GST/HST Ruling

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.

Dear XXXXX:

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

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

Statement of Facts

Product A

1. Product A ingredients are: Enriched flour (wheat flour, niacin, reduced iron, thiamin mononitrate [vitamin B1], riboflavin [vitamin B2], folic acid), vegetable oil (canola, cottonseed palm, sunflower and/or partially hydrogenated soybean oil with XXXXX, XXXXX (skim milk, whey protein, cheese cultures, salt, enzymes, annatto extract for color), contains two percent or less of milk, salt, paprika, yeast, paprika oleoresin for color, cheese cultures, soy lecithin.

2. Product A is labelled as XXXXX.

3. Product A is sold in a box containing XXXXX.

Ruling Requested

You would like to know the tax status of Product A for GST/HST purposes?

Ruling Given

Based on the facts set out above, we rule that Product A is zero-rated (taxable at 0%) pursuant to subsection 165(3) and section 1 of Part III of Schedule VI to the Excise Tax Act (the "Act[)].

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

Taxable supplies of goods and services made in Canada are generally subject to tax at 7% (or 15% where the supplies are made in one of the provinces participating in the HST). However, "zero-rated" supplies of goods and services are subject to tax at 0%. A zero-rated supply is any supply included in Schedule VI to the Excise Tax Act ("the Act").

Section 1 of Part III of Schedule VI to the Act zero-rates supplies of food or beverages for human consumption ("basic groceries") and sweetening agents, seasonings and other ingredients mixed with or used in the preparation of such food or beverages, unless one of the exceptions set out in paragraphs 1(a) through 1(r) applies.

In accordance with paragraph 1(f) of Part III of Schedule VI of the Act, the following products are taxable at 7% (or 15%):

"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".

To determine whether the product is similar to snack foods described under paragraph 1(f), we consider the following factors: properties (ingredients, flavours, texture, cooking process, size & shape), labelling, packaging and marketing.

The above facts demonstrate that Product A has different properties than those found in products enumerated under paragraph 1(f). Furthermore, the omission of words on the labelling and marketing material of Product A that are usually used with products enumerated under paragraph 1(f), indicates that Product A is not similar to those products enumerated under 1(f).

It should be noted that no one factor is determinative of the tax status of a product and changes in the labelling, packaging and/or marketing would not necessarily result in a different tax status. That is, all factors must be considered in determining whether a product falls within paragraph 1(f).

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-9585 or Costa Dimitrakopoulos at (613) 954-4397.

Yours truly,

Gabrielle Nadeau
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/04/06 — RITS 78790 — Interest on Outstanding Rent

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.

Dear XXXXX:

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

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

We understand that as per the XXXXX By-laws, annual fees are required to be billed to the members not less than XXXXX days prior to the commencement of each fiscal year of the XXXXX, which is XXXXX. These fees are due and payable on that date.

Interpretation Requested

You would like to know at what rate the Goods and Services Tax should be charged to and collected from your members in your upcoming membership dues renewal.

Interpretation Given

Based on the information provided, since the notices for the membership renewal will be issued before July 1, 2006 and as such the GST would be considered payable before July 1, 2006, the rate of GST to be charged by XXXXX on its membership dues renewals would be 7%.

Pursuant to subclause 3(1) and paragraph 3(2)(a) of Bill C-13, proposed amendments to subsection 165(1) of the ETA, GST at the rate of 6% will apply to supplies made on or after July 1, 2006.

Subsection 165(1) under the proposed amendments will still be subject to subsections 168(1) and 152(1) of the ETA.

Subsection 168(1) is the provision that establishes when GST in respect of a taxable supply is payable by the recipient. The general rule is that tax is payable by the recipient on the earlier of the day that consideration for a taxable supply is paid or the day that consideration becomes due.

Subsection 152(1) deems consideration for a taxable supply to become due on the earliest of the following days:

(a) the day that the supplier first issues an invoice in respect of the supply;

(b) the day of the invoice;

(c) the day when, but for an undue delay, the supplier would have issued an invoice in respect of the supply; and

(d) the day that consideration is due pursuant to an agreement in writing.

Therefore, GST at the rate of 7% is applicable regardless of the fact that the membership dues renewal pertains to a period beginning on July 1, 2006.

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, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-0419.

Yours truly,

Catherine Séguin-Ouimet
General Operations Unit
General Operations & Border Issues Division
Excise and GST/HST Rulings Directorate

2006/06/02 — RITS 80179 — GST Rate Reduction and Lease Contracts

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.

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of crating and packaging provided by your company, XXXXX.

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

We understand the following information from your letter and telephone conversation XXXXX.

•   XXXXX company, which specializes in packaging and crating XXXXX. XXXXX is registered for GST/HST purposes.

•   A freight forwarding company XXXXX has contracted with XXXXX to perform crating and packaging XXXXX.

•   In order to crate and package XXXXX. XXXXX, as well as the labour to perform those services.

•   XXXXX.

•   XXXXX.

•   XXXXX customer, the freight forwarder, will provide XXXXX with the appropriate export bills of lading, B13's, and any other export documents when that company exports XXXXX from Canada.

Interpretation Requested

You would like to know whether the goods and services provided by XXXXX are zero-rated under section 6 of Part VII of Schedule VI to the ETA. In this regard, you have made reference to the decision rendered in the Tax Court of Canada case of Bam Packaging Ltd. v. The Queen [2001] 2921 ETC.

XXXXX.

Interpretation Given

In accordance with GST/HST Memoranda Series Section 1.4, an application ruling can only be issued with reference to a clearly defined fact situation of a particular registrant. Rulings are issued upon request and where the taxpayer has presented all the relevant facts such as the nature of the transactions undertaken, detailed descriptions of services or property involved, the parties involved in all transactions and relevant documentation such as invoices, contracts and other pertinent agreements. Where all the relevant facts are not provided, an interpretation may be issued. We are pleased to issue you an interpretation that will elaborate on how the GST/HST applies to the supply described in your letter.

The Minister of Finance announced in the Federal Budget of May 2, 2006, a proposal to reduce the rate of the GST and the federal portion of the HST by 1%, effective July 1, 2006. The general rule is that the rate of GST will be reduced from 7% to 6% and the rate of the HST from 15% to 14% on 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.

Based on the information provided, the supply of goods and services provided by XXXXX is not zero-rated under section 6 of Part VII of Schedule VI to the ETA.

Section 6 of Part VII of Schedule VI to the ETA states that a supply of a freight transportation service in respect of the transportation of tangible personal property from a place in Canada to a place outside Canada is zero-rated where the value of the consideration for the supply is $5 or more. For purposes of this Part, "freight transportation service" means a particular service of transporting tangible personal property and, for greater certainty, includes any other property or service supplied to the recipient of the particular service by the person who supplies the particular service, where the other property or service is part of or incidental to the particular service, whether there is a separate charge for the other property or service.

