such group is limited by some unique characteristics not found in the public at large, such as employees or shareholders of a particular company.]

•   where appropriate, there is a common registration area;

•   the rooms or suites in the establishment are furnished by the supplier;

•   depending on the nature of the establishment, housekeeping services and other facilities are available such as restaurants, meeting rooms, stores, etc.

Suites in the Home are not available to members of the public at large and instead are restricted to XXXXX. As such, we do not consider the Home to be a hotel, motel, inn, boarding house, lodging house or similar premises. Therefore, the Home is not excluded from the definition of a residential complex and where the conditions in the aforementioned paragraph 6(a) are met, the supply is exempt. That is, the exemption in paragraph 6(a) applies to those supplies that involve a patient occupying a suite in the Home for a period of at least one month. Where a patient is given continuous occupancy of a suite in the Home for a period of less than one month ("short-term stays"), the supply is not exempt under paragraph 6(a). We must consider whether other provisions within Schedule V apply to exempt the supply of short-term stays.

Section 2 of Part IV of Schedule V to the Act exempts a supply of a service of providing care, supervision and a place of residence to children, underprivileged individuals or individuals with a disability in an establishment operated by the supplier for the purpose of providing such service. It is not clear whether individuals using the Home could be considered underprivileged individuals or individuals with a disability. At any rate, the Home would not be considered a place of residence of the individual as those staying at the Home are in XXXXX on a temporary basis while receiving medical treatment at another facility. As such, the exemption in section 2 does not apply to the Operator's supply of short-term stays.

Section 3 of Part IV of Schedule V to the Act exempts a supply of a service of providing care and supervision to an individual with limited physical or mental capacity for self-supervision and self-care due to an infirmity or disability, if the service is rendered principally at an establishment of the supplier. While "care and supervision" is not defined in the Act, the XXXXX defines "personal care" as care in the nature of

(a) basic nursing care under the supervision of a registered nurse, or

([b]) personal assistance in the activities of daily living, or

([c]) supervision of activities of daily living together with goods and services that are specified in the regulations as goods and services that are provided as part of personal care.

Our understanding is that staff at the Home does not provide any of these services. Staff need no formal training other than first aid and they are not permitted to administer prescription drugs. As such, the exemption in section 3 does not apply to the Operator's supply of short-term stays.

No other exempting provisions apply to the supply of short-term stays and accordingly, the supply is taxable.

There are no provisions to exempt the supply of a meal or bagged lunch to a patient who receives such from the Operator in cases where the patient does not stay overnight at the Home. Accordingly, the Operator is making a taxable supply to PWGSC in this respect.

Additional Information

Under subsection 240(1), every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada must register for the GST/HST, except where:

(a) the person is a small supplier (refer to enclosed GST/HST Memorandum 2.2, Small Suppliers, for more information on small suppliers),

([b]) the only commercial activity of the person is the making of supplies of real property by way of sale otherwise than in the course of a business, or

([c]) the person is a non-resident person who does not carry on any business in Canada.

As a registrant, a person is required to charge and collect tax on taxable supplies in accordance with the provisions of section 221.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-4393.

Yours truly,

Hugh Dorward
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
XXXXX

Encl.

Dear XXXXX:

Thank you for your letter to XXXXX of XXXXX XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your company's supplies made via the Internet. Your request was forwarded to us for response and we apologize for the delay in replying to your enquiry.

Statement of Facts

Our understanding of the facts, the transactions, and the purpose of the transactions is as follows:

XXXXX (XXXXX) is a GST/HST-registered company based in XXXXX (XXXXX) that specializes in providing information, such as currency conversions, over the Internet and has a global client base. Its server is physically located in XXXXX, XXXXX.

Under a Licence Agreement (the Agreement), XXXXX will grant a client a non-exclusive, non-transferrable licence for the right to permit visitors to the client's Web site (end-users) to access and use XXXXX software, the XXXXX (tm) (XXXXX), and XXXXX data [hereafter, collectively referred to as "the XXXXX"]. Regardless of the location of the server that hosts the client's Web site, each and every attempt by an end-user to access or use the XXXXX involves communication with XXXXX servers in XXXXX.

For example: A client in Italy enters into an Agreement with XXXXX. Pursuant to the Agreement, XXXXX enables the XXXXX to appear as part of the client's Web site. End-users from around the world accessing the client's Web site are able to use the customized version of the XXXXX as if it were part of the client's Web site; however, regardless of the location of the end-user or the client, the relaying of the information to the end-user always involves communication with XXXXX servers in XXXXX.

