GST/HST Ruling

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ETA 272.1(1)

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Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5	XXXXX XXXXX XXXXX XXXXX
XXXXX	Case Number: 58133
	January 31, 2008

Subject:

GST/HST RULING
Transfers of farmland

Dear XXXXX:

Thank you for your facsimiles XXXXX, concerning the application of the Goods and Services Tax (GST) to the transfer of ownership of farmland. We apologize for the delay in providing you with this response.

Effective January 1, 2008, the rate of the GST has been reduced from 6% to 5% and the rate of HST from 14% to 13%. The new rates apply to supplies for which the GST/HST is paid on or after January 1, 2008, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to GST/HST Notice 226, GST/HST Rate Reduction in 2008 on the CRA Web site at www.cra-arc.gc.ca/E/pub/gi/notice226/README.html.

You originally requested an interpretation on behalf of XXXXX (the XXXXX Partnership) concerning various transfers of ownership of farmland. You subsequently requested a ruling and submitted additional information on XXXXX.

After reviewing the information you have provided, we are able to issue a ruling only with respect to those transactions of farmland for which land transfer documents were submitted. We acknowledge that you have submitted additional information on similar transactions involving other parts of the farmland, however we do not have sufficient information to provide a ruling on those transactions at this time. Should you provide the additional land transfer documents with respect to those transactions of farmland at a later time, we would be pleased to provide you with a ruling at that time.

Since all transactions occurred in the province of XXXXX, reference is only made to the GST and not to the Harmonized Sales Tax (HST). All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

Statement of Facts

We understand the pertinent facts of your request for a ruling to be as follows.

1) XXXXX (the Partners) entered into a written Partnership Agreement dated XXXXX. The Partnership Agreement states that the Partners entered XXXXX.

2) Other relevant provisions of the Partnership Agreement are as follows:

(a) The partnership was formed XXXXX, under the name and style of XXXXX.

(b) The Partners are required to contribute equally to the business of the XXXXX Partnership their time, labour, and attention as from time to time may be required and it is their intention to each contribute equally to the management of the affairs of the XXXXX Partnership.

(c) All profits and losses of the XXXXX Partnership shall be divided equally. All expenses incurred in the course of the business and losses arising there from, shall be born out of the earnings of the business, or in the case of a deficiency, the losses shall be paid by the Partners in equal shares.

(d) Upon termination of the XXXXX Partnership, the assets of the business shall be realized and applied first in payment of the debts and liabilities of the business and any surplus shall be divided equally between the Partners.

(e) The Partners acknowledge that the total initial capitalization of the XXXXX Partnership shall be $XXXXX; and each Partner shall be deemed to have contributed the sum of $XXXXX to the XXXXX Partnership.

(f) Also, pursuant to the Partnership Agreement, the subject land and premises were to be purchased from XXXXX.

3) The XXXXX Partnership is a partnership in accordance with the XXXXX.

4) XXXXX

5) The XXXXX Partnership registered as a partnership for GST purposes on XXXXX, and has remained registered up to the date of this ruling. None of the XXXXX Partners are GST registrants outside of the XXXXX Partnership.

6) Pursuant to an Indenture dated XXXXX, for consideration of $XXXXX, XXXXX granted to the Partners in fee simple "as Partnership Property" approximately XXXXX acres of farmland. At the time of its purchase this farmland consisted of XXXXX legally divided parcels described as:

XXXXX

7) Pursuant to an Indenture dated XXXXX, for consideration of $XXXXX, XXXXX granted to the Partners in fee simple "as Partnership Property" approximately XXXXX acres of farmland XXXXX. At the time of its purchase this farmland consisted of XXXXX legally divided parcels described as:

XXXXX

8) Pursuant to an Indenture dated XXXXX, for consideration of $XXXXX, XXXXX granted to the Partners in fee simple "as Partnership Property" approximately XXXXX acres of farmland XXXXX. At the time of its purchase this farmland consisted of one legally divided parcel described as:

XXXXX.

9) For purposes of this ruling, the parcels of farmland described in paragraphs 6, 7 and 8 of this Statement of Facts are referred to collectively as the "Original Property".

10) The Original Property was purchased by the Partners as members of the XXXXX Partnership in the course of the activities of the XXXXX Partnership.

11) On or before XXXXX, the Original Property was subdivided into several legally divided parts. In some cases, parts of the Original Property were considered for GST purposes to have been consolidated into one parcel immediately prior to being subdivided into legally divided parts.

12) From the time of its acquisition by the Partners, as partnership property, until the time of the transactions described below under the heading Transaction of Farmland, the Original Property (or its subdivided parts) was capital property used exclusively by the XXXXX Partnership in the business of farming.

13) Pursuant to Transfer/Deed of Land documents, ownership of certain legally divided parts of the Original Property were transferred from the Partners to a particular Partner and that Partner's spouse, as joint tenants.

14) Following the transfer of those legally divided parts of the Original Property to the Partners and their spouses, the XXXXX Partnership continued to use those parts in the business of farming.

15) Ownership of one legally divided part was transferred from the Partners to a third party. The proceeds from the sale of this part were used to pay for the subdivision of the Original Property and related costs.

16) The subdivision of the Original Property into legally divided parts and the transfers of ownership were carried out for estate planning purposes.

TRANSACTIONS OF FARMLAND

Pursuant to Transfer/Deed of Land documents XXXXX, the Partners transferred ownership of the following legally divided parts of the Original Property. Ownership of these parts of the Original Property was transferred by the Partners in the course of the XXXXX Partnership's activities. At the time of these transactions, the legally divided parts did not include a "residential complex" as defined in subsection 123(1), or an interest therein.

1. Ownership of XXXXX was transferred from XXXXX, as transferors, to XXXXX, as transferees and joint tenants, for the total consideration of $XXXXX. These legally divided parts are also described on the documents as XXXXX.

2. Ownership of XXXXX was transferred from XXXXX, as transferors, to XXXXX, as transferees and joint tenants, for the total consideration of $XXXXX. This legally divided part is also described on the documents as XXXXX.

3. Ownership of XXXXX was transferred from XXXXX, as transferors, to XXXXX, as transferees and joint tenants, for the total consideration of $XXXXX. This legally divided part is also described on the documents as XXXXX.

4. Ownership of XXXXX was transferred from XXXXX, as transferors, to XXXXX, as transferees and joint tenants, for the total consideration of $XXXXX. This legally divided part is also described on the documents as XXXXX.

5. Ownership of XXXXX was transferred from XXXXX, as transferors, to XXXXX, as transferees and joint tenants, for the total consideration of $XXXXX. This legally divided part is also described on the documents as XXXXX.

Ruling Requested

Are the transfers of ownership described above subject to GST?

Ruling Given

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

1. The transfers of ownership of the legally divided parts of the Original Property, as described under the heading Transactions of Farmland, are supplies of real property by way of sale deemed to be made by the XXXXX Partnership.

2. The supplies of real property, as described under the heading Transactions of Farmland, made by the XXXXX Partnership are subject to GST at the rate of 7%.

These rulings are subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by these rulings provided that none of the above issues is currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed. For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service.

Explanation

For GST purposes, sales of real property include any transfer of ownership of the property or of its legally divided parts. All sales of real property are subject to GST unless an exemption in Schedule V to the ETA applies.

Special Rules for Partnerships

For GST purposes, a partnership is defined as a "person" in subsection 123(1). Subsection 272.1(1) deems anything done by a member of a partnership (i.e., a partner) in the course of the partnership's activities to have been done by the partnership and not to have been done by the partner.

Supplies of Real Property to the XXXXX Partnership

The transfers of ownership of the Original Property as described in paragraphs 6, 7 and 8 of the Statement of Facts are sales of real property for GST purposes. Since the Partners acquired ownership of the Original Property as members of the XXXXX Partnership in course of the activities of the XXXXX Partnership, under subsection 272.1(1) the XXXXX Partnership is considered to have acquired ownership of the Original Property. No GST is payable in respect of these sales, since ownership of the real property was transferred to the XXXXX Partnership before 1991.

Supplies of Real Property by the XXXXX Partnership

Transfers of ownership of the legally divided parts of the Original Property as described in paragraphs 1 to 5 under the heading Transactions of Farmland are sales of real property for GST purposes. These sales of real property made by the XXXXX Partnership are subject to GST, as no exemption applies.

In fact, all sales of legally divided parts of the Original Property made by the XXXXX Partnership are subject to GST unless section 12 of Part I of Schedule V to the ETA applies to exempt a sale from GST. In this case, section 12 may apply if the sale of a legally divided part is made to a Partner and that Partner's spouse where, immediately after the time of the sale, the legally divided part is for their personal use and enjoyment.

Therefore, the sale of any legally divided part of the Original Property made by the XXXXX Partnership to any particular Partner and to that Partner's spouse, as joint tenants, are supplies of real property that are subject to GST where, immediately after the time ownership of that part is transferred, that part continues to be used in the business of farming. Also, the sale of a legally divided part of the Original Property made by the XXXXX Partnership to an unrelated third party XXXXX, is a supply of real property that is subject to GST.

For all taxable sales of real property where either the transfer of ownership or the transfer of possession under an agreement to transfer ownership occurs before July 1, 2006, the GST is calculated at the rate of 7% on the consideration paid or payable for the supply.

Fair Market Value (FMV)

In this case, the sales of real property by the XXXXX Partnership to a partner are considered to be made for consideration equal to the FMV of the real property. As such, the XXXXX Partnership is required to collect tax calculated on the FMV of the real property it has supplied to a partner. In accordance with subsection 126(1), related persons are deemed not to deal with each other at arm's length and it is a question of fact whether persons not related to each other were, at any particular time, dealing with each other at arm's length. As a result, it is a question of fact whether a spouse of a partner and the partnership are, at any particular time, dealing with each other at arm's length. Where in fact the spouse of a partner is not dealing at arm's length with the partnership and the spouse is not a registrant who acquires the real property for consumption, use or supply exclusively in its commercial activities, subsection 155(1) will apply to a sale made by the partnership to the spouse and deem the consideration for the supply of the real property to be equal to the FMV of the real property if the actual consideration paid is less than the FMV. In this case, if subsection 155(1) applies, the XXXXX Partnership would be required to collect tax calculated on the FMV of the real property it has supplied to a non-arm's length Partner and to the Partner's spouse, as joint tenants.

With respect to the transfers of the Original Property or its legally divided parts as described above under the heading Transactions of Farmland, the XXXXX Partnership ceased to own those parts of the Original Property once the transfers were made. Therefore, to enable the XXXXX Partnership to continue to use, in the business of farming, those parts that were transferred to the Partners and their spouses, each of the Partners and their spouses are considered for GST purposes to be supplying the right to use those parts to the XXXXX Partnership by way of lease, licence or similar arrangement. Additional information is required to determine whether GST may apply in respect of these supplies.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613 954-8852. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Daryl J.A. Hooley
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2008/03/03 — RITS 76810 — Exempt Financial Services

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ETA 123(1) taxable supply

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Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5	XXXXX XXXXX XXXXX
XXXXX XXXXX	Case Number: 76810
	March 3, 2008

Subject:

GST/HST INTERPRETATION
Exempt financial services

Dear XXXXX:

In XXXXX, your accountant, requested on your behalf, a ruling concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your supplies of services. We understand from our telephone conversation with you XXXXX that you no longer wish to receive a ruling from the Canada Revenue Agency (CRA) on particular supplies of your services.

As we discussed, in the future you may submit the necessary documentation if you wish to receive a written ruling. The following general information is provided to assist you in determining the tax status of your supplies of services.

All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.

Under subsections 165(1) and (2) every recipient of a "taxable supply" made in Canada must pay GST/HST at the rate of 5%, or 13% if made in a participating province, on the value of the consideration for the supply. Subsection 165(3) states that the tax rate for zero-rated supplies is 0%. Zero-rated supplies are listed in Schedule VI.

A taxable supply is defined in subsection 123(1) as a supply made in the course of a commercial activity. A commercial activity is defined in that same subsection to exclude exempt supplies. Exempt supply means a supply included in Schedule V.

Section 1 of Part VII of Schedule V exempts the supply of financial services that are not included in Part IX of Schedule VI.

For a supply of a service to be characterized as a supply of a financial service it must squarely fit within the definition of a financial service as defined in subsection 123(1). First, it is necessary to consider whether a service is included under paragraphs (a) to (m) of the definition, after which the exclusions in paragraphs (n) to (t) must be considered.

For further information on the definition of "financial service", please refer to GST/HST Memorandum 300-4-7, Financial Services, which may be downloaded from the CRA website.