The service provided by XXXXX is not considered to be a freight transportation service by definition of that term. XXXXX is providing a service of packaging and crating to the recipient, the freight forwarding company, rather than a supply of transporting tangible personal property. A supply of a service of packaging and crating can only possibly be considered to be part of a supply of a freight transportation service if it is made by a person who is making a supply of transporting the goods. The "recipient" of a supply of property or a service, as defined in subsection 123(1) of the ETA, means where consideration for the supply is payable under an agreement for the supply, the person who is liable to pay that consideration. Therefore, by definition, the recipient of the packaging and crating service is the freight forwarding company, who under an agreement with XXXXX, pays for the supply. The actual supply of transporting XXXXX is provided by another company; the recipient of that supply being the company who contracted with the freight forwarder for the transportation of XXXXX. The supply of transporting XXXXX is considered to be a supply of a freight transportation service.

XXXXX. Notwithstanding this, the broad interpretation of the meaning of the term "freight transportation service" in section Part VII of Schedule VI to the ETA set out in the decision in the Bam Packaging Ltd. Tax Court of Canada case does not reflect the Canada Revenue Agency's interpretation of the meaning of that term. It is important to note that the decision in the Bam Packaging Ltd. case is not considered to be precedent-setting as it was heard under the Informal Procedure of the Tax Court.

XXXXX.

A taxable supply that is made in Canada is subject to GST at the rate of 7%, or HST at a rate of 15% where the supply is deemed to be made in a participating province unless the supply is zero-rated (taxed at 0%). The three participating provinces are Nova Scotia, New Brunswick, and Newfoundland and Labrador.

Paragraph 142(1)(g) of the ETA deems a supply of a service to be made in Canada if the service is, or is to be, performed in whole or in part in Canada. Paragraph 142(2)(g) of the ETA deems a supply of a service to be made outside Canada if the service is, or is to be, performed wholly outside Canada.

The supply of the packaging and crating service made by XXXXX to the freight forwarder is made in Canada as it is performed in Canada XXXXX. There is no provision that would zero-rate the supply. As a result, XXXXX is required to collect GST in respect of the supply.

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) 952-6743.

Yours truly,

Cheryl R. Leyton
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/05/12 — RITS 77757 — XXXXX Joint Venture

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.

Dear XXXXX:

Thank you for your letters XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your pension plan operations funded through a trust. We apologize for the delay in responding to your submission.

As you are aware, in October 2003, the Department of Finance proposed an amendment to extend the application of section 261.01 of the Excise Tax Act (the "ETA") to a trust governed by a related-employer pension plan thereby permitting such plans to be eligible for the rebate that is otherwise limited to multi-employer plans as defined in subsection 261.01(1) of the ETA. However, the Department of Finance issued a further press release on November 17, 2005, stating that they will not be proceeding with the proposed amendment and that the Canada Revenue Agency would be addressing related-employer pension plans within its existing administrative policy.

We are currently revising Technical Information Bulletin 032R ("TIB-32R") to explain how the ETA generally applies to all pension plans that are funded through a trust. Although we have not completed the revision, we are pleased to provide you with the following information pertaining to the application of the ETA to expenses incurred by an employer and by a trust in respect of a pension plan.

Statement of Facts

XXXXX

1. XXXXX:

XXXXX.

XXXXX.

XXXXX.

2. XXXXX.

3. XXXXX.

4. XXXXX.

5. XXXXX.

6. XXXXX.

XXXXX.

7. XXXXX

XXXXX

XXXXX,

XXXXX,

XXXXX,

XXXXX,

XXXXX,

XXXXX,

XXXXX

XXXXX,

XXXXX,

XXXXX,

XXXXX,

XXXXX

XXXXX

XXXXX

XXXXX

8. XXXXX

9. XXXXX

10. XXXXX

11. XXXXX

12. XXXXX

13. XXXXX

14. XXXXX

15. XXXXX.

16. XXXXX.

17. XXXXX:

XXXXX.

XXXXX.

XXXXX.

XXXXX.

XXXXX

18. XXXXX.

Interpretation Requested

It is your understanding that TIB-032R will be revised to provide the treatment previously afforded to single-employer pension plans to related-employer plans. You would like to know how the revised TIB-032R will apply to costs incurred with respect to A's pension plan operations funded through a trust and how you may make a retroactive claim. You filed a waiver with CRA in XXXXX and request claims be allowed for all periods from that date until now as a result of the waiver and/or the Fairness Provisions because you have been trying to get a resolution to this issue for a number of years.

Interpretation Given

The purpose of a pension plan is to provide for pension benefits to employees in their retirement, and is generally viewed as part of the compensation package offered to employees. The plan documents provide the rules, including specific rights and entitlements, applicable to all the parties participating in the plan (e.g. the plan sponsor, the plan administrator, members of the plan among others), and for how the plan is funded. Although a pension plan is subject to the requirements of federal or provincial pension legislation, a pension plan is not a legal entity and it is not a person for GST/HST purposes. However, pursuant to the definition of "person" in subsection 123(1) of the ETA, a trust is a separate person. Therefore, where a fund is established under a pension plan and the fund is a trust, the fund is a separate person and is subject to the obligations and entitlements of the ETA as a person (e.g. a trust is considered to carry on activities, making and acquiring supplies, and is required to account for these transactions and file returns, etc).

Where a trust is engaged in commercial activities it is entitled to claim input tax credits to the extent it has acquired, imported or brought into a participating province, property or services for consumption, use or supply in the course of its commercial activities provided all the requirements for claiming an input tax credit under the ETA are met. However, a trust that is not engaged in any commercial activities (e.g. a trust whose only activity is the holding of financial instruments and making supplies of financial services that are exempt supplies) is not entitled to input tax credits with respect to the acquisition, importation or bringing into a participating province property or services for consumption, use or supply in the course of its activities that are not commercial activities.

Since a pension plan is not separate person, generally the sponsor (e.g. the employer), administrator (e.g. the employer, or in other cases a board of trustees or other person), and the trust (through the trustee) among other persons, carry on the activities in respect of the plan. Many expenses are incurred by the employer and the trust in carrying out activities with respect to the pension plan. Generally under pension law and trust law pertaining to pension plans, only those expenses that are reasonable and that pertain to the administration of the pension plan and the pension fund can be charged against the pension trust assets (i.e. the expense is absorbed by the trust, paid from the trust assets) where a trust is established in respect of a pension plan. Where an expense is charged against the trust assets, it pertains to the administration of the pension plan and fund, and therefore the expense is incurred in respect of property or services acquired for consumption, use or supply by the trust established in respect of the pension plan and pension fund. If the trust is engaged in commercial activities it will be entitled to claim input tax credits to the extent the property or services are for consumption, use or supply in the course of commercial activities of the trust and all the requirements are met in order to claim input tax credits under section 169 of the ETA. Otherwise, the trust may not claim any input tax credits in respect of property or services acquired in respect of the administration of the pension plan and fund.

