GST/HST Ruling

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

GST/HST Rulings Directorate
Place de Ville, Tower A, 5th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]
Case Number: 231643a

Dear [Client]:

Subject: GST/HST RULING
Partnership eligibility to claim input tax credits on the construction of houses for sale

Thank you for your facsimile of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the construction of two houses and whether you or a partnership can recover the GST/HST paid on certain costs to construct the houses. Previously, we provided you with an interpretation, dated [mm/dd/yyyy], under case number [#]. This letter replaces our previous letter and is provided to clarify certain information given in that letter.

The GST/HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

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

STATEMENT OF FACTS

We understand the following:

1. You and two other individuals ([…], collectively referred to as, the Property Owners and individually referred to as, the Property Owner) purchased a lot with an existing house on it in […][Province A] in [mm/dd/yyyy]. The lot had a property identification number (PIN) of […] and a legal description of […].

2. The Property Owners engaged a contractor to demolish the house and they subdivided the lot into two lots. Each of these lots is owned by the Property Owners as tenants in common with […] having a % undivided interest in each lot and […] and […] each having a […] undivided interest in each lot.

3. The one lot has a civic address of […], a PIN of […] and a legal description of […].

4. The other lot has a civic address of […], a PIN of […] and a legal description of […].

5. In [mm/dd/yyyy] and subsequent to the subdivision, the Property Owners engaged another party to construct a house on each of the lots that you stated would each be used as the primary residence of at least one of the Property Owners. However, in [mm/dd/yyyy] and during the construction of the houses, it was decided that once construction of the houses was completed in [mm/dd/yyyy], each lot with the finished house would be sold.

6. The Property Owners registered a partnership for GST/HST purposes with the Canada Revenue Agency (CRA) in [mm/dd/yyyy] and having a registration number of […].

7. Before the partnership was registered with the CRA, certain costs were incurred by the Property Owners for the construction of the houses on which GST/HST was paid. Those costs were for survey services, architectural design, rental of a temporary toilet, rental of a temporary fence, excavation services, construction of foundation walls, purchase of wood/lumber, purchase of rebar, purchase of stone cladding and the purchase of windows for which you indicated that the GST/HST in the amount of $[…] was paid.

RULING REQUESTED

You would like to know if the partnership is eligible to claim input tax credits (ITCs) for the GST/HST paid on the construction costs incurred before the partnership registered for GST/HST purposes.

RULING GIVEN

Based on the facts set out above, we rule that the partnership is not eligible to claim ITCs for the GST/HST paid on the construction costs incurred before the partnership registered for GST/HST purposes.

EXPLANATION

The eligibility criteria for claiming an ITC are set out in section 169 and outlined in paragraph 3 of the GST/HST Memorandum 8.1, General Eligibility Rules. Specifically, one of the conditions that must exist before a person may be able to claim an ITC is that the property or service must be acquired, imported or brought into a participating province by a person for consumption, use or supply in the course of the person’s commercial activities. The term “person” is defined in subsection 123(1) to include an individual and a partnership. The inclusion of a partnership in the definition of person provides for a partnership to be treated for GST/HST purposes as if it were a legal entity. Therefore, for GST/HST purposes, a partnership exists as a separate person from its members.

In this case, the eligibility to claim an ITC for the tax paid on any of the construction costs will depend on who had acquired the goods or services (that is, an individual or a partnership), since it is a partnership that is registered for GST/HST purposes and the purchases were made before the partnership was registered for GST/HST purposes.

It is a question of fact and law as to whether a partnership exists and if it does, when that partnership was formed. Whether a partnership exists must be determined according to the law governing partnerships that applies in the relevant province or territory. The law governing partnerships in […][Province A] provides that a partnership is a relationship that exists between two or more persons who join together to carry on a business in common with a view to sharing the profits of the business. Since a partnership requires the carrying on of a business with a view to sharing the profits of the business, it follows that a partnership cannot exist before the business is commenced.

We note that when the Property Owners acquired the lot, engaged someone to demolish the existing house on the lot, subdivided the lot and engaged someone to build houses on the subdivided lots for the primary place of residence of at least one of the Property Owners, these activities did not constitute the carrying on of a business with a view to sharing profits of the business. Therefore, a partnership did not exist at the time that the Property Owners commenced these activities.

Since a partnership did not exist when the Property Owners acquired the lot and incurred costs with a view to constructing houses for their primary place of residence, these acquisitions would not have been done by the partnership or a person as a member of a partnership. Any partnership that may have been subsequently formed following these acquisitions would not be able to claim an ITC for the tax paid or that was payable on any of those acquisitions.

Furthermore, the GST/HST registration of the partnership cannot be backdated to a time when the partnership did not exist. Accordingly, the partnership is not eligible to claim an ITC in respect of any of the GST/HST that was paid by the Property Owners when they commenced the construction of the two houses in [mm/dd/yyyy].

ADDITIONAL INFORMATION

We understand that you would like all information pertaining to your situation to be addressed, which would include information about the partnership’s entitlement to ITCs on construction costs incurred subsequent to its formation.

As noted in the Explanation above, whether and when a partnership was formed is a question of fact and law. The documentary evidence and the surrounding facts, including the actual actions and activities undertaken must demonstrate an intention to carry on business in common with a view to profit. The mere fact that persons describe themselves as partners or register for GST/HST purposes as a partnership does not prevail over the actual facts or law. When dealing with an issue involving a partnership, it is necessary to examine the relationship between the persons, having regard to the relevant provincial law, the partnership agreement and the intention of the persons, as evidenced by their conduct and the manner in which they deal with each other and with other parties. Therefore, the fact that the Property Owners describe their relationship as a partnership is not determinative that a partnership actually exists.

If all of the members of a partnership are individuals, the business of the partnership is not a commercial activity if it is engaged in without a reasonable expectation of profit. A person must be engaged in a commercial activity in order to register for GST/HST purposes. Therefore, if there is no profit motive, then there is no partnership and GST/HST registration is not possible.

Ownership of the subdivided lots

As the Property Owners acquired the lot and subdivided it into two lots at a time when the intent was to construct a house on each lot for the primary place of residence of at least one of the Property Owners, it follows that a partnership did not have an interest in the two lots during this time.

Under real property law in common law jurisdictions (for example, [Province A]) the fee simple estate can be fragmented into its legal and equitable (or beneficial) component interests. Thus, while a partnership cannot hold legal title recognized by common law and provincial statute law, by severing the estate into its two component interests, for GST/HST purposes a partnership could lawfully own the beneficial interest in real property while the partners (or a third party nominee) own the legal interest in the same real property.

Based on the information provided, legal ownership appears not to have changed since the time the two lots were created and it is unknown whether beneficial ownership of the lots has been transferred to a partnership. Recognizing who has beneficial ownership of the two lots is significant for GST/HST purposes with respect to determining the tax status of any transfer of beneficial ownership, reporting and remitting the tax on the sale of a completed residential complex and whether a supply of property and/or services has been made by a partnership to individual owners of the real property (that is, to the Property Owners who have legal ownership of the lots).

It is the CRA’s position not to consider real property to belong to a partnership unless this can be reasonably substantiated. Without such substantiation, which would include relevant documentation, the CRA would consider the entire estate (including the beneficial interest) in the real property to belong to the person or persons who hold the legal interest (in this case, the Property Owners).

If there is no partnership when the houses and related land are eventually sold to third parties, each individual who has an interest in the lots may be considered to be making a taxable supply of their interest in the lots and at that time may be entitled to a rebate under section 257 in respect of their portion of the construction costs. For more information, please refer to GST/HST Memorandum 19.3.6, Rebate on Non-Registrant’s Sale of Real Property and under the heading “Rebate for taxable sale of real property by a non-registrant” of the guide RC4033, General Application for GST/HST Rebates.

Although it is not clear that a partnership exists, we will assume that there is a partnership for purposes of the following information. The application of the GST/HST to the activities of the Property Owners and the partnership will depend, in part, on whether there was a transfer by the Property Owners of their equitable interest in the lots during the construction phase. We are also noting which person may be able to recover the tax in respect of the construction of the houses and who must report the subsequent taxable sale of the houses and related land to a third party.

Scenario 1: Where beneficial ownership of the real property remains with the Property Owners

Where beneficial ownership of the subdivided lots has not changed, that is the Property Owners have not transferred their beneficial interest to a partnership, and where a partnership acquires goods and/or services to carry on the construction of a house on each of the subdivided lots, we would consider the partnership to have made a supply of those goods or services to the Property Owners to improve their property. Where the partnership is registered for GST/HST purposes (that is, it is engaged in a business with a reasonable expectation of profit), it is required to collect the GST/HST payable on that supply made to the Property Owners. The partnership may be eligible to claim an ITC for the tax paid or payable on its acquisition of such goods or services that it resupplied to the Property Owners.

It should be noted that where the members of the partnership are not GST/HST registrants and the partnership makes a taxable supply of goods or services to a member, the partnership will be required to account for tax on the supply based on at least the fair market value of the goods or services.

The sale of a house that has not been previously occupied and related land (or an interest in it) is generally considered to be a taxable supply. Therefore, although the Property Owners had formed a partnership in respect of the construction of the house, once a house and related land is sold to a third party, each of the Property Owners who has an interest in that property is considered to be making a taxable supply of their interest in the property.

Each Property Owner will be required to collect and account for the tax on the taxable supply of their interest in the property. The tax payable by the third party (that is, the purchaser) will be calculated on the value of the Property Owner’s interest in the property (for example, if a Property Owner has a […] interest in the property, the value of their interest would generally be […] of the total sale price of the property). For information on accounting and remitting the tax, please refer to the information under the heading, “Vendor collects and remits the tax” of the guide RC4052, GST/HST Information for the Home Construction Industry.

However, if the purchaser of the house and related land is registered for GST/HST purposes and is not an individual, then the purchaser is required to account for the tax payable on the sale. Please refer to the information under the heading, “Purchaser pays tax directly to the CRA” of the guide RC4052, GST/HST Information for the Home Construction Industry.