The provision of advice or the provision of a consulting service is, generally, a taxable supply. When advice or a consulting service is provided by a GST/HST registrant to a Canadian resident entirely in a non-participating province such as Ontario, it is generally subject to GST, in accordance with subsection 165(1), calculated at the rate of 5%.

For information on the obligations and entitlements of a person registered for GST/HST purposes please refer to the guide, RC4022(E), General Information for GST/HST Registrant, which may be downloaded from the CRA website.

The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

If you require clarification with respect to any of the issues discussed in this letter, or wish to obtain a ruling, please call me directly at XXXXX. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

XXXXX
Rulings Officer
Financial Institutions Unit
Financial Institutions & Real Property Division
Excise and GST/HST Rulings Directorate

2008/02/15 — RITS 88883 — XXXXX First Nation XXXXX Goods and Services Tax Rebates for First Nations

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ETA 213; ETA Sch VII, 8; SOR/91-31 3(i)(i)

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Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5	XXXXX XXXXX XXXXX
XXXXX	Case Number: 103269
	March 18, 2008

Subject:

GST/HST RULING
Temporary Importation - Television Production Truck and Related Television Equipment

Dear XXXXX:

Thank you for your fax of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the temporary importation of a television production truck and related television equipment.

All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.

Effective January 1, 2008, the rate of the GST has been reduced from 6% to 5% and the rate of HST from 14% to 13%. The new rates apply to supplies for which the GST/HST is paid on or after January 1, 2008, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to GST/HST Notice 226, GST/HST Rate Reduction in 2008 on the Canada Revenue Agency (CRA) Web site at www.cra-arc.gc.ca/E/pub/gi/notice226/README.html.

Statement of Facts

Our understanding of the facts is as follows:

• XXXXX a non-resident located inXXXXX is in the business of producing live specialized motor sports events.

• XXXXX is planning on temporarily importing a television production truck and related television equipment for the recording of XXXXX.

• XXXXX.

• The television production truck and related television equipment are not for sale, for lease or for further manufacturing or further processing.

• The Canadian Border Services Agency has determined that the conditions of Item 42 of the Temporary Importation (Excise Levies and Additional Duties) Regulations are met for the temporary importation of the television production truck and related television equipment.

Ruling Requested

You would like to know whether the temporary importation of the television production truck and related television equipment is a non-taxable importation for GST/HST purposes.

Ruling Given

Based on the facts set out above, we rule that the temporary importation of the television production truck and related television equipment is a non-taxable importation for GST/HST purposes.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

Generally, all goods imported into Canada are taxable for GST/HST purposes unless specifically relieved under section 213 XXXXX. Importations of goods relieved of tax under section 213 XXXXX are set out in Schedule VII XXXXX. Section 8 of Schedule VII XXXXX deems prescribed goods that are imported in prescribed circumstances into Canada to be non-taxable for GST/HST purposes. Subparagraph 3(i)(i) of the Non-Taxable Imported Goods (GST/HST) Regulations includes goods described in item 42 of the schedule to the Temporary Importation (Excise Levies and Additional Duties) Regulations when a person imports the goods in circumstances where the terms and conditions of the regulations have been met.

Item 42 of the schedule to the Temporary Importation (Excise Levies and Additional Duties) Regulations includes:

Photographic equipment, including film; transmitting equipment not required to be licensed by the Department of Communications; radio and television equipment; video and sound-recording apparatus and related material and equipment; all of the foregoing when imported by non-residents for their use in covering news and sports events.

The Canadian Border Services Agency has determined that the conditions of Item 42 of the Temporary Importation (Excise Levies and Additional Duties) Regulations are met for the temporary importation of the television production truck and related television equipment.

For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-6743. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Gregory A. Smith
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2008/03/14 — RITS 61357R — Tour Packages

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ETA 163(3) tour package; ETA 252.1; ETA 252.5

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Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5	XXXXX XXXXX XXXXX
	Case Number: 61357r
	March 14, 2008

Subject:

GST/HST INTERPRETATION
Tour Packages

Dear XXXXX:

This is further to our letter XXXXX, regarding paying or crediting an amount of the short-term accommodation rebate.

Effective January 1, 2008, the rate of the GST has been reduced from 6% to 5% and the rate of HST from 14% to 13%. The new rates apply to supplies for which the GST/HST is paid on or after January 1, 2008, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to GST/HST Notice 226, GST/HST Rate Reduction in 2008 on the Canada Revenue Agency (CRA) Web site at www.cra-arc.gc.ca/E/pub/gi/notice226/README.html.

Interpretation Given

As you may be aware, the Visitor Rebate Program (VRP) was cancelled effective April 1, 2007 and replaced by the new Foreign Convention and Tour Incentive Program (FCTIP).

The FCTIP continues to provide GST/HST relief to non-residents for:

• all of the GST/HST paid on accommodation sold to non-resident tour operators that are not registered for the GST/HST and that include accommodation in eligible tour packages sold to non-residents, and

• generally 50% of the GST/HST paid on eligible tour packages that are sold to non-resident consumers and non-resident organizations or businesses that are not registered for the GST/HST, including tour operators.

We have recently published four GST/HST Info Sheets, copies of which are enclosed for your convenience, on the cancellation of the VRP and the new FCTIP. They are as follows:

• GST/HST Info Sheet GI-026, Non-Residents Purchasing Accommodation: When is the Rebate Still Available,

• GST/HST Info Sheet GI-032, Non-Residents Purchasing Tour Packages: Rebate for Eligible Tour Packages,

• GST/HST Info Sheet GI-033, Non-Resident Tour Operators: Rebate for Accommodation Sold in Eligible Tour Packages, and

• GST/HST Info Sheet GI-044, Tour Packages: What is an Eligible Tour Package.

In particular, GST/HST Info Sheet GI-044, Tour Packages: What is an Eligible Tour Package, clarifies what an eligible tour package is for purposes of claiming a GST/HST rebate under the FCTIP.

An eligible tour package for the purposes of the GST/HST rebate under the FCTIP is the same as that under the VRP; however, unfortunately it has come to our attention that the conclusion with respect to which of the two packages is a tour package was reversed in Appendix A to our letter XXXXX.

Therefore, under the heading "Tour Package" in Appendix A,

Consider the following two packages that are each supplied for an all-inclusive price:

• a Ski Package consisting of ski lessons and ski rentals, and

• a City Weekend Package, consisting of short-term accommodation, meals and theatre tickets,the final paragraph should read as follows:

The Ski Package is a tour package but the City Weekend Package does not meet the definition of a tour package.

In order to meet the definition of a tour package under the Excise Tax Act (ETA), the City Weekend Package must include a service. Short-term accommodation, meals and theatre tickets are property for GST/HST purposes.

We regret any inconvenience this may have caused. If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-2488.

Yours truly,

Carla Schur-Ellison
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2008/03/20 — RITS 86233 — Sales of Used Books

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ETA 178.1; ETA 178.2; ETA 178.3; ETA 178.4

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Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5	XXXXX XXXXX XXXXX XXXXX
	Case Number: 94585
XXXXX XXXXX	March 13, 2008

Subject:

GST/HST INTERPRETATION
Requirement for Direct Sellers to Apply to Use The Alternative Collection Method for GST/HST

Dear XXXXX:

We are writing to you with respect to the alternative collection method (ACM) used by many direct sellers in the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST).

All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.

As you may know, publishers of Canadian daily newspapers (Publishers) may use the ACM to charge and account for the GST/HST on their sales of newspapers to independent carriers who resell the newspapers to consumers. However, in order to do so, all direct sellers, including Publishers, must apply to, and have approval from, the Minister to use the ACM. Please find enclosed, GST/HST Memorandum 14.1, Direct Sellers, which provides additional information on the ACM.

We understand there have been many ownership changes of Canadian newspapers over the past decade, and take this opportunity to advise you that if a registrant acquires ownership of a Canadian newspaper from another registrant that had been approved and used the ACM for that newspaper, the new owner is required to apply to, and obtain approval from, the Minister to use the ACM if the new owner is not already approved to use the method.

It is our understanding that XXXXX through its newspapers, currently uses the ACM to charge and account for GST/HST when newspapers are sold to newspaper carriers for resale to consumers. XXXXX.

If XXXXX is using the ACM when selling newspapers to its carriers who then resell to consumers, in order to assist your carriers to comply with the ETA, we ask that XXXXX apply to the Minister for approval to use the ACM for their sales of newspapers to independent carriers as prescribed under subsection 178.2(1).

If a distributor of XXXXX is a registrant and the distributor is using the ACM, we ask that XXXXX and the distributor apply jointly to the Minister for approval to use the ACM as prescribed under subsection 178.2(2).

XXXXX. Please include a list of all the newspapers that will be under the ACM.

Please forward the requested applications above to:

Canada Revenue Agency
Assistant Director Audit
XXXXX
XXXXX

In closing, if XXXXX or its distributors chooses to apply to, and obtain approval from, the Minister to use the ACM to charge and account for GST/HST, we provide the following additional points to assist XXXXX and its carriers to comply with the ETA:

• XXXXX and its distributors should provide a copy of their approval to use the ACM to its independent carriers for their records.

• When a change of ownership of a newspaper occurs, XXXXX should advise CRA of the fact that the newspaper is under new ownership, and ensure approval to use the ACM is in place.

• Some of the business activities newspaper carriers undertake might fall under the ACM, while other business activities are beyond the scope of the ACM. We have enclosed GST/HST Info Sheet GI-019, Newspaper Carriers, for more detailed information on what business activities fall under the ACM.

The foregoing comments represent our general views with respect to the subject matter. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-2826. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Shane Byrnes
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2008/02/29 — RITS 99615 — GST Treatment of XXXXX Cards as Coupon

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ETA 123(1) short-term accommodation; ETA 142(2); ETA 252.1; ETA Sch VI, Part VI, 1

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Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5	XXXXX XXXXX XXXXX
XXXXX XXXXX	Case Number: 99704
	March 12, 2008

Subject:

GST/HST INTERPRETATION
Tour Packages and the Foreign Convention and Tour Incentive Program

Dear XXXXX:

Thank you for your fax XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of packages by XXXXX.

All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.

Effective January 1, 2008, the rate of the GST has been reduced from 6% to 5% and the rate of HST from 14% to 13%. The new rates apply to supplies for which the GST/HST is paid on or after January 1, 2008, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to GST/HST Notice 226, GST/HST Rate Reduction in 2008 on the Canada Revenue Agency (CRA) Web site at www.cra-arc.gc.ca/E/pub/gi/notice226/README.html.

We understand that as part of its tour operations, XXXXX offers a line of packages including train packages. You would like confirmation of your understanding of the application of GST/HST to these packages.

Interpretation Requested

You would like confirmation that, with respect to calculating the GST/HST on a tour package, property and services provided outside of Canada are included in the zero-rated portion of the tour package.

You would also like to confirm that short-term accommodation outside of Canada is not "short-term accommodation" for the purposes of the Foreign Convention and Tour Incentive Program (FCTIP).

You would like to know if a package that includes an overnight train component is eligible for the tour package rebate under the FCTIP? Does it make a difference if the train component is a seat on the train, or a bed or berth in sleeper class?

Interpretation Given

Calculating GST/HST on tour packages

You are correct in your understanding that property and services provided outside of Canada are included in the zero-rated portion of a tour package when calculating the GST/HST on a tour package.

A tour package is a single supply of a service for GST/HST. However, a tour package may include property and services that would be taxable at different rates (i.e., 0%, 5%, or 13%) if supplied separately and not as part of a tour package. It may also include property and services that, if supplied separately, would be exempt or provided outside Canada and not subject to tax.

To determine the amount of GST/HST to charge, suppliers of tour packages that include a combination of taxable and non-taxable property and services must pro-rate their selling prices, according to section 163, based on the value of taxable and non-taxable property and services in the package.

Generally, taxable property and services are those property and services included in a tour package which, if supplied separately, and not as part of a tour package, would be subject to GST/HST (other than zero-rated supplies). The taxable portion is further divided into:

• the non-provincially taxable portion, which is subject to the 5% GST, and

• the provincially taxable portion, which is subject to the 13% HST.

The non-taxable portion of a tour package refers to any part of the tour package that is not included in the taxable portion of the tour package. The non-taxable portion of a tour package includes any property or service included in the tour package that, if supplied separately, and not as part of the tour package, would be zero-rated or exempt supplies, or supplies not subject to tax.

The non-taxable portion of a tour package is a zero-rated supply pursuant to section 1 of Part VI of Schedule VI.

More information on calculating the GST/HST on tour packages can be found in GST/HST Memorandum 27.1, Zero-Rated Travel Services.