Where an expense related to the pension plan is incurred by the employer and is not charged against the pension trust assets, it is our view that the expense is in respect of property or services acquired, imported or brought into a participating province by the employer for consumption, use or supply in the course of the employer's activities. Therefore, if the employer is engaged in commercial activities it is entitled to claim an input tax credit in respect of such property or services to the extent the property or service is for consumption, use or supply in the course of the employer's commercial activities and the requirements of section 169 of the ETA are met. In addition, in the scenario where the employer makes taxable supplies of property and services to the trust (e.g. the employer invoices the trust for taxable supplies such as accounting services it supplies to the trust) it is also entitled to input tax credits (provided the requirements in section 169 of the ETA are met), and the amount the employer charges the trust in respect of the taxable supply will be subject to tax.

In the possible scenario where a number of employers are participating in a plan and a particular employer incurs expenses for the employers, the particular employer would generally be making taxable supplies (e.g. a taxable supply of administrative services, or other services as the case may be) to the other employers, and therefore would be entitled to input tax credits (providing the requirements of section 169 of the ETA are met), and the amounts the particular employer charges the other employers would be consideration for taxable supplies and subject to GST/HST. Where the employers are not dealing with each other at arm's length, and the recipient of the supply is not a registrant who is acquiring the property or service for consumption, use or supply exclusively in the course of commercial activities of the recipient, pursuant to section 155 of the ETA the consideration for the supply is deemed to be the fair market value of the property or service. Accordingly in those circumstances, GST/HST applies on the fair market value of the supply where it is a taxable supply.

The fund in respect of B is a trust and is therefore a separate person under the ETA. Unless B is engaged in commercial activities and acquires, imports or brings into a participating province property or services for consumption, use or supply in the course of commercial activities, it is not entitled to claim input tax credits in respect of property or services related to the pension plan. A, also a separate person under the ETA, is engaged in commercial activities, and to the extent it acquires, imports or brings into a participating province property or services related to the pension plan for consumption, use or supply in the course of its commercial activities, it is entitled to claim input tax credits provided the requirements in section 169 of the ETA are met.

Generally, under provincial pension legislation XXXXX and federal pension legislation, a pension plan must have an administrator. The administrator can be the employer, a committee, board of trustees or other person as stipulated. The administrator acts in a fiduciary capacity in relation to the members, former members and others entitled to benefits under the plan, and is generally responsible for ensuring the plan and fund adheres to the requirements of the particular pension legislation. Since an administrator of a pension plan is subject to fiduciary obligations with respect to the plan, it undertakes activities for the benefit of the plan and fund and not for its own benefit. It is our position that the administrator undertakes activities for the benefit of the plan and fund, and not for its own benefit, when it acquires property and services for the plan and fund from suppliers (for example, retains the investment manager for the trust in respect of the plan), and a charge is made against the trust assets for the consideration payable for the supply (either as direct payment by the trust fund or by reimbursement paid by the trust fund to the administrator). In such circumstances, the property and services are considered to have been acquired, imported or brought into a participating province for consumption, use or supply in the course of the activities of the trust relating to the pension plan.

A, the employer, is the administrator of its pension plans. Where it acquires property or services from a third party in its capacity of administrator and B pays for the supply directly, or indirectly by reimbursing A for the amount, and thus the amount is charged against the trust assets, the property or service is considered to have been acquired by A in its fiduciary capacity of administrator of the plan and fund and thus for consumption, use or supply by B. Therefore, A has not acquired the property or service for consumption, use or supply in the course of its commercial activities and it is not entitled to an input tax credit in respect of the tax paid on the consideration for the supply. However, since A acquired the property or service in its fiduciary capacity as the administrator for the benefit of the plan and fund, where A has paid for the supply and then B has subsequently reimbursed it for the amount, the reimbursement is not consideration for a supply and is not subject to GST/HST.

If the administrator makes supplies itself to the plan and trust instead of acquiring them for the plan and trust from a third party, the administrator will be required to apply GST/HST on the amount charged against the trust assets where the supply is a taxable supply. To illustrate, if A, the administrator, provides in-house services to the plan and trust, for example it uses its own employees to provide investment advice to B and thus B does not have to acquire such services from a third party, and an amount is charged against the trust assets, B is considered to have acquired a taxable supply of investment advice services from A, and therefore the amount is subject to tax. If an amount is not charged against the trust assets, A is not considered to have made a supply to B, but rather is undertaking activities for consumption, use or supply in the course of its own activities with respect to the pension plan and B.

In summary, where A has incurred expenses relating to the pension plan and B, and the expenses are not charged against the trust assets, the expenses are considered to be in respect of property and services for consumption, use or supply by A in the course of its activities. To the extent A is engaged in commercial activities and the requirements under section 169 of the ETA are met, it will be entitled to claim input tax credits for the GST/HST paid or payable on the consideration for the supplies of the property and services. Where A has made a supply of property or a service to B and charges B an amount for the supply, A is required to charge GST/HST on the amount, and is entitled to claim input tax credits as per section 169 of the ETA. However, where A has acquired property and services for B (as opposed to making a supply to B) in its fiduciary capacity of administrator and a charge is made against the trust assets directly or indirectly through reimbursing A for the amount paid or payable in respect of the supply, the particular property and services are considered to be for consumption, use or supply in the course of activities of B and not of A, and A is not entitled to claim an input tax credit in respect of GST/HST paid/payable on the consideration for the supply. In such circumstances, however, any reimbursement by B to A in respect of the supply is not subject to GST/HST.

Subsection 225(4) of the ETA provides time limits with respect to claiming input tax credits for a particular reporting period. Paragraph 225(4)(b) of the ETA, which is applicable to most registrants, provides that a person must claim an input tax credit for a particular reporting period by the due date of the return for the last reporting period to end within four years after the end of the particular reporting period. However, if the person is a specified person, subparagraph 225(4)(a)(iii) of the ETA provides, with certain exceptions, that the person must claim an input tax credit for a particular reporting period by the due date of the return for the last reporting period of the person to end within two years after the end of the person's fiscal year that includes the particular reporting period. A "specified person" for purposes of subsection 225(4) of the ETA is defined in subsection 225(4.1) of the ETA to mean a person that is a listed financial institution under subparagraphs 149(1)(a)(i) to (x) of the ETA during the reporting period; or, a person whose threshold amount from supplies of financial services determined under subsection 149(1) of the ETA exceeds $6 million in both the person's fiscal year that includes that period and the preceding fiscal year (except a charity, or a person whose supplies, other than supplies of financial services, in the two immediately preceding fiscal years are all or substantially all taxable supplies).

Since there is no specific provision in the ETA to provide for time limits for claiming input tax credits other than those set out in subsection 225(4) of the ETA, persons undertaking activities with respect to a pension plan (e.g. the employer, administrator, trust, etc.) are subject to the same time limitations for claiming input tax credits. Therefore, in the case of A pension plan operations, A and B will generally be able to go back four years or two years as the case may be to claim input tax credits for particular reporting periods where the requirements of section 169 and subsection 225(4) of the ETA are met.

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) 952-9213.