The licence granted to the client is not limited to any particular country or province. Pursuant to the Agreement, XXXXX reserves all rights, titles and interest in the XXXXX, together with all intellectual property rights and goodwill therein and the client agrees to cooperate with XXXXX and to protect XXXXX intellectual property rights.

XXXXX charges a fee of USXXXXX for this right to permit end-users to access and use the XXXXX.

The place of negotiation (Section 1 of Part I of Schedule IX to the ETA defines "place of negotiation" to be "... the location of the supplier's permanent establishment at which the individual principally involved in negotiating for the supplier the agreement for the supply ordinarily works, or to which that individual ordinarily reports, in the performance of the individual's duties in relation to the activities of the supplier in the course of which the supply is made ...") of the supply is in XXXXX.

In addition to providing the above information to its clients, XXXXX supplies a portion of its Web page for advertising purposes to XXXXX (XXXXX), a non-resident company that is not registered for purposes of the GST/HST. When an individual visits XXXXX Web page(s), the individual is able to view advertisements on XXXXX Web page that originate from XXXXX servers in the U.S.A.

XXXXX XXXXX, XXXXX XXXXX XXXXX[.]

Ruling Requested

What is the tax status of XXXXX supply under the Agreement and XXXXX's supply to XXXXX?

Ruling Given

Based on the facts set out above, we rule as follows:

1. XXXXX supply under the Agreement is a taxable supply of intangible personal property (IPP) and is deemed to be made in Canada under subsection 142(1) of the Excise Tax Act (ETA);

2. XXXXX supply of IPP under the Agreement made to a client who is a resident or non-resident of Canada is subject to the GST at a rate of 7%, pursuant to subsection 165(1) of the ETA, and,

3. XXXXX supply to XXXXX is a taxable supply of an advertising service and is zero-rated under section 8 of Part V of Schedule VI to the ETA.

These rulings are subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by these rulings provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the ETA, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Explanation

The supply of IPP under the Agreement

XXXXX supply under the Agreement is essentially the supply of the right to permit end-users to access and use the XXXXX. Although the Agreement provides the client with the use of the XXXXX for internal purposes among other things, the principal object of the Agreement is the supply of the right indicated above. As such, XXXXX supply under the Agreement is a supply of IPP for purposes of the ETA. A taxable [other than zero-rated] supply of IPP made in Canada is subject to GST at the rate of 7% or HST at the rate of 15% [where made in a participating province (Nova Scotia, New Brunswick, and Newfoundland and Labrador)]. A taxable supply that is zero-rated is taxed, under subsection 165(3) of the ETA, at a rate of 0%.

As stipulated in paragraph 142(1)(c) of the ETA, a supply of IPP, that is not related to real property, tangible personal property or a service, is deemed to be made in Canada if the IPP may be used [meaning "allowed to be used"] in whole or in part in Canada. As the Agreement between XXXXX and a client does not restrict use of the IPP exclusively to "in Canada" or "outside Canada", under this paragraph, the supply is deemed to be made in Canada since the IPP may be used in Canada.

Once it is determined that XXXXX supply of IPP is made in Canada, it is necessary to determine the applicable tax rate. To do that, the province in which the supply is made has to be established. For that, section 144.1 of the ETA works in conjunction with the rules set out in Schedule IX to the ETA to make this determination.

As XXXXX supply of IPP is not related to real property, tangible personal property or service, and that there are no restrictions regarding the province or groups of provinces in which the IPP may be used, to subparagraph 2(d)(ii) of Part III of Schedule IX to the ETA must be examined when ascertaining the place of supply. Under this provision, a supply of IPP will be considered to be made in a province if the place of negotiation of the supply is in the province, and the IPP may be used otherwise than exclusively [90% or more] outside the province. Where there are no restrictions regarding the province in which the IPP may be used, it will always be the case that the IPP may be used otherwise than exclusively outside the province where the place of negotiation occurs. As the place of negotiation is in XXXXX, XXXXX supply of IPP is deemed to be made in that province. As such, XXXXX is required to collect the GST at a rate of 7% on its supply of IPP even if the person licensed under the Agreement is located in a participating province.

There are no provisions in Schedule VI to the ETA that would zero-rate XXXXX supply of IPP under the Agreement.