FCTIP

The FCTIP, a new rebate program that replaced the Visitor Rebate Program, came into effect April 1, 2007. The FCTIP continues to provide GST/HST relief to non-residents for:

• all of the GST/HST paid on accommodation sold to non-resident tour operators that are not registered for the GST/HST and that include the accommodation in eligible tour packages sold to non-residents, and

The rebate calculation for eligible tour packages is based on the number of nights of short-term and/or camping accommodation in Canada included in the package. More information on calculating the tour package rebate can be found in GST/HST Info Sheet GI-032, Non-Residents Purchasing Tour Packages: Rebate for Eligible Tour Packages.

Eligible tour packages

Under the FCTIP, non-residents are able to get a GST/HST rebate on eligible tour packages that they purchase. An eligible tour package for the purposes of the FCTIP is a tour package that includes short-term and/or camping accommodation in Canada and at least one service, and it must be sold for an all-inclusive price.

Short-term accommodation

You are also correct in your understanding that short-term accommodation outside of Canada is not "short-term accommodation" for the purposes of the FCTIP.

Short-term accommodation is defined in subsection 123(1) and means the rental of an accommodation unit as a place of lodging for an individual who will occupy it continuously for a period of less than one month.

For the purposes of the FCTIP, short-term accommodation includes any type of overnight shelter that is part of a tour package that has food and the services of a guide. However, short-term accommodation does not include shelter on a train, trailer, boat or structure that is, or could be, self-propelled. It also does not include the rental of an accommodation unit when it is supplied under a timeshare arrangement or when it is included in the part of a tour package that is the non-taxable portion of the tour package.

Therefore, no GST/HST would be charged on the portion of a tour package that includes short-term accommodation provided outside of Canada as this accommodation is included in the non-taxable portion of the tour package and is not part of the definition of "short-term accommodation" for the purposes of the tour package rebate under the FCTIP.

Also included in the non-taxable portion of a tour package, and thereby excluded from the definition of short-term accommodation, is the rental of an accommodation unit for $20 or less per night; a supply that, if supplied separately, is exempt pursuant to section 6 of Part I of Schedule V.

Packages including train transportation

Generally, transportation by train is a transportation service and not short-term accommodation for GST/HST purposes, regardless of whether the passenger occupies a seat on the train or travels by sleeper class in a bed or berth. This is the case even where the transportation includes one or more overnight stays on the train.

Whether or not a tour package that includes train transportation is an eligible tour package will depend on the facts of the particular situation. The tour package must meet the definition of an eligible tour package.

For example, a tour operator supplying a tour package for an all-inclusive price that is comprised of hotel accommodation in Canada and train transportation, including an overnight stay on the train, is supplying an eligible tour package for GST/HST purposes. The tour package includes short-term accommodation (the hotel accommodation) in Canada and a service (the train transportation).

Alternatively, a tour operator supplying a tour package for an all-inclusive price that is comprised of overnight train transportation, meals and a guided tour is not an eligible tour package for purposes of the tour package rebate under the FCTIP. There is no short-term accommodation in Canada included in the tour package.

All of the publications referred to in this letter may be found on the CRA Web Site at www.cra-arc.gc.ca/formspubs/type/menu-e.html.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-2488.

Yours truly,

Carla Schur-Ellison
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2008/03/27 — RITS 103195 — XXXXX Cereal and XXXXX Cereal

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ETA 213; ETA Sch VII, 8; SOR/91-31 3(i)(i)

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Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5	XXXXX XXXXX XXXXX
XXXXX	Case Number: 102735
	March 7, 2008

Subject:

GST/HST RULING
Temporary Importation - XXXXX

Dear XXXXX:

Thank you for your XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the temporary importation of XXXXX.

All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.

Effective January 1, 2008, the rate of the GST has been reduced from 6% to 5% and the rate of HST from 14% to 13%. The new rates apply to supplies for which the GST/HST is paid on or after January 1, 2008, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to GST/HST Notice 226, GST/HST Rate Reduction in 2008 on the Canada Revenue Agency (CRA) Web site at www.cra-arc.gc.ca/E/pub/gi/notice226/README.html.

Statement of Facts

Our understanding of the facts is as follows:

• A XXXXX is being temporarily imported for field testing and validation under Canadian conditions.

• XXXXX. The equipment consists of a XXXXX.

• Canadian testing of this prototype is part of a XXXXX.

• XXXXX is the importer of record. The equipment is owned by XXXXX.

• The prototype will be temporarily imported in XXXXX for XXXXX testing before being exported to the U.S.

• The Canadian Border Services Agency has determined that the conditions of Item 17 of the Temporary Importation (Excise Levies and Additional Duties) Regulations are met for the temporary importation of the XXXXX.

Ruling Requested

You would like to know whether the temporary importation of XXXXX is a non-taxable importation for GST/HST purposes.

Ruling Given

Based on the facts set out above, we rule that the temporary importation of XXXXX is a non-taxable importation for GST/HST purposes.

Explanation

Generally, all goods imported into Canada are taxable for GST/HST purposes unless specifically relieved under section 213 XXXXX. Importations of goods relieved of tax under section 213 XXXXX are set out in Schedule VII XXXXX. Section 8 of Schedule VII XXXXX deems prescribed goods that are imported in prescribed circumstances into Canada to be non-taxable for GST/HST purposes. Subparagraph 3(i)(i) of the Non-Taxable Imported Goods (GST/HST) Regulations includes goods described in item 17 of the schedule to the Temporary Importation (Excise Levies and Additional Duties) Regulations when a person imports the goods in circumstances where the terms and conditions of the regulations have been met.

Item 17 of the schedule to the Temporary Importation (Excise Levies and Additional Duties) Regulations includes:

Articles to be tested and specialized equipment permanently attached to or installed on those articles.

The Canadian Border Services Agency has determined that the conditions of Item 17 of the Temporary Importation (Excise Levies and Additional Duties) Regulations are met for the temporary importation of XXXXX.

For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service.

Yours truly,

Gregory A. Smith
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2008/03/07 — RITS 102892 — [Natural Fruit Juice] Beverage

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ETA 165; ETA Sch VI, Part III, 1(d)

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Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5	XXXXX XXXXX XXXXX XXXXX
XXXXX XXXXX	Case Number: 102892
	March 7, 2008

Subject:

GST/HST RULING
XXXXX Beverage XXXXX

Dear XXXXX:

Thank you for your letter of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to XXXXX Beverage XXXXX (the Product).

All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.

Effective January 1, 2008, the rate of the GST has been reduced from 6% to 5% and the rate of HST from 14% to 13%. The new rates apply to supplies for which the GST/HST is paid on or after January 1, 2008, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to GST/HST Notice 226, GST/HST Rate Reduction in 2008 on the Canada Revenue Agency (CRA) Web site at www.cra-arc.gc.ca/E/pub/gi/notice226/README.html.

Statement of Facts

Our understanding of the facts is as follows:

1. The Product is sold in corrugated cartons that are XXXXX litre in volume.

2. The Product's ingredients are: XXXXX.

3. The nutrition facts table on the packaging of the container indicates that a XXXXX mL serving of the Product contains the following:

Amount % Daily Intake

XXXXX XXXXX

4. The Product is lactose and cholesterol free.

5. The Product contains XXXXX% natural fruit juice by volume.

6. The packaging indicates that the Product is XXXXX.

Ruling Requested

You would like to know how the GST/HST applies to supplies of the Product.

Ruling Given

Based on the facts set out above, we rule that the supply of the Product is taxable at 5% GST or 13% HST, where applicable, pursuant to section 165 XXXXX

Explanation

Generally, every recipient of a taxable supply made in Canada shall pay tax calculated at the rate of 5% on the value of the consideration for the supply (or 13% in the participating provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador) unless the supply is zero-rated. Zero-rated supplies are included in Schedule VI. The tax rate in respect of a zero-rated supply is 0%.

Under Part III of Schedule VI, certain supplies of basic groceries are zero-(rated)

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

The terms "food" and "beverage" are not defined in the ETA. However, the Canada Revenue Agency (CRA) considers a product to be a food or beverage if an average consumer would recognize and purchase the product as such in the ordinary course of buying basic groceries. Consumers usually consume food and beverages to allay hunger or quench thirst, or for enjoyment rather than for therapeutic or preventative effects.

Paragraph 1(d) of Part III of Schedule VI excludes from zero-rating supplies of non-carbonated fruit juice beverages or fruit flavoured beverages (other than milk-based beverages), that contain less than XXXXX% by volume of either,

(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.

Paragraph 1(d) specifically excludes milk-based beverages. As such, if a product were a milk-based beverage, paragraph 1(d) would not be considered in determining the tax status of a particular product.

However, products from non-animal sources, such as soy beverages and rice beverages are not considered milk or milk-based beverages for purposes of the ETA, and as such, it is necessary to consider paragraph 1(d) when making a determination as to the tax status of a particular product.

As the Product is fruit flavoured and only contains XXXXX% fruit juice, and is not a milk-based beverage, it is excluded from zero-rating by virtue of paragraph 1(d) and is therefore taxable at the rate of 5% GST or 13% HST, where applicable, pursuant to section 165 XXXXX.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-2560. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Tim Myers
Technical Policy Advisor
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2008/03/07 — RITS 102894 — [Natural Fruit Juice] Beverage

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ETA 165; ETA Sch VI, Part III, 1(d)

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Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5	XXXXX XXXXX XXXXX XXXXX
XXXXX XXXXX	Case Number: 102894
	March 7, 2008

Subject:

GST/HST RULING
XXXXX Beverage XXXXX

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to XXXXX Beverage XXXXX (the Product).

All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.

Effective January 1, 2008, the rate of the GST has been reduced from 6% to 5% and the rate of HST from 14% to 13%. The new rates apply to supplies for which the GST/HST is paid on or after January 1, 2008, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to GST/HST Notice 226, GST/HST Rate Reduction in 2008 on the Canada Revenue Agency (CRA) Web site at www.cra-arc.gc.ca/E/pub/gi/notice226/README.html.

Statement of Facts

Our understanding of the facts is as follows:

1. The Product is sold in corrugated cartons that are XXXXX litre in volume.

2. The Product's ingredients are: XXXXX.

3. The nutrition facts table on the packaging of the container indicates that a XXXXX mL serving of the Product contains the following:

XXXXX

4. The Product is lactose and cholesterol free.

5. The Product contains XXXXX% natural fruit juice by volume.

6. The packaging indicates that the Product is XXXXX.

Ruling Requested

You would like to know how the GST/HST applies to supplies of the Product.

Ruling Given

Based on the facts set out above, we rule that the supply of the Product is taxable at 5% GST or 13% HST, where applicable, pursuant to section 165 XXXXX.

Explanation

Under Part III of Schedule VI, certain supplies of basic groceries are zero-(rated)

(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.

Yours truly,

Tim Myers
Technical Policy Advisor
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2008/03/07 — RITS 102895 — [Natural Fruit Juice] Beverage

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Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5	XXXXX XXXXX XXXXX XXXXX
	Case Number: 102895
XXXXX XXXXX	March 7, 2008

Subject:

GST/HST RULING
XXXXX Beverage XXXXX

Dear XXXXX

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to XXXXX Beverage XXXXX (the Product).

All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.

Effective January 1, 2008, the rate of the GST has been reduced from 6% to 5% and the rate of HST from 14% to 13%. The new rates apply to supplies for which the GST/HST is paid on or after January 1, 2008, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to GST/HST Notice 226, GST/HST Rate Reduction in 2008 on the Canada Revenue Agency (CRA) Web site at www.cra-arc.gc.ca/E/pub/gi/notice226/README.html.

Statement of Facts

Our understanding of the facts is as follows:

1. The Product is sold in corrugated cartons that are XXXXX litre in volume.

2. The Product's ingredients are: XXXXX.

3. The nutrition facts table on the packaging of the container indicates that a XXXXX mL serving of the Product contains the following:

Amount % Daily Intake

XXXXX XXXXX

4. The Product is lactose and cholesterol free.

5. The Product contains XXXXX% natural fruit juice by volume.

6. The packaging indicates that the Product is XXXXX.

Ruling Requested

You would like to know how the GST/HST applies to supplies of the Product.

Ruling Given

Based on the facts set out above, we rule that the supply of the Product is taxable at 5% GST or 13% HST, where applicable, pursuant to section 165 XXXXX.

Explanation

Under Part III of Schedule VI, certain supplies of basic groceries are zero-(rated)

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

Yours truly,

Tim Myers
Technical Policy Advisor
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2008/03/07 — RITS 102896 — [Natural Fruit Juice] Beverage XXXXX

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ETA 165; ETA Sch VI, Part III, 1(d)

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Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5	XXXXX XXXXX XXXXX XXXXX
XXXXX XXXXX	Case Number: 102896
	March 7, 2008

Subject:

GST/HST RULING
XXXXX Beverage XXXXX

Dear XXXXX

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to XXXXX Beverage XXXXX (the Product).