Yours truly,

Susan Kissner
Industry Sector Specialist
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2006/06/23 — RITS 59027 — Supplies of Cut Fruit and Vegetables

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.

Dear XXXXX:

Thank you for your letter XXXXX to the Honourable Carol Skelton, Minister of National Revenue, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to sales of single servings of unflavoured milk.

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

The Minister of Finance announced in the Federal Budget of May 2, 2006, a proposal to reduce the rate of the GST and the federal portion of the HST by 1%, effective July 1, 2006. Bill C-13 was tabled in Parliament on May 2, 2006, and received royal assent on June 22, 2006. The general rule is that the rate of GST will be reduced from 7% to 6% and the rate of the HST from 15% to 14% on 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.

Statement of Facts

We understand from your letter and your telephone conversation with Sherry Palmer of this office that you run a fast food restaurant where you sell single servings of white unflavoured milk. The restaurant sells all or substantially all foods and beverages that are not zero-rated (i.e., 90 per cent or more of the items that you sell, not including the milk in question, are taxable at 6% GST). The single servings of milk are the usual 250 or 500 mL cartons.

Ruling Requested

You would like to know the tax status of the single servings of unflavoured milk sold in your restaurant.

Ruling Given

Based on the facts set out above, we rule that the single servings of unflavoured milk sold in your restaurant are taxable at 6% GST.

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 supply of basic groceries, which includes most supplies of food and beverages marketed for human consumption (including sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such food or beverages), is zero-rated. Examples of food and beverages that are zero-rated as basic groceries under section 1 of Part III of Schedule VI include fresh, frozen, canned and vacuum sealed fruits and vegetables, breakfast cereals, most milk products, fresh meat, poultry and fish, eggs and coffee beans. However, certain categories of foodstuffs, for example, carbonated beverages, candies and confectionery, and snack foods are taxable at 6% GST or 14% HST.

Pursuant to paragraph 1(n) of Part III of Schedule VI, supplies of beverages (other than unflavoured milk), or pudding, including flavoured gelatine, mousse, flavoured whipped dessert product or any other products similar to pudding are taxable at 6% GST or 14% HST, 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 the cans, bottles or other primary containers in which the beverages or products are sold contain a quantity exceeding a single serving. For GST/HST purposes, a single serving for beverages includes all servings under 600 mL in volume. Manufacturers' packages of two or more single servings are zero-rated, as are all servings larger than a single serving. Since this provision does not apply to unflavoured milk, such milk is usually zero-rated regardless of size or quantity of containers.

However, there are some exceptions to the above. Pursuant to subparagraph 1(q)(i) of Part III of Schedule VI, supplies of food or beverages are taxable at 6% GST or 14% HST when sold at an establishment at which all or substantially all (90% or more) of the sales of food or beverages are sales of food or beverages that are not otherwise zero-rated, except where the food or beverage is sold in a form not suitable for immediate consumption, having regard to the nature of the product, the quantity sold or its packaging.

You have described your establishment as a fast food restaurant. Fast food products typically consist of, in the majority, heated foods and beverages and sodas. Food and beverages heated for consumption are excluded from zero-rating pursuant to paragraph 1(o) of Part III of Schedule VI, while sodas would be excluded from zero-rating as carbonated beverages pursuant to paragraph 1(c) of Part III of Schedule VI. Accordingly, your restaurant is the type of eating establishment that is caught by paragraph 1(q) of Part III of Schedule VI.

Subparagraph 1(q)(i) of Part III of Schedule VI provides that a food or beverage may still be zero-rated if it is sold not for immediate consumption. A single serving carton of milk normally can be opened by hand. Fast food restaurants usually have straws available to drink their beverages at the location. Five hundred and 250 mL cartons are single servings, and a single serving is a quantity that implicitly is suitable for immediate consumption. Therefore, the single servings of unflavoured milk sold in your restaurant are subject to 6% GST.

You should also be aware that pursuant to paragraph 1(o.4) of Part III of Schedule VI, beverages dispensed (e.g., sold in a cup) at the place they are sold are subject to 6% GST, and pursuant to paragraph 1(p) of Part III of Schedule VI, all food or beverages sold through a vending machine are subject to 6% GST.

Note that when you buy single servings of unflavoured milk from a dairy or wholesaler, they would normally not be an establishment of the type described in paragraph 1(q) of Part III of Schedule VI and therefore your purchases of such milk would be zero-rated.

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) 952-7909.

Yours truly,

Gunar Ozols
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/07/27 — RITS 81986 — Value of Temporary Importation of Leased Aircraft

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.

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of memberships by the XXXXX. We apologize for the delay in responding to your enquiry.

Statement of Facts

We understand that:

1. XXXXX is a body corporate without share capital incorporated under the XXXXX Act XXXXX.

2. XXXXX is registered for GST/HST purposes XXXXX with the effective date XXXXX.

3. XXXXX is not a registered charity within the meaning assigned by subsection 248(1) of the Income Tax Act.

4. In its submission XXXXX, XXXXX stated that it meets the criteria as a non-profit organization as that term is defined under subsection 123(1) of the Excise Tax Act (ETA).

5. XXXXX mission and values are stated under XXXXX its Constitution and By-laws (the By-laws). XXXXX mission is to actively promote the common interests of XXXXX. XXXXX:

(i) XXXXX;

(ii) XXXXX;

(iii) XXXXX;

(iv) XXXXX;

(v) XXXXX; and

(vi) XXXXX.

6. XXXXX is a member of the XXXXX. As a member, XXXXXparticipates in XXXXX Program XXXXX which is a national advertising campaign.

7. XXXXX has a registered trademark, XXXXX, that it uses for brand identity in its XXXXX campaign to differentiate and promote XXXXX who are members of their XXXXX associations from those who are not.

8. XXXXX and members of XXXXX who are XXXXX are entitled to use and display the XXXXX. XXXXX may also use the XXXXX in its own local advertising campaign promoting its member XXXXX.

9. XXXXX who are not members of XXXXX, or any other XXXXX member association, are not entitled to use and display the XXXXX.

10. XXXXX charges XXXXX a XXXXX assessment fee based on the population of the province. Members of XXXXX are not required to pay a XXXXX assessment fee to XXXXX.

11. Membership in XXXXX is voluntary. Included under XXXXX its By-laws are the following categories of memberships:

XXXXX Members - Any self-employed individual, firm or corporation operating within the XXXXX as an XXXXX, authorized by law, where XXXXX% of the firm's revenue comes from XXXXX and whose aims and practices are consistent with the objectives of XXXXX, shall be eligible for XXXXX Membership. XXXXX Members are entitled to serve on the Executive Committee and have voting rights.

XXXXX Members - Any self-employed individual, firm or corporation operating outside the XXXXX as an XXXXX, authorized by law, where XXXXX% of the firm's revenue comes from XXXXX and whose aims and practices are consistent with the objectives of XXXXX, shall be eligible for XXXXX Membership. XXXXX Members must also be members in good standing of the XXXXX to qualify for membership in XXXXX. XXXXX Members are not entitled to serve on the Executive Committee nor shall they have voting rights. XXXXX Members shall not have any vested interest in the finances of XXXXX.