Note that generally, if a Property Owner who makes a taxable supply of their interest in the property is not a GST/HST registrant (that is, a person who is not registered for GST/HST purposes and not required to be registered for GST/HST purposes) at the time of the sale of their interest in the property, the Property Owner may be entitled to claim a rebate for the tax that the Property Owner paid (if any) when the property was acquired and on tax for improvements to the property that the Property Owner had acquired.

Therefore, the Property Owners may be entitled to a rebate of the tax that they paid the partnership for the taxable supplies of goods and services that were supplied to them by the partnership in respect of the construction of the house. For information on this rebate, please refer to GST/HST Memorandum 19.3.6, Rebate on Non-Registrant’s Sale of Real Property and the heading “Rebate for taxable sale of real property by a non-registrant” of the guide RC4033, General Application for GST/HST Rebates.

Scenario 2: Where beneficial ownership of the real property has been acquired by a partnership

Where beneficial ownership of a subdivided lot has been transferred to a partnership (and as indicated above, it would have to be reasonably substantiated with appropriate documentation), the transfer of that interest by each of the Property Owners to the partnership would be considered to be a supply of real property. Generally, the supply of an interest in the lot by the Property Owners would be an exempt supply if the transfer occurred at a time when a house was being constructed on the lot for use as the Property Owner’s primary place of residence. In this case, the Property Owners would not be able to claim a rebate or an ITC to recover the GST/HST that was paid when they acquired the lot and on improvements they made to the lot (that is, the construction costs).

However, if the Property Owners transfer a beneficial interest in a lot to a partnership at a time when they were constructing (or had engaged another person to construct) a house on the lot in the course of a business, the transfer of the interest in the lot to the partnership will be a taxable supply. The GST/HST payable on the transfer will be calculated on the value held by each Property Owner of the interest in the lot being transferred. Where the partnership is a GST/HST registrant, it is the partnership, rather than the Property Owner, that will be required to account for the tax and remit that tax applicable on the transfer of the interest in the lot. For information on accounting and remitting the tax, please refer to the information under the heading, “Purchaser pays tax directly to the CRA” of the guide RC4052, GST/HST Information for the Home Construction Industry.

Generally, if an individual who makes a taxable supply by way of sale of their interest in the property is not a GST/HST registrant at the time of the sale of their interest in the property, the individual may be entitled to claim a rebate under section 257 for the tax that the individual paid (if any) when the property was acquired and on tax for improvements to the property that the individual had acquired prior to the transfer of their interest in the property.

The partnership, if a GST/HST registrant, may be entitled to claim an ITC for the tax paid or payable on its purchases of goods or services for consumption or use in completing the construction of the houses on the subdivided lots that are for sale to third parties on which it has a beneficial interest. It may also be entitled to claim an ITC for the tax payable on the transfer of a beneficial interest in the lot from a Property Owner. In order to claim these ITCs, the eligibility criteria for claiming an ITC, as outlined in paragraph 3 of GST/HST Memorandum 8.1, must be met.

In this scenario, the house and related land that is subsequently sold to a third party will be a taxable supply made by the partnership. Therefore, the partnership will be required to collect and account for the tax calculated on the value of the consideration for the taxable supply. However, if the third party purchaser is registered for GST/HST purposes and is not an individual, then the purchaser is required to account for the tax payable on the sale.

DISCLAIMER

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the CRA is bound by the ruling given in this letter provided that: none of the issues discussed in the ruling are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretations given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretations or the additional information provided herein.

CONTACT

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 306-914-1122. Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Sincerely,

Ron Litzenberger
Industry Sector Specialist
Real Property Unit
Financial Institutions and Real Property Division
GST/HST Rulings Directorate

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

GST/HST Rulings Directorate
Place de Ville, Tower A, 5th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 239048

Dear [Client]:

Subject: GST/HST RULING
Application of GST/HST to the lease of a site where a mini-home is situated

Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the lease of a site where your mini-home is situated.

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

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

STATEMENT OF FACTS

Based on the information you provided on [mm/dd/yyyy], as well as our phone conversation on [mm/dd/yyyy], we understand the following:

1. The Park was a campsite located at [Address 1]. The Park was offering trailer site rentals to members.

2. The Park was open from April 1st to October 31st each year.

3. You started renting trailer site [...] (the “Site”) on [mm/dd/yyyy]. You have been leasing the Site on a one-year term, renewable annually. You initially installed a travel trailer on the Site.

4. In [yyyy], you built a mini-home on the Site to replace the trailer.

5. Your mini-home was 25 ft long, 22,8 ft wide and 14,7 ft tall. It was equipped with a complete kitchen containing a propane stove, had one bathroom, two bedrooms, a living room and a loft that provided an additional sleeping area. It was serviced with electrical and municipal water facilities. The wood structure was built on concrete blocks. You provided photos of your mini-home.

6. Since it had been built, you resided in the mini-home for varying amounts of time, often 4 to 5 days a week during the open season each year until the park was closed in [mm/yyyy].

7. The Park officially ceased its activities in [mm/yyyy] and […][required that] all structures and trailers be removed from the sites.

8. Your mini-home was sold […] [and moved in yyyy]. [….

9. Your last invoice for the site rental fees is dated [mm/dd/yyyy], and was paid in [mm/yyyy].

RULING REQUESTED

You would like to know if the rental of the Site on which your mini-home was situated was subject to the GST/HST.

RULING GIVEN

Based on the facts set out above, we rule that the rental fees for the Site where your mini-home was situated are consideration for a supply of land that is exempt of the GST/HST under subparagraph 7(a)(i) of Part I of Schedule V to the ETA.

EXPLANATION

Subparagraph 7(a)(i) of Part I of Schedule V to the ETA provides that a supply of land (other than a site in a residential trailer park) made by way of lease, licence or similar arrangement that provides for continuous possession or use of the land for at least one month is exempt if the supply is made to an owner, lessee or person in occupation or possession of a residential unit that is or is to be affixed to the land for the purpose of its use and enjoyment as a place of residence for individuals.

Subsection 123(1) defines the term "residential unit" to include a house, semi-detached house, mobile home or "any other similar premises". Whether a particular unit has the same permanent residential characteristics as a house such that it is considered to be a "residential unit", is affixed to the land, and is used as a place of residence for individuals is determined on a case-by-case basis taking into consideration the facts and circumstances of the particular case.

Based on the facts referred to above, the mini-home is considered to be a residential unit. It has the necessary residential characteristics, including permanency, as a house. It is installed in a permanent manner that is conducive to long-term residential use and is connected in a permanent way to electrical and water facilities. As such, the unit is considered to be a residential unit that is affixed to the land.

Whether a particular residential unit is used as a place of residence is a question of fact. That determination is made on a case-by-case basis. A residential unit that is affixed to the land may be considered to be a place of residence based on the purpose for which it was affixed to the land, as well as the length of time and the frequency throughout the year that the individual occupying the unit is physically present and using the unit as a place of residence.

In this case, the facts indicate that you have been using the mini-home as your place of residence throughout the period the Park is in operation, annually, from April 1st to the October 31st. As such, all of the requirements of subparagraph 7(a)(i) of Part I of Schedule V to the ETA are met.

ADDITIONAL INFORMATION

Ineligibility for a rebate

Under the ETA, where a person has paid an amount as or on account of tax that was not payable, the person may request a refund or credit of the amount from the supplier. A supplier may refund or credit the tax within two years after the day the amount was charged or collected. Further information on the time limitations and conditions for claiming refunds and credits is available in GST/HST Memoranda Series Chapter 12.2, Refund, Adjustment, or Credit of the GST/HST under Section 232 of the Excise Tax Act, available on the CRA Web site.

Where a refund or credit is not issued by the supplier, the person who has paid an amount as GST/HST on supplies that qualify as an exempt supply may make an application to the Canada Revenue Agency for a rebate of tax paid in error under section 261 using Form GST189, General Application for Rebate of GST/HST.

However, the time limit to apply for this rebate is within two years after the day the amount was paid. Since the last amount you paid to the supplier was in [mm/yyyy], you are no longer eligible for a rebate under section 261.

For additional information, see the GST/HST Guide RC4033, General Application for GST/HST Rebates.

DISCLAIMER

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling given in this letter provided that: none of the issues discussed in the ruling are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.

CONTACT

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 514-213-6075. Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Stéphanie Blanchette
Officer
Real Property Unit 2
GST/HST Rulings Directorate

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

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 200417
Business Number: […]

Dear […]:

Subject: GST/HST RULING
Advertising and marketing services

Thank you for your faxes, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) on consideration received for supplies of advertising and marketing services.

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

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

STATEMENT OF FACTS

Based on the information provided in your faxes, we understand the following:

1. […] (the Client) is a sole proprietor and is registered for GST/HST purposes.

2. We are in receipt of third party authorization.

3. The Client produces and uploads videos to […][the Internet].

4. The Client has entered into a number of agreements where revenues are earned for advertisements and for brand and product integration within the videos.

5. The agreements provided for our consideration are described below. In addition, you have indicated the Client may enter into similar agreements in the future with various parties that may be resident or non-resident of Canada.

Agreement 1

6. You have provided a copy of […][Agreement 1]..

7. [NonResACo] is a non-resident of Canada that is not registered for GST/HST purposes.

8. [NonResACo ] uses the Client’s videos to attract advertisers/views to raise awareness of the advertiser’s products and services.

9. […].

10. Relevant terms of […][Agreement 1]:

a. The agreement is between the Client […] and [NonResACo ].

b. […].

c. […][direct quote from Agreement 1].

d. […][information about payments].

e. […][Responsibilities of the parties].

Agreement 2

11. On [mm/dd/yyyy], the Client entered into [Agreement 2] with […][NonResBCo].

12. [NonResBCo] […][provides services under Agreement 2] in areas such as advertising opportunities in exchange for a percentage of ad revenue […].

13. [NonResBCo] is a non-resident of Canada and is not registered for GST/HST purposes.

14. The Client is paid by [NonResBCo] for the services supplied to [NonResACo] under […][Agreement 1].

15. Relevant terms of [Agreement 2] are as follows:

[…][direct quotes from Agreement 2]

Agreement 3

16. On [mm/dd/yyyy], the Client entered into an agency agreement with […] (the Agent). The term of the agreement is identified as [mm/dd/yyyy] to [mm/dd/yyyy].