All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.

Effective January 1, 2008, the rate of the GST has been reduced from 6% to 5% and the rate of HST from 14% to 13%. The new rates apply to supplies for which the GST/HST is paid on or after January 1, 2008, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to GST/HST Notice 226, GST/HST Rate Reduction in 2008 on the Canada Revenue Agency (CRA) Web site at www.cra-arc.gc.ca/E/pub/gi/notice226/README.html.

Statement of Facts

Our understanding of the facts is as follows:

1. The Product is sold in corrugated cartons that are XXXXX litre in volume.

2. The Product's ingredients are: XXXXX.

3. The nutrition facts table on the packaging of the container indicates that a XXXXX mL serving of the Product contains the following:

Amount % Daily Intake

XXXXX XXXXX

4. The Product is lactose and cholesterol free.

5. The Product contains XXXXX% natural fruit juice by volume.

6. The packaging indicates that the Product is XXXXX.

Ruling Requested

You would like to know how the GST/HST applies to supplies of the Product.

Ruling Given

Based on the facts set out above, we rule that the supply of the Product is taxable at 5% GST or 13% HST, where applicable, pursuant to section 165 XXXXX.

Explanation

Under Part III of Schedule VI, certain supplies of basic groceries are zero-(rated)

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

Paragraph 1(d) specifically excludes milk-based beverages. As such, if a product were a milk based beverage, paragraph 1(d) would not be considered in determining the tax status of a particular product.

Yours truly,

Tim Myers
Technical Policy Advisor
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2008/03/18 — RITS 103269 — Temporary Importation - Television Production Truck and Related Television Equipment

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ETA Sch V, Part VI, 20(l)

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XXXXX XXXXX XXXXX	Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5
XXXXX XXXXX XXXXX	Case Number: 85807
	January 3, 2007

Subject:

GST/HST RULING
Supply of a Right to Use a Municipal Road

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to fees collected under an agreement XXXXX, made between the XXXXX (the "municipality") and XXXXX (the "contractor") for the purpose of allowing the contractor to use a municipal road to transport goods and materials.

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

Statement of Facts

On the basis of the above-noted agreement, our understanding of the facts is as follows:

1. The contractor wishes to use a municipal road for the purpose of transporting quantities of goods and materials that are significant in nature. For consideration of the amount agreed upon per mile, the municipality shall allow the contactor to haul product along a specified route on a municipal road.

2. The contractor is required to enter into a road maintenance agreement with municipality and pay haul road fees to the municipality for the use of a municipal road and the municipality will maintain the road in a reasonable state of repair.

3. Haul road fees are based on percentages of volume supplied by the contractor on a XXXXX basis and are payable by the contractor on a XXXXX basis. The contractor is to pay XXXXX of the estimated cost of maintenance of the road to be determined by the municipality.

4. If severe road damage occurs which is directly attributable to the hauling operation by the contractor, the municipality reserves the right to negotiate the costs of the damage with the contractor. If an agreement cannot be reached, both parties agree that an engineer from XXXXX will assess the damage and this assessment shall be binding.

5. The contractor shall haul weight equivalent to the secondary highway weight limits as stated in the XXXXX. Weights exceeding secondary highway weights are prohibited unless the municipality issues a XXXXX.

6. The municipality reserves the right to stop the hauling operation during time of inclement weather when it is determined that severe road damage is likely to occur.

7. If the contractor breaches any part of the agreement, the municipality reserves the right to cancel the agreement and cease the hauling operation until such time as the concerns have been addressed.

8. The agreement is valid for XXXXX and thereafter from year to year, subject to periodic review based on production volumes.

Ruling Requested

You would like to know whether the amounts payable by the contractor; i.e., haul road fees and estimated costs of road maintenance, to the municipality are consideration for a taxable supply and thus subject to the 6% GST/HST.

Ruling Given

Based on the facts set out above, we rule that the amounts payable by the contractor; i.e., haul road fees and estimated costs of road maintenance, to the municipality are consideration for a taxable supply pursuant to section 165 and thus subject to the 6% GST/HST.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

The general rule under the ETA in section 165 is that all supplies of goods and services made in Canada are subject to the GST/HST at the rate of 6% (or at the rate of 14% for supplies made in New Brunswick, Newfoundland and Labrador, and Nova Scotia). Part VI of Schedule V contains a list of exceptions for a limited number of supplies made by municipalities and other public sector bodies that are identified as being exempt from the GST/HST. However, there are certain supplies made by municipalities that are specifically excluded from these exemptions. We note that paragraph 20(l) of Part VI of Schedule V excludes the following:

"A supply of a right to enter, to have access to or to use property of the ... municipality ...".

It is our view that the substance of the agreement between the municipality and the contractor is for a supply made by the municipality of the right to use portions of a municipal road for the purpose of transporting goods; i.e., a supply of a right to use municipal property. This supply is specifically excluded from the exemptions in section 20 of Part VI of Schedule V for certain supplies made by municipalities and therefore this supply is taxable.

Because the hauling operation involves goods that are significant in nature and likely to cause severe damage to the municipal road, we understand that the municipality requires the contractor to enter into a road maintenance agreement which essentially provides for the municipality to recover the extra costs it will incur to maintain the road as a result of the contractor' hauling operation. Although the agreement discusses road maintenance costs, the purpose of the agreement is to allow the contractor to transport goods along a portion of a municipal road for a specified period and therefore, the only supply acquired by the contractor is the right to use a municipal road. The consideration for this right, which includes haul road fees and any other amounts, are based on percentages of volume hauled by the contractor as well as part of the municipality's estimated cost of maintaining the road.

Thus, in exchange for a supply of a right to transport goods along a municipal road, the contractor is required to pay amounts to the municipality on a quarterly basis throughout the term of the agreement. That the municipality requires the contractor to cover additional maintenance costs for road damage that is attributable to the hauling operation does not alter the nature of the supply. In addition, we note that the municipal road is property of the municipality for which it would be required to maintain in any event.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-6761.

Yours truly,

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

2007/01/04 — RITS 86262 — Application of GST to Container Recycling Fees

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ETA 226

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XXXXX XXXXX XXXXX	Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5
XXXXX XXXXX XXXXX	Case Number: 86262
	January 4, 2007

Subject:

GST/HST INTERPRETATION
PROPOSED LAW/REGULATION

Dear XXXXX:

Application of GST to Container Recycling Fees

Thank you for your fax XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to Container Recycling Fees (CRFs) that XXXXX (the Company) charges on its sales of XXXXX (the Beverage).

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

Statement of Facts

Our understanding of the facts is as follows:

1. The Company sells several beverage products, including the Beverage.

2. The Beverage is a carbonated water that is sold in cases of XXXXX bottles.

3. For sales of the Beverage XXXXX, the XXXXX bottle is subject to a $XXXXX refundable deposit and a $XXXXX non-refundable CRF.

4. The Company charges GST on the consideration for the Beverage and on the CRF, but not on the refundable deposit.

Ruling Requested

You would like to know whether GST applies to the CRFs charged in respect of the XXXXX bottles of the Beverage.

Interpretation Given

The Department of Finance tabled a Notice of Ways and Means Motion on November 27, 2006, to amend several ETA provisions including those for returnable containers; these amendments were previously announced on February 8, 2002.

As stated in Section 1.4 of GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the CRA does not issue GST/HST rulings on proposed or draft legislation, draft regulations, federal budget proposals, or Notices of Ways and Means motions. However, the CRA may issue interpretations based on these documents. Accordingly, we are pleased to provide you with the following interpretation.

Based on the information provided, the CRFs charged in respect of the XXXXX bottles of the Beverage are subject to GST of 6%.

Explanation

Under the proposed amendments to the ETA provisions for returnable containers, a refundable deposit for a returnable container is not subject to tax. All references to section 226 of the ETA are to these proposed amendments to the ETA included in the Notice of Ways and Means Motion of November 27, 2006, unless otherwise noted.

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

Subsection 226(1) defines the terms used in section 226. A "returnable container" 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

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

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

(ii) for the purpose of recovering an amount equivalent to the amount referred to in subparagraph (i) that was charged to the supplier, or

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

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

(a) the return, redemption, reuse, destruction or disposal of

(i) returnable containers in the province, or

(ii) returnable containers in the province and other goods; or

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

The "refund" for a returnable container in a province is generally the legislated consumers' refund in the province for returnable containers of that class, which means the amount, or the minimum amount, that, under an Act of the legislature of the province in respect of recycling, must be paid in certain circumstances for a used and empty returnable container of that class to a person of a class that includes consumers.

Supplies of the Beverage are taxable at 6%; they are not zero-rated under Part III of Schedule VI to the ETA since the Beverage is carbonated. Subsection 226(2) will apply to the supplies of the Beverage made by the Company.

The XXXXX bottle for the Beverage is a returnable container under section 226 when sold XXXXX, and the refundable deposit and the CRF are amounts charged in respect of the recycling of the container. The total of these amounts is the returnable container charge when the Company sells the Beverage in the XXXXX bottle XXXXX. The refundable deposit is the refund for the XXXXX bottle. Subsection 226(2) deems that when the Company makes a supply of the Beverage in the XXXXX bottle, the deposit and the CRF are not part of the consideration for the beverage. Subsection 226(2) further deems that the CRF will be consideration for a taxable supply of a service in respect of the returnable container. The Company should not charge GST on the deposit, but should charge GST on the CRF.

These amendments to section 226 are proposed to come into force on May 1, 2002, and apply to supplies for which consideration becomes due, or that is paid without having become due, on or after that day.

The foregoing comments represent our general views with respect to the proposed amendments to the Excise Tax Act as they relate to the subject matter of your request. Any change to the wording of these proposed amendments or any future proposed amendments to the ETA, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation.

For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 957-8253.

Yours truly,

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

2007/01/23 — RITS 86499 — Supplies of Independent Medical Examinations

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Indian Act

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XXXXX XXXXX XXXXX XXXXX	Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5
	Case Number: 85222
	December 5, 2006

Subject:

GST/HST INTERPRETATION
Delivery - agent of the vendor

Dear XXXXX:

Thank you for your enquiry concerning the requirements necessary for tax relief to apply to off-reserve purchases of property that are delivered to a reserve found in TIB B-039R3 GST/HST Administrative Policy - Application of the GST/HST to Indians (B-039R3).

Interpretation Requested

Your enquiry concerns a First Nations person that wants vendors to utilize the First Nations person's delivery service so that goods may be delivered to status Indians on a reserve relieved of tax. Some vendors have been reluctant to utilize the First Nations person's delivery service, as they are not sure that the arrangement will meet the delivery requirements set out in B-039R3.

Interpretation Given

The following guidelines have been developed that elaborate on what the Canada Revenue Agency (CRA) is prepared to accept in terms of a First Nations/First nation person operated delivery service. However, as indicated in your telephone conversation with a GST/HST Rulings officer XXXXX, an arrangement to act as a vendor's agent is a contractual matter between the vendor and the carrier. It is not within the CRA's authority to require a vendor to deliver goods to a reserve or to hire a delivery service (First Nation or otherwise).

First Nation Operated Delivery Service

B-039R3 provides tax relief to off-reserve purchases of property acquired by Indians, Indian bands and unincorporated band-empowered entities, as well as incorporated band-empowered entities purchasing for band management activities, provided:

• They have the appropriate documentation to show the vendor; and

• The property is delivered to a reserve by the vendor or the vendor's agent.

B-039R3 adds that an agent of the vendor includes an individual or company under contract to the vendor for making deliveries. Note: A carrier who is under contract with the purchaser is not regarded as an agent of the vendor. In addition, undertakings made by purchasers of property to deliver the property to themselves as agents of the vendor are not acceptable to the CRA.

Agent of the Vendor

B-039R3 does not preclude a delivery business being established by a First Nation or a First Nation individual. However, the arrangement to act as the vendor's agent is a contractual matter between the vendor and the carrier.

The requirements of a vendor's agent are no different for a First Nation operated delivery service from those of a non-First Nation operated delivery service. A delivery business established by a First Nation or a First Nation individual will qualify as an agent of the vendor where the following conditions are met:

• Vendor must arrange for the delivery [cash on delivery (COD) is acceptable];

• The carrier is under contract with the vendor for making the delivery to the reserve;

• Carrier must be in the business of delivering goods;

• If the delivery business is established from the First Nation Council, the delivery business will not be considered an agent of the vendor where the band is the purchaser unless the business is incorporated as a separate legal entity from the First Nation and Council; and

• Invoice, sales receipt, waybill or other documentation respecting the sale of the goods must show the vendor as the originator of the delivery and a reserve address as the destination. The vendor must retain a copy of this documentation as proof of delivery to a reserve.

While it is understandable that a First Nation individual may wish to utilize a delivery service in order to obtain relief of tax, the CRA cannot impose a requirement on off-reserve vendors that all purchases must be delivered or that arrangements must be made for delivery of the goods to a reserve.

The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Goods and Services Tax Rulings.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-9264.

Yours truly,

Cindy Christmas
Aboriginal Affairs Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

2007/01/10 — RITS 85430 — Applicability of Interest and Penalties to Assessments

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ETA 123(1) consideration; ETA 123(1) recipient; ETA 123(1) supplier; ETA 123(1) supply; ETA 165(1); ETA 169(1); Input Tax Credit Information (GST/HST) Regulations (SOR/91/45) 3

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XXXXX. XXXXX XXXXX	Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5
XXXXX XXXXX XXXXX	Case Number: 81231
	January 8, 2007

Subject:

GST/HST RULING
Tax Status of Real Estate Commissions

Dear XXXXX:

Thank you for your fax XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the commission paid to XXXXX by the XXXXX as vendor of real property, which commission is split between XXXXX, one of its salespersons, namely XXXXX, and a co-operative broker involved in the real estate transaction.

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

Statement of Facts

We understand the facts as follows:

1. XXXXX entered into a Multiple Listing Agreement (MLA) with the XXXXX, to market and sell the XXXXX real property.

2. Together with the MLA, a supplementary agreement (SA), Schedule A to the MLA, was also entered into between XXXXX and the XXXXX.

3. Paragraph 3 of the SA provides, in part, that contrary to the pre-printed MLA, the seller and/or the Province XXXXX are exempt from paying the GST on commissions payable pursuant to a Reciprocal Taxation Arrangement between the Federal Government and the Province XXXXX, whereby the Seller, a Crown Corporation of the province XXXXX, is part of the Province XXXXX and as such is not subject to GST.

4. Within the MLA, XXXXX - Commission - provides that in consideration of XXXXX marketing of the property, the XXXXX agrees to pay XXXXX, as the listing broker, a commission of XXXXX% on the sale or lease of the property.

5. XXXXX the MLA - Agency - provides, in part, that the XXXXX authorizes XXXXX to co-operate with any other registered real estate broker (co-operating broker) and to offer to pay the co-operating broker a commission of XXXXX% out of the commission the XXXXX pays XXXXX. The XXXXX understands that the co-operating broker is representing the interests of the buyer in the transaction.

6. XXXXX the SA provides that a co-operating broker shall not include anyone within XXXXX firm or affiliated offices.

7. Also, XXXXX must pay a commission to an independent real estate agent, XXXXX who negotiated the sale of the XXXXX real property. It is our understanding that XXXXX is registered for GST/HST purposes.

Ruling Requested

You would like to know whether XXXXX is required to pay GST on the share of the commission paid to a co-operating broker and to XXXXX, one of XXXXX salespersons, in relation to a sale of real property belonging to XXXXX?

Ruling Given

Based on the facts set out above, we rule that XXXXX is required to pay GST on the taxable supplies of services made to it by the co-operating broker and by XXXXX and that XXXXX may claim ITCs in respect to the acquisition of those services. Also, XXXXX is required to pay tax on the supplies made by XXXXX to XXXXX, under the terms of the brokerage agreement.

Explanation

The commission paid by XXXXX to XXXXX is not subject to tax pursuant to the Reciprocal Taxation Agreement between the Government of Canada and the Province XXXXX, under which the XXXXX is an XXXXX entity that is not required to pay any GST/HST on its purchase of goods or services.

However, with respect to the commissions paid by XXXXX to the co-operating broker and to XXXXX, they are supplying their services to XXXXX and not to XXXXX. XXXXX is the recipient of these services, which are taxable supplies. As the recipient of taxable supplies, XXXXX is required to pay tax to the co-operating broker and to XXXXX, as there is no provision under the ETA that would relieve XXXXX from paying tax.

Since XXXXX is paying tax in the course of its commercial activities, it can claim input tax credits (ITC), so long as all of the conditions included in subsection 169(1) of the ETA are met. XXXXX can also claim ITCs for the tax paid on XXXXX taxable supply of services made under the terms of the brokerage agreement.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-8223.

Yours truly,

Daniel Chamaillard
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2007/01/08 — RITS 81915 — Non-Resident Registration

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ETA 240

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XXXXX XXXXX XXXXX	Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5
XXXXX XXXXX XXXXX	Case Number: 81915
	January 8, 2007

Subject:

GST/HST RULING
Non-Resident Registration

Dear XXXXX:

Thank you for your letter XXXXX concerning whether XXXXX is required to register for GST/HST purposes.

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

Statement of Facts

Our understanding of the facts based on your letter and our subsequent telephone discussions is as follows:

• XXXXX is a non-resident vendor of goods based in XXXXX, US.

• XXXXX acquires the goods on a delivered in Canada basis from XXXXX, a GST/HST registered non-resident company.

• The goods acquired by XXXXX are manufactured and packaged in XXXXX US. by XXXXX and delivered to XXXXX on a FOB XXXXX basis.

• XXXXX has contracted with XXXXX to store the goods until they are sold.

• XXXXX has XXXXX Canadian clients for the goods XXXXX. The goods are stored and available for sale in Canada by XXXXX at XXXXX.

• XXXXX maintains the inventory of goods in the warehouse facility in Canada to satisfy future orders from it's XXXXX Canadian clients. Once an order is received by XXXXX, it issues a release to XXXXX who then releases the appropriate quantity of goods to the purchaser at its warehouse facility in XXXXX.

• XXXXX supplies the goods to either of its clients on a delivered in Canada basis, FOB XXXXX.

• XXXXX has entered into agreements with both Canadian clients obligating XXXXX to maintain a level of inventory in Canada that will adequately address their projected needs. The arrangement to procure these future orders was solicited in Canada.

• XXXXX issues invoices and receives payment for its supplies to its Canadian clients through its office in XXXXX US. XXXXX sales revenue from supplies of goods made to its Canadian clients that are delivered in Canada exceeds $30,000 CDN annually.

Ruling Requested

You would like to know if XXXXX is required to register for GST/HST purposes and, if not, whether the drop shipment rules could deem the supplies made by XXXXX to XXXXX to be made outside Canada.

Ruling Given

Based on the facts set out above, we rule that XXXXX is required to register for GST/HST purposes on the basis that it is making supplies in Canada in the course of carrying on a business in Canada.

Explanation

Every non-resident person who carries on business in Canada, other than a small supplier, must register for GST/HST purposes if the non-resident person makes a taxable supply in Canada (footnote 1) Subsection 240(1) of the Excise Tax Act.

As set out in the enclosed GST/HST Policy Statement P-051R2: Carrying on Business in Canada, whether a non-resident is carrying on business in Canada for GST/HST purposes is a question that requires consideration of all relevant facts. The factors to consider in determining whether, for GST/HST purposes, a non-resident person is carrying on business in Canada in a particular situation include:

• the place where agents or employees of the non-resident are located;

• the place of delivery;

• the place of payment;

• the place where purchases are made or assets are acquired;

• the place from which transactions are solicited;

• the location of assets or an inventory of goods;

• the place where the business contracts are made;

• the location of a bank account;

• the place where the non-resident's name and business are listed in a directory;

• the location of a branch or office;

• the place where the service is performed, and

• the place of manufacture or production.

The importance or relevance of a given factor in a specific case depends upon the nature of the business activity under review, and the facts and circumstances of each case.

Based on the information provided, XXXXX maintains an inventory of goods available for sale in Canada, has solicited orders for the supply of these goods in Canada, and makes supplies of the goods on a delivered in Canada basis. These factors alone are sufficient to conclude that XXXXX is carrying on a business in Canada and required to register for GST/HST purposes. Example 9 of enclosed Policy Statement P-051R2 is particularly relevant to XXXXX business activities in Canada.

For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Goods and Services Tax Rulings.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-8812.

Yours truly,

Jeff Frobel
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2007/01/10 — RITS 82341 — Eligibility to Claim Input Tax Credits (ITCs) in Respect of Hedging Activities

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ETA 123(1) debt security; ETA 141; ETA 141.01; ETA 169(1); ETA 185(1)

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XXXXX XXXXX XXXXX XXXXX	Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5
XXXXX XXXXX	Case Number: 82341
	January 10, 2007

Subject:

GST/HST INTERPRETATION
Eligibility to claim Input Tax Credits (ITCs) in respect of hedging activities

Dear XXXXX:

Thank you for your XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the purchase and sale of XXXXX and related hedging transactions. We apologize for the delay in our response.

We have received Form RC59E Business Consent Form authorizing us to release confidential information about XXXXX to you. All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

We understand that XXXXX, a GST/HST registrant, is a trader in energy and commodity contracts. The commodities with respect to which the contracts relate are physically traded. XXXXX purchases XXXXX from XXXXX or from commodity exchanges and pays GST/HST. In addition, XXXXX pays GST/HST on the handling, storage and transportation of the XXXXX in the course of its commercial activity. XXXXX collects GST/HST on the sale of the XXXXX to its XXXXX customers.

You have advised us that XXXXX is not a financial institution as defined in subsection 123(1). XXXXX is considering trading contracts of a similar nature negotiated by cash settlement only, for financial hedging purposes. You have written that the contracts are financial swaps. You further indicate that, in your view, 'a swap transaction falls under the definition of "debt security" since the definition of debt security pursuant to subsection 123(1) includes a "right to be paid money"'.

Interpretation Requested

You would like to know the following:

1. Assuming all input tax credit (ITC) supporting information requirements provided under subsection 169(4) are met, would CRA agree that the financial hedging activity of XXXXX should not impact XXXXX eligibility to claim full ITCs for the GST/HST paid on its commodity purchases and other input costs directly attributable to the sale of the physical commodity?

2. For other input costs that are not directly attributable to XXXXX energy trading commercial activity, e.g. head office management support services, would apportionment of the ITCs be required because of the mix of commercial activity and exempt financial hedging activity?

Interpretation Given

You have stated that the contracts XXXXX will be trading meet the definition of "debt security" under subsection 123(1) of the ETA. As we have not reviewed these contracts we cannot confirm that these contracts are debt securities or that XXXXX will be making supplies of financial services for purposes of the ETA.

Pursuant to subsection 169(1), where a person acquires or imports property or a service, or brings it into a participating province and, during a reporting period of the person in which the person is a registrant, the GST/HST in respect of the property or service becomes payable by the person or is paid by the person without having become payable, that person may be eligible to claim an ITC in respect of the GST/HST to the extent (expressed as a percentage) it was acquired, imported or brought into a participating province for consumption, use or supply in the course of the person's commercial activities, provided all the other conditions of section 169 are met.

Subsection 141(1) to (4) are intended to reduce the number of instances where a registrant might otherwise be required, for the purposes of determining an input tax credit, to apportion the GST/HST the person pays on inputs that the person uses or intends to use partly in commercial activities and partly in activities that are not commercial activities. Where substantially all (generally, 90% or more) of a person's consumption or use, or intended consumption or use, of property or a service is in the course of the person's commercial activities, subsection 141(1) and (2) deem all of the person's consumption or use, or intended consumption or use, of the property or service to be in the course of those commercial activities. Where substantially all of the person's consumption or use, or intended consumption or use, of property or a service is in the course of activities of the person that are not commercial activities, such as the making of exempt supplies, subsection 141(3) and (4) deem all of the person's consumption or use, or intended consumption or use, of the property or service to be in the course of those other activities.

Where XXXXX is not a "financial institution", as defined under subsection 123(1) and it acquires or imports property or a service all or substantially all for consumption, use or supply in the course of its commercial activity of buying and selling XXXXX, it will be eligible to claim a full ITC with respect to the GST/HST paid on the inputs that it acquired, imported or brought into a participating province for consumption or use in making that commercial activity, provided all the requirements of section 169 have been met.

Where property or a service is consumed or used partly in the course of a person's commercial activities and partly in the course of its non-commercial activities (generally, less than 90%, but more than 10% in its commercial activities), the person must apportion the GST/HST for the property or service between these two activities. Specifically, the person may be eligible to claim an ITC for the portion of the GST/HST paid or payable for the property or service that relates to the consumption or use of the property or service in its commercial activities, provided all the conditions of section 169 have been met.

Where a person acquires or imports property or a service or brings it into a participating province for consumption or use in the course of its endeavour, to the extent that it does so for the purpose of making taxable supplies for consideration, subsection 141.01(2) deems the person to have acquired, imported or brought in the property or service for consumption or use in the course of its commercial activities. To the extent that a person acquires, imports or brings in property or a service for the purpose of making supplies that are not taxable supplies for consideration, or for a purpose other than making supplies in the course of its endeavour, subsection 141.01(2) deems the person to have acquired, imported or brought in the property or service for consumption or use otherwise than in the course of its commercial activities.

Generally, a registrant is not eligible to claim ITCs in respect of property or services it acquires, imports or brings into a participating province for consumption, use or supply in the course of making supplies of financial services. However, subsection 185(1) applies, in part, to registrants that are not financial institutions and that, in the course of their commercial activity, also supply related financial services. Subsection 185(1) provides, in part, that to the extent (determined in accordance with subsection 141.01(2)) that property or services are acquired, imported or brought into a participating province by a registrant for consumption, use or supply in the course of making supplies of financial services that relate to the registrant's commercial activities, the property or services are deemed to have been acquired, imported or brought into a participating province for consumption, use or supply in the course of those commercial activities, for purposes of determining an ITC. Accordingly, the registrant would be eligible to claim ITCs with respect to the GST/HST paid on the property or services, to the extent that those financial services relate to the registrant's commercial activities, provided all the conditions of section 169 have been met.

Corporations may undertake hedging transactions to mitigate risks related to fluctuations in various costs such as foreign exchange rates, interest rates and commodity prices. Hedging transactions can be engaged in by corporations to protect against risks that are related to their central business. Certain hedging transactions may be considered financial services for purposes of the ETA. Whether or not a hedging transaction that is a supply of a financial service is related to a registrant's commercial activities depends on the facts of a particular situation.

To the extent that XXXXX supplies financial services that are not related to its commercial activities and it acquires, imports or brings into a participating province property or services for consumption, use or supply in the course of making supplies of these financial services, it will not be eligible to claim ITCs with respect to the GST/HST. In addition, where it consumes or uses property or services that are partly for its commercial activity and partly for activity that is not commercial activity, it will be required to apportion its ITCs. Please refer to GST/HST Memoranda Series 8.1 General Eligibility Rules and Chapter 17, Special Sectors: Financial Institutions or more information on ITCs and financial institutions.

The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-9577.

Yours truly,

Kirk Moore
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2007/01/04 — RITS 83671 — Supplies of Various Medical Products Used in Surgery

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ETA 123(1) membership; ETA 165; ETA 221; ETA Sch VI, Part III, 1

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Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5XXXXX XXXXX XXXXX XXXXX	Case Number: 83275
XXXXX	February 20, 2007

Subject:

GST/HST RULING
Requirement to collect GST on a membership fee for XXXXX

Dear XXXXX:

Thank you for your fax XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a new marketing plan for the sale of XXXXX.

All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX. XXXXX XXXXX fruit orchards.

2. XXXXX is starting a new marketing plan for the sale of XXXXX whereby it will sell a membership to have a family tree in its orchard. This marketing plan is an alternative to a traditional u-pick. XXXXX.

3. A person purchasing a membership (a "Purchaser") will receive the XXXXX off their tree. The purchaser will have his or her name placed on a particular tree and that tree can be the person's to pick XXXXX from for as many years as the membership is renewed. The Purchaser will receive training to pick the fruit without damaging the tree in order to keep the tree healthy for many years.

4. The Purchaser is notified in advance of the estimated harvest date and can bring his or her own containers or purchase containers for a nominal fee. If the Purchaser is not able to come and harvest, XXXXX can pick, pack and ship the XXXXX for an additional fee. A Purchaser can send someone in his or her place to pick XXXXX, provided the picker has the Purchaser's written consent to do this.

5. The XXXXX cannot guarantee the poundage of XXXXX on the tree. The weather plays a role in the development of the fruit, so each year is unpredictable. The trees are estimated to produce between XXXXX and XXXXX pounds of XXXXX each year. On average, the tree should produce about XXXXX pounds of XXXXX. The membership fee paid is based on the average amount of XXXXX expected at an average market price.

6. The Purchaser also has a place to relax, enjoy a picnic and the farm animals as well as take part in the tours of the orchard and greenhouse.

Ruling Requested

You would like to know if XXXXX is required to charge the GST on the $XXXXX annual membership fee.

Ruling Given

Based on the facts set out above, we rule that XXXXX is not required to charge the GST on the $XXXXX annual membership fee.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

In general, every person who makes a taxable supply in Canada is required to collect the tax payable by the recipient of the supply. Every recipient of a taxable supply made in Canada is required to pay tax in respect of the supply at the rate of 6% (or 14% in the participating provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador) on the value of consideration for the supply unless the supply is zero-rated. Zero-rated supplies are taxable at the rate of 0% and are listed in Schedule VI.

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

The $XXXXX annual membership fee that XXXXX charges is considered to be a fee charged for the supply of XXXXX. Since none of the exclusions in paragraphs 1(a) to (r) of Part III of Schedule VI apply to the supply of XXXXX, the supply of XXXXX is a zero-rated supply.

As such, XXXXX is not required to charge the GST on the $XXXXX annual membership fee.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-5124.

Yours truly,

Cheryl McKenzie
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2007/02/22 — RITS 83508 — Eligibility for a GST/HST Transitional Rebate

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ETA 123(1) mobile home; ETA 123(1) residential complex; ETA 165; ETA 256.3

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Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5	Case Number: 83508File Number: 11870-4, 11870-4-2
XXXXX XXXXX XXXXX XXXXX	February 22, 2007

Subject:

GST/HST RULING
Eligibility for a GST/HST Transitional Rebate

Dear XXXXX:

Thank you for your facsimiles XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your purchase of a modular home. The XXXXX GST/HST Rulings Centre has forwarded your request to us for response.

All legislative references are to the Excise Tax Act (ETA) and the regulations there under.

Statement of Facts

We understand the following:

1. XXXXX you entered into a written purchase and sale agreement with XXXXX ("the Vendor") for a modular home ("the Modular Home") and related services (collectively, with the Modular Home, "the Complex"). The terms of the purchase and sale agreement are set out in the following documents:

(a) the Agreement of Purchase and Sale and appendices XXXXX thereto; and

(b) XXXXX change orders XXXXX.

2. Under the Agreement of Purchase and Sale, the Vendor was to construct (including all material and labour) the foundation, the Modular Home, an entrance room and a garage. The Modular Home consists of three-dimensional modules with three walls and a roof/ceiling. The modules were in as finished a condition as possible prior to leaving the Vendor's premises, taking into consideration that they had to be transported.

3. The Modular Home was affixed to land that you already owned. The land is not situated in a "residential trailer park" as that term is defined in the ETA.

4. The modules were delivered to your site and set on the foundation XXXXX. On that same date, you paid the amounts payable under the Agreement of Purchase and Sale including the XXXXX change orders, less deposits you paid before that date.

5. XXXXX Appendix XXXXX to the Agreement of Purchase and Sale provides that, XXXXX. There was no indication in any of the documents provided that ownership of the Modular Home would transfer at any time other than the time contemplated above. XXXXX the same appendix provides that any changes to the Agreement of Purchase and Sale must be made through a written and signed change order prior to payment of the balance that is due on delivery.

6. The Certificate of Completion and Possession indicates that possession of the Complex was transferred to you XXXXX.

Ruling Requested

You would like to know whether you are entitled to a GST/HST transitional rebate with respect to your purchase of the Complex.

Ruling Given

Based on the facts set out above, we rule that you are not entitled to the GST/HST transitional rebate with respect to the acquisition of the Complex.

Explanation

Under policy statement P-223, The Meaning Of "Manufacture And Assembly Of Which Is Completed Or Substantially Completed" In The Definition Of "Mobile Home", ^{^[xxvi]}footnote 1 we consider the Modular Home to be a mobile home for purposes of the ETA. As such, and given the circumstances of this case, the Modular Home is also considered to be a residential complex for purposes of the ETA. We also consider the Vendor to be making a single supply of the Complex to you.

Under the ETA, where a written agreement of purchase and sale for a residential complex was entered into before May 3, 2006, GST at 7% applies to the sale of the residential complex. As the home you purchased is a residential complex and the written agreement of purchase and sale was entered into on XXXXX, GST at 7% properly applied to your purchase of the Complex.

Among the conditions that must be met in order for you to be eligible for a transitional rebate in the circumstances described is that ownership of the Complex must have transferred to you on or after July 1, 2006. Based on the Agreement of Purchase and Sale and the change orders thereto, the evidence indicates that ownership of the Complex transferred to you on XXXXX, the date on which the Modular Home was placed and attached to the foundation and the amounts due under the Agreement of Purchase and Sale were paid. As such, ownership of the Complex transferred to you before July 1, 2006, and you are not eligible for the GST/HST transitional rebate.

Although you indicated that you paid an additional amount to the Vendor on XXXXX, it is our view that this amount was not paid under the terms of the Agreement of Purchase and Sale. The additional amount is not included in the Agreement of Purchase and Sale and is not included in a signed change order made prior to the payment of the balance that is due on delivery. As a result, the date that this additional amount was paid does not have an impact on when ownership was transferred to you pursuant to the Agreement of Purchase and Sale.

Additional Information

You may be eligible for a GST/HST new housing rebate with respect to the acquisition of the Complex. The eligibility criteria for that rebate are set out in the enclosed guide RC4028, GST/HST New Housing Rebate.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-4393.

Yours truly,

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

2007/01/17 — RITS 83892 — Foreign Currency Exchange Rates

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ETA 123(1) amount; ETA 123(1) consideration; ETA 123(1) invoice; ETA 123(1) money; ETA 123(1) record; ETA 123(1) supply; ETA 123(1) tax; ETA 123(1) taxable supply; ETA 133; ETA 152(1); ETA 159; ETA 165(1); ETA 165(2); ETA 165.2(1); ETA 168(2); Currency Act; Currency Exchange for Customs Valuation Regulations

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TO:	XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX
FROM:	William J Parker Rulings Officer Specialty Tax Unit 14th Floor, Tower A 320 Queen St Ottawa, Ontario
CASE NUMBER:	83892
DATE:	January 17, 2007
SUBJECT:	Foreign Currency Exchange Rates

This is to confirm your discussion XXXXX with Ken Syer, Manager, Specialty Tax Unit, regarding the acceptance of a generally available published foreign currency exchange rate (FX rate) other than an FX rate included in GST/HST Policy Statement P-222, Acceptable exchange rate sources for converting the value of consideration expressed in foreign currency to a Canadian currency for purposes of section 159 of the Excise Tax Act (the "ETA").

Statement of Facts

1. XXXXX, a GST/HST registrant XXXXX, is in the automotive sector assembling vehicles from parts it acquires from various suppliers in Canada and outside Canada.

2. Contracts between XXXXX and its suppliers provide that the parts are to be delivered on a "just-in-time" basis and payment for these parts are payable in US funds generally in the beginning of the second month following the month's receipts. Details such as part supplied, contracted price, part number, technical specifications, expected volumes required, penalties for failure to supply and the time period are outlined in the contracts.

3. XXXXX produces receipts for supplies of parts it receives from the suppliers for incorporation into vehicles of its manufacture.

4. The receipts are issued electronically on the day the parts are delivered to the plant.

5. A receipt includes the amount due to the supplier for the part at the contracted price.

6. The suppliers at issue are located in Canada, but the consideration due is in US dollars.

7. Suppliers of auto parts and other suppliers do not produce any purchase invoices to XXXXX.

8. The US dollar receipts are recorded daily in favour of the suppliers in the books and records of XXXXX, but converted into Canadian dollars using the XXXXX FX rate in effect on the date the receipts are generated.

9. On the date of payments to suppliers, XXXXX must pay in US dollars and uses the XXXXX FX rate in effect on the date the payments are made to reflect the Canadian amount paid in the books and records of XXXXX.

Issue

XXXXX has asked for our opinion regarding whether XXXXX used an acceptable FX rate.

Opinion

Based on the facts above, it is our opinion that the XXXXX FX rate should be treated as an acceptable FX rate for two reasons:

1. the XXXXX FX rate has been used consistently by XXXXX for several years for purchases from suppliers to XXXXX and supplies made by XXXXX; and

2. the XXXXX FX rate is a readily available FX rate.

Analysis

The XXXXX FX rate has been applied consistently for several years for purchases and supplies by XXXXX. XXXXX applies the day's XXXXX FX rate to each purchase receipt recorded on the particular day. P-222 requires that when a FX rate "source other than the source used for an actual transaction is selected, that source must be used consistently and for a reasonable period of time (such as one year)."

The receipts produced by XXXXX are recorded daily in its XXXXX system. This system has links to XXXXX suppliers. The XXXXX system automatically uses the XXXXX FX rate applicable the date the receipts are generated. In accordance with the contracts, the date of payment is generally the beginning of the second month following the month the receipts are recorded in XXXXX. Payment is made in US dollars to the supplier and recorded in Canadian dollars by XXXXX using the XXXXX FX rate on the date of payment.

XXXXX proposes that the XXXXX FX rate is not acceptable to the Canada Revenue Agency (CRA). In addition, XXXXX, following a recalculation of tax payable by XXXXX to suppliers, should be allowed to claim an amount increasing the ITCs for past periods. Furthermore, XXXXX proposes that XXXXX would continue to claim additional ITC amounts due to FX rate recalculations using an acceptable FX rate compared to the XXXXX FX rate since the FX rate used by XXXXX system cannot be changed.

A statistical analysis of rates between the Bank of Canada and the XXXXX Bank as reported by XXXXX in another case shows there is a negligible difference between these FX rates when used consistently for both consideration received for supplies made and payments made for supplies received. Accordingly, the XXXXX FX rate used by XXXXX is an acceptable FX rate for GST/HST purposes since the XXXXX FX rate has been used consistently for tax payable and ITC purposes.

The attempt to use an alternative FX rate for ITC purposes only (i.e. without reporting tax payable using the alternative FX rate for the affected reporting periods) would provide an incongruity that must be avoided.

Lastly, we will be reviewing our current position of P-222 to be inclusive of generally available FX rates in due course.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact Ken Syer at (613) 952-9219.

2007/02/14 — RITS 85553 — Application of GST/HST to XXXXX

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ETA 165; ETA Sch VI, Part III, 1(f)

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Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5XXXXX XXXXX XXXXX	Case Number: 86183
XXXXX XXXXX	February 7, 2007

Subject:

GST/HST RULING
XXXXX Baked Chips

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to XXXXX Baked Chips (the Product).

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

Statement of Facts

Our understanding of the facts is as follows:

1. The Product is not currently available in Canada, but scheduled to be in supermarkets at the beginning of XXXXX.

2. The Product is available in XXXXX and XXXXX flavours.

3. The Product's ingredients include: wheat flour, XXXXX.

4. The Product will be sold in XXXXXg packages and XXXXX. The packages will be XXXXX bags that are resealable.

5. XXXXX advises that market research indicates that consumers would purchase the Product instead of snacking crackers or chips. Because they are baked, consumers view them as healthier than chips.

6. The proposed face panel states XXXXX bite-sized pieces of Pita. XXXXX.

Ruling Requested

You would like to know how the GST/HST applies to supplies of the Product.

Ruling Given

Based on the facts set out above, we rule that supplies of the Product are taxable at 6% GST, (or 14% HST as applicable) pursuant to section 165.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

Generally, every recipient of a taxable supply made in Canada shall pay tax calculated at the rate of 6% on the value of the consideration for the supply (or 14% in the participating provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador) unless the supply is zero-rated. Zero-rated supplies are included in Schedule VI. The tax rate in respect of a zero-rated supply is 0%.

Under Part III of Schedule VI, certain supplies of basic groceries are zero-rated. Section 1 of Part III of Schedule VI, zero-rates supplies of food or beverages for human consumption, including sweetening agents, seasonings and other ingredients mixed with or used in the preparation of such food or beverages, other than supplies included in paragraphs (a) to (r) of that section.

In particular, paragraph 1(f) of Part III of Schedule VI excludes from zero-rating the following:

"chips, crisps, puffs, curls or sticks (such as potato chips, corn chips, cheese puffs, potato sticks, bacon crisps and cheese curls), other similar snack foods or popcorn and brittle pretzels, but not including any product that is sold primarily as a breakfast cereal."

As discussed in GST/HST Policy Statement, P-241, Meaning of "Other Similar Snack Food" Under Paragraph 1(f) of Part III of Schedule VI to the Excise Tax Act (ETA), and also in GST/HST Info Sheet GI-021, Snack Foods, to determine whether a product is similar to snack foods described under paragraph 1(f), we consider the following factors: properties of the product (ingredients, flavours, texture, cooking process and appearance), labelling, packaging and marketing. No one factor should be relied upon to make a determination of the product's tax status.

The Product in this case is considered to be a "similar snack food" for purposes of paragraph 1(f) of Part III of Schedule VI. The Product is bite-size pieces of pita bread and is available in some flavours similar to products enumerated in paragraph 1(f). The packaging of the Product is very similar to the type of packaging used for chips, crisps, puffs and similar snack foods. XXXXX. The Product name and labelling includes the term "chip". All of these factors combined lead to the conclusion that the Product is considered to be a "similar snack food" for purposes of paragraph 1(f) of Part III of Schedule VI. As such, the Product is excluded from section 1 of Part III of Schedule VI and is therefore, a taxable supply subject to the GST at 6% or HST at 14% (as applicable).

In contrast, XXXXX, a copy of which was included with your letter, determined that the particular pita chips in that case (Product C) were zero-rated. The facts of that case were such that Product C was considered similar to crackers and to have different characteristics than products enumerated in paragraph 1(f). Further, the packaging and marketing was found to be different than for those products enumerated in paragraph 1(f). As a result, the product in that case was determined to be zero-rated.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-5124.

Yours truly,

Cheryl McKenzie
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2007/02/15 — RITS 86383 — Eligibility of XXXXX for the 83% Rebate Available to Facility Operators

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ETA 259(1) facility operator

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Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5XXXXX XXXXX XXXXX	Case Number: 86383
XXXXX XXXXX XXXXX	February 15, 2007

Subject:

GST/HST RULING
Eligibility of XXXXX for the 83% rebate available to facility operators

Dear XXXXX:

I am writing further to your letter XXXXX and to our letter XXXXX which concluded that XXXXX did not qualify for designation as a hospital authority for purposes of the Excise Tax Act (the "ETA"). We indicated in that letter and in our telephone conversation XXXXX that we would provide a ruling as to whether XXXXX would qualify for the 83% rebate available under the ETA to facility operators for activities carried on in the course of operating XXXXX.

All legislative references are to the ETA and the regulations therein, unless otherwise specified. For the purposes of this ruling, references to the Goods and Service Tax (GST)/Harmonized Sales Tax (HST) will be to the GST.

An organization that meets the definition of a facility operator under the ETA will be able to claim a 83% rebate of its non-creditable tax charged to the extent that it intends to consume, use or supply property or services in the course of operating a qualifying facility for use in making facility supplies, or for making facility supplies in another facility operator's qualifying facility or public hospital. This rebate is available for claim periods ending on or after January 1, 2005.

A facility operator may also be entitled to claim an 83% rebate for the GST incurred in the course of making ancillary supplies and home medical supplies as these terms are defined in the ETA. This ruling will focus on whether XXXXX is entitled to claim the 83% rebate available to facility operators for the GST incurred in the course of making facility supplies in a qualifying facility.

A facility operator is defined as a charity, a public institution or a qualifying non-profit organization (other than a hospital authority) that operates a qualifying facility.

A facility, not including a public hospital, will be a qualifying facility for a fiscal year or part of a fiscal year if:

• it makes facility supplies;

• an amount, other than a nominal amount, is paid or payable to the operator as qualifying funding in respect of the facility or part; and

• an accreditation, licence or other authorization that is recognized or provided for under a law of Canada or a province in respect of facilities for the provision of health care services applies to the facility or part during that fiscal year or part.

Therefore, the first requirement of this definition is that the operator of a facility must make facility supplies.

Facility supply means:

• an exempt property or service provided to an individual as part of a medically necessary process of health care for the individual to maintain health, prevent disease, diagnose or treat an injury, illness, or disability, or for palliative care;

• this process must take place in whole or in part in a public hospital or qualifying facility under the active direction or supervision, or with the active involvement of a physician, a nurse practitioner if a physician is not readily available in the geographic area, or a midwife.

• If chronic care is provided and the individual must stay overnight at the public hospital or qualifying facility:

– a registered nurse must be present at all times;

– a physician must be on call, or a nurse practitioner if a physician is not available in the geographic area;

– medical management and therapeutic health care services, including registered nursing care, must be provided throughout the process; and

– therapeutic health care services must be provided to the individual for more than 10% of each day.

• If the person making the facility supply does not operate the facility, it must also receive medical funding.

Statement of Facts

XXXXX is a registered charity under the Income Tax Act and is a charity for purposes of the GST/HST.

The XXXXX offers XXXXX beds which provide assistance and support to individuals in need of ongoing nursing care and personal assistance XXXXX.

XXXXX facilities XXXXX provide care for individuals who have been assessed as being no longer able to live independently as they need ongoing medical support and assistance with the activities of daily living. Residents in these facilities have heavy, multiple, complex health care needs.

XXXXX.

XXXXX
XXXXX.

XXXXX has enacted Bylaws of Medical Staff and Rules and Regulations of Medical Staff to oversee the care of residents admitted to the care centres XXXXX.

XXXXX.

Physicians with active privileges issue and review diagnostic, therapeutic and maintenance orders for residents and complete and maintain a comprehensive medical record. They set up treatment plans to address the individual's needs involving nursing management, clinical dieticians and therapy to be provided XXXXX. They perform a number of procedures in the care centres XXXXX.

XXXXX.

Members of the nursing staff (registered nurses, psychiatric nurses, licensed practical nurses and health care aides) are on duty in these facilities 24 hours a day. XXXXX.

Rulings Requested

You would like to know whether XXXXX is entitled to claim an 83% rebate for the GST incurred in operating its facilities.

Rulings Given

Based on the facts set out above, we rule that XXXXX meets the definition of a facility operator as defined in subsection 259(1) of the ETA.

XXXXX each meet the definition of a qualifying facility under subsection 259(2.1) of the ETA.

As a facility operator, XXXXX is entitled to claim an 83% rebate for its non-creditable tax charged to the extent that it makes facility supplies in these facilities.

It will be entitled to the 50% rebate available to charities for the non-creditable tax charged in the course of making supplies other than facility supplies as described above.

XXXXX.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly 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

2007/01/11 — RITS 56378 — [Application of the GST/HST to Zero-rated Medical or Surgical Prosthesis]

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ETA Sch VI, Part I, 2; ETA Sch VI, Part I, 3; ETA Sch VI, Part II, 25

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XXXXX XXXXX XXXXX XXXXX	Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5
XXXXX XXXXX XXXXX	Case Number: 56378
	January 11, 2007

Subject:

GST/HST RULING
Application of the GST/HST to XXXXX

Dear XXXXX:

Thank you for your letters XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of XXXXX by XXXXX. We apologize for the delay in this response.

In your letter XXXXX you asked for a GST/HST Ruling confirming that XXXXX qualifies as a zero-rated medical or surgical prosthesis under section 25 of Part II of Schedule VI to the Excise Tax Act (ETA). This GST/HST Ruling letter is in response to that request.

XXXXX.

All legislative references are to the ETA and the regulations therein, unless otherwise specified. Facts pertaining to XXXXX are based on the information you provided, including that contained in the XXXXX package insert. They were also taken from the web sites of XXXXX and XXXXX.

Statement of Facts

We understand that:

1. XXXXX is a XXXXX company involved in the research, development and sale of medical health care products, one of which is XXXXX. XXXXX is a GST/HST registrant.

2. XXXXX.

3. XXXXX.

4. XXXXX.

5. XXXXX is a treatment to decrease pain and discomfort, allowing more extensive movement of the XXXXX. XXXXX.

6. The dosage regimen for XXXXX is dependent on the XXXXX being treated. XXXXX, the recommended treatment regimen for XXXXX is XXXXX injections in the XXXXX. XXXXX.

7. XXXXX treatment affects only the injected XXXXX. It does not produce a general systemic effect.

8. XXXXX.

9. XXXXX.

10. XXXXX is supplied in a XXXXX syringe containing XXXXX of XXXXX. The contents of the syringe are sterile and nonpyrogenic.

11. XXXXX can be ordered directly from XXXXX by calling one of its toll-free telephone numbers.

12. XXXXX does not have a Drug Identification Number (DIN) for purposes of the Canadian Food and Drugs Act.

13. Medical devices are classified into one of Classes I to IV by means of the classification rules set out in Schedule I to the Medical Devices Regulations made pursuant to the Canadian Food and Drugs Act, where Class I represents the lowest risk and Class IV represents the highest risk. Device manufacturers must hold a medical device licence to sell Class II, III or IV medical devices in Canada.

14. XXXXX.

15. XXXXX considers XXXXX to be a medical device because its XXXXX.

Ruling Requested

You would like to know whether the supply of XXXXX qualifies as a zero-rated medical or surgical prosthesis under section 25 of Part II of Schedule VI to the ETA.

Ruling Given

Based on the facts set out above, we rule that the supply of XXXXX does not qualify as a zero-rated medical or surgical prosthesis under section 25 of Part II of Schedule VI to the ETA.

Explanation

Section 25 of Part II of Schedule VI to the ETA zero-rates:

"A supply of a medical or surgical prosthesis, or an ileostomy, colostomy, or urinary appliance or similar article that is designed to be worn by an individual."

"Prosthesis" is defined in Dorland's Illustrated Medical Dictionary 30th Edition as "an artificial substitute for a missing body part, such as an upper limb, lower limb, eye or tooth, used for functional or cosmetic reasons, or both."

For purposes of administering section 25 of Part II of Schedule VI to the ETA, the CRA considers a medical or surgical prosthesis to be device that is worn externally or implanted to replace a missing body part or assist a defective body part to function normally.

XXXXX is a fluid that is used to temporarily replace or supplement a body fluid XXXXX.

As indicated above, a "medical or surgical prosthesis" is a medical device that is worn externally or implanted to replace a missing body part or support a defective body part. While the ETA does not define "body part", it is recognized that a body part could include a body fluid since it is component of the human anatomy. However, as demonstrated below, section 25 of Part II of Schedule V[I] to the ETA does not zero-rate a fluid that is injected into the body to replace or supplement a body fluid. Rather, section 25 zero-rates medical devices that replace missing body parts such as an organ, limb, eye or tooth. As previously mentioned, the CRA has since expanded that interpretation to include implanted medical devices. A fluid that is injected into a body is not a medical device that is worn externally by an individual or implanted into an individual.

There are several sources that support the interpretation that section 25 of Part II of Schedule VI to the ETA does not apply to fluids that are injected into the body to replace or supplement a body fluid. Beginning with the ETA, for example, the definition of "institutional health care service" in section 1 of Part II of Schedule V of the ETA refers to prosthesis as medical devices that are "installed". Section 25 states:

"any of the following when provided in a health care facility ... (b) drugs, biologicals or related preparations when administered, or medical or surgical prosthesis when installed, in the facility in conjunction with the supply of a service included in any of paragraphs (a) and (c) to (g) ..." (emphasis added)

The 9th Edition of the Concise Oxford Dictionary defines "install" as "place (equipment, machinery, etc.) in position ready for use." Black's Law Dictionary, 6th Edition, 1990, defines "install" as "To set up or fix in position for use or service."

XXXXX is inserted into the body via an intra-articular injection. The word "injection" is defined in Dorland's Illustrated Medical Dictionary 30th Edition as "the act of forcing a liquid into a part, as into the subcutaneous tissues, the vascular tree, or an organ." XXXXX is not a medical device that is "installed" according to the common definition of the word. It is a product that is injected into the body.

Jurisprudence regarding the meaning of medical or surgical prosthesis for purposes of section 25 of Part II of Schedule VI to the ETA supports the position that medical devices contemplated in section 25 of Part II of Schedule VI to the ETA does not include fluids injected into the body to replace or supplement a body fluid. In Montréal Heart Institute et al v. The Queen, 1999 CANLII 241 (T.C.C.), for example, Lamarre Proulx, J.T.C.C. at paragraph 13 states:

"On reading the various definitions, one sees that the word "prosthesis" commonly means a component which is added externally or internally for functional or cosmetic purposes, or both, to replace a limb, a part of a limb or an organ that is seriously damaged or has been destroyed."

It is clear from this Court decision that "medical or surgical prosthesis" in section 25 of Part II of Schedule VI to the ETA was intended to apply to products that are worn externally or implanted into an individual and not those injected into the body to replace or supplement a body fluid.

Dorland's Illustrated Medical Dictionary 30th Edition defines "implant" as "an object, or material, such as an alloplastic or radioactive material or tissue, partially or totally inserted or grafted into the body for prosthetic, therapeutic, diagnostic, or experimental purposes."

To ensure that a fluid injected into the body does not constitute an implant of a "medical or surgical prosthesis", the Medical Devices Regulations SOR/98-282 (Regulations) made pursuant to the Canadian Food and Drugs Act was reviewed. The Regulations define "implant" as "a medical device that is listed in Schedule 2". Schedule 2 lists various implantable devices. The listing is restricted to devices that are implanted into a body to replace a body part (e.g., heart valve; artificial heart) or assist a body part to carry out a normal function (e.g., implantable defibrillators). Products that replace or supplement body fluids are not listed as implants in Schedule 2 of the Regulations.

Accordingly, XXXXX the above findings support the view that its injection into the body is not an implant of a "medical or surgical prosthesis" for purposes of section 25 of Part II of Schedule VI to the ETA.

Based on the textual context in which section 25 of Part II of Schedule VI to the ETA is found and the other findings described above, it is our position that a "medical or surgical prosthesis" does not include a fluid that is injected into the body to replace or supplement a body fluid.

Other comments

With respect to your suggestion that the supply of XXXXX appears to qualify for zero-rating under section 3 of Part I of Schedule VI of the ETA, we offer the following.

Unlike section 2 of Part I of Schedule VI to the ETA which specifically refers to a drug included in one of the regulatory schedules to the Food and Drugs Act, the Food and Drug Regulations, and the Narcotic Control Act, section 3 of the same Part and Schedule to the ETA refers only to a supply of a drug that is for human consumption and dispensed under the conditions described therein. As the ETA does not define "drug", the CRA developed the following to assist in determining whether a product or substance is a drug for purposes of section 3 of Part I of Schedule VI to the ETA. This position is based on a review of federal, provincial, dictionary, and court interpretations of the term "drug".

In order to be a "drug" under this provision, the product or substance must:

• have a Drug Identification Number ("DIN") for purposes of the Food and Drugs Act;

• be intended for human use, as demonstrated by the product labelling and marketing scheme;

• be for use in the diagnosis, treatment, mitigation or prevention of a disease, disorder, or other abnormal condition, for the relief of pain or suffering, or to control or improve any physiologic or pathologic state (i.e., therapeutic use), as demonstrated by the product labelling and marketing scheme; and

• be used in or on the living body, i.e., in vivo.

As XXXXX does not have a DIN for purposes of the Canadian Food and Drugs Act, section 3 of Part I of Schedule VI to the ETA does not apply to zero-rate its supply.

In summary, XXXXX is not a zero-rated "medical or surgical prosthesis" under section 25 of Part II of Schedule VI to the ETA or a zero-rated drug for purposes of section 3 of Part I of Schedule VI to the ETA. As such, GST/HST applies to its supply.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-7952.

Yours truly,

Lynn Fournier Renner
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

2007/01/08 — RITS 81231 — Tax Status of Real Estate Commissions

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ETA 165; ETA Sch VI, Part III, 1(d), ETA Sch VI, Part III, 1(n)

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Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5XXXXX XXXXX XXXXX	Case Number: 87992
XXXXX XXXXX	March 13, 2007

Subject:

GST/HST INTERPRETATION
GST/HST Memoranda Series 4.3, Basic Groceries

Dear XXXXX:

Thank you for your letter XXXXX concerning the recent version of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) publication GST/HST Memoranda Series 4.3, Basic Groceries.

All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.

We understand XXXXX have noted changes in the recent GST/HST Memoranda Series 4.3 and have requested clarification.

Interpretations Requested

1. You would like clarification of the Canada Revenue Agency's (CRA) position regarding yoghurt beverages and whether they are considered milk-based beverages.

2. You would like to know whether the CRA no longer considers meringue nests as part of the candies category.

Interpretations Given

Interpretation #1

Paragraph 1(d) of Part III of Schedule VI excludes from zero-rating certain fruit juice or fruit-flavoured beverages, other than milk-based beverages. Paragraph 20 of GST/HST Memoranda Series 4.3 states that the term milk-based is not defined in the ETA. A product will qualify as milk-based if it has milk as a main ingredient. Milk is considered to be whole, skimmed and partly skimmed milk.

Milk is composed of several components, including water, fats, proteins, carbohydrates, vitamins and minerals. Milk solids, for example, are all the components of milk excluding water. The components of milk may be separated and used as ingredients in preparing foods and beverages. Such ingredients may be derived from milk, but are not considered to be milk. A beverage that contains a component of milk as a main ingredient is not a milk-based beverage.

Drinkable yoghurts are considered beverages. Where a drinkable yoghurt product has milk as a main ingredient (for example, skim milk) the product is considered by the CRA to be a milk-based beverage. As such, paragraph 1(d) of Part III of Schedule VI would not apply to such beverages.

Paragraph 1(n) of Part III of Schedule VI provides that beverages are excluded from zero-rating except when prepared and prepackaged specially for consumption by babies; when sold in multiples, prepackaged by the manufacturer or producer, of single servings; or when cans, bottles or other primary containers in which the beverages or products are sold contain a quantity exceeding a single serving.

Therefore, sales of drinkable yoghurts that are milk-based beverages in single servings are taxable supplies at the rate of 6% GST or 14% HST, as applicable. Sales of drinkable yoghurts (regardless of whether they are fruit flavoured or not) in multiples of single servings prepackaged by the manufacturer or producer are zero-rated.

Please note that we will be updating the GST/HST Memoranda Series 4.3 to clarify our position with respect to drinkable yoghurts.

Interpretation #2

The CRA is currently reviewing its position regarding the tax status of meringue nests. You are welcome to provide us with any comments you have either in support of meringue nests being a zero-rated basic grocery item under section 1 of Part III of Schedule VI or in support of meringue nests being excluded from zero-rating under one of paragraphs (a) to (r) of that section.

The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-5124.

Yours truly,

Cheryl McKenzie
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2007/02/01 — RITS 62393 — Application of GST/HST to Brokering of Physical Commodities

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ETA 165; ETA 169; ETA 170; ETA 173; ETA 212; ITA 6(1)(a)

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Excise and GST/HST Rulings Directorate Place de Ville, Tower A, 15th floor 320 Queen Street Ottawa ON K1A 0L5XXXXX XXXXX XXXXX XXXXX	Case Number: 78839
XXXXX XXXXXX	February 7, 2007

Subject:

GST/HST INTERPRETATION
Application of sections 170 and 173 of the Excise Tax Act

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to employee benefits.

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

Effective July 1, 2006, the rate of the GST has been reduced from 7% to 6% and the rate of the HST from 15% to 14%. The new rates apply to supplies for which the GST/HST is paid on or after July 1, 2006, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to Reduction in the Rate of the GST/HST - Questions and Answers <http://www.cra-arc.gc.ca/agency/budget/2006/gstrateqa-e.html> on the CRA Web site.

We understand that a GST/HST registrant distributor of consumer products awards trips to exotic locations outside of continental North America to employees who have achieved prescribed sales volumes. Sometimes the registrant purchases fairly expensive non-cash items (such as jewellery) that are awarded to the top performers at a ceremony conducted outside of Canada. The dollar value of these awards exceeds $500 each and, therefore, they are considered to be taxable benefits under paragraph 6(1)(a) of the Income Tax Act (ITA).

Having purchased the awards outside of Canada, the registrant did not pay any GST/HST on the purchase or on the importation of the goods. Rather, the employee pays Division III tax under section 212 of the ETA upon his/her return to Canada.

However, the registrant is required pursuant to section 173 of the ETA to remit Division II tax on the amount of the taxable benefit that was required to be included in the employee's income by virtue of paragraph 6(1)(a) of the ITA unless excluded under the provisions of any of subparagraphs 173(1)(d)(i) to (iv). Subparagraph 173(1)(d)(i) of the ETA provides that a registrant is not required to self-assess tax on the amount of the taxable benefit where the registrant was not entitled, because of section 170, to claim an ITC in respect of the importation of the property. Section 170 of the ETA provides that a registrant is not entitled to claim an ITC in respect of tax payable by the registrant on (among other things) the importation by the registrant of property imported exclusively for the personal consumption, use or enjoyment of an employee or a person related to the employee.

You are concerned that section 170 of the ETA does not apply in these circumstances to deny the registrant an ITC and, as a result, subparagraph 173(1)(d)(i) of the ETA does not apply to relieve the registrant from the requirement to self-assess the tax on the amount of the taxable benefit in these circumstances. Consequently, there is an element of double taxation.

Interpretation Requested

You wish to confirm CRA's interpretation of the application of the above provisions in the circumstances described above.

Interpretation Given

Based on the information provided, we confirm that section 170 of the ETA will not apply to deny the registrant an ITC as no tax was payable by the registrant and the registrant did not import the property as required under that section. None of the exclusions in subparagraphs 173(1)(d)(i) to (iv) of the ETA apply to exclude the registrant from the requirement to self-assess the tax on the amount of the benefit that was included in the employee's income.

We confirm that there is double taxation in this situation. As you know, the CRA is responsible for administering the ETA as enacted by Parliament. Any legislative amendments are the responsibility of the Department of Finance. We will bring this issue to the attention of the Department of Finance.

The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-7931.

Yours truly,

Anne Kratz
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2007/02/09 — RITS 79000 — Application of GST/HST to Supplies of Emu Fat, and Emu Oil for Topical Purposes

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