XXXXX Members - Any self-employed individual, firm or corporation offering supportive services to XXXXX, and whose aims and practices are consistent with the objectives of XXXXX, shall be eligible for XXXXX Membership. The services of XXXXX are not considered to be XXXXX services to XXXXX and, therefore, do not qualify for XXXXX Membership.

12. Pursuant to the XXXXX Act and its Regulations, the XXXXX has been delegated the authority and responsibility for licensing and regulating XXXXX in the province of XXXXX. While an XXXXX must be licensed through XXXXX to transact XXXXX in the province, the XXXXX does not have to be a member of XXXXX to be licensed nor is membership in XXXXX required to maintain a professional status recognized by statute.

13. According to XXXXX By-laws, applications for XXXXX Membership shall be made, in writingXXXXX. All applications must be approved by resolution of the Executive Committee.

14. XXXXX the By-laws sets out that membership fees for XXXXX Membership are established by the Executive Committee from time to time.

15. According to XXXXX the By-laws, the Executive Committee may expel any member who is XXXXX delinquent in payment of dues and any other special assessments XXXXX without further reference.

16. Under XXXXX the By-laws, the expenses of XXXXX shall be paid for by an annual assessment of its membership, the method and amount of such assessment to be determined by the Executive Committee from time to time XXXXX.

17. Under XXXXX the By-laws, the Executive Committee has the power to levy such special assessment as deemed necessary for special purposes.

18. XXXXX Members are invoiced a single amount as a membership due in XXXXX of each year. XXXXX determines the membership due for a particular XXXXX Member by adding the following XXXXX components: XXXXX. XXXXX the components of the XXXXX Membership due are not shown on the invoice, XXXXX.

19. The annual membership fee for an XXXXX Membership is $XXXXX. The membership XXXXX lists the benefits of XXXXX Membership as: first notice of networking events, including the golf tournament; formalized venue to communicate with like-minded XXXXX; and increased understanding of the governmental and other issues that affect their business. While XXXXX Members do not get board representation nor the right to vote at annual general meetings, they are entitled to attend the annual general meetings, seminars, the annual XXXXX dinner and the annual golf classic.

20. The annual membership fee for a XXXXX Membership is $XXXXX. The membership XXXXX lists the benefits of XXXXX Membership as: branding and sponsorship opportunities XXXXX; formalized venue to communicate with XXXXX members; increased understanding of the issues that affect their customers; opportunities to participate in select XXXXX events (for example, the golf tournament and the XXXXX dinner); and opportunity to invite XXXXX members to educational/informational events they may choose to coordinate. XXXXX Members do not get board representation or votes at the annual general meeting.

21. XXXXX lists the following benefits of membership for all members:

•   XXXXX;

•   XXXXX;

•   XXXXX;

•   XXXXX; and

•   XXXXX.

22. XXXXX also offers a calendar of events, a suggested XXXXX education path including a listing of available educational courses from the XXXXX, a listing of current members including links to their websites, member news updates and bulletins, XXXXX reports and By-laws, XXXXX related links and links to organizations within which it advocates its members' interests. XXXXX does not charge a fee to members for space or links on its website.

23. The following are some of the functions members have the right to attend:

XXXXX Dinner - Every year XXXXX hosts a XXXXX Dinner where representatives from the member XXXXX firms and the XXXXX community come together not only to network but also for social and entertainment purposes. XXXXX recently held its XXXXX anniversary XXXXX Dinner XXXXX and the cost to attend for XXXXX members was $XXXXX or $XXXXX and for non-members it was $XXXXX or $XXXXX.

Annual Golf Tournament - Each year XXXXX hosts a golf tournament XXXXX. The XXXXX registration fee for its XXXXX golf tournament was $XXXXX.

XXXXX Reception - XXXXX hosts an annual XXXXX Reception as a forum at which senior executives from its member firms and from XXXXX company counterparts can come together to discuss common issues and information. The event is by invitation only and no fees are charged.

XXXXX Seminar - XXXXX puts on an annual XXXXX seminar as part of its mandate to provide continuing education to all of its members. XXXXX. XXXXX charged $XXXXX per person XXXXX for members to attend.

24. Other than its XXXXX seminars, XXXXX does not provide educational programs to its members. However, XXXXX Members of XXXXX are able to acquire educational programs provided by the XXXXX at their member rates rather than non-member rates. XXXXX.

25. XXXXX previously made an election under section 17 of Part VI of Schedule V to the ETA in respect of its memberships but revoked the election effective XXXXX.

Rulings Requested

1. What is the tax status of XXXXX Memberships supplied by XXXXX?

2. If the supply of XXXXX Memberships are taxable, would the Canada Revenue Agency (CRA) accept that GST/HST is only applicable on future transactions made by XXXXX?

Please note that a ruling provides the CRA's position on specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person. The CRA reserves the right not to issue a ruling where it considers that one would not be appropriate. As your second ruling request does not involve a specific provision of the legislation and how it relates to a clearly defined factual situation we are unable to issue a ruling on this matter.

Ruling Given

Based on the facts set out above, we rule that XXXXX supplies of XXXXX Memberships, XXXXX Memberships and XXXXX Memberships made in XXXXX are taxable supplies subject to the GST.

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

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

A XXXXX that becomes a XXXXX Member in XXXXX is a participant in the XXXXX. This program is an integral and interdependent element of the supply of a XXXXX Membership in XXXXX. Further, the XXXXX charge is a mandatory component of the annual membership fee for a XXXXX Member and a XXXXX cannot acquire a XXXXX Membership without paying all the components of the annual membership fee XXXXX. As a result, the XXXXX is not a separate supply from the supply of a XXXXX Membership in XXXXX.

Generally, supplies of memberships made in XXXXX by an association will be taxable supplies subject to the GST unless the supply meets the conditions for exemption under a provision in Schedule V.

Section 17 of Part VI of Schedule V exempts a supply of a membership in a "public sector body" (other than a membership in a club the main purpose of which is to provide dining, recreational or sporting facilities or in a registered party) where each member does not receive a benefit by reason of the membership other than the "allowable benefits" listed in paragraphs 17(a) to 17(f) of that section.

An organization that is a "non-profit organization" as defined in subsection 123(1) is also a "public sector body" for ETA purposes.

Generally, a "benefit" of membership is the right to any property or service of value regardless of the extent to which the right is actually exercised by individual members. All possible benefits accruing to members must be taken into consideration in determining the tax status of a membership.

Under paragraph 17(a) of Part VI of Schedule V, a member of a non-profit organization may receive an "indirect benefit" that is intended to accrue to all members collectively without causing an otherwise exempt membership to be taxable.