17. The Agent is a non-resident and is not registered for GST/HST purposes.

18. The Agent seeks out brands that are interested in appearing in the Client’s videos. In some cases, the brands are based in the US and in some cases, the brands are based in Canada.

19. None of the agreements with a particular brand have been provided for our review.

RULINGS REQUESTED

You would like to know the following:

1. Is the supply of an advertising service to [NonResACo] under […][Agreement 1] subject to GST/HST and if so, at what rate?

2. Is the payment received [under Agreement 2] from [NonResBCo] as agent of the Client, in respect of the supply of an advertising service to [NonResACo] by the Client subject to GST/HST and if so, at what rate?

3. If the Client enters into an agreement with a Canadian agent, would a payment received from a Canadian agent of the Client, in respect of the supply of an advertising service to [NonResACo] by the Client be subject to GST/HST and if so, at what rate?

4. Is the payment received from the Agent of the Client, in respect of the supply of services to a brand by the Client subject to GST/HST and if so, at what rate?

5. Would a supply of a service made directly by the Client to a Canadian based brand (without an agent) be subject to GST/HST and how would the applicable rate of GST/HST be determined?

RULINGS GIVEN

Based on the facts set out above, we rule that

1. The supply of an advertising service to [NonResACo] under [Agreement 1] is zero-rated (subject to GST/HST at the rate of 0%).

2. The payment received [under Agreement 2] from [NonResBCo] as agent of the Client, in respect of the supply of an advertising service […] made to [NonResACo] [under Agreement 1] by the Client is zero-rated (subject to GST/HST at the rate of 0%).

3. If the Client enters into an agreement with a Canadian agent, a payment received from a Canadian agent of the Client, in respect of the supply of an advertising service […][made under Agreement 1] to [NonResACo] by the Client would be zero-rated (subject to GST/HST at the rate of 0%).

A ruling provides the Canada Revenue Agency's (CRA) position on specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person, and where all of the relevant facts and supporting documentation have been presented in writing. The CRA reserves the right not to issue a ruling where it considers that one would not be appropriate. In this case, we are unable to issue a written ruling for requests 4 and 5, as the information provided is insufficient to provide a determination. Therefore, we are issuing an interpretation, which is a general explanation of the applicable provisions and how the legislation would apply. The interpretation portion of this letter will follow the explanation of the rulings given.

EXPLANATION

Generally, most supplies of goods and services that are made in Canada are taxable supplies subject to the GST/HST unless they are specifically identified as exempt. Taxable supplies include zero-rated supplies (taxed at 0%) which are listed in Schedule VI. Exempt supplies are not subject to the GST/HST and are listed in Schedule V.

Advertising

A supply made by electronic means is characterized as an advertising service where it consists of creating a message (and a service directly related to the communication of such a message) where the message is oriented towards soliciting business or attracting donations, calling public attention in the form of an information notice, political announcement, or other similar communication. An example is provided in Example 11 of GST/HST Technical Information Bulletin B-090, GST/HST and Electronic Commerce.

Based on the facts provided the supplies made by the Client to [NonResACo], as described above, are considered to be supplies of advertising services for GST/HST purposes.

Paragraph 142(1)(g) 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. Conversely, paragraph 142(2)(g) of the Act deems a supply of a service to be made outside Canada if the service is, or is to be, performed wholly outside Canada.

Under certain conditions, supplies made in Canada to non-resident persons may be zero-rated under Part V of Schedule VI. In particular, section 8 of Part V of Schedule VI zero-rates (taxes at 0%) a supply of a service of advertising made to a non-resident person who is not registered for GST/HST purposes at the time the service is performed.

If the non-resident recipient is registered for GST/HST at the time the advertising service is performed, the service may still be zero-rated under the general zero-rating provision for the export of services found in section 7 of Part V of Schedule VI to the Act. Section 7 of Part V of Schedule VI to the Act zero-rates a supply of a service when made to a non-resident person provided none of the following exclusions of the provision apply:

(a) a service made to an individual who is in Canada at any time when the individual has contact with the supplier in relation to the supply;

(a.1) a service that is rendered to an individual while that individual is in Canada;

(b) an advisory, consulting or professional service;

(c) a postal service;

(d) a service in respect of real property situated in Canada;

(e) a service in respect of tangible personal property that is situated in Canada at the time the service is performed;

(f) a service of acting as an agent of the non-resident person or of arranging for, procuring or soliciting orders for supplies by or to the person;

(g) a transportation service; or

(h) a telecommunication service.

The supply made by the Client to [NonResACo], as described above, is characterized as a service of advertising for GST/HST purposes and is zero-rated.

GST/HST Memorandum 4.5.3, Exports – Services and Intellectual Property, provides additional information on the zero-rating provisions for exported services.

It is the supplier’s responsibility to verify that the recipient is a non-resident and to ensure that all of the remaining zero-rating criteria are satisfied. For more information, please refer to GST/HST Memorandum 4.5.1, Exports – Determining Residence Status. Appendix A of this memorandum describes the documentation that the CRA will generally accept as proof that the recipient is not resident in Canada.

INTERPRETATION GIVEN

Where a taxable supply of a service is made in Canada and the zero-rating provisions described above to not apply, the supply is subject to GST at 5% when it is made in a non-participating province and is subject to HST at the applicable rate when it is made in a participating province. The participating provinces are Ontario, Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland and Labrador.

Whether a supply made in Canada is made in a participating province or non-participating province is determined by section 144.1 and Schedule IX, and where applicable, the New Harmonized Value-added Tax System Regulations (the Regulations). Section 144.1 provides that a supply is deemed to be made in a province if it is made in Canada and is, under the rules set out in Schedule IX, made in the province. Further, under section 144.1, a supply made in Canada that is not made in any participating province is deemed to be made in a non-participating province.

Section 3 of Part IX of Schedule IX provides that, notwithstanding any other part of Schedule IX, a supply of property or a service is made in a province if the supply is prescribed to be made in the province under the Regulations.

Under the Regulations, different provincial place of supply rules exist with respect to general services, services in relation to real or tangible personal property and other specific types of services. Generally, we must first consider whether any specific place of supply rule applies in a particular situation. When the more specific place of supply rules for services do not apply, then it is the general place of supply rule for services in section 13 of Division 3 of Part 1 of the Regulations that applies.

Generally, for a service that is in the nature of advertising section 13 of the Regulations described below would apply. For further information on when a specific place of supply rule could apply, please refer to GST/HST Technical Information Bulletin B-103, Harmonized Sales Tax – Place of supply rules for determining whether a supply is made in a province (B-103).

Where the supplier is able to obtain an address in Canada of the recipient, subsection 13(1) of the Regulations generally provides that, subject to sections 14 to 17 of the Regulations, a supply of a service is made in a province if, in the ordinary course of business of the supplier, the supplier obtains an address in the province that is

(a) if the supplier obtains only one address that is a home or a business address in Canada of the recipient, the home or business address in Canada obtained by the supplier;

(b) if the supplier obtains more than one address described in paragraph (a), the address described in that paragraph that is most closely connected with the supply; or

(c) in any other case, the address in Canada of the recipient that is most closely connected with the supply.

Where the supplier is not able to obtain an address in Canada of the recipient, subsection 13(2) of the Regulations provides that, subject to subsection (1) and sections 14 to 17, a supply of a service is made

(a) in a participating province if the Canadian element of the service is performed primarily in participating provinces and

(i) an equal or greater proportion of the Canadian element of the service is not performed in another participating province, or

(ii) if subparagraph (i) does not apply, the tax rate for the participating province is the highest among the participating provinces for which no greater proportion of the service is performed in another participating province; and

(b) in a non- participating province if the Canadian element of the service is not performed primarily in participating provinces.

For more information on determining the province of supply, please refer to GST/HST Technical Information Bulletin B-103.

ADDITIONAL INFORMATION

Obligations and entitlements for GST/HST registrants

Generally, subsection 221(1) requires that every person who makes a taxable supply must, as agent of Her Majesty in right of Canada, collect the tax payable by the recipient in respect of the supply.

Subsection 222(1) deems an amount collected by a person as or on account of tax to be held in trust for Her Majesty in right of Canada until the amount is remitted to the Receiver General or withdrawn under subsection 222(2). Subsection 222(2) provides that an amount may be withdrawn from that trust if the person can offset the amount by an input tax credit (ITC) or other deduction in the net tax calculation of the same reporting period of a GST/HST return filed by the person. A GST/HST registrant is generally eligible to claim ITCs for the GST/HST paid or payable on expenses to make its taxable supplies.

In conjunction with subsection 221(1), subsection 225(1) provides that a person is required to collect tax in respect of any taxable supplies (other than zero-rated supplies) made by the person and account for any tax collectible or collected by the person when determining the person's net tax for a particular GST/HST reporting period of the person.

The net tax for a reporting period is generally the difference between the tax collectible or collected during the reporting period (and all other amounts that must be added to the net tax for the reporting period) and any ITCs that are claimed in the return for the reporting period as well as any other amounts that may be deducted from that net tax and are deducted in the return.

Under subsection 228(1), the person is required to report in a return the net tax for the person's reporting period covered by that return. Where the person's net tax is a positive amount, subsection 228(2) requires the person to remit that amount to the Receiver General, generally not later than the last day for filing the return in question.

Please refer to GST/HST Memorandum 3.1, Liability for Tax, for more information.

A GST/HST registrant who makes taxable supplies, which includes zero-rated supplies, is generally eligible to claim on its GST/HST returns certain GST/HST expenses the registrant incurs, referred to as ITCs.

More specifically, under section 169, ITCs are generally claimable by the registrant to the extent (expressed as a percentage) a property or service was acquired, imported or brought into a participating province for consumption, use, or supply in the course of the registrant's commercial activities (which includes making zero-rated supplies).

Additionally, the registrant must have adequate documentary evidence that the tax was paid or payable, the ITCs must be claimed within the allowable time limits, and the claim must be reasonable under the circumstances.