The supply of an advertising service

The term advertising is not defined in the ETA, however, the Canada Customs and Revenue Agency has provided an explanation as to what is generally considered to be an advertising service for GST/HST purposes in section 4.5.3, Exports - Services and Intellectual Property of the GST/HST Memoranda Series (copy enclosed). The explanation in this section refers to a service of creating a message and a service directly related to the communication of such a message. Further, the message must be oriented towards soliciting business, attracting donations, or calling public attention in the form of an information notice, a political announcement, or other similar communication.

There are occasions where the person communicating a message will not be the same person creating or supplying the message. Generally, the person supplying the broadcast or communication service will be in possession of the message or will have received sufficient information as to the content of the message prior to the supply of the service to know that the message is in the nature of advertising. In these situations, the supply of the broadcast or communication service will be considered to be a supply of an advertising service.

The supply to XXXXX of space on XXXXX Web pages that allows XXXXX to place an advertisement is considered to be a service directly related to the communication of a message. Given that XXXXX is providing the space for advertising purposes, the supply of the service is considered to be a supply of an advertising service made by XXXXX to XXXXX.

Pursuant to paragraph 142(1)(g) of the ETA, a supply of a service is deemed to be made in Canada if the service is, or is to be, performed in whole or in part in Canada. Based on the information provided, the advertising service provided by XXXXX is made in Canada.

A taxable (other than zero-rated) supply of an advertising service made in Canada is subject to the GST at the rate of 7% or HST at the rate of 15%, where made in a participating province. A taxable supply of an advertising service that is zero-rated is taxed at 0%.

Section 8 of Part V of Schedule VI to the ETA zero-rates a supply of an advertising service that is made to a non-resident person who is not registered for purposes of the GST/HST at the time the service is performed. As you have indicated that XXXXX is a non-resident that is not registered, XXXXX supply of the advertising service is zero-rated.

It is the supplier's responsibility to verify that the recipient is a non-resident and is not registered for GST/HST purposes. For your information, we have enclosed section 4.5.1, Exports - Determining Residence Status of the GST/HST Memoranda Series. Appendix B of this Memorandum describes the documentation that the Canada Customs and Revenue Agency will usually accept as proof that a person is a non-resident and not registered for purposes of the GST/HST.

Foreign currency

On XXXXX Web site, it is noted that the licensing fee is charged in U.S. dollars. Section 159 of the ETA will apply such that the value of the consideration for the supply shall be computed on the basis of the value of the U.S. dollars in Canadian currency on the day the tax is payable, or on such other day as is acceptable to the Minister. By virtue of subsection 168(1) of the ETA, tax is generally payable by the recipient on the earlier of the day the consideration for the supply is paid and the day the consideration for the supply becomes due. As indicated, the Minister may accept alternative days for computing the value of the consideration for a supply in Canadian currency. For more information on these days, please refer to the enclosed copy of GST Memorandum 300-7-10 Foreign Currency. A copy of Policy Statement P-222 - Acceptable Exchange Rate Sources for Converting the Value of Consideration Expressed in Foreign Currency to a Value in Canadian Currency for Purposes of Section 159 of the "Excise Tax Act" is also enclosed for your reference.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-8806.

Yours truly,

Marjorie Stevens
Electronic Commerce Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

Dear XXXXX:

Thank you for your letter of May 19, 2000 (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to certain services acquired by the City XXXXX (i.e., "the City") that are subsequently resupplied to pension plan trusts.

XXXXX

Statement of Facts

Our understanding of the facts, the transactions, and the purpose of the transactions is as follows:

1) The City is involved in a number of single employer pension plans, XXXXX[.]

2) The plans have each been set up as trusts and are separate legal entities from the City. None of the pension plans is registered for the purposes of the GST/HST.

3) The City appoints members of a Pension Board (i.e., "the Board") to administer the pension plans. The duties of the Board include the establishment of overall policies for these plans. The Board is not a separate legal entity and is not a "person" for GST purposes. As such, it is part of the City.

4) The XXXXX of the City carries out the administrative functions of the Board.

5) The XXXXX of the City carries out the investment functions of the Board.

6) The XXXXX are not separate persons from the City. Its employees are employees of the City.