A XXXXX that becomes a XXXXX Member in XXXXX is a participant in the XXXXX. A XXXXX Member's right to be identified by the XXXXX and use the XXXXX promotional materials is not an indirect benefit as contemplated under paragraph 17(a) of Part VI of Schedule V nor is it an allowable benefit under any other paragraph in section 17 of Part VI of Schedule V. This benefit has commercial applications for XXXXX Members, who are XXXXX, as it identifies, distinguishes and promotes the XXXXX Members from their competitors in the XXXXX industry. As such, this benefit could not be considered a secondary or unintended consequence of membership and is therefore not an indirect benefit. The XXXXX brands the XXXXX Member and is a marketing tool. Non-members do not have the right to use or be identified by the XXXXX.

As a note, a XXXXX that becomes an XXXXX Member in XXXXX is also a participant in the XXXXX and receives a direct benefit even though XXXXX does not charge a XXXXX component in the membership fee XXXXX.

Under paragraph 17(d) of Part VI of Schedule V, the right to receive or acquire property or services supplied to the member for consideration that is not part of the consideration for the membership and that is equal to the "fair market value" of the property or services at the time the supply is made, is also an allowable benefit.

As set out in GST/HST Policy Statement P-165R, Fair Market Value for Purposes of Part IX of the Excise Tax Act, the Canada Revenue Agency generally considers that "fair market value" represents the highest price, expressed in terms of money or money's worth, obtainable in an open and unrestricted market between knowledgeable, informed and prudent parties acting at arm's length, neither party being under any compulsion to transact.

Therefore, where one of the benefits of membership in a non-profit organization is the right to receive or acquire property or services from the organization or a third party, that benefit will not cause the membership to be taxable as long as the members pay a separate consideration equal to the fair market value of the property or services.

XXXXX Members, by reason of their membership in XXXXX, are able to acquire educational programs from the XXXXX at its member rates, which are lower than the fair market value rates charged to non-members. This benefit exceeds the allowable benefit under paragraph 17(d) of Part VI of Schedule V and is not an allowable benefit under any other paragraph in section 17 of Part VI of Schedule V.

Further, under paragraph 17(e) of Part VI of Schedule V, the right to receive a discount on a supply to be made by the public sector body, where the cumulative value of all such discounts to which a member is entitled is insignificant (less than 30%) in relation to the membership fee, is an allowable benefit.

Generally, where a non-profit organization supplies property and services to members and non-members alike, the discount available to members is the difference between the fee for members and the fee for non-members. Where the non-profit organization does not supply any property or services to non-members, then the discount is the difference in the consideration payable by the members for property or services and the fair market value of the property or services.

All members of XXXXX have the right to a receive a discount on the registration fee to attend the annual XXXXX Dinner. This discount is not insignificant in relation to the membership fee for an XXXXX Membership in XXXXX. For instance, an XXXXX Member, who had the right to attend the XXXXX Dinner for $XXXXX, received a discount of $XXXXX from the non-member price of $XXXXX, which was more than 30% of the member's annual membership fee of $XXXXX. Thus, XXXXX Members received a benefit that exceeded the allowable benefit in paragraph 17(e) of Part VI of Schedule V.

Therefore, as XXXXX Members receive benefits that exceed the "allowable benefits" listed in paragraphs 17(a) to (f) of Part VI of Schedule V and, as there are no other provisions in Schedule V to exempt XXXXX supplies of these memberships made in XXXXX, they are taxable supplies subject to GST.

Please note that the Minister of Finance announced in the Federal Budget of May 2, 2006, a proposal to reduce the rate of the GST and the federal portion of the HST by 1%, effective July 1, 2006. Bill C-13 was tabled in Parliament on May 2, 2006, and received royal assent on June 22, 2006. The general rule is that the rate of GST is reduced from 7% to 6% and the rate of the HST from 15% to 14% on 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 on the CRA Web site at http://www.cra-arc.gc.ca/agency/budget/2006/gstrateqa-e.html.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-9592.

Yours truly,

Nadine Kennedy, CMA
Charities, Non-profit Organizations and Educational Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

2006/06/23 — RITS 78986 — GST/HST Status of XXXXX Herbal Teas

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.

Dear XXXXX:

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

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

Statement of Facts

Our understanding of the facts is as follows:

1. The Product is packaged loosely in a XXXXX-gram bag.

2. The Product is thinner than XXXXX and is irregular in shape.

3. The ingredients of the Product are: XXXXX.

4. The labelling on the bag describes the Product as XXXXX. The labelling on the original variety indicated that it has XXXXX% less fat than XXXXX.

5. Generally, the Product is placed in stores in the same location as crackers.

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% or 14% in a participating province, pursuant to section 165.

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

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 (14% in the participating provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador) unless the supply is zero-rated, pursuant to subsection 165(3). The tax rate in respect of a zero-rated supply is 0%, where a zero-rated supply is a supply that is included in Schedule VI.

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. Paragraph 1(f) excludes supplies of 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) from zero-rating.

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), outlines factors that are used to determine if a particular product is similar to a chip, crisp, puff, curl or stick as described under paragraph 1(f) of Part III of Schedule VI. These factors include the properties of the product in question (ingredients, flavours, texture, cooking process and appearance), its labelling, its packaging, and its marketing.

The properties of the Product that indicate that it fits within paragraph 1(f) of Part III of Schedule VI include the flavours available, the texture of the Product XXXXX and its appearance XXXXX. The Product labelling includes the word "chips" in its name and elsewhere, as well as the word "crunch". The Product compares itself to XXXXX. The Product is packaged loosely in a bag.

Although the main ingredients of the Product do not include potatoes, corn, or corn meal, this does not preclude the Product from falling within paragraph 1(f) based on the application of the remaining factors. As well, although we consider product placement as a relevant consideration, it alone is not considered a determinative factor. Finally, fat content is not a factor in the determination of whether a particular product falls under paragraph 1(f).

Based on the factors as outlined in Policy Statement P-241, supplies of the Product are excluded from zero-rating under paragraph 1(f) of Part III of Schedule VI.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-9585.

Yours truly,

Ben Boboski
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/07/13 — RITS 55690 — Application of GST/HST to [Beverage] Products

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.

Dear XXXXX:

Thank you for your fax XXXXX, on behalf of your client, XXXXX, in which you requested a ruling concerning the application of subsection 240(1) of the Excise Tax Act ("ETA") to XXXXX.

The Minister of Finance announced in the Federal Budget of May 2, 2006, a proposal to reduce the rate of the GST and the federal portion of the HST by 1%, effective July 1, 2006. Bill C-13 was tabled in Parliament on May 2, 2006, and received royal assent on June 22, 2006. The general rule is that the rate of GST will be reduced from 7% to 6% and the rate of the HST from 15% to 14% on 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.

Statement of Facts

We understand the following facts from the fax XXXXX and other additional information you submitted.

•   XXXXX is a United Sates company and is incorporated in the state XXXXX.

•   XXXXX is not registered for GST/HST purposes.

•   XXXXX.

•   XXXXX has an office in Canada where the Canadian operations are managed. The office is located in XXXXX.

•   XXXXX has a full time employee in Canada who manages these operations.