GST/HST Memorandum 8.1, General Eligibility Rules, and GST/HST Memorandum 8.2, General Restrictions and Limitations, provide additional details on ITCs.

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA's interpretative policy could affect the interpretation(s) or the additional information provided herein.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 902-450-8311. 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,

Allison Fraser
Senior Rulings Officer
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

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

GST/HST Rulings Directorate
Place de Ville, Tower A, 5th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 210068r

Dear [Client]:

Subject: GST/HST RULING
Whether gift cards are gift certificates

Thank you for your letter of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to certain gift cards and if they qualify under section 181.2 as gift certificates. We apologize for the delay in responding.

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

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

STATEMENT OF FACTS

We understand the facts as follows:

1. […][The company] is a Canadian resident corporation and a GST/HST registrant. The company […][sells] gift cards to its customers […] either in person […] or online from the company’s website.

2. The company purchases the gift cards either directly from the issuers, […] or indirectly from a third party wholesaler on the company’s own account for resale to customers. There is no consignment, agency or other relationship between the company and the Issuers or wholesalers, as the case may be.

3. To acquire a gift card, a customer will pay a fixed retail listed price to the company. The gift card may be purchased in a physical form or be retrievable electronically as a digital gift card.

4. The gift cards can be described in these categories:

a. Gift Card A: a gift card with a stated cash value that can be used for online purchases of digital or hardcopy software, in-game content or other intangible personal property, services, hardware or accessories. […].

b. Gift Card B: a gift card with a stated cash value that can be used for an online time-limited subscription to use software or to access specific software or hardware features, such as a season pass to a video game or a three to twelve-month membership enabling a gaming console user to access online software features through their gaming console.[…].

c. Gift Card C: a gift card without a stated cash value that can be used for an online time-limited subscription to use software or to access specific software or hardware features, such as a season pass to a video game, downloadable content or a three to twelve-month membership enabling access for a gaming console. […].

d. Gift Card D: a gift card without a stated cash value that provides a digital code to download a digital copy of a specific video game. […].

e. Gift Card E: a gift card with stated points or cash value that can be used for online in-game purchases of a variety of in-game content limited to a specific game. […].

5. The purchase and use of a gift card by a customer is subject to the particular card’s terms and conditions: […]

a. Gift Card A: […][To use Gift Card A, the customer must have the appropriate account with the card issuer. Gift Card A has] […] neither an expiration date nor a service fee […][The value of Gift Card A] is redeemed to […][the applicable customer account with the issuer, for use by the customer for full or partial payment of future online purchases] Customers can purchase products such as software licences, subscriptions, other related content and potentially hardware […][online].

b. Gift Card B: […][To use Gift Card B, the customer must have the appropriate account with the card issuer. Gift Card B][…] has neither an expiration date nor a service fee. […][The value of Gift Card B] is redeemable on […][the applicable customer] account, giving the customer the right to access the digital content for the set time period.

c. Gift Card C: […][To use Gift Card C, the customer must have an account with the card issuer. Gift Card C has] neither an expiration date nor a service fee […][and the value of Gift Card C] is redeemable on the applicable account, giving the customer the right to access the digital content for the set time period.

d. Gift Card D: […][To use Gift Card D, the customer must have the appropriate account with the card issuer. Gift Card D has] neither an expiration date nor a service fee […][and the value of Gift Card C] is redeemable on the applicable account, giving the customer the right to download and use the specified game.

e. Gift Card E: […][To use Gift Card E, the customer must have the appropriate account with the card issuer. Gift Card E has] neither an expiration date nor a service fee […],. When redeemed, the full value […][of Gift Card E is added to the applicable customer account] from which in-game content such as customization options and exclusive downloadable content can be obtained.

6. […]

RULINGS REQUESTED

You would like to know the following:

1. Whether a gift card is required to be in a physical form or can it be in an electronic/digital format (e.g., a digital code) to qualify as a gift certificate under section 181.2.

2. As a result of the […][Canadian Imperial Bank of Commerce v Canada, 2021 FCA 96 (the FCA Aeroplan Decision)], must a gift card have a stated monetary value on its face to qualify as a gift certificate?

a. Will the CRA continue to accept that a stated monetary value is not required where it can be easily determined by the parties involved in the transaction or where the gift certificate is for a specific product or service as per […][GST/HST Policy Statement P 202, Gift Certificates (P 202)]?

b. Does the retail list price for the specific product or service qualify as the “stated monetary value” or, alternatively, is the list price a way the parties to the transaction can easily determine that value as per P-202?

3. As a result of the FCA Aeroplan Decision, is a gift card that entitles a person to redeem it for a particular or specific product or service still considered a gift certificate?

4. Does a gift card that is redeemable for a time-limited (e.g., 30 or 60 days, 3, 6 or 12 months) subscription service qualify as a gift certificate?

5. Do each of Gift Cards A to Gift Cards E qualify as a gift certificate?

RULINGS GIVEN

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

1. A gift card can be in a physical form or in an electronic/digital format (e.g., a digital code) to qualify as a gift certificate under section 181.2.

2. The CRA has no intention at this time of changing P-202; neither […][the Canadian Imperial Bank of Commerce v Her Majesty the Queen, 2019 TCC 79,] the Aeroplan Decision, nor the FCA Aeroplan Decision affect the CRA’s current policy. The attributes of a gift certificate as stated in P-202 dated April 2012 remain unchanged.

a. The CRA will continue to accept that a stated monetary value is not required on a gift certificate where it can be easily determined by the parties involved in the transaction or where the gift certificate is for a supply of a specified product or service identified on the certificate as per P-202.

b. Whether the retail list price for the specified product or service is a way the parties to the transaction can easily determine the value of a gift certificate as per P-202 is a question of fact.

3. A gift card that entitles a person to redeem the card for a particular or specified product or service will still be considered a gift certificate if all the attributes listed in P-202 are met.

4. A gift card that is redeemable for a time-limited (e.g., 30 or 60 days, 3, 6 or 12 months) subscription service will still qualify as a gift certificate where all the attributes listed in P-202 are met.

5. Each of the named gift cards listed in Gift Cards A to Gift Cards E qualify as a gift certificate for purposes of section 181.2.

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the CRA is bound by the rulings given in this letter provided that: none of the issues discussed in the rulings are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-324-7413. 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,

William Parker
General Operations and Border Issues Division
GST/HST Rulings Directorate

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

GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 225972
Business Number: […]

Dear [Client]:

Subject: GST/HST RULING & INTERPRETATION
[…][Whether the Product is a zero-rated Basic Grocery item]

Thank you for your letter of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the supply of [various flavors of] […] (the Product).

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

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

STATEMENT OF FACTS

We understand the following:

1. […] (the Company) is a GST/HST registrant holding Business Number [...].

2. As per your submission, it is our understanding that the Product is manufactured by combining and mixing the ingredients […]. The [Product] mixture is then [shaped into individual items]. The process does not involve any baking of the ingredients.

3. Each individual […][item] weighs [#] grams.

4. The Product is sold and shipped to […][vendors] in cases of [#] […][items]. […], the Product is sold to consumers on an individual basis.

5. […], it is our understanding that the […][Product is] not individually packaged. […][The Product is shipped] in a frozen state […] thawed by the store [and kept refrigerated] for resale to customers. […]. Customers are free to choose the flavour and quantity of their liking.

6. The Product is available in […][various flavours] .

7. Samples of […][some] flavours of the Product […][were made available].

8. […][Ingredients of the various flavors of the Product]

RULING REQUESTED

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

RULING GIVEN

[…]

With respect to the flavours for which samples were made available, based on the facts set out above, we rule that supplies of the Product in […][those flavours] fall within paragraph 1(m) of Part III of Schedule VI to the ETA. As such, when supplied in quantities of six or more, supplies of the Product in these flavours are zero-rated (provided paragraph 1(q) does not apply). However, when sold in quantities of less than six, supplies of the Product in these flavours are taxable at the full rate of GST or HST, as applicable.

Furthermore, it should be noted that where a particular […][vendor sales location ] is determined to be an establishment as per paragraph 1(q) of Part III of Schedule VI, all supplies of the Product would be taxable at the full rate of GST/HST, regardless of the quantity supplied.

EXPLANATION

Paragraph 1(m) of Part III of Schedule VI to the ETA excludes from zero-rating cakes, muffins, pies, pastries, tarts, cookies, doughnuts, brownies, croissants with sweetened filling or coating, or similar products where, (i) they are prepackaged for sale to consumers in quantities of less than six items each of which is a single serving, or (ii) where they are not prepackaged for sale to consumers and are sold as single servings in quantities of less than six, but not including bread products, such as bagels, English muffins, croissants or bread rolls, without sweetened filling or coating.

The Product is made by combining and mixing its ingredients to the extent that they are no longer identifiable within the Product as a whole. It is our position that the Product is considered to be a similar product for the purpose of paragraph 1(m).

[With respect to the flavours for which samples were not made available, a ruling can only be issued when all the relevant facts of a product are known. While we cannot provide a ruling for these Product flavours, we can offer the following interpretation that will provide you with some guidance when determining the application of the GST/HST to the supply of the Product in these flavours.]

INTERPRETATION GIVEN

Granola Products

Paragraph 1(h) excludes granola products except for those which are sold primarily as breakfast cereal. Paragraph 64 of Memorandum 4.3 – Basic Groceries (Memorandum 4.3) identifies granola bars as generally having a mixture of cereals (e.g., rolled oats, rice, or other whole grains) and honey and/or syrup as the main ingredients, and may include nuts and dried fruits. The ingredients in granola bars are not processed to a great extent, thereby retaining the distinct character of each ingredient within the bar. Granola bars may also have a chocolate or sweetened coating.

Where [a flavor of the Product] has granola as a primary ingredient and the ingredients […] are not processed to the extent that the distinct character of each ingredient is lost, it is possible that such a flavour of the Product would be excluded from zero-rating under paragraph 1(h).