7) The City, through the XXXXX, incurs the following expenses on behalf of the pension plans:

•   salaries, benefits, membership dues (professional accounting, pension and benefits association) and allowances of employees of the XXXXX and members of the administrative board who work with the pension plans;

•   conference fees, seminar fees and related travel for items that deal with the administration of the plans;

•   telephone rental, long distance, fax, photocopying, postage, printing and courier charges for items that deal with the plans;

•   data processing charges for using an outside service to administer the plans database;

•   actuarial and legal fees for each pension plan;

•   fees to maintain the registration of the plans with the XXXXX; and

•   other items such as stationary, office supplies, industry publications, furniture and fixtures.

8) The City, through the XXXXX, incurs the following expenses on behalf of the plans:

•   salaries, benefits, membership dues (professional accounting) and allowances of employees of the XXXXX and members of the administrative board who work with the pension plans;

•   conference fees, seminar fees and travel regarding investment decisions, policies and procedures used for the investment portfolio for the plans;

•   telephone rental, long distance, fax, photocopying, postage, printing and courier charges for items that deal with the plans;

•   external financial audit of the plans;

•   investment manager fees, portfolio measurement fees, custodial service fees and banking fees related to the investments of the plans; and

•   other items such as stationary, office supplies, industry publications, furniture and fixtures.

9) The City is invoiced for, and pays from its accounts all expenses incurred by the XXXXX and the XXXXX. These expenses are allocated at cost to the various pension plans every six months by internal journal entry. The City does not charge GST to the plans when it recovers the costs for the services acquired in its name for the plans.

Ruling Requested

1) Does the direct cost rule apply where the City makes a resupply of administrative, custodial and investment services to the pension plan trusts at a cost that is equal to the price paid, less the municipal rebate?

2) Is the City entitled to claim the municipal rebate of 57.14% for the GST paid on these specific plan costs?

Ruling Given

Based on the facts set out above, we rule that the exemption provided in section 6 of Part VI to Schedule V of the ETA applies where the City is the recipient of administrative, custodial and investment services and subsequently resupplies these services to the pension plan trusts at a cost that is equal to the price paid, less the municipal rebate.

As the City is a selected public service body for the purposes of section 259 of the ETA, it is entitled to claim a public service body rebate for its non-creditable tax charged. Therefore, it may claim a 57.14% rebate of the GST paid on services acquired for the purpose of resupply on an exempt basis to the pension plan trusts.

Explanation

The Canada Customs and Revenue Agency (i.e., "CCRA") policy on pension plan costs and whether the GST paid thereon is refundable is contained in Technical Interpretation Bulletin (TIB) B-032R Registered Pension Plans. This TIB concentrates on differentiating employer expenses and pension plan expenses and outlines the CCRA's position where an employer is invoiced and pays for pension plan expenses or where a pension plan is invoiced and pays for employer expenses.

In accordance with this policy, all of the expenses noted above are considered to be Employer Expenses with the exception of the following expenses incurred by the XXXXX which are considered to be Plan Trust Expenses:

•   conference fees, seminar fees and travel regarding investment decisions, policies and procedures used for the investment portfolio for the pension plans;

•   external financial audit of the pension plans; and

•   investment manager fees, custodial service fees and banking fees related to the investments of the pension plans.

Where one party is invoiced and pays for property or services acquired for the other party, the CCRA's view is that the property or service has been resupplied to the other party. For example, where an employer acquires or imports and pays for the pension plan trusts' expenses, since the related property or services are required by the pension plan trust for use in its operations, the employer is considered to have resupplied this property or service to the pension plan trust at the fair market value (which will generally be accepted as the cost of the expense). In commercial organizations, this treatment ensures that the pension fund is charged with the appropriate amount of non-refundable GST.

In view of the above policy, there are a number of implications for public service bodies in respect of costs related to pension plans. For example, if a public service body is invoiced for and pays the pension plan expenses, CCRA considers that the public service body has resupplied the property or service to the pension plan trust.

Section 6 of Part VI of Schedule V to the ETA provides that a public service body, (including a municipality) that sells services on a cost recovery basis can choose to sell them as either taxable or exempt. Where a public service body does not charge an amount as tax, the supply will be exempt, if the charge to the recipient does not exceed the direct cost of the supply.

Consequently, the direct cost exemption in section 6 of Part VI of Schedule V of the ETA will apply where a public service body who is the recipient of a supply of services subsequently resupplies those services at cost or less than cost to the pension plan.

Pursuant to section 259, a rebate may be claimed by a public service body for its non-creditable tax charged, subject to certain exceptions. As a selected public service body, the City may claim 57.14% of the GST paid on the exempt services it resupplies to the pension plan.