•   XXXXX purchases goods in Canada, maintains an inventory of those goods in Canada and sells all of them XXXXX.

•   XXXXX contracts with Canadian XXXXX to sell their goods XXXXX.

•   XXXXX.

•   XXXXX.

•   XXXXX has a bank account in Canada.

•   XXXXX.

•   XXXXX.

Ruling Requested

Whether XXXXX is required to be registered under subsection 240(1) of the ETA.

Ruling Given

Based on the facts set out above, we rule that XXXXX is not required to be registered under subsection 240(1) of the ETA.

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

Subsection 240(1) of the ETA requires every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada to be registered for GST/HST purposes, except where

(a) the person is a small supplier (i.e., annual worldwide taxable sales, including those of the person's associates, do not exceed $30,000);

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

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

Whether XXXXX is carrying on business in Canada is a question of fact that requires consideration of all relevant facts. The factors that will be considered in determining whether a non-resident is carrying on business in Canada for GST/HST purposes are listed in enclosed Policy Statement P-051R2, Carrying on Business in Canada and 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.

Based on the information provided, XXXXX has an office in Canada, purchases goods in Canada, has an inventory of goods in Canada, has an employee in Canada, solicits orders in Canada and has a bank account in Canada. Based on these factors XXXXX appears to be carrying on business in Canada for GST/HST purposes.

Although XXXXX appears to be carrying on business in Canada for GST/HST purposes, it is not required to be registered under subsection 240(1) of the ETA because XXXXX does not make taxable supplies in Canada. The sale of goods by XXXXX. Subsection 142(2) of the ETA provides that a supply of a good by way of sale is deemed to be made outside Canada if the good is, or is to be, delivered or made available outside Canada to the recipient of the supply. XXXXX.

Generally, subsection 169(1) of the ETA provides that where a person acquires or imports property or a service or brings into a participating province for exclusive consumption, use or supply in the course of its commercial activities and, during a reporting period of the person during which the person is a registrant, tax in respect of the supply, importation or bringing in becomes payable by the person or is paid by the person without having become payable, the person is entitled to an ITC for the period in respect of the tax on the property or service. A "registrant" is defined in subsection 123(1) of the ETA as a person who is registered, or who is required to be registered.

XXXXX is not entitled to ITCs under subsection 169(1) of the ETA for tax that became payable or was paid by XXXXX on its purchases during reporting periods during which XXXXX was not a registrant. As XXXXX is not required to be registered, as previously explained, XXXXX may only become entitled to ITCs under subsection 169(1) of the ETA for tax that becomes payable or is paid by XXXXX during reporting periods during which it is registered. XXXXX may register voluntarily as explained below.

Subsection 171(1) of the ETA provides that where at any time a person becomes a registrant and immediately before that time the person was a small supplier, for the purpose of determining an ITC of the person, the shall be deemed

(a) to have received, at that time, a supply by way of sale of each property of the person that was held immediately before that time for consumption, use or supply in the course of commercial activities of the person; and

(b) to have paid, at that time, tax in respect of the supply equal to the basic tax content of the property at that time.

Please note that subsection 171(1) of the ETA will not apply to XXXXX if it voluntarily registers since XXXXX will not be a small supplier immediately before it registers. Generally, under section 148 of the ETA, a person is considered to be a small supplier if the person's total worldwide taxable revenues, including the taxable revenues of its associates are $30,000 or less in the last four consecutive calendar quarters and in any single calendar quarter.

Although XXXXX is not required to register pursuant to subsection 240(1) of the ETA, it may voluntarily register pursuant to subsection 240(3) of the ETA. This subsection provides for the voluntary registration of a person who is engaged in a commercial activity in Canada.

Subsection 123(1) of the ETA defines commercial activity of a person as a business carried on by the person (other than a business carried on without a reasonable expectation of profit by an individual, a personal trust or a partnership, all of the members of which are individuals), except to the extent to which the business involves the making of exempt supplies by the person.

If XXXXX voluntarily registers, it will be considered a registrant as of the effective date of its registration.

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) 952-6743.

Yours truly,

Cheryl R. Leyton
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/07/11 — RITS 76850 — Tax Status of Memberships

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.

Dear XXXXX:

Thank you for your letter, with attachments, XXXXX, with respect to your request XXXXX that the XXXXX be prescribed for the purpose of claiming the federal printed book rebate. We apologize for the delay in responding to your request.

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

Statement of Facts

We understand that:

1. The XXXXX was incorporated XXXXX on XXXXX.

2. The XXXXX became a registered charity as defined by the Income Tax Act effective XXXXX. The XXXXX is also a charity for ETA purposes.

3. The XXXXX was established by the XXXXX to raise and disburse funds for special educational projects that could not otherwise be offered by the XXXXX.

4. XXXXX:

XXXXX.

5. XXXXX.

6. Educators at all elementary and secondary schools served by the XXXXX are invited and encouraged to submit an application for funding for projects that provide innovative, unique and exciting enhancements to curriculum requirements. The XXXXXoffers XXXXX granting periods each year;XXXXX.

7. To qualify for funding from the XXXXX, the project must enhance educational opportunities for students in the XXXXX, support an initiative in XXXXX the focus areas, among other criteria. Project applications are thoroughly reviewed by panels made up of educators, parents and community partners before being approved for funding by the XXXXX Board of Directors.

8. There are no conditions placed by the XXXXX Board of Directors on the panels reviewing project applications that funding must primarily go to projects promoting literacy. There is also no such requirement in the XXXXX governing documents submitted for our review. Approved project funding fluctuates between the various focus areas in each grant period.

9. The XXXXX accepts donations from individuals, corporations and organizations interested in furthering excellence in public education. Donors can request that their donations go toward funding projects in a specific focus area.

10. Printed books for approved projects that are purchased by the XXXXX are delivered to various schools in the XXXXX. The XXXXX provides the books free of charge to the schools.

11. The XXXXX does not operate a public lending library.

Ruling Requested

You are requesting that the XXXXX be prescribed for the purpose of claiming the federal printed book rebate under section 259.1.

Ruling Given

Based on the facts set out above, we rule that the XXXXX is not eligible to be prescribed for the purpose of claiming the federal printed book rebate under section 259.1.

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

Section 259.1 provides for a rebate of 100% of the Goods and Services Tax (GST) or the federal component of the Harmonized Sales Tax (HST) payable by a "specified person" on the purchase of certain printed books, audio recordings of printed books and printed versions of religious scriptures that are acquired or imported for purposes other than for sale. For ETA purposes, a sale is defined to include any transfer of ownership of property including by way of gift or barter.

The definition of a "specified person" under section 259.1 includes, among others, a prescribed charity, the primary purpose of which is the promotion of literacy. Literacy is interpreted as meaning the promotion of basic reading and writing skills.