Paragraph 65 of Memorandum 4.3 also addresses bars that contain a mixture of cereals and honey and/or syrup, where the ingredients have been processed to the point that they have lost their distinct character. Bars of this nature are not considered to be granola bars, but rather cereal bars or muffin bars. Cereal bars and muffin bars are treated as a product similar to sweetened baked goods and may be excluded under paragraph 1(m) of Part III of Schedule IV for GST/HST purposes.

Fruit-based Snack Foods

Paragraph 1(l) excludes supplies of "fruit bars, rolls or drops or similar fruit-based snack foods".

"Fruit-based snack foods" is the common denominator in the exclusion; that is, the exclusion applies to fruit-based snacks in the form of bars, rolls or drops, and similar fruit-based snacks. In the context of this provision, our view is that "fruit-based" means the product contains fruit as a primary ingredient and may also contain other ingredients.

It is also our view that products having fruit as a primary ingredient, such that the product is represented to consumers as being fruit-based, will be within this exclusion. Such a product could include fruit in combination with any of the following: vegetables, grains or seeds. It may also mean that a product is not dominantly composed of fruits.

Since a wide variety of products may fall within this exclusion, we are of the view that textures will also vary. As a result, we do not consider texture to be an important criterion in determining if a product falls under this exclusion. The fact that a product is nutritious would not, in our view, preclude the product from being excluded under paragraph 1(l). As a result, we consider that protein, energy and similar […][items] which contain fruit as a main or important ingredient or which are marketed in a manner which suggests to the consumer that the […][product item is fruit based], would fall within the ambit of this exclusion.

[…][Flavours of the product for which samples were made available]

[…]. It should be noted that all of […][the flavours of the Product for which samples were not made available] have either gluten free oats or fruit content included in the ingredients. Therefore, it is possible that each of the flavours are excluded from zero-rating as either a granola product or as a fruit-based snack. However, as noted, without a sample, a proper determination cannot be made.

Eating Establishment

Paragraph 1(q) states that, in general, where all or substantially all (90% or more) of the sales of food or beverages made at an establishment are included in paragraphs 1(a) to 1(p) of Part III of Schedule VI, sales of food or beverages made at the establishment will not be zero-rated supplies, except where:

(i) 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, or

(ii) in the case of sweetened baked goods, (such as doughnuts, muffins, and cookies),

(A) the product is prepackaged for sale to consumers in quantities of more than five items each of which is a single serving, or

(B) the product is not prepackaged for sale to consumers and is sold as single servings in quantities of more than five,

and is not sold for consumption at the establishment.

For the purposes of this provision, establishments are considered by the CRA to be providers of prepared food and beverages whose sales of taxable food and beverages constitute 90% or more of their sales. Examples of establishments include restaurants, takeout and home delivery outlets, lunch counters, coffee shops, snack bars, mobile canteens, and catering services.

The essence of paragraph 1(q) of Part III of Schedule VI is to ensure that supplies of food and beverages made at such establishments are generally taxable and not zero-rated, except where specific conditions are met. Certain supplies of food and beverages made at such establishments remain zero-rated under section 1 of Part III of Schedule VI, based on factors such as form, packaging, and the quantity sold.

This means that if […][a particular vendor sales location] is determined to be an “establishment”, as per paragraph 1(q) of Part III of Schedule VI, […][that vendor sales location] would be required to collect GST/HST on all of its sales of food and beverages (with certain exceptions) when substantially all of its sales of foods and beverages are otherwise […][subject to the GST/HST] due to paragraphs 1(a) to (p) of Part III of Schedule VI.

While paragraph 1(q) of Part III of Schedule VI is relevant to be considered, we cannot confirm whether 90% or more of the sales […][at vendor sales locations] are taxable supplies included in any of paragraphs 1(a) to 1(p).

For more information, please refer to paragraphs 136 to 139 of GST/HST Memorandum 4.3, Basic Groceries and to GST/HST Policy Statement P-251, Eating Establishments.

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 289-356-2627. 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,

Zubair Patel
Senior Rulings Officer
Strategic and Emerging Issues Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate

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

Dear Sir/Madam:

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

Statement of Facts

Our understanding of the facts, the transaction(s), and the purpose of the transaction(s) is as follows:

The XXXXX is a registered charity as defined by the Income Tax Act, and is therefore a charity for purposes of the Excise Tax Act (the ETA).

The XXXXX is not registered for the GST/HST.

The XXXXX maintains a Lending Library/Resource Centre which consists of various printed books within its building.

Clients of the XXXXX and the general public are able to borrow the books from the Lending Library/Resource Centre. Borrowers must sign the books out and are permitted to borrow the books for a period of up to five days.

Ruling Requested

Is the XXXXX eligible for a rebate of 100% of the GST or the federal component of the HST paid on the purchase of printed materials, videos and audio tapes?

Ruling Given

Based on the facts set out above, we rule that the XXXXX is eligible for the rebate of 100% of the GST or the federal component of the HST paid on the purchase of printed books, audio recordings of printed books and printed versions of religious scriptures that are acquired for purposes other than resale as outlined in section 259.1 of the ETA.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently ETA, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Explanation

Section 259.1 of the ETA provides for a rebate of 100% of the GST or the federal component of the HST paid by a specified person in respect of the purchase of certain printed books and scripture that are acquired for purposes other than resale.

A charity that operates a public lending library is considered to be a "specified person" pursuant to paragraph 259.1(e) and is eligible to claim a rebate of 100% of the GST paid on qualifying books and other material acquired other than for resale.

As outlined in paragraph 5 of GST/HST Memoranda Series 13.4 Rebates for Printed Books, Audio Recordings of Printed Books, and Printed Versions of Religious Scriptures, a copy of which is enclosed, "a public lending library is interpreted to mean a place where a collection of documents and other items such as films and recordings are kept and maintained and that is open to the public for its use. It includes libraries from which these documents and other items can be borrowed, as well as libraries accessible to the public for research purposes only."

An explanation of the terms printed book, audio recording and scripture is contained in the enclosed Memoranda.

Please note that there is no federal book rebate of GST or the federal component of the HST paid or payable on the acquisition or importation of printed books that are acquired to be given away free of charge.

In addition to the rebate for printed books referred to above, pursuant to section 259 of the ETA, a charity may apply for a Public Service Body (PSB) rebate of 50% the GST they paid out on eligible purchases and expenses. Please find enclosed, the GST/HST guide RC4034(E), GST/HST Public Service Bodies' Rebate, which contains detailed information on rebates. Enclosed in the guide is a copy of form GST66, Application for GST/HST Public Service Bodies' Rebate and GST Self-Government Refund, which you may use to file for the book rebate and the PSB rebate. Please note that the rebates must be filed within four years after the end of the claim period in which the GST/HST was paid or became payable.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-954-4206.

Yours truly,

Carol A. Gaudet
Charities, Non-Profit Organizations and Educational Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

Please note that the following documents, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ces documents, bien qu'exacts au moment émis, peuvent 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 the transaction(s) described below.

All legislative references below are to Part IX of the Excise Tax Act.

Statement of Facts

Based on your two letters and a telephone conversation between Costa Dimitrakopoulos of our office and XXXXX of your office XXXXX, our understanding of the facts, the transaction(s), and the purpose of the transaction(s) is as follows:

1. XXXXX ("the Corp") incorporated in XXXXX. It is a GST/HST Registrant XXXXX.

2. XXXXX it purchased a single family home at XXXXX (the "subject property") for $XXXXX. The purpose of acquiring the subject property was to renovate and sell it. The subject property is a single unit residential complex for purposes of the GST/HST.

3. The Corp registered for the GST on the understanding that the renovation project would be a substantial renovation for GST purposes, resulting in an eventual taxable sale of the property. It claimed input tax credits (ITCs) totalling $XXXXX.

4. The renovations and additions, costing about $XXXXX, are described in the Appendix. This amount represents construction costs. Other fees totalled over $XXXXX. These are not specified but presumably include realtor fees, legal fees and engineering fees. The ITC claim of $XXXXX indicates total taxable inputs of about $XXXXX.

5. After completing the renovations, the subject property was sold for $XXXXX. On the basis of the Corp's revised view that the renovations were not substantial renovations, the property was sold on an exempt basis.

6. The Corp was incorporated for the purpose of acquiring the subject property, renovating it and then selling it as an isolated event. The Corp will not be acquiring any further properties.

Ruling Request

In your letter XXXXX you asked whether the "construction of a particular addition and renovation to (this) single family home constitute the construction of a new single unit residential complex?" The letter also requests our "direction on how to proceed at this point."

In response, our ruling will address the various tax implications resulting from the renovation and sale of the subject property.

Ruling Given

Based on the facts set out above, we rule that

1. The subject property was not substantially renovated pursuant to the meaning of "substantial renovation" in subsection 123(1).

2. The renovations and additions to the subject property do not constitute construction of a new residential complex.

3. The sale of the subject property is an exempt sale for GST/HST purposes.

4. The Corp is not liable for tax pursuant to section 192.

Explanation

Ruling 1

The subject property was not substantially renovated pursuant to the meaning of "substantial renovation" in subsection 123(1).

"Substantial renovation" is defined in subsection 123(1) as follows:

"substantial renovation" of a residential complex means the renovation or alteration of a building to such an extent that all or substantially all of the building that existed immediately before the renovation or alteration was begun, other than the foundation, external walls, interior supporting walls, floors, roof and staircases, has been removed or replaced where, after completion of the renovation or alteration, the building is, or forms part of, a residential complex.

In summary, a substantial renovation is generally considered to have taken place where all or substantially all of the interior of a building, with the exception of certain structural components (the foundation, external walls, interior supporting walls, roof, floors and staircases), has been removed or replaced. The definition of substantial renovation sets out various requirements to be met before a residential complex will be considered substantially renovated. These requirements are discussed below.

"all or substantially all"

Generally, "all or substantially all" is interpreted as meaning 90% or more. Accordingly, in order to meet this requirement, at least 90% of the building that existed before the renovations began must be renovated to some minimum degree. This determination applies to the interior of the building.