In addition to the resupply of services acquired from outside sources by an employer to the pension plan, there may be situations where the employer may make an in-house supply of services to the pension plan. If there is no charge for the supply or if the charge is less than fair market value, the CCRA will apply section 155 of the ETA. In general, the CCRA will accept the cost to the employer of providing the in-house supply as the fair market value as long as it includes both direct and indirect costs.

For public service bodies, supplies made for consideration that is less than the direct cost of the supply, are exempt. Care must be taken in applying the direct cost rules in this situation. In-house supplies provided to a plan trust will normally be services provided by employees of the sponsor. Salaries are not included in the calculation of direct costs for purposes of section 6 of Part VI of Schedule V to the ETA, so in this case, virtually any charge will exceed the direct cost, making the supply taxable.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9590.

Yours truly,

Elaine Bonnah
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

Dear XXXXX

This is in reply to a letter of XXXXX, from XXXXX of your firm which was sent to our office in XXXXX. XXXXX inquiry has been transferred to our office in Ottawa for direct reply. The inquiry concerned the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to XXXXX a powdered drink mix. Our comments are set out below.

Please accept our apologies for the delay in responding to your letter.

Statement of Facts

Our understanding of the facts of this case are as follows:

1. Your client, a GST/HST registrant, XXXXX ("the company") sells a XXXXX flavoured powdered drink mix called XXXXX ("the product").

2. The product is marketed as an XXXXX for body builders, weight lifters, and other strength and endurance athletes. It contains a XXXXX XXXXX which maximizes recovery following regular training or competition. The advertising for this product indicates that it is formulated to maximize the results of a workout by helping create an optimum anabolic body building response to exercise. This can result in increased muscle mass, greater strength and faster energy return.

3. The directions on the label recommend the following ways to mix the powder to form a drink for consumption after a workout:

•   mix 60 grams (1/2 cup) of the product with 250 ml (1 cup) of cold low fat skim or whole milk, or

•   for a XXXXX, mix 65 grams (3/4 cup) of the product with 250 ml (1 cup) of cold water or juice, or

•   for variety, blend the product with XXXXX.

4. The company envisions the product as a milk-based product. Even though the label indicates that the product could be mixed with fruit juice or water, the company views this as merely a suggestion for those who would not be able to mix the product with milk. The lactose-free option of mixing the product with water or juice is not the primary use of the product. The company does not have any confirmation that the product is actually mixed with water or fruit juice.

5. The XXXXX TIS office of the Canada Customs and Revenue Agency ("CCRA") issued an interpretation on the product to the company, dated XXXXX XXXXX. The interpretation stated that the product was a zero-rated milk based beverage. Based on this, the company supplied the product on a zero-rated basis.

6. XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX.

7. XXXXX XXXXX[.]

Ruling Requested

That the supply of the product is zero-rated, pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act ("the Act").

Ruling Given

Based on the facts set out above, we rule that the supply of the product, is taxable at the rate of 7% GST or 15% HST, as applicable, pursuant to paragraph 1(d) of Part III of Schedule VI to the Act ("paragraph 1(d)").

Explanation

Section 1 of Part III of Schedule VI to the Act states that supplies of food or beverages for human consumption (including sweetening agents, seasonings and other ingredients to be mixed with or to be used in the preparation of such food or beverages) are zero-rated, except for the supplies indicated in paragraphs (a) to (r) of that section.

Paragraph 1(d) excludes non-carbonated fruit juice beverages or fruit flavoured beverages, other than milk based beverages, that contain less than 25% by volume of

(i) a natural fruit juice or combination of natural fruit juices, or

(ii) a natural fruit juice or combination of natural fruit juices that have been reconstituted into the original state, or goods that, when added to water, produce a beverage included in this paragraph.

Review of the material submitted leads us to conclude that the product is excluded from zero-rating pursuant to paragraph 1(d). When mixed with water or fruit juice, the product is a non-carbonated fruit flavoured beverage that contains less than 25% by volume of natural fruit juice.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9585.

Yours truly,

Pauline Greenblatt
Technical Analyst
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

Dear XXXXX:

Thank you for your letter of XXXXX (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the above-noted product.

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX. has recently launched line extensions to their current XXXXX XXXXX. One of the new products is XXXXX (the 'product').

2. The product comes in three packaging formats:

•   In cartons of XXXXX individually wrapped bars sold mostly to retail grocery store customers where the carton is the selling unit. The information on the carton includes the list of ingredients, the total weight of the product XXXXX, and a Universal Product Code (UPC).