The term "primary" is not defined in the ETA. Common dictionary meanings of "primary" include: of the first or highest in rank or importance; principal; chief; main; not subordinate. In determining whether the primary purpose of an organization is the promotion of literacy, the Canada Revenue Agency considers the following factors:

•   the purposes and objectives of the organization as set out in its governing documents;

•   how the organization's activities are promoted or advertised (e.g., in its literature, brochures, solicitations, on its web site, etc.); and

•   whether the organization's resources are dedicated primarily (more than 50%) to the promotion of literacy.

Based on the information provided, the primary purpose of the XXXXX is to raise and disburse funds for projects that promote the advancement of education within the XXXXX region. Although the projects the XXXXX approves for funding must be in one or more of the focus areas XXXXX, there is no condition stipulating that its activities or resources be primarily dedicated to the promotion of literacy either in its governing documents, promotional materials or when approving projects for funding.

Therefore, we regret to inform you that the XXXXX is not eligible to be prescribed for the purpose of claiming the federal printed book rebate under section 259.1 as it does not have as its primary purpose the promotion of literacy.

If you require clarification with respect to any of the issues discussed in this letter, please call Nadine Kennedy at 613-952-9592.

Yours truly,

Danielle Laflèche
Director
Public Service Bodies and Governments
Excise and GST/HST Rulings Directorate

2007/07/13 — RITS 84087 — GST on Assignment Fee

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.

Dear XXXXX:

Thank you for your fax XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the GST rate change and your eligibility for an Input Tax Credit (ITC) on the purchase of hotel rooms. Your request has been transferred from the XXXXXGST/HST Rulings Centre to the Services and Intangibles Unit of the General Operations and Border Issues Division for response.

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

As you know, 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.

Statement of Facts

•   XXXXX.

•   The Company is a Canadian tour operator who resells XXXXX blocks of hotel rooms XXXXX to non-registrant non-resident tour operators XXXXX.

•   XXXXX.

•   After, July 1, 2006, the Company received an invoice from the hotel for short-term accommodation and was charged GST at 6%.

•   XXXXX.

Ruling Requested

You would like to know if the Company may claim an ITC on the purchase of hotel rooms calculated at 7% for those advance sales on which the rebate was calculated at 7% instead of 6%, even though the Company has been invoiced GST at 6% by the hotel.

Ruling Given

Based on the facts set out above, we rule that the Company is entitled to claim an ITC for the amount of the GST at 6% as shown on the invoice from the hotel provided all of the conditions under section 169 have been met.

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

Section 169 provides that, in order for a person to be eligible to claim an ITC for the tax payable in respect of property or a service, the following conditions must be met:

1. the property or service must be supplied to or imported by the person;

2. the person must be a GST/HST registrant during the reporting period in which the supply or importation is made;

3. tax must be payable by the person in respect of the supply or importation, or be paid by the person prior to its becoming payable;

4. the property or service must be acquired or imported by the person for the purpose of consumption, use or supply in the course of commercial activities of the person; and

5. the person must have obtained sufficient documentary evidence, including any prescribed information as set out in the Input Tax Credit Information (GST/HST) Regulations, to establish the eligibility for the ITC before the claim is made.

For your convenience, find enclosed a copy of GST/HST Guide, Information for the Travel and Convention Industry and 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) 954-9700.

Yours truly,

Michèle Routhier, CMA
Technical Analyst
Services and Intangibles Unit
General Operations & Border Issues Division
Excise and GST/HST Rulings Directorate

2006/07/28 — RITS 81356 — Application of GST/HST to Cemetery Products and Services

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.

Dear XXXXX:

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

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

Statement of Facts

Our understanding of the facts is as follows:

1. The Product is a combination of XXXXX.

2. The Product contains XXXXX% natural fruit juice.

3. The Product is sold in a one-litre container.

4. The ingredients of the Product are: XXXXX.

5. The nutrition facts table on the Product container indicates that a XXXXX mL serving of the Product contains the following vitamins and minerals:

% Daily Value

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

6. The amount of vitamins and minerals added to the Product is based on the limits set out in the Food and Drug Regulations under the Food and Drugs Act for fortifying beverages.

7. The packaging includes XXXXX.

8. The nutrition panel on the packaging indicates that the Product is a source of XXXXX.

9. The healthy benefits of the Product noted on the package include 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 supplies of the Product are zero-rated pursuant to section 1 of Part III of Schedule VI.

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

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 (14% in the participating provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador) unless the supply is zero-rated, pursuant to subsection 165(3). The tax rate in respect of a zero-rated supply is 0%, where a zero-rated supply is a supply that is included in Schedule VI.

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

GST/HST Policy Statement P-240, Application of GST/HST to Products Commonly Described as "Dietary Supplements", (attached herein) outlines the criteria that the CRA considers in determining whether a product is a food, beverage or ingredient for human consumption or a dietary supplement. These criteria consider the labelling, packaging, and marketing of the product.

The labelling, packaging, and marketing do not indicate that the Product is a dietary supplement. The Product is not identified as a supplement, but as a juice and XXXXX beverage. The Product does not have a Drug Identification Number (DIN), a Homeopathic Medicine Number (DIN-HM), or a Natural Product Number (NPN). The only claims made on the label are general health claims. There are no restrictions on the amount of the Product that may be consumed, nor are there any warnings regarding the consumption of the Product. The packaging and product name emphasizes the fruit content of the Product rather than particular nutrients. The Product is marketed as a beverage and is sold in grocery stores.

Based on the criteria in GST/HST Policy Statement P-240, the Product is a beverage for GST/HST purposes.

Supplies of non-carbonated fruit juice beverages or fruit flavoured beverages, other than milk-based beverages, that contain less than 25% by volume of

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

(ii) a natural fruit juice or combination of natural fruit juices that have been reconstituted into the original state,

or goods that, when added to water, produce such a beverage, are excluded from zero-rating under paragraph 1(d) of Part III of Schedule VI.

The Product is a beverage that contains not less than 25% by volume of a natural fruit juice or combination of natural fruit juices that have been reconstituted into their original state. As the Product is a non-carbonated fruit juice beverage and contains XXXXX% fruit juice by volume, its supplies are not excluded from zero-rating by paragraph 1(d) of Part III of Schedule VI.

Supplies of beverages (other than unflavoured milk), or pudding, including flavoured gelatine, mousse, flavoured whipped dessert product or any other products similar to pudding are excluded from zero-rating under paragraph 1(n) of Part III of Schedule VI, except

(i) when prepared and pre-packaged specially for consumption by babies,

(ii) when sold in multiples, pre-packaged by the manufacturer or producer, of single servings, or

(iii) when the cans, bottles or other primary containers in which the beverages or products are sold contain a quantity exceeding a single serving ^[xvi]footnote 1.

As a result of subparagraph 1(n)(iii), supplies of the Product (which is sold in a quantity that exceeds a single serving) are zero-rated.

This letter confirms the ruling that we made XXXXX, in which we determined that supplies of the Product are zero-rated.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-9585.

Yours truly,

Ben Boboski
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/09/22 — RITS 82627 — Application of GST/HST to XXXXX Rice Crisps XXXXX