Any fair and reasonable method is acceptable for determining whether all or substantially all of the building has been renovated. The following are typical methods, which may be used for this purpose:

•   Square footage of floor space of the areas renovated compared to the total floor space of the building

•   Square footage of floor and wall space of the areas renovated compared to the total floor and wall space of the building; and

•   Number of room renovated compared to the total number of rooms in the building.

The method used must be fair and reasonable in the circumstances.

Please note that neither the cost of the renovations nor the fair market value of the improvements made is an acceptable basis for determining whether the "all or substantially all" requirement is met. This requirement is based on the actual physical renovations to the building rather than the cost or value of such renovations.

"of the existing building"

As the definition stipulates, it is the "building that existed before the renovation or alteration was begun" that must be substantially renovated. This means that additions to the existing building are not taken into account in determining whether there is substantial renovation.

Only habitable areas of the building should be taken into account in determining whether the building has been substantially renovated. In addition to the main floor(s) living areas, habitable areas include finished basements and finished attics. Habitable areas do not include garages, parking areas, crawl spaces, and any areas set aside for the placement of equipment for the heating of, or the supply of water, gas, or electricity to the complex. Such areas are ignored in determining whether the minimal requirements of the definition of substantial renovation are met.

must be "removed or replaced"

This requirement addresses the type or nature of renovations required in order to satisfy the definition of substantial renovation. Under the definition, at least 90% of the existing building must be removed or replaced with the exception of the foundation, external walls, interior supporting walls, floors, roof and staircases.

A major renovation project would result in the interior of the building being essentially gutted. In this type of renovation, the interior walls (other than supporting walls) would be completely removed and the ceilings and floors would be replaced. The heating, electrical and plumbing systems would be replaced, including the ductwork, wiring and plumbing connections. All fixtures, including plumbing and lighting fixtures and fixed appliances, would be replaced, as would kitchen counters and cabinets. Such a project would constitute a substantial renovation.

While not all projects have to be as extensive as the one project described above in order to constitute a substantial renovation, generally all interior walls (e.g., drywall) together with either ceilings or floors would have to be removed or replaced throughout the subject area (at least 90% of the building).

"Removing or replacing" does not include repairing. For instance, patching drywall, painting surface areas, or sanding a hardwood floor would not qualify as removing or replacing for purposes of the definition of substantial renovation.

applying the definition of substantial renovation to the subject property

In accordance with the definition of "substantial renovation" in subsection 123(1) and our discussion set out above, an analysis of the changes made to the subject residence was carried out. Please refer to the attached Appendix.

As indicated in the Appendix, and based on the information submitted, it is our view that approximately XXXXX% of the house was substantially renovated. Furthermore, since the threshold for "substantial renovation" is "90% or more," (i.e., 90% of the existing house, other than areas excluded in the definition, must be "removed or replaced") and the present determination is about XXXXX%, it is evident that the "substantial renovation" threshold is not met with respect to the subject property.

Ruling 2

The renovations and additions to the subject property do not constitute construction of a new residential complex.

In certain cases, the renovations and addition to an existing residence are so significant that the resulting structure may be viewed as a newly constructed residential complex. This is a test of more than just size. That is, even if the addition is as large or larger than the existing residence, it would not be viewed as creating a newly constructed residential complex if the existing residence remains largely intact. Rather, the existing residence must become a minor part of, and be incorporated into, the newly constructed residential complex.

Generally, the following has to occur before the resulting structure can be considered a newly constructed residential complex:

•   the addition should at least double the size of the habitable areas of the existing residence; and

•   the existing residence must cease to exist both physically and in the manner in which it had functioned as a residential unit, and must become integrated, along with the addition, into what is essentially a new residential complex.

As in the case of substantial renovation, the cost or fair market value of an addition is not to be used in determining whether a new residential complex has been constructed.

In our view the additions to the subject property in this case do not meet the requirements above since the additions do not double the space of the existing premises and it cannot be said that the existing residence ceases to exist on the basis that it is completely subsumed by the additions.

Ruling 3

The sale of the subject property is an exempt sale for GST/HST purposes.

Since the residence was neither constructed nor substantially renovated by the Corp, the Corp is not a "builder" as defined under subsection 123(1) with respect to the residence. Accordingly, the relevant exemption to examine is paragraph (a) of section 2 of Part I to Schedule V.

In summary, the above provision provides for an exemption from the GST on the sale of the residential complex by a person (which includes a corporation) who is not a builder unless the person claimed an input tax credit (ITC) with respect to the acquisition of or improvements to the property.

While the Corp did claim an ITC with respect to the improvements (renovations and additions) made, it is our view, that the Corp must be entitled to an ITC before this paragraph applies. Furthermore, we would not accept that this exemption does not apply solely by virtue of the ITC claimed unless the property was used in making taxable supplies.

In other words, a person who is not a builder cannot choose to "opt out" of this exemption (thereby making the sale of a residential complex taxable) simply by claiming an ITC with respect to an improvement to the property. Rather, for the exemption not to apply, the person must be entitled to ITCs on the basis that the property was used at least partially ("primarily" in the case of individuals) in making taxable supplies, such as short-term rentals. Since this does not appear to be the case, the exemption under section 2 of Part I of Schedule V applies to the sale of the residence, as the Corp was not entitled to the ITCs it had claimed.

Ruling 4

The Corp is not liable for tax pursuant to section 192

Section 192 applies where, in the course of a business (Section 192 does not apply where a person is making supplies of real property in the course of an adventure or concern in the nature of trade.) of making supplies of real property, a person acquires and renovates a residential complex and the renovation of the complex is not considered to be a substantial renovation for GST/HST purposes.

Under this section the person carrying out the non-substantial renovation is deemed to have made a taxable supply for consideration equal to certain costs associated with the renovation, and is liable to remit GST/HST with respect to the amount of such costs. In summary, and pursuant to the terms of the provision, the costs upon which GST/HST apply are in respect of the renovation or alteration for amounts that would be included in the renovator's adjusted cost base for income tax purposes if the residential complex were capital property of the taxpayer. They are not in respect of financial services, and most significantly, they are not for property or services on which GST/HST was paid by the renovator.

In the present case, the Corp did not substantially renovate or construct a new residential complex. It did, however, carry out a non-substantial renovation of the residence. Nevertheless, in order for section 192 to apply, the Corp would have to be carrying out the non-substantial renovation of the residence in the course of a business.

Where real property originally acquired with a primary or secondary intention of resale is sold, and activities were undertaken with respect to the sale of the property, the extent of such activities is important in determining whether the character of the sale has changed from having been made as an adventure or concern in the nature of trade to having been made in the course of a business. Where the buying and selling of the real property are isolated events or are done infrequently, where such events are not connected to other activities of a business carried on by the supplier, and where the activities are minimal or are required solely for purposes of facilitating the sale, the sale of the property is normally treated as having been made as an adventure or concern in the nature of trade. (For more information regarding business vs. adventure or concern in the nature of trade please refer to Appendix C of GST/HST Memorandum Chapter 19.5, Land and Associated Real Property (attached))

Given that the buying and selling of the subject property by the Corp is an isolated event in this particular case and assuming there are no other indicators of a business enterprise carried on, (For instance, it is assumed for the purpose of this ruling that the Corp did not engage in extensive marketing or advertising activities with respect to the subject property.) it is our view that the sale of the subject property was made as an adventure or concern in the nature of trade. Accordingly, section 192 of the Act would not be applicable to the costs of any renovations described above (e.g., on "non-taxable inputs).

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

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 954-8852.

Yours truly,

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

APPENDIX

Renovations and Additions to the House

Entry Level

1. Existing shower and sauna removed and area converted into a study - removal of existing shower and sauna. Some old walls removed, some new walls added to substantially all of this area. Installation of two new French doors and a new dropped beam.

This area of 180 sq ft. appears S.R (S.R. stands for renovated to a sufficient degree to meet the requirements for substantial renovation discussed above. )

2. Ski room, existing storage area and entry: some changes (couple of new doors, small balustrade, part of exterior wall removed for new bay window)

This area of 170 sq. ft appears not S.R

Mid Level

4. Two existing bedrooms and bathrooms remain essentially unchanged.

This area of 660 sq. ft. appears not S.R.

5. Existing 680 sq ft of crawl space converted into a new media room. Existing rock was removed from the crawl space area, steel beams replaced existing structural columns, and a new concrete slab floor was installed. Two new bathrooms and a wine cellar were built in this converted space. The bathrooms each have new windows and ventilation fans. (treated by submission as an addition but appears to be a renovation of existing area)

This area of 680 sq. ft. appears to be S.R.

6. New bedroom and covered deck to second level - 240 sq ft

Summary

Upper Level Renovations

7. Master bedroom: flat ceiling removed to expose vaulted ceiling two small walls in closet removed

Area including closet: 320 sq ft.

This area of 320 sq. ft. appears not S.R.

8. Ensuite: - remove & replace existing bathroom fixtures and cabinets

This area of 112 sq. ft. appears S.R.

9. Kitchen: - flat ceiling removed to expose vaulted ceiling a. 9 feet of existing exterior wall removed

- new addition expands kitchen area by about 44 sq ft.

b. new kitchen appliances and cabinets

Area excluding addition: 143 sq ft. appears may be S.R.

10. Dining room + Living room = Powder Room

- remove existing wet bar & cabinet (small area)

- some changes to ceiling Area: 540 sq. ft. not S.R.

Summary

Other Additions

New parking garage under the existing building - this was previously a crawl space - existing bearing structures removed, now steel beam installed, new 4" concrete floor slab - exposed (exterior) concrete walls faced with stone - new concrete stairs - this addition added 770 square feet. (ignored for present purposes: not habitable floor space).

Miscellaneous

Replacement of original light fixtures with new in the same locations.

Replacement of old hot water tank and furnace with new ones.

Repainting of original drywall walls and restaining/re-painting of interior wood trim and paneling.

Replacement of gravel driveway with paving stone driveway

Exterior trim repainted but main body of house left as existing and not repainted. Original windows unchanged except where bedroom/deck added.

Sewer, water and sanitary connections unchanged. Heating ducts, plumbing and electrical systems were extended to added bedroom/deck.