•   In cartons of XXXXX individually wrapped bars sold mostly to retail grocery store customers where the carton is the selling unit.

•   In cartons of XXXXX individually wrapped bars sold mostly to Foodservice vendors and distributors. The carton is designed to be used as a display box from which single servings can be dispensed.

Ruling Requested

Is the supply of this new product subject to the GST/HST?

Ruling Given

Based on the facts set out above, we rule that supplies of the cartons of XXXXX individually wrapped bars and the cartons of XXXXX individually wrapped bars are taxable at 0% (zero-rated). The carton of XXXXX individually wrapped bars is taxable at 7%, or 15% as applicable.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

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 the HST of 15% where applicable, on the value of the consideration for the supply pursuant to subsections 165(1) and (2) of the Excise Tax Act (ETA). Where however, a supply is a zero-rated supply, the tax in respect of that supply is 0%.

Paragraph 1(m) of Part III of Schedule VI to the ETA excepts the following from zero-rating.

"cakes, muffins, pies, pastries, tarts, cookies, doughnuts, brownies, croissants with sweetened filling or coating, or similar products where

(i) they are prepackaged for sale to consumers in quantities of less than six items each of which is a single serving, or

(ii) they are not prepackaged for sale to consumers and are sold as single servings in quantities of less than six, but not including bread products, such as bagels, English muffins, croissants or bread rolls, without sweetened filling or coating".

The product in question is considered to be sweetened baked goods for GST/HST purposes.

Subparagraph 1(m)(i) of Part III of Schedule VI refers to goods "prepackaged for sale to consumers". The term is understood to mean packaging undertaken or performed by the manufacturer, or undertaken on the manufacturer's behalf. A zero-rated prepackaged unit is a package of six or more single servings packaged by the manufacturer in a container intended for purchase by the final consumer. A package intended for sale to consumers normally includes information required under the Consumer Packaging and Labelling Act. Consumer packages normally include the ingredients and net weight and in many cases the Universal Product Code (UPC) to be read by scanner-type point-of-sale equipment.

The cartons of XXXXX individually wrapped bars are considered prepackaged for sale to consumers in quantities of 6 or more items. Accordingly, these supplies are zero-rated.

Display boxes are not considered to be "prepackaged for sale to consumers" for the purposes of paragraph 1(m) of Part III to Schedule VI. Display boxes are designed to be opened and set up to create an eye catching display from which the consumer may purchase any number of individually packaged single servings. Therefore, the supply of a display box containing XXXXX individually wrapped single servings of the product is taxable at the rate of 7%, or 15% as applicable.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9218.

Yours truly,

Kevin W. Smith
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

Dear XXXXX:

Thank you for your letter of February 25, 2000 (with attachments) and additional documents provided on January 25, 2001, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below.

Statement of Facts

Our understanding of the facts, the transactions, and the purpose of the transactions is as follows:

1) XXXXX is a for profit partnership that is not currently registered for the purposes of the GST/HST.

2) The XXXXX established the XXXXX XXXXX for the purpose of providing midwifery services in XXXXX.

3) The XXXXX is a government entity that comprises part of the provincial government of XXXXX. As such, it is not required to pay GST/HST on its purchases.

4) XXXXX[.]

5) XXXXX[.]

6) XXXXX is a registered charity. It is not part of the provincial government.

Agreement between XXXXX

7) The preamble to this Agreement states that the XXXXX has established the XXXXX for the purpose of ensuring that midwifery services are provided in XXXXX. It also states that the XXXXX has as its object the aim of providing health services to its community and wishes to operate a program to make midwifery services available to residents in the XXXXX area.

8) XXXXX provides that the XXXXX shall operate a midwifery program that offers midwifery services to XXXXX residents in the XXXXX area; and provides midwifery services to women in the XXXXX area.

9) XXXXX states that in order to operate the program, the XXXXX shall engage one or more XXXXX on a contract basis (i.e., an XXXXX) to provide midwifery services under the program. The XXXXX will enter into a contract (i.e., a XXXXX Agreement) with each XXXXX. The XXXXX agrees to operate the program in accordance with the Agreement and to provide copies of any agreement and amendments thereto to the XXXXX upon request.

10) XXXXX states that the XXXXX shall conduct itself in accordance with all applicable law, keep and maintain all financial records, invoices and other financially related documents related to the XXXXX funding and shall maintain such records and keep them available for review by the XXXXX for a period of seven years from the date of termination of the Agreement.

The XXXXX shall also maintain all non-financial documents and records and authorizes the XXXXX upon 24 hours' notice and during normal business hours, to enter its premises to review the status and manner of operation of the program and to inspect and copy any financial records, invoices, financially related documents and subject to patient's consent, non-financial records and documents related to XXXXX funding or otherwise to the program. The XXXXX agrees that the XXXXX has the right to perform a full or partial audit of any kind.

Compensation to XXXXX

11) XXXXX states that the XXXXX shall pay fees on a periodic basis to each XXXXX for XXXXX during the period.

12) XXXXX states that the XXXXX shall also fund the following costs, expenses and amounts subject to limits and restrictions set out in XXXXX of the Agreement:

•   travel expenses incurred by the XXXXX in providing midwifery services pursuant to their respective XXXXX Agreements;

•   fees incurred for engaging second attendants for births or obtaining the services of other persons as permitted by their XXXXX Agreements;

•   malpractice liability insurance; and

XXXXX

13) XXXXX states that the XXXXX shall use its best efforts to ensure that no woman to whom services are provided under the program is charged or pays any fee of any kind for such services unless the woman insists on paying for religious, cultural or other particular reasons.

XXXXX Funding

14) XXXXX states that the XXXXX shall provide funds, during each contract year, to the XXXXX of up to the maximum amount specified in the annual budget for such contract year for the purpose of operating the program.

15) XXXXX requires that the XXXXX provide a draft budget for the contract year setting out the XXXXX that the XXXXX recommends be completed by the XXXXX pursuant to their respective XXXXX Agreements and the aggregate amount of fees the XXXXX recommends payable by it to the XXXXX s, the types and number of XXXXX that the XXXXX recommends as eligible XXXXX, the types and amounts of disbursements the XXXXX recommends be incurred by the XXXXX in providing midwifery services, the aggregate amounts of XXXXX grants which are recommended by the XXXXX to be paid, the fee to the XXXXX for operating the program and the amount of any non-recurring costs reasonably anticipated to be incurred by the XXXXX in operating the program.

16) XXXXX funding is deposited directly into the XXXXX bank account where it will be kept in a separate account. Any unused portion of the funding and any interest accrued remains the property of the XXXXX and shall either be paid to the XXXXX upon request or used by the XXXXX as the XXXXX directs.

17) XXXXX states that the XXXXX shall expend the XXXXX funding only for the purpose of operating the program in accordance with the annual budget for the contract year and in accordance with this Agreement.

18) XXXXX stipulates that the XXXXX shall not, without prior written consent of the XXXXX, sell, lease, or otherwise dispose of assets acquired using XXXXX funding which was provided for non-recurring costs in operating the program, unless the assets in question were less than XXXXX at time of acquisition.

XXXXX Agreement between the XXXXX and XXXXX[.]

19) The Preamble to the XXXXX Agreement states that the XXXXX has established the XXXXX for the purpose of providing midwifery services in XXXXX. The XXXXX is being funded by the XXXXX for the purposes of operating a program to provide midwifery services. The XXXXX has the capacity and is willing to enter into an agreement with the XXXXX to offer and provide midwifery services to residents of XXXXX.

20) XXXXX of the Agreement states that the XXXXX shall: offer and be available to provide midwifery services to residents of the services area, provide in each contract year up to the number of XXXXX indicated in the annual budget and offer and provide midwifery services in each contract year to the minimum number of women who are referred to the XXXXX by the XXXXX.

21) Where the XXXXX exercises its right under XXXXX to refuse to provide midwifery services to a resident referred by the XXXXX, the XXXXX shall within 10 days of receiving a written request provide written reasons to the XXXXX for its refusal to provide such services to the resident.

22) You advised in our telephone conversation on February 15, 2001, that the XXXXX does not in fact refer selected clients to XXXXX. Rather, it determines the number of XXXXX. Expectant mothers who would like to receive midwifery services will contact XXXXX directly to arrange for these services. The number of patients to receive care is negotiated with the XXXXX and figures into the calculation of the budget prepared by XXXXX for the XXXXX and in the XXXXX budget which is sent for approval by the XXXXX.

23) XXXXX of the Agreement states that midwifery services provided to a person who is not a resident of the service area shall constitute a XXXXX only if the XXXXX obtains the written consent of the XXXXX prior to commencing the services. Written consent must also be obtained from the XXXXX in the case of a resident who was in the care of the XXXXX and who moves out of the services area during her pregnancy.