Percentage of house substantially renovated based on floor space

XXXXX

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 and subsequent telephone conversations concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a supply of farmland property. I apologize for the delay taken in responding to you.

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

Statement of Facts

1. Neither you nor your spouse, XXXXX (hereafter referred to either as "XXXXX", "the vendors" or "the mortgagees"), is registered for GST/HST purposes.

2. The vendors owned a farmland property situated in XXXXX. The vendors sold this property to XXXXX.

3. The vendors (mortgagees) and XXXXX (mortgagor) entered into a Vendor Take Back mortgage agreement for the subject property at the time of the sale.

4. Prior to selling the property to XXXXX, the vendors had been using a building situated on the property as a second residence and had leased a portion of the land to a hay farmer for $XXXXX per year.

5. XXXXX, who was registered for GST/HST purposes at the time of his purchase of the subject property, leased a portion of the farmland to a third party.

6. The mortgage fell in arrears, the property taxes fell in arrears and XXXXX failed to place insurance on the property. It is your belief that XXXXX abandoned the property. Further to the preceding, the mortgagees instituted Power of Sale proceedings.

Transaction

1. XXXXX the mortgagees' lawyer made an offer to XXXXX lawyer on behalf of the mortgagees. The mortgagees offered to (i) forgive the mortgage payable by XXXXX, (ii) pay $XXXXX cash to XXXXX, and (iii) pay property tax arrears in respect of the subject farmland, in exchange for XXXXX transfer of the title to the farmland property to the mortgagees.

2. XXXXX accepted the offer outlined above. A "Transfer/Deed of Land" signed by XXXXX, his lawyer and the mortgagees' lawyer, indicates that XXXXX transferred the subject farmland property to the mortgages as joint tenants "in full and final satisfaction of a Vendor Take Back mortgage registered XXXXX" on the said property.

Ruling Requested

What is the application of GST to the XXXXX transfer of the farmland property from

XXXXX to you and your spouse?

Ruling Given

Based on the facts set out above, we rule that the transfer of the farmland property by XXXXX to you and your spouse is deemed to be two separate supplies by way of sale of two separate properties. The first supply - the portion of the farmland property that is a residential complex - is an exempt supply pursuant to section 2 of Part I of Schedule V to the Excise Tax Act.

The Canada Revenue Agency (CRA) cannot rule on the tax status of the second supply - the portion of the farmland property excluding the residential complex (i.e. the non-residential portion of the farmland property) - based on the information submitted.

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

Explanation

All legislative references are to the Excise Tax Act.

Section 183 provides rules for the application of the GST/HST to property seized or repossessed by a creditor. A transfer of property via a quitclaim is a transaction that is subject to the rules found in section 183, when all of that section's requirements are met. Subsection 183(9) provides that where a person (i.e. a debtor) voluntarily transfers property to a creditor "for the purpose of satisfying in whole or in part a debt or obligation in respect of which the (...) person is in default", the creditor is deemed to have seized or repossessed the property from the debtor at that particular time. However, in the case at hand, the transfer was made in part for the purpose of satisfying a debt, and in part for the purpose of obtaining $XXXXX cash and payment of the property tax arrears. Accordingly, the transfer is not considered to be a voluntary transfer under subsection 183(9), but a sale for consideration.

Under subsection 136(2) the above transfer of the farmland property is deemed to be two separate supplies by way of sale of two separate properties, one supply being the portion of the farmland property that is the residential complex and the second supply being the non-residential (or farmland) portion of the farmland property.

The supply of that portion of the farmland property that is the residential complex will be exempt under section 2 of Part I of Schedule V. This legislative provision exempts the sale of a residential complex made by a person who is not a builder of the complex, unless the person has claimed input tax credits in respect of the last acquisition of the complex or in respect of improvements to the complex.

The GST treatment of the second supply (i.e., of the non-residential portion of the farmland property) is uncertain. This supply may be exempt under section 9 of Part I of Schedule V to the Excise Tax Act (sale of real property by an individual or a personal trust); however, the CRA does not have enough information to determine whether this supply is excluded from the exemption under section 9 by paragraph 9(2)(a) or paragraph 9(2)(b), which provide that the supply would be taxable in the following circumstances:

•   Subparagraph 9(2)(a)(i): The supply would be taxable if the non-residential portion of the farmland property was capital property of XXXXX and it was used primarily in a business carried on by XXXXX with a reasonable expectation of profit.

•   Subparagraph 9(2)(a)(ii): The supply would be taxable if XXXXX is a GST registrant and the non-residential portion was his capital property used primarily in making taxable supplies of that portion by way of lease, licence or similar arrangement, or a combination of the uses described in subparagraphs 9(2)(a)(i) and 9(2)(a)(ii).

•   Subparagraph 9(2)(b)(i): The supply would be taxable if it is sold in the course of a business of Mr. Tong.

For further information on the application of section 9 of Part I of Schedule V to the Excise Tax Act, please refer to attached Memorandum Section 19.5, Land and Associated Real Property of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-1433.

Yours truly,

Bao Tran
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

Dear XXXXX:

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

Statement of Facts

Our understanding of the facts is as follows:

1. The Product is available in XXXXX flavours: XXXXX.

2. Ingredients of the XXXXX flavour of the Product include: XXXXX[.]

3. The Product is labelled as a cracker, packaged loosely in XXXXX boxes and is located in the cracker isle of the supermarket.

4. Market research indicates that XXXXX Marketing on the box states that the Product is "XXXXX[".]

Ruling Requested

You requested confirmation that XXXXX Crackers are zero-rated basic groceries as described in Part III of Schedule VI to the Excise Tax Act (ETA).

Ruling Given

Based on the facts set out above, we rule that the Product is zero-rated under section 1 of Part III of Schedule VI to the ETA.

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

Explanation

Generally, every recipient of a taxable supply made in Canada shall pay to Her Majesty in right of Canada tax in respect of the supply calculated at the GST rate of 7% or HST rate of 15%, as applicable, on the value of the consideration for the supply. However, zero-rated supplies of goods and services are subject to tax at 0%. Section 1 of Part III of Schedule VI to the ETA zero-rates supplies of basic groceries subject to the exclusions listed in paragraphs 1(a) through 1(r).

Paragraph 1(f) excludes from zero-rating 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".

GST/HST Policy Statement P-241 - Meaning of "Other Similar Snack Food" under paragraph 1(f) of Part III of Schedule VI to the ETA, provides several factors that may be used to determine if a product is a similar snack food. These factors include: properties (ingredients, flavours, texture, cooking process and appearance), labelling, packaging and marketing.

While the Product may have some properties similar to those listed in P-241, the labelling, packaging and marketing are different from those generally used for "other similar snack food"; more specifically, the Product is not referred to as a chip, crisp, puff, curl or stick, nor is it placed in the snack food isle of supermarkets. The Product is labelled as a cracker, is packaged in XXXXX boxes and is sold in the cracker isle of supermarkets.

Having reviewed the facts of this case, it is the opinion of the Canada Customs and Revenue Agency that the Product is not an "other similar snack food" as listed in paragraph 1(f) of Part III of Schedule VI to the ETA. The supply of the Product is zero-rated as it does not fall within any of the exclusions to section 1 of Part III of Schedule VI to the ETA.

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).

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

Yours truly,

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

Dear XXXXX

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

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX produces the following products (the "Products"):

XXXXX

2. Each of the Products are sold as powdered XXXXX drink mixes, which are sold XXXXX, in quantities exceeding a single serving.

3. XXXXX:

a. This product is in powdered form and contains natural XXXXX juice crystals XXXXX;

b. This product is marketed as having one of the highest sources of natural XXXXX;

c. This product contains instructions that it should be taken XXXXX per day. It may be mixed with water, juice XXXXX;

d. This product contains the recommendation that it should XXXXX[;]

e. This product purports to deliver XXXXX;

f. This product contains instructions that it should not be taken with XXXXX;

g. This product is marketed as helping to maintain XXXXX;

h. This product is marketed as a XXXXX and XXXXX;

i. This product is marketed as XXXXX nutrition XXXXX.

4. XXXXX:

a. This product is in powdered form;

b. This product is made from XXXXX XXXXX;

c. This product contains instructions that it should be taken XXXXX a day;

d. This product contains information that it can XXXXX;

e. This product purports to deliver the XXXXX;

f. This product contains the warning that it should not be taken with XXXXX[;]

g. This product contains XXXXX XXXXX;

h. This product is marketed as helping to maintain XXXXX;

i. This product is marketed as a product that provides a cleansing effect.

5. XXXXX:

a. This product is in powdered form;

b. This product is a XXXXX that captures all the nutrients in XXXXX;

c. XXXXX contains XXXXX amino acids, including XXXXX;

d. This product contains the instructions that it should be taken XXXXX XXXXX a day by adults;

e. This product contains the instructions that it should be taken XXXXX;

f. This product contains the instructions XXXXX XXXXX per day;

g. This product contains the instructions that XXXXX as many as XXXXX per day;

h. This product purports to deliver the XXXXX[;]

i. This product contains the XXXXX;

j. This product is marketed as helping to maintain XXXXX;

k. This product is marketed as helping to maintain a healthy immune system;

l. This product is marketed as a product that provides increased energy.

6. XXXXX:

a. This product is in powdered form;

b. This product is a XXXXX that captures all the nutrients in XXXXX;

c. XXXXX contains XXXXX amino acids, including XXXXX;

d. This product contains the instructions that it should be taken XXXXX XXXXX per day by adults;

e. This product contains the instructions that it should be taken XXXXX;

f. This product contains the instructions that XXXXX per day;

g. This product contains the instructions that XXXXX as many as XXXXX per day;

h. This product purports to deliver XXXXX[;]

i. This product is marketed as helping to maintain XXXXX[;]

j. This product is marketed as helping to maintain a healthy immune system;

k. This product is marketed as a product that provides increased energy.

Ruling Requested

You have requested a ruling concerning the application of GST/HST to the supply of the above-mentioned Products.

Ruling Given

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

1. XXXXX do not fall under the zero-rating provision in section 1 of Part III of Schedule VI to the Excise Tax Act ("ETA") and the supply of these products is taxable at a rate of 7% GST or 15% HST as applicable pursuant to subsection 165(1) of the ETA.

Please be advised that this ruling supersedes the ruling provided XXXXX and is effective 30 days from the date of this letter. This effective date allows for changes to system requirements to comply with the requirement for collecting, accounting for, and remitting tax.

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

Explanation

Generally, every recipient of a taxable supply made in Canada shall pay to Her Majesty in right of Canada tax in respect of the supply calculated at the GST rate of 7% (or HST rate of 15%, as applicable) on the value of the consideration for the supply. Where, however, a supply is a zero-rated supply, the tax rate in respect of that supply is 0%.

The supply of basic groceries, which includes the majority of supplies of food and beverages marketed for human consumption (including sweetening agents, seasonings and other ingredients to be mixed with or used in the preparation of such food or beverages), is zero-rated pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act (ETA).

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

Consumers usually consume beverages for enjoyment or to quench thirst. Therefore, the CCRA generally considers 'beverages' as goods consumed to sustain or maintain life, to allay thirst, or for enjoyment rather than for therapeutic or preventative effects or to achieve specific beneficial effects related to performance or physique.

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

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

Products that emphasize the purity or superior quality of a particular nutrient and relate that nutrient to a therapeutic or beneficial health effect or enhanced mental or physical performance are consumed for that purpose and not as a food, beverage or ingredient.

Directions for use or restrictions relating to the amount to be consumed are generally not characteristics of products that the average consumer would consider to be a food, beverage or ingredient. Such directions or restrictions indicate that the product is being consumed for a purpose other than as a food, beverage or ingredient.

The Products have been marketed as products that offer therapeutic or preventative effects and in addition to that, have very detailed suggested use instructions, warnings and restrictions. According to P-240: Application of GST/HST to Products Commonly Described as "Dietary Supplements", such marketing, instructions, warnings, and restrictions are contributing factors indicating that the Products are dietary supplements and not beverages.

The Products all claim to XXXXX. In addition, the information brochures accompanying the Products all suggest that the Products XXXXX[.] This suggests that the Products are to be consumed for their beneficial effects and to affect a particular bodily process. In fact, P-240 clearly states that, "products would be considered to be food or beverages if they would be consumed by an average consumer when food or beverages are typically consumed, such as at mealtimes or for a snack." Since it is recommended that these products be taken at a time other than mealtime, when beverages are typically consumed, it is further evidence that the Products are not beverages at all.

In addition to the above health benefits that all of the Products claim, each individual product also claims to have particular benefits, instructions and restrictions not shared by some or all of the others:

1. XXXXX This product has instructions XXXXX. This is specifically mentioned as a factor indicating that a product is in fact not a beverage pursuant to P-240.

XXXXX instructions for use also clearly recommends a serving of XXXXX per day, and further cautions that it should not be taken with XXXXX. These recommendations and cautions are again factors suggesting that the product is indeed not a beverage pursuant to P-240.

Finally, XXXXX claims to be a powerful antioxidant that prevents XXXXX and is XXXXX nutrition XXXXX. The marketing of this product clearly indicates that there are therapeutic and preventative benefits to taking XXXXX.

2. XXXXX The instructions for use of this product indicate that XXXXX should be taken XXXXX a day. It cautions that it should not be taken with XXXXX, XXXXX. Such cautions, restrictions and warnings are specifically mentioned in P-240 as factors indicating that a product is not a beverage.

XXXXX also claims to provide a cleansing effect.

3. XXXXX has specific recommended servings depending on whether you are a child, a teen, an adult or an athlete. There is also a warning XXXXX. Once again, such recommendations and warnings are indications that the product is not a beverage pursuant to P-240.

XXXXX also claims to help maintain a healthy immune system and provides increased energy.

4. XXXXX has specific recommended servings depending on whether you are a child, a teen, an adult or an athlete.

XXXXX also claims to help maintain a healthy immune system and provides increased energy.

Our analysis indicates that the Products are intended to be used for their therapeutic and health benefits and as such fall under P-240. Although the Products can be mixed with fluids and consumed by drinking, it is our position that the resultant blend is not a beverage. This is supported by the way the Products have been labelled and marketed.

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

Yours truly,

Cliff Lee
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

Legislative References:

Dear XXXXX:

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

Statement of Facts

Based upon your letter and subsequent clarification provided by telephone XXXXX our understanding of the facts, the transaction, and the purpose of the transaction is as follows:

XXXXX is a registered charity. Its function is to perform XXXXX services consisting of XXXXX the bodies of deceased XXXXX persons, covering them in plain cloth shrouds, and saying prayers for the deceased.

The deceased's body is received from place of death (e.g. hospital) and a team of XXXXX volunteers performs a XXXXX service as follows:

•   All extraneous matter is removed from the body, such as nail polish or medical devices.

•   The body is completely washed with soap.

•   A cloth shroud is placed around the body and sewn up with thread.

•   The volunteers recite prayers over the body by candlelight and place it in a casket that is not supplied by the charity.

•   The casket containing the shrouded body is then immediately transported to its final resting place. If burial is to take place the following day, volunteers take turns sitting with the body so that it is never left unattended.

•   The service is supplied only XXXXX, as needed. The ritual is required prior to burial XXXXX[.]

•   Special cloth and thread for the shrouds are purchased new and imported from one non-resident supplier, subject to normal duties and taxes. The deceased's representative cannot supply any other material for this purpose.

•   The shroud is an integral component of the ritual, and it would not otherwise be supplied to anyone for any other purpose.

•   The approximate cost of a shroud for an adult body is XXXXX.

•   The cost of soap and candles used during the XXXXX is approximately XXXXX and incidental to providing the service.

•   Currently, the XXXXX is provided for no consideration, but the deceased's representative is asked to donate any amount to help defray the total cost of providing this service. No official receipts are issued for these donations.

Ruling Requested

Whether XXXXX services performed by the volunteers of the charity for little or no consideration (equal to or less than the estimated total cost of supply) is exempt under section 1 of Part V.1 of Schedule V to the Excise Tax Act (ETA).

Ruling Given

Based on the facts set out above, we rule that the XXXXX service supplied by the charity is exempt from GST/HST under section 1 of Part V.1 of Schedule V to the ETA, since this endeavour is not one of the specific exclusions listed there under.

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

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 946-7962.

Yours truly,

Gudrun Ahsmann, C.G.A.
Charities, Non-Profit Organizations, and Educational Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

Dear XXXXX:

Thank you for your letter XXXXX (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below. Your letter was forwarded from the XXXXX Tax Services Office for our direct response to you.

All legislative references are to the Excise Tax Act (the ETA) unless otherwise noted.

Statement of Facts

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

1. XXXXX (the "Landlord") entered into a lease agreement (the "Agreement") with XXXXX (the "Tenant") in XXXXX. The lease was for the supply of certain land (municipally described as XXXXX, the "Premises") situated in XXXXX made by the Landlord to the Tenant. The term of the lease was XXXXX years.

2. The Agreement makes the following provisions:

(a) XXXXX requires the Tenant to pay to the Landlord the rent and all additional rent as set out in the Agreement.

(i) XXXXX sets out that the initial rent was XXXXX per year (payable in monthly instalments) with provisions for increasing that amount at set times during the term of the Agreement.

(ii) XXXXX requires the Tenant to pay, as additional rent, XXXXX[.]

(b) XXXXX provides that at the expiration or termination of the Agreement, the Tenant is to peaceably surrender the Premises to the Landlord, although the Tenant may remove from the Premises all the Tenant's fixtures located on the Premises.

(c) XXXXX provides that the Tenant must pay to the Landlord the full rent payable under the Agreement.

(d) XXXXX provides that the Tenant is the owner and has the right, title, interest in and right to possession of all buildings, improvements, installations, fixtures, alterations, changes or additions to the Premises notwithstanding any rule of law that may vest the title to such properties in the name of the Landlord.

3. Both the Landlord and the Tenant are registered for the GST/HST.

Ruling Requested

You are enquiring as to whether the Landlord is required to charge and collect the GST in respect of the property taxes assessed against the Premises.

Ruling Given

Based on the facts set out above, we rule that the Landlord is required to charge and collect the GST on the rent payment received from the Tenant, including any amount that the Tenant may pay to the municipality in respect of property taxes assessed against the Premises.

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

Explanation

Subsection 165(1) requires that every recipient of a taxable supply made in Canada is required to pay tax equal to 7% of the value of consideration for the supply. Where a separate amount is paid by a lessee on account of property taxes, this amount is part of the consideration for the rental of the property, even if the lessee pays the amount directly to the municipality. Since the lessee's payment is part of the consideration for a taxable supply, it is subject to GST/HST in the same way as the basic rent payable by the lessee.

While the Tenant may be responsible under the Agreement to pay property taxes to the municipality, the ultimate liability to pay the property taxes rests with the Landlord. Subsection XXXXX provides that land shall be assessed against the owner of the land. XXXXX XXXXX the person responsible for property assessments in XXXXX, interprets that provision to mean the registered owner of the land. Under the XXXXX the taxpayer is responsible for payment of property taxes. A taxpayer is defined in that Act as the person whose name is shown on the tax roll and the tax roll lists the name of the person against whom the land is assessed. As such, the Landlord, as the registered owner of the Premises, is responsible for the payment of property taxes.

Accordingly, the amount paid by the Tenant as property taxes is additional consideration for a taxable supply made by the Landlord and is subject to the GST.

Additional Information

In your ruling request, you were also seeking confirmation that no portion of the costs for building insurance, heating, maintenance repairs and general building upkeep are subject to the GST. As the Letter of Consent from the Landlord, XXXXX only authorizes us to disclose information relating to the Landlord's responsibility to collect the GST on land taxes pursuant to the Agreement, we are unable to issue a ruling on the other matters. However, for your information, we wish to point out the following.

Generally, if under an agreement between a tenant and a third party (e.g. a supplier of utilities), the tenant is liable under that agreement to pay consideration for the supply, there is no additional GST to be added to the rental payment received by the landlord from the tenant in respect of the utilities.

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

Yours truly,

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