24) XXXXX states that each midwife is expected to provide midwifery services as primary caregiver for up to XXXXX and as secondary caregiver for up to XXXXX. The compensation for members of the XXXXX acting as secondary caregivers is included in the annual fee and no additional compensation is payable to the XXXXX.

25) XXXXX states that the XXXXX agrees to provide midwifery services and non-clinical services in a manner consistent with the mission statement, philosophy and operating values of the XXXXX, provided they do not conflict with rules of the XXXXX.

26) XXXXX states that the XXXXX provides midwifery services to the XXXXX on a non-exclusive basis. The XXXXX may provide midwifery services in connection with any other transfer payment agency during the term. However, the XXXXX shall not be entitled to be paid more than the fee payable for one XXXXX.

27) XXXXX states that nothing in the Agreement prevents the XXXXX from providing midwifery services to persons who are not covered by the Agreement, provided that the XXXXX is not paid by the XXXXX for services to such persons.

28) XXXXX states that the XXXXX shall pay to the XXXXX in each contract year, an annual fee for the provision of XXXXX completed by the XXXXX. The fee is calculated according to the fee schedule set out in XXXXX XXXXX of the Agreement and shall not exceed the maximum aggregate amount specified in the Annual Budget for the Contract Year.

29) Under XXXXX, the XXXXX also agrees to fund the following disbursements to the XXXXX, up to limits set out in XXXXX: travel expenses, fees for engaging second attendants for births or to obtain the services of other persons as permitted under the Agreement, malpractice liability insurance XXXXX[.]

30) XXXXX provides that the XXXXX may apply to the XXXXX for a grant of money in any contract year up to the maximum amount indicated in the annual budget to fund the purchase of capital assets and leasehold improvements and other non-recurring costs of establishing or maintaining the operation of the XXXXX. XXXXX XXXXX contains the list of capital assets for which grants are available.

31) XXXXX states that any assets purchased by the XXXXX to provide midwifery services pursuant to this Agreement (whether or not with the use of grants from the XXXXX) shall belong to the XXXXX (and for greater certainty, to each of the Partners of the XXXXX jointly in accordance with their respective interests in the XXXXX). Assets listed in XXXXX shall belong to the individual midwife for whom they were purchased during the term and after the expiry or termination of the Agreement.

32) Under XXXXX, the XXXXX may review the financial records, invoices and related documents for a period of seven years after the expiry of the Agreement. The XXXXX and its agents may inspect and copy any financial records and related documents and subject to consent by patients, non-financial records and documents relating to midwifery services and non-clinical services provided pursuant to the Agreement. The XXXXX is also entitled to perform full or partial audits of any kind on the XXXXX.

Ruling Requested

Is XXXXX entitled to register for the purposes of the GST/HST and claim input tax credits?

Ruling Given

Based on the facts set out above, we rule that XXXXX is making taxable supplies of midwifery services for no consideration.

The payments provided to XXXXX by the XXXXX through the XXXXX are grants and are not consideration for the supply of midwifery services. Therefore, GST/HST does not apply to these payments.

By virtue of subsection 141.01(1.2) of the Excise Tax Act (i.e., the ETA), these payments would nevertheless be deemed to be consideration for taxable supplies made by XXXXX.

Subsection 141.01(1.2) provides that if a registrant receives an amount that is not consideration for a supply from a government and that assistance can reasonably be considered to be provided for the purpose of funding an activity that involves the making of taxable supplies for no consideration, then the amount is deemed to be consideration for those taxable supplies.

As XXXXX is making taxable supplies of midwifery services, it is involved in a commercial activity. As such, it will be required under section 240 of the ETA to register for the purposes of the GST/HST, unless it is a small supplier. XXXXX will be a small supplier if its total taxable revenues are $30,000 or less in the last four consecutive calendar quarters, or in a single calendar quarter. However, even if XXXXX meets the definition of a small supplier, it may choose to register voluntarily.

Because XXXXX is deemed under subsection 141.01(1.2) to be making taxable supplies for consideration, it would be entitled as a GST/HST registrant to claim input tax credits to recover the GST/HST paid or owed on purchases and expenses incurred to provide the midwifery services.

Additional information on the registration process is contained in the enclosed guide, General Information for GST/HST Registrants.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the ETA, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9590.

Yours truly,

Elaine Bonnah
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate