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.

[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5

Case Number: 131923

Business Number: [...]

January 17, 2012

Dear [Client]:

Subject:

GST/HST RULING
Tax Status of Supplies made by a Municipality

Thank you for your letter of [mm//dd/yyyy] concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies made by the [...] [municipality] to [...] [ACo] and [...] [BCo].

HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.

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

Statement of Facts

Based on your letter of [mm/dd/yyyy] and additional research we understand the facts as follows:

1. The [municipality] was incorporated in [yyyy]. In [yyyy], [the municipality] [...] located in [...] [Province X].

The [municipality] is registered for GST/HST and operates under Business Number [...].

2. [...] [CCo] was formed in [yyyy] and [...] [provided] [...] [Y] to residents in [the municipality].

3. In [YYYY], [...] [Province X] [...]

[...] [CCo] was transformed into a holding company which became the owner of: [BCo] and [ACo]. [CCo] remains a holding company and operates under Business Number [...].

[BCo] and [ACo] were created pursuant to [...] by the [...] of the [municipality] as per the [municipality's] By-law No. [...] dated [mm/dd/yyyy].

[BCo] and [ACo] were [...] incorporated on [mm/dd/yyyy] and are located in [the municipality]. [BCo] supplies [...] [Y] [...] and operates under Business Number [...].

[ACo] supplies [Y] to customers within [...] including the [municipality]. [ACo] operates under Business Number [...].

[CCo], [BCo], and [ACo] file separate GST/HST returns.

4. [...] of the [municipality's] Bylaw indicates that any common shares or other securities issued by [CCo], [BCo], or [ACo] upon incorporation would be issued in the name of the [municipality]. This was confirmed in a facsimile dated [mm/dd/yyyy] [...]. The facsimile also confirmed that the [municipality] was responsible for appointing the Board of Directors of [CCo], [BCo], and [ACo].

On [mm/dd/yyyy], the Stock Transfer Register and the Shareholders' Register for [CCo] indicate that [#] Common Shares were transferred from [...] to the [municipality]. The [municipality's] Shareholders' Ledger indicates the [municipality] owns [#] Common Shares of [CCo].

The Shareholders' Register for [BCo] indicates that the [municipality] was the [...] shareholder of [#] Common Shares on [mm/dd/yyyy]. On the same day, these shares were transferred to [CCo] as supported by [BCo's] Share Transfer Register. The [municipality's] and [CCo's] Shareholders' Ledger correspond with the transfer.

The Shareholders' Register for [ACo] indicates that the [municipality] was the [...] shareholder of [#] Common Shares on [mm/dd/yyyy]. On the same day, these shares were transferred to [CCo] as supported by [ACo's] Share Transfer Register. The [municipality's] and [CCo's] Shareholders' Ledger correspond with the transfer.

As a result of these transfers, the [municipality] owns 100% shares of [CCo] and [CCo] owns 100% of the shares of [BCo] and [ACo].

[...] the [municipality's] Bylaw indicates that all the assets and assumed liabilities of the [municipality] associated with [...] [Y] and associated business would be transferred to and assumed by [BCo] and [ACo].

5. On [mm/dd/yyyy], the [municipality] wrote to the Canada Revenue Agency (CRA) requesting that [CCo], [BCo], and [ACo] be determined as "municipalities", as para-municipal organizations, for purposes of the ETA. Effective [mm/dd/yyyy], CRA granted municipal status to [CCo], [BCo] and [ACo].

6. According to your letter of [mm/dd/yyyy], the [municipality] does not own any shares of [BCo] and [ACo] and does not directly control either corporation.

In addition, the members of the Board of Directors of [BCo] and [ACo] are appointed by [CCo] and the budgets for [BCo] and [ACo] are approved by [CCo].

Ruling Requested

You would like to know whether supplies, other than specifically excluded supplies, made between the [municipality] and [BCo] and [ACo] are exempt from GST/HST pursuant to paragraph 28(a) of Part VI of Schedule V on the basis that [BCo] and [ACo] are para-municipal organizations of the [municipality].

In addition, you would like confirmation that supplies, other than specifically excluded supplies, between the [municipality] and [CCo] are exempt pursuant to paragraph 28(a) of Part VI of Schedule V on the basis that [CCo] is a para-municipal organization of the [municipality].

Ruling Given

Based on the facts set out above, we rule that supplies made between the [municipality] and [BCo] and [ACo] are not exempt under paragraph 28(a) of Part VI of Schedule V because [BCo] and [ACo] are not para-municipal organizations as that term is defined in section 1 of Part VI of Schedule V. Therefore, supplies made between the [municipality] and [BCo] and [ACo] are taxable at a rate of [#]% unless another exemption or zero-rating provision is applicable.

In addition, we rule that supplies, other than supplies of electricity, gas, steam and telecommunication services, between [...] the [municipality] and [CCo] are exempt under paragraph 28(a) of Part VI of Schedule V because [CCo] is a para-municipal organization of the [municipality] as that term is defined in section 1 of Part VI of Schedule V.

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

Explanation

Section 28 of Part VI of Schedule V exempts certain supplies between a municipal body and any of its para-municipal organizations. This section exempts:

A supply between
(a) a municipal body and any of its para-municipal organizations,
(b) a para-municipal organization of a municipal body and any other para-municipal organization of the municipal body,
(c) a regional municipality and any of its local municipalities or any para-municipal organization of any of those local municipalities,
(d) a para-municipal organization of a regional municipality and any local municipality of the regional municipality or any para-municipal organization of the local municipality, or
(e) a regional municipality or any of its para-municipal organizations and any other organization (other than a government) the designated activities of which include the provision of water or municipal services within an area over which the regional municipality has jurisdiction,
but not including
(f) a supply of electricity, gas, steam or telecommunication services made by a municipal body or a para-municipal organization, or a branch or division thereof, that acts as a public utility, or
(g) any supply made or received by
(i) a provincially established designated body,
(ii) a para-municipal organization designated under section 259 of the Act or section 22 or 23 of Part VI of Schedule V, or
(iii) another organization referred to in paragraph (e),

otherwise than in the course of the designated activities of the body or organization, as the case may be.

For purposes of this exempting provision, "municipal body" and "para-municipal organization" of a municipal body are defined in section 1 of Part VI of Schedule V. A "municipal body" means a municipality or a provincially established designated body.

Subsection 123(1) defines a "municipality" to mean:

(a) an incorporated city, town, village, metropolitan authority, township, district, county or rural municipality or other incorporated municipal body however designated, and
(b) such other local authority as the Minister may determine to be a municipality for the purposes of this Part.

Section 1 of Part VI of Schedule V defines a "provincially established designated body" to mean a body that is established by Her Majesty in right of a province and designated under section 259 of the Act, to be a municipality for purposes of that section.

Section 1 of Part VI of Schedule V outlines the criteria that must be met for an organization to be a para-municipal organization of a municipal body that is a municipality:

(a) The organization must be owned or controlled by the municipal body; and
(b) The organization must be designated under section 259, or under section 22 or 23 of Part VI of Schedule V, to be a municipality, or established by the municipality and determined under paragraph (b) of the definition "municipality" in subsection 123(1) to be a municipality for the purposes of Part IX; or
For the above purposes, an organization will be considered to be owned by a municipality if:

• The municipality owns 90% or more of the shares or capital of the organization; or
• The municipality owns the organization's assets or having control of the disposition of the organization's assets so that the assets are vested in the municipal body in the event that the organization is wound-up or liquidated.

For the above purposes, an organization will be considered to be controlled by a municipality if:

• the municipality appoints more than 50 percent of the members of the governing body of the organization (e.g., directors, governors, commissioners); and
• the municipality is responsible for reviewing and approving the organization's operating and capital budgets.

For the above purposes, an organization is eligible to be determined a municipality if:

• it is established by one or more municipalities, or by a province at the request of one or more municipalities; and
• it is owned or controlled by one or more municipalities.

[BCo] and [ACo] as para-municipal organizations
For [BCo] and [ACo] to be a para-municipal organization for purposes of paragraph 28(a) of

Part VI of Schedule V, [BCo] and [ACo] must be a body, board, commission, corporation, or other organization created by a province or a municipality that is owned or controlled by a municipality and have been determined by the CRA to be a municipality.

The [municipality] is [...] a municipality as defined in paragraph (a) of the definition of that term in subsection 123(1). [BCo] and [ACo] have each been determined by the CRA to be a municipality. [BCo] and [ACo] are corporations created by [...] of the [...] [municipality] and are therefore a body, board, commission, corporation, or other organization established by a municipality. The current issue is whether [BCo] and [ACo] are owned or controlled by a municipality. For the exemption to apply in section 28 of Part VI of Schedule V, the [municipality] itself must own all or substantially all of the shares or assets of [BCo] and [ACo] or appoint the majority of the governing body and review and approve [BCo's] and [ACo's] operating and capital budgets.

At the time the [municipality] requested para-municipal status for [BCo] and [ACo], a facsimile dated [mm/dd/yyyy] was sent from [...] to J.A. Venne (the facsimile). The facsimile indicated that the [municipality] was the sole shareholder of [CCo], [BCo] and [ACo].

However, the Shareholders' Registers for [BCo] and [ACo] both indicate that [CCo] is the sole shareholder of the [#] Common Shares issued for each company. Although the [municipality] was the original shareholder of the shares of [BCo] and [ACo] issued on [mm/dd/yyyy], the Share Transfer Register for both companies indicates a transfer of shares occurred to [CCo] later the same day. Your letter of [mm/dd/yyyy] confirms that the [municipality] does not own any shares of [BCo] and [ACo] and that [CCo] is the sole shareholder of both companies.

In addition, the Shareholder's Register for [CCo] indicates that the [municipality] is the sole shareholder of the [#] Common Shares issued for [CCo]. Your letter of [mm/dd/yyyy] confirmed this fact.

It is our view that although the [municipality] owns all the shares in [CCo], which in turn owns all the shares in [BCo] and [ACo], the [municipality] does not directly own the shares in [BCo] and [ACo] by virtue of its ownership of shares in [CCo] because the [municipality], [CCo], [BCo] and [ACo] are separate legal entities. As [CCo] is the direct owner of the shares in [BCo] and [ACo], it is our view that [CCo] is the owner of shares in [BCo] and [ACo].

According to the definition of a "para-municipal organization", the [municipality] may have ownership of [BCo] and [ACo] if the [municipality] owns the assets or controls the disposition of the assets of [BCo] and [ACo] so that the assets are vested in the [municipality] in the event that [BCo] and [ACo] are wound-up or liquidated. According to the Articles of Incorporation of [BCo] and [ACo], the holders of the Common shares shall be entitled:

(c) to receive, subject to the rights of the holders of another class of shares, the remaining property of the Corporation on the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.

In addition, [...] of the [municipality's] Bylaw states that all the assets and assumed liability of the [municipality] associated with [...] [Y] and associated business would be transferred to and assumed by [BCo] and [ACo] based on their respective operations. Therefore, it is our view that the [municipality] does not own the assets of [BCo] and [ACo].

The definition of a "para-municipal organization" requires that the organization be owned or controlled by a municipality. Paragraph (d) of the definition outlines specific criteria to be used for purposes of determining whether an organization is "controlled" by a municipality for purposes of the ETA. The municipality itself must nominate a majority of the organization's governing body, such as its Board of Directors and must approve the operating, and if applicable, the capital budget of the organization.

The facsimile indicated that the [municipality] appoints the Board of Directors. However, your letter of [mm/dd/yyyy] indicates that [CCo] and not the [municipality] appoints the Boards of Directors and approves the capital budgets of [BCo] and [ACo]. The [municipality] may have had control of [BCo] and [ACo] at the time the [municipality] requested [BCo] and [ACo] be determined as municipalities but as the [municipality] itself does not currently perform these functions it is our view that [CCo] and not the [municipality] has control of [BCo] and [ACo]. Where the [municipality] approves the budgets and nominates the directors of [CCo] it cannot be said that the [municipality] approves the budgets and nominates the directors of [BCo] and [ACo] as the [municipality], [CCo], [BCo] and [ACo] are separate legal entities and direct control by the [municipality] is not possible. Therefore, it is our view that the [municipality] currently does not have control of [BCo] and [ACo].

Based on the information provided, [BCo] and [ACo] do not meet the requirements to be a "para-municipal organization" of a municipal body as defined in section 1 of Part VI of Schedule V. Supplies from the [municipality] to [BCo] and [ACo] do not meet the conditions outlined in paragraph 28(a) of Part VI of Schedule V to be exempt and are therefore subject to tax at a rate of [...]% unless another exemption or zero-rating provision is available.

[CCo] as a para-municipal organization

[CCo] is a corporation created by the [municipality] and is therefore a corporation established by a municipality. The Shareholders' Register for [CCo] indicates that the [municipality] is the sole shareholder of the [...] [#] Common Shares issued for [CCo]. Therefore, based on the requirements in the definition of a "para-municipal organization" the [municipality] is the owner of [CCo].

As [CCo] is a corporation established and owned by a municipality and has been determined by the CRA to be a municipality, [CCo] is a "para-municipal organization" of a municipal body as defined in section 1 of Part VI of Schedule V.

Therefore, supplies between the [municipality] and [CCo] would be exempt pursuant to paragraph 28(a) of Part VI of Schedule V as supplies between a municipal body and any of its para-municipal organizations provided the supplies are not excluded from the exemption by paragraphs 28(f) and (g) of Part VI of Schedule V.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-7952. 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. Please note, we will be communicating with you shortly under separate cover concerning [...].

Yours truly,
Alison Jones LLB
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

UNCLASSIFIED

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

[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5

Case Number: 134262

February 27, 2012

Dear [Client]:

Subject:

GST/HST RULING
New GST/HST rules for pension entities

This is further to your letter of April 11, 2011 and our telephone conversation of November 7, 2011, concerning obligations and entitlements of [...] ([...] [Institution A]) and its pension plans under the Excise Tax Act ("ETA").

All legislative references are to the ETA unless otherwise specified.

Facts

1. [Institution A] has made or is required to make contributions to [#] separate defined benefit pension plans (the "DB Plans") (iFootnote 1) of which it is the administrator. [Institution A] is a "participating employer" of the DB Plans.

2. For each of the DB Plans, [Institution A] has entered into a custodial agreement under which the custodian is designated as trustee, and the assets of each DB Plan are held on the terms of a respective written trust agreement.

3. Each of the DB Plans is a "registered pension plan" under the Income Tax Act, and each of those plans governs its respective trust. Each of the DB Plan trusts are "pension entities" for purposes of the ETA.

4. None of the DB Plans are funded by listed financial institutions, and the DB Plan trusts are "qualifying pension entities".

5. Each of the DB Plans has members located in both participating and non-participating provinces.

6. [Institution A] has made or is required to make contributions to [#] defined contribution pension plans (the "DC Plans") (iiFootnote 2). Each DC Plan is a "registered pension plan" under the Income Tax Act.

7. Contributions to the DC Plans are invested in segregated funds under contracts for insurance. These contracts are not held on the terms of a trust.

8. [Institution A] is a GST/HST registrant. The DB Plan trusts are not engaged in any commercial activity and are therefore not GST/HST registrants.

9. [Institution A], as administrator of the DB Plans, enters into third party service contracts with actuaries, custodians, and investment managers. These services ("specified resources") are acquired for pension activities of the DB Plans and [Institution A] supplies them to the DB Plan trusts on a GST/HST exempt basis.

10. In addition, [Institution A] provides in-house administrative services ("employer resources") relating to the collection of pension contributions and payment of pension benefits. These employer resources are supplied to the DB Plan trusts on a GST/HST exempt basis.

Rulings Requested

1. [Institution A] is deemed under section 172.1 to have made taxable supplies of the specified resources and employer resources described in facts 9 and 10 above, and is deemed to have collected tax in respect of those deemed supplies.

2. The DB Plans may claim a rebate with respect to deemed tax paid under section 172.1, in respect of the deemed taxable supplies made under that section by [Institution A].

3. The DC Plans are not eligible for a rebate under section 261.01.

4. An input tax credit ("ITC") is available to [Institution A] for GST/HST it incurs in respect of the acquisition of the specified resources and employer resources described in facts 9 and 10.

5. Where [Institution A] makes actual supplies of specified resources and employer resources to the DB Plans that are GST/HST exempt, it may not issue a tax adjustment note ("TAN") under subsection 232.01 or 232.02.

6. A representative of [Institution A] may sign and submit Form RC4607, GST/HST Pension Entity Rebate Application and Election, in respect of the DB Plans.

Rulings Given

1. Subject to section 172.1, [Institution A] is deemed to have made taxable supplies of the specified resources and employer resources described in facts 9 and 10 above, and is deemed to have collected tax in respect of those deemed supplies.

2. Subject to section 261.01, the pension entities of the DB Plans may each claim a rebate with respect to deemed tax paid under section 172.1, in respect of the deemed taxable supplies by [Institution A].

3. The DC Plans are not eligible for a rebate under section 261.01.

4. An ITC is available to [Institution A] for GST/HST it incurs in respect of the specified resources and employer resources described in facts 9 and 10.

5. Where [Institution A] makes actual supplies of specified resources and employer resources to the DB Plans that are GST/HST exempt, it may not issue a TAN under subsection 232.01 or 232.02.

6. [Institution A] representatives may not sign or submit Form RC4607 in respect of the DB Plans. This must be done by an authorized signatory of the trust.

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

Explanation
1. Deemed taxable supplies under section 172.1
A "participating employer" of a pension plan that is a GST/HST registrant is generally deemed to have made a taxable supply where,
• under subsection 172.1(5), the employer acquires a particular property or a service (i.e., a "specified resource") for the purpose of re-supplying some or all of that property or service to a pension entity for consumption, use or supply by the pension entity in the course of pension activities of the pension plan;
• under subsection 172.1(6), the employer consumes or uses an "employer resource" for the purpose of making a supply of property or a service to a pension entity for consumption, use or supply by the pension entity in the course of pension activities in respect of the pension plan; and
• under subsection 172.1(7), the employer consumes or uses an "employer resource" in the course of pension activities of the pension plan and the consumption or use is not for the purpose of making a supply of property or a service to the relevant pension entity.

An employer that is deemed to have made a taxable supply under subsections 172.1(5), (6) or (7) is also deemed to have collected tax in respect of the deemed taxable supply, meaning that the employer must self-assess tax equal to the deemed tax collected.

However, whether an employer is deemed to have made a taxable supply and collected tax under any of subsections 172.1(5), (6) or (7) is contingent on whether the particular specified resource or employer resource is for consumption, use or supply, as the case may be, in the course of "pension activities" in respect of the pension plan.

For this purpose, a "pension activity" in respect of a pension plan is defined in subsection 172.1(1) as an activity (other than an "excluded activity") that relates to:

a) the establishment, management or administration of the pension plan or a pension entity of the pension plan; or
b) the management or administration of assets in respect of the pension plan.

An "excluded activity" is generally an activity that is normally carried on by an employer for purposes other than for administering a pension plan; accordingly, excluded activities are not considered "pension activities". Specifically, an "excluded activity" is an activity undertaken exclusively for:

a) compliance by a participating employer of the pension plan (as an issuer, or prospective issuer of securities) with reporting requirements under a law of Canada or of a province in respect of the regulation of securities;
b) evaluating the feasibility or financial impact on a participating employer of the pension plan of establishing, altering or winding-up the pension plan, other than an activity that relates to the preparation of an actuarial report in respect of the plan required under a law of Canada or of a province;
c) evaluating the financial impact of the pension plan on the assets and liabilities of a participating employer of the pension plan; or
d) negotiating changes to the benefits under the pension plan with a union or similar organization of employees.

As the specified resources and employer resources described in facts 9 and 10 are related to the establishment, management or administration of the pension plan or a pension entity of the pension plan and would not qualify as an "excluded activity", they are considered as "pension activities" for the purposes of the aforementioned deeming provisions of section 172.1. As the specified resources described in fact 9 are for supply to pension entities of the DB Plans, they will be subject to subsection 172.1(5) above. Similarly, since the employer resources described in fact 10 are for supply to pension entities of the DB Plans, they will be subject to subsection 172.1(6). Accordingly, [Institution A] is deemed to have made taxable supplies under those subsections and will be required to self-assess in respect of the subject specified resources and employer resources. The amount of the self-assessment must be calculated with reference to the fair market value of the resource in question (iiiFootnote 3) . This calculation is explained in Part IV of GST/HST Notice 257, The GST/HST Rebate for Pension Entities. Example 11 of that Notice demonstrates the calculation with reference to the deemed tax collected under subsection 172.1(5).

2. Rebates under section 261.01

As all of the pension entities in respect of the DB Plans are qualifying pension entities, they are eligible for a rebate, subject to section 261.01. The amount of the rebate is equal to 33% of all "eligible amounts", which generally includes actual tax incurred by the pension entity as well as the deemed tax paid by the pension entity under section 172.1.

The definition of "eligible amount" excludes "recoverable amounts". A "recoverable amount" is generally an amount of tax that is included in determining an ITC of the pension entity for the claim period. It is also an amount for which it can reasonably be regarded that the pension entity has obtained or is entitled to claim another rebate, refund or remission, or an amount that can be reasonably regarded as having been included in an adjustment resulting from the issuance of debit notes or the receipt of credit notes. For complete information on eligible amounts and recoverable amounts, please see the respective definitions included in Part I of GST/HST Notice 257.

Please note that the eligible amount for a particular pension entity will vary depending on whether or not the entity is a selected listed financial institution ("SLFI"). The circumstances under which a particular pension entity will be considered to be an SLFI are discussed in the additional information set out in pages 9 through 14 of this letter.

Where the pension entity in question is not an SLFI, an eligible amount generally includes GST/HST that is paid or payable by the pension entity on its purchases of goods and services during a claim period of the entity as well as tax that is deemed to have been paid by the pension entity under any of subsections 172.1(5), (6) and (7). Under those deeming provisions, a pension entity that is not an SLFI is deemed to have paid both the federal and provincial parts of deemed tax collected by the relevant employer. Further information on the calculation of the federal and provincial parts is included in Part IV of GST/HST Notice 257.

However, where the pension entity is an SLFI throughout a claim period, an "eligible amount" would only include amounts of GST (or the federal part of the HST) paid by the pension entity on its purchases of goods and services. Also, while an "eligible amount" for an SLFI pension entity would include the tax that is deemed to have been paid under subsections 172.1(5), 172.1(6) and 172.1(7), that tax would only include the federal part of the deemed tax paid under those provisions. (We note that, even though the SLFI pension entity would only be deemed to have paid the federal part, the employer that is deemed to have made the taxable supply will be deemed to have collected both the federal and provincial parts.)

Further, SLFIs are required to use the special attribution method ("SAM") formula in proposed section 225.2 and the Selected Listed Financial Institutions Special Attribution Method (GST/HST) Regulations (the "draft SLFI Regulations") to calculate its tax liability for the provincial part of the HST for participating provinces. An SLFI pension entity would not be permitted to claim a rebate in respect of the actual provincial part of the HST paid or payable by the SLFI on its own purchases or on the provincial part of the deemed tax calculated under section 172.1. However, the SAM formula includes adjustments for amounts for the provincial part of the HST that would otherwise be claimed through a GST/HST rebate.

3. The DC Plans

As indicated previously, only a qualifying pension entity may be eligible for a rebate under section 261.01. Pursuant to the definition in subsection 172.1(1), a "pension entity" of a pension plan includes an entity of the plan that is a person referred to in paragraph (a) of the definition of "pension plan". Under paragraph (a), "pension plan" means a registered pension plan (as defined in subsection 248(1) of the Income Tax Act) that governs a person that is a trust or that is deemed to be a trust for the purposes of that Act.

Given that the insurance contracts in respect of the DC Plans are not held on the terms of a trust, a "pension entity" would not exist in respect of the DC Plans. Accordingly, there would be no rebate available for pension expenses pertaining to the DC Plans. Moreover, since the deeming provisions of section 172.1 are predicated upon the existence of a "pension entity" in respect of a particular plan (ivFootnote 4) , the employer would not be deemed to have made taxable supplies or to have collected tax under that section.

4. Employer ITCs

Pursuant to section 169, ITCs may be available for GST/HST paid or payable to the extent that a registrant acquires inputs for consumption, use or supply in the course of the commercial activities of the registrant. A "commercial activity" is defined, in part, in subsection 123(1) as "...a business carried on by the person... except to the extent to which the business involves the making of exempt supplies by the person".

An employer that makes a taxable supply of a specified resource or an employer resource will have done so in the course of a commercial activity (vFootnote 5) of the employer, and so would generally be entitled to an ITC in respect of tax paid or payable by the employer in respect of the particular resource. However, where the employer makes an exempt supply of a resource, the employer would not be engaged in a "commercial activity" in relation to that supply and so would not be entitled to a corresponding ITC.

As previously discussed, an employer that makes a taxable supply of a particular resource is considered to have done so in the course of a commercial activity, which will, subject to section 169, give rise to an ITC in respect of the tax paid or payable by the employer in respect of the resource. Therefore, notwithstanding that an ITC would not generally be available when an employer makes an actual supply that is exempt, the employer could nevertheless claim an ITC for tax paid or payable in respect of the acquisition of a particular resource where section 172.1 deems the employer to have made a taxable supply of the resource. Since the employer is deemed to have made the taxable supply at its fiscal year end, it would only be entitled to claim the relevant ITC in calculating its net tax for the reporting period in which the deemed supply occurs.

5. Issuance of a TAN

Generally, where an employer is deemed to have made a taxable supply of a specified resource or an employer resource to the pension entity under subsection 172.1(5) or 172.1(6), but has also charged tax on an actual supply of the same property or service to the pension entity, sections 232.01 or 232.02 allow the employer to reduce its net tax when it issues a TAN in respect of the resource to the pension entity. However, where [Institution A] has made an actual supply to a DB Plan that is exempt, sections 232.01 and 232.02 would preclude the issuance of a TAN in respect of the supply.

6. Authorized representatives

[Institution A] representatives may not sign or submit Form 4607 for pension entity rebates of the DB Plans; rather, only an authorized representative of the pension plan trust may do so. Generally, an authorized representative is someone who has legal authority, such as the trustee, to sign documents on behalf of the trust.

Additional Information
1. Information requirements under subsection 172.1(8)

You asked us to confirm what information must be provided to pension entities under subsection 172.1(8) and whether this information must be submitted to the Minister.

As you are likely aware, if any of the deeming rules of subsections 172.1(5) to (7) apply to a particular employer, subsection 172.1(8) requires the employer to provide prescribed information, in prescribed form and manner, to the particular pension entity that is deemed to have paid tax under these rules. For purposes of subsection 172.1(8), the information set out below must be provided to a pension entity by an employer that is subject to the aforementioned deeming provisions. Note that there is no requirement for this information to be provided to the Minister directly, although it must be made available upon request.

The following information concerning a deemed supply of a specified resource made under subsection 172.1(5) is required for purposes of subsection 172.1(8) above.

• The name of the employer and business number, if applicable.

• The name of the pension entity and corresponding pension plan number.

• A description of the specified resource sufficient to identify it and the date that the employer acquired it.

• The fair market value ("FMV") of the specified resource.

• The federal part (viFootnote 6) of the deemed tax paid on the deemed taxable supply of the employer resource (FMV of specified resource × 5%).

• Where the pension entity is not an SLFI, the provincial part (viiFootnote 7) of the deemed tax paid on the deemed taxable supply of the employer resource (FMV of specified resource × sum of the relevant provincial factors).

• Where the pension entity is not an SLFI, the provincial factors (viiiFootnote 8) used to calculate the provincial part of HST.

The following information about a deemed supply of an employer resource made under subsections 172.1(6) and (7) is required for purposes of subsection 172.1(8) above.

• The name of the employer and business number, if applicable.

• The name of the pension entity and corresponding pension plan number.

• A description of the employer resource sufficient to identify it.

• The federal part of the deemed tax paid on the deemed taxable supply of the employer resource (multiply the following three items):

• the fair market value ("FMV") of the employer resource,
• the extent (expressed as a percentage) to which the employer (during times in the fiscal year when the employer was both a registrant and a participating employer) consumed or used the employer resource during the fiscal year for the purpose of making the pension supply, and
• The GST or federal part of HST.

• Where the pension entity is not an SLFI, the provincial part of the deemed tax paid on the deemed taxable supply of the employer resource (multiply the following three items):

• the fair market value ("FMV") of the employer resource,
• the extent (expressed as a percentage) to which the employer (during times in the fiscal year when the employer was both a registrant and a participating employer) consumed or used the employer resource during the fiscal year for the purpose of making the pension supply, and
• the provincial factor.

2. Selected listed financial institutions and qualifying small investment plans

As requested in your submission, we wish to elaborate on the GST/HST reporting requirements of registrant and non-registrant selected listed financial institutions ("SLFIs") and the circumstances under which a pension entity may be considered an SLFI for purposes of the ETA.

SLFI - definition

Under proposed subsection 225.2(1) a financial institution is an SLFI throughout a reporting period in a fiscal year that ends in its particular taxation year if the financial institution is:

• a listed financial institution described in any of subparagraphs 149(1)(a)(i) to (x) of the ETA during the particular taxation year; and
• a prescribed financial institution.

A pension entity of a pension plan that is an investment plan and has one or more plan members residing in an HST province and one or more plan members residing in any other province would generally be considered to be an SLFI under proposed subsection 225.2(1). However, there is an exception to this rule; i.e., when a pension entity is not a prescribed financial institution as set out in section 11 of the draft SLFI Regulations for purposes of proposed subsection 225.2(1).

In general, a qualifying small investment plan (QSIP) that, at any time in the taxation year, has a permanent establishment in a participating province and any other province is not a prescribed financial institution and would not be an SLFI, provided that it does not have an election in effect under section 15 of the draft SLFI Regulations to be an SLFI (Form RC4606, Election or Revocation for a Qualifying Small Investment Plan to be Treated as a Selected Listed Financial Institution).

Based on subsection 9(2) of the draft SLFI Regulations, a pension entity would generally be a QSIP for a fiscal year if the total of its "unrecoverable tax amounts" for all of its reporting periods in its immediately preceding fiscal year is equal to or less than $10,000 on an annualized basis. The pension entity's unrecoverable tax amount for a reporting period of the fiscal year is generally the sum of the GST that became payable by the pension entity (or was paid without having become payable) during the reporting period minus ITCs of the pension entity claimed in its return filed for the reporting period. For pension entities, this unrecoverable GST calculation includes the GST that the pension entity is deemed to have paid under section 172.1 (i.e., the federal part of the deemed tax collected by a participating employer of the pension plan under that section) where the fiscal year begins after January 28, 2011.

It is important to note that, for a particular fiscal year, a QSIP would be an SLFI if the QSIP was an SLFI throughout either one of its two immediately preceding fiscal years, was not a QSIP for either one of the two immediately preceding fiscal years, and was not an SLFI throughout the third immediately preceding fiscal year unless it has applied under section 16 of the draft SLFI Regulations not to be an SLFI (Form RC4612, Application to Not be Considered a Selected Listed Financial Institution).

Also, based on section 14 of the draft SLFI Regulations, a pension entity would not be an SLFI where less than 10 per cent of the total plan members of the pension entity are resident in participating provinces and, generally, the total value of the actuarial liabilities of a defined benefits plan or the total assets of a defined contribution plan attributable to plan members resident in the participating provinces is less than $100,000,000. For this purpose and other provisions in the draft SLFI Regulations, a "plan member" of an investment plan that is a pension entity of pension plan is an individual who has a right, either immediate or in the future and either absolute or contingent, to receive benefits from the pension plan.

Registration and Reporting requirements of an SLFI

Where a particular pension entity is an SLFI, the entity is required to calculate its liability for the provincial part of the HST by using the special attribution method ("SAM") formula and then make an adjustment to its net tax calculation. This net tax adjustment must be made for each reporting period in which the entity is an SLFI.

Generally an SLFI engaged exclusively in making supplies of exempt financial services is not required to register for GST/HST purposes. However, an SLFI pension entity that has made a reporting entity election, a tax adjustment transfer election or a consolidated filing election is required to register effective the day the particular election comes into effect. It is important to note that where an SLFI pension entity is party to a consolidated filing election, it meets its requirement to be registered by being a member of a consolidated group of SLFI investment plans that is registered.

An SLFI that is resident in Canada may voluntarily register regardless of whether the SLFI is engaged in commercial activities or making taxable supplies, pursuant to subsection 240(3). For more information on the registration requirements for SLFI investment plans please refer to GST/HST Notice 265, GST/HST Registration for Listed Financial Institutions (Including Selected Listed Financial Institutions).

If the SLFI pension entity is a registrant, its reporting period is a fiscal year (i.e., a registrant SLFI that has not made an election under section 246 or 247 for monthly or quarterly reporting periods). An annual filer that is an SLFI is required to file Form GST494, Goods and Services Tax/Harmonized Sales Tax Final Return for Selected Listed Financial Institutions, within six months after its fiscal year. Please note that where a person is an SLFI that is an annual filer, they are not required to file a Form GST34, Goods and Services Tax/Harmonized Sales Tax (GST/HST) Return for Registrants. In addition, the SLFI may have to pay quarterly installments.

Where an SLFI pension entity has made an election to be a monthly or quarterly filer, it will be required to file Form GST34 for each reporting period as an interim return, and make an interim net tax payment or claim an interim net tax refund for each period. The interim GST34 return must be filed within one month after the end of the reporting period along with a payment, where required. To reconcile the interim net tax with the actual net tax, the SLFI pension entity would also be required to complete and file Form GST494, Goods and Services Tax/Harmonized Sales Tax Final Return for Selected Listed Financial Institutions, and either remit any additional amount owing or claim a refund of any excess amount previously remitted. The GST494 return must be filed within six months after the entity's fiscal year-end.

If the SLFI pension entity is not a GST/HST registrant, it will file Form GST62, Goods and Services Tax/Harmonized Sales Tax (GST/HST Return (Non-personalized) for each calendar month as an interim return, and make an interim net tax payment or claim an interim net tax refund for each period. The interim GST62 return must be filed within one month after the end of the month along with a payment, where required. Again, to reconcile the interim net tax with the actual net tax, the SLFI pension entity would complete and file Form GST494, and either remit any additional amount owing or claim a refund of any excess amount previously remitted. The GST494 return must be filed within six months after the entity's fiscal year-end. Under proposed section 244.1 of the ETA, a pension entity of a pension plan that is an SLFI is required to have fiscal years that are calendar years for any fiscal year that ends after 2010.

For a detailed explanation of the reporting requirements for an SLFI, please consult GST/HST Guide RC4050, GST/HST Information for Selected Listed Financial Institutions.

Reporting requirements of a non-SLFI

If a particular pension entity were not an SLFI, it would not calculate its net tax using the SAM formula, nor would it file a GST494 return. Instead, where the non-SLFI pension entity is a registrant, it would simply calculate its net tax for each of its reporting periods using Form GST34. If the non-SLFI entity were not a registrant, it would not be required to file either of the aforementioned forms. However, it would be required to file a GST62 return for each reporting period for which net tax is remittable within one month after the end of the reporting period.

Based on proposed changes to the Financial Services (GST/HST) Regulations, only a pension entity of a pension plan that is a registrant and not an SLFI may be a reporting institution and required to file Form GST111 Financial Institution GST/HST Annual Return Information Return within six months of its fiscal year end, pursuant to section 273.2 of the ETA. For this purpose, a "reporting institution" is a person where the total of all amounts, each of which is an amount included in computing, for the purposes of the Income Tax Act, the person's income, or, if the person is an individual, the person's income from a business for the person's last taxation year that ends in the fiscal year, exceeds the amount determined by the following formula:

$1 million x A/365

(where A equals the number of days in the taxation year).

3. Provincial attribution percentage

You also asked for information on the calculation of the provincial attribution percentage for a pension entity of a defined benefits plan.

The term "provincial attribution percentage" is relevant for pension entities that are SLFIs. As previously discussed, SLFI pension entities are required to calculate their liability for the provincial part of the HST using the aforementioned SAM formula.

A pension entity's "provincial attribution percentage" is represented by Element C of the SAM formula, and must be calculated for each participating province (i.e., British Columbia, New Brunswick, Newfoundland and Labrador, Nova Scotia and Ontario) in which the entity has a permanent establishment, such as a province in which a plan member of the SLFI pension entity is resident. Element C of the SAM formula is based on the pension entity's provincial attribution percentage for a participating province for the immediately preceding taxation year, unless the pension entity elects otherwise. This provincial attribution percentage would also be used to calculate the "provincial pension rebate amount" of an SLFI pension entity when it makes an election to share a pension entity rebate with a participating employer.

Since there are no pension entities with respect to [Institution A's] DC Plans, we will restrict our discussion of the provincial attribution percentage calculation as it applies to defined benefits plans generally. A particular pension entity of a defined benefits plan would be required to perform this calculation, but only if it is an SLFI (as discussed above).

An SLFI pension entity of a defined benefits plan is required to use the formula in section 38 of the draft SLFI Regulations to calculate its provincial attribution percentage for each participating province. The provincial attribution percentage of a pension entity of a defined benefits plan is, in general, determined by dividing the actuarial liabilities of the plan that are reasonably attributable to members of the plan resident in the province by the total actuarial liabilities of the pension plan reasonably attributable to plan members resident in Canada.

Non-resident plan members

An SLFI pension entity of a pension plan is required to treat non-resident plan members as plan members resident in a non-participating province in Canada when calculating its provincial attribution percentage, unless the SLFI pension entity elects to exclude these non-resident plan members from the calculation of its provincial attribution percentage by making an election under proposed subsection 225.4(7) using Form RC4610, Election and Revocation of an Election to Exclude Non-Resident Investment Holdings from the Calculation of the Provincial Attribution Percentages.

Plan member residency unknown

In general, an SLFI pension entity of a defined benefits plan would be required to obtain residency information for plan members for which all or substantially all (i.e., 90% or more) of the value of the actuarial liabilities are reasonably attributable. However, the formula in subsection 38(1) of the draft SLFI Regulations accounts for situations where the plan member residency information available is less that 90%. Since a plan member is an individual, under section 6 of the draft SLFI Regulations, a plan member's province of residence is the individual's principal mailing address in Canada.

In general, the part of the formula in paragraph 38(1)(a) that is in the last set of the square brackets of element A accounts for actuarial liabilities that are unallocated to plan members because the plan member's province of residence is unknown. In general, the value up to 90% of the actuarial liabilities that are reasonably attributed to these plan members is allocated to the selected province which is the participating province with the highest tax rate on the first day of the fiscal year (currently Nova Scotia).

For example, consider a pension entity of a defined benefits plan that does not have plan members in the participating province with the highest tax rate (referred to in the SLFI Regulations as a "selected province") but does not know the residencies of all plan members. If the actuarial liabilities reasonably attributable to plan members for whom their province of residence is known, on December 31 of the fiscal year, represents 60% of the actuarial liabilities held in the plan at the attribution point, the provincial attribution percentage for the selected province is 30%. This is as a result of the application of the part of the formula that is in the last set of the square brackets of element A of paragraph 38(1)(a).

4. Penalties

Lastly, you ask whether there would be any penalty if a pension entity that is a "specified investor" were to provide its "investor percentage" (described in section 30 of the draft SLFI Regulations) to an SLFI distributed investment plan.

Under subsection 55(3) of the draft SLFI Regulations, if a pension entity (other than an individual or specified investor) receives a written request from an SLFI distributed investment plan in which it holds investments, it is required to provide the SLFI distributed investment plan with:

• its investor percentage calculated in accordance with section 30 of the draft SLFI Regulations for every participating province as of September 30 of the calendar year set out in the request; and
• the number of units held on that day (September 30) in the SLFI distributed investment plan and, if applicable, in each series of the plan.

This information must be provided to the plan on or before the particular day that is the later of:

• November 15 of that calendar year; and
• 45 days after the day on which the unit holder received the request.

The information requirements under subsection 55(3) do not currently apply to specified investors. Further, there is no penalty that would apply where a pension entity that is a specified investor provides its investor percentage to an SLFI distributed investment plan.

However, where a pension entity that is not a specified investor fails to satisfy the information requirement under subsection 55(3), penalties are proposed under subsection 55(8). Specifically, where any of these persons fail to provide the information requested by the SLFI distributed investment plan or misstates such information, the person is subject to a penalty for each such failure equal to the lesser of:

• $10,000; and
• 0.01% of the total value, on September 30 of the calendar year set out in the request, of the units of the plan in respect of which the person was required to provide information under any of subsections 55(3) to (5) of the draft SLFI Regulations.

However, as outlined in Part 7 of the Draft Regulations Amending Various GST/HST Regulations released January 28, 2011, section 55 of the draft SLFI Regulations applies in respect of a reporting period of a person that ends on or after July 1, 2010, except that no person is subject to a penalty under the draft SLFI Regulations in respect of information that is required to be provided to an SLFI distributed investment plan on or before the day on which the draft SLFI Regulations are published in the Canada Gazette, Part II.

Note that under subsection 55(6) a pension entity may also be required to provide its investor percentage to a SLFI distributed investment plan if it is a qualifying investor.

For more information on provincial attribution percentages, information requirements related to holding investments in SLFI distributed investment plans (including the definition of "investor percentage") and the related penalties, and other rules that apply to SLFI pension entities discussed in this letter, please see GST/HST Technical Information Bulletin B-107, Investment Plans (Including Segregated Funds of an Insurer) and the HST and GST/HST Notice 259, Information Requirements Related to Investments in Selected Listed Financial Institution Distributed Investment Plans (other than Exchange-Traded Funds or Exchange-Traded Series).

With the exception of the rulings provided above, the foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations (including the draft SLFI Regulations), or our interpretative policy could affect these views.

We trust that this information will be of assistance. If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-8816.

Yours truly,
Paul Hawtin
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
i 1 [...]
ii 2 [...]

iii 3 Note that if the employer resource was consumed during the fiscal year for the purpose of making the pension supply, the FMV of the employer resource is determined at the time the employer began consuming the employer resource in the fiscal year. However, where the employer resource is used but not consumed, the FMV must be calculated on the use, as determined on the last day of the fiscal year. For a discussion on the meaning "consumption" and "use", please refer to paragraphs 16 and 17 of GST/HST Memorandum 8.1, Input Tax Credits: Eligible Input Tax Credits.

iv 4 Subsections 172.1(5) and (6) will only apply if the employer has made an actual supply of a specified resource or an employer resource to a pension entity. Subsection 172.1(7) applies where the employer uses or consumes an employer resource in the course of pension activities in respect of a "pension plan", which is defined to require a registered pension plan to govern a person that is a trust or that is deemed to be a trust for purposes of the Income Tax Act.

v 5 A "taxable supply" is defined in subsection 123(1) to mean "...a supply that is made in the course of a commercial activity".

vi 6 Please see section 1 of Part IV of GST/HST Notice 257.

vii 7 Please see section 2 of Part IV of GST/HST Notice 257.

viii 8 Please see the definition of "provincial factor" in Part IV of GST/HST Notice 257.

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UNCLASSIFIED

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

[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5

Case Number: 136649

Business Number: [...]

March 21, 2012

Dear [Client]

Subject:

GST/HST RULING
Tax status of the supply of [...] [XYZ Juice]

Thank you for your letter of June 27, 2011, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of [...] [XYZ Juice] [(the Product)].

HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.

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

Statement of Facts

We understand the facts to be as follows:

1. [...] (the Company) supplies [XYZ Juice] product line [...]. The Product is comprised of [...] which are supplied in varying combinations.

2. The Product is known generically as [...]
3. The Product is supplied in varying combinations [...]
4. [...] [Ingredients described]
5. [...] [Quality of ingredients described]
6. The promotional information [...] taken from the Company's website is as follows: [...]
7. [...]
8. According to the Company, [...] [Method of consumption described]
9. The Company states the following about the Product: [...] [Benefits described]

10. The specific benefits of the Product as listed on the Company's Web site are: [...].

11. [...] [Caloric content of the Product described]

12. Pricing of the Product depends upon customer location and [...].

13. [...].

14. The Company is [...]

15. The Product is not a meal replacement, a nutritional supplement or a formulated liquid diet under the Food and Drug Regulations.

Ruling Requested

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

Ruling Given

Based on the facts set out above, we rule that supplies of the Product are taxable at the HST rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.

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

Explanation

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

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

Products that are labelled and/or marketed for the consumption of certain ingredients (nutritive or otherwise), or products that place emphasis on perceived benefits of consumption (for example, therapeutic or preventative effects, or enhancing performance or physique) are not considered products that an average consumer would ordinarily purchase in the course of buying food or beverages. Products of this sort are considered dietary supplements and are consumed for actual or perceived health benefits. Therefore, these products would not be zero-rated basic groceries for the purposes of Part III of Schedule VI to the ETA.

Dietary Supplements

Memorandum 4.3 describes dietary supplements as; supplies consumed for their therapeutic or preventative effects, or to achieve specific beneficial effects related to performance or physique. Food and beverages are usually consumed by an average person to sustain or maintain life, to allay hunger or thirst, or for enjoyment. Products commonly referred to as dietary supplements are not considered to be basic groceries and are not within the scope of section 1 of Part III of Schedule VI.

Dietary supplements may be made from natural or synthetic ingredients and include products such as vitamins, minerals, tonics, fibre, protein, amino acids, fatty acids, enzymes, herbal supplements, or compounds derived from plant or animal products. Dietary supplements are available in various forms including, but not limited to, tablet, pill, capsule, powder, liquid, gel, wafer and concentrates.

Info Sheet GI-001 Products Commonly Described as Dietary Supplements

The following factors may indicate that a product is not a basic grocery item. The factors are not listed in any particular order and there is no intent to weigh one more heavily than another.

• The label or marketing material refers to the product as a "dietary supplement" or "supplement".

• The label or marketing material claims that the product has a therapeutic or preventive effect, enhances mental or physical performance or enhances physique.

• The label or marketing material emphasizes a particular nutrient that is not commonly regarded as an ingredient to basic groceries; for example, whey protein isolate or chlorophyll. The product may also emphasize the purity or source of the nutrient.

• The label or marketing material indicates the dosage size and how often the product should be taken. There may also be warnings advising certain people such as children or pregnant women not to take the product, or that the product is to be taken only as directed by a physician.

• The product has a Drug Identification Number (DIN), a Drug Identification Number - Homeopathic Medicine (DIN-HM), or a Natural Products Number (NPN).

• The product lists the active or medicinal ingredients.

• The product is compared to other products that are not considered a food, beverage or ingredient. For example, a product in powder form may be compared to a product in pill form.

• The label or marketing material focuses on the benefits to be derived from taking the product.

• The product is in a form not commonly associated with food, beverages or ingredients, for example, pills, capsules, tablets, gels, liquids in eyedropper bottles, fibres, wafers, powders and concentrates.

• In sales catalogues or stores, the product is not placed with products that are commonly recognized as foods, beverages or ingredients. The product may be placed with non-prescription drugs.

The Product has the following factors that are indicative of it being a dietary supplement: [...]

The Product does not label itself a dietary supplement, it labels itself as [...] that is to be taken during a fast, however in special circumstances it is stated that it can be taken as a supplement to a healthy diet. The special circumstances are where the product to be consumed by children or women who are pregnant. Since [...] is below the recommended daily intake of calories it is advised that the Product be used in conjunction with a healthy diet. In addition, those with diabetes or on medications are advised to consult first with their doctor.

The focus of the Product's marketing is that consumption of the Product has perceived therapeutic effects, enhances mental and physical performance amongst other benefits.

Products that qualify as formulated liquid diets, meal replacements, or nutritional supplements under the Food and Drug Act and Regulations are considered basic groceries for GST/HST purposes and are zero-rated under section 1 of Part III of Schedule VI. All supplies of formulated liquid diet, meal replacement and nutritional supplement products are zero-rated (except when sold from a vending machine). The product is not a formulated liquid diet, a meal replacement or a nutritional supplement under those regulations.

On balance, we conclude that the Product is a dietary supplement and the supplies of the Product are subject to the GST/HST at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories. Products that perform similar cleansing functions and are in different formats, such as pill or capsule format, are also considered dietary supplements and supplies of these products are also subject to the GST/HST.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-5124. 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,
Angela Stachowski
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

UNCLASSIFIED

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

[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5

Case Number: 137942

Business Number: [...]

March 8, 2012

Dear [Client]:

Subject:

GST/HST RULING
Payment made under a termination agreement

Thank you for your letter of August 12, 2011, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a payment made under a termination agreement.

HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.

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

Statement of Facts

Our understanding of the facts based on your submission and accompanying documents is as follows:

1. [...]([...][Company X]) is based in [...][City 1, Province A] and is registered for GST/HST purposes with Business Number [...].

2. On [mm/dd/yyyy], [Company X] entered into [...] (Supply Agreement) with [...]([...][Company Y]), a GST/HST registrant based in [...][City 2, Province B]. As per the Supply Agreement, [Company X] was to supply and deliver to [Company Y] [...] (the Equipment) and to provide [...] services following the delivery of the Equipment for the total contract price of $[...].

3. As per the Supply Agreement, [Company X] was to invoice (including applicable GST and PST [provincial sales tax]) [Company Y] as per the milestones and schedules agreed. Payments were to be made in instalments and by [mm/dd/yyyy], [Company Y] had paid approximately $[...] of this amount. The GST collected on the milestone payments from [Company Y] has been remitted to Canada Revenue Agency (CRA). [Company Y] provided a certificate of exemption pursuant to the [...] Act of [...][Province B] relieving the PST.

4. [Company X's] parent company [...] issued the [...] and the [...] (together the Guarantees) in favour of [Company Y], the originals of which, were provided to [Company Y].

5. On [mm/dd/yyyy], [...] in respect of [Company Y] [...].

6. On [mm/dd/yyyy], [Company X] filed a claim with [...] in the amount of $[...] plus interest at [...]% per annum for the sums owing to [Company X] as a result of [Company Y's] failure to fulfill its obligations under the Supply Agreement.

7. On [mm/dd/yyyy], [Company X] and [Company Y] entered into a termination agreement for the purpose of release from the Supply Agreement and to settle all outstanding claims. The Termination Agreement was supported by [...].

8. Notwithstanding that the Termination Agreement set out that as of [mm/dd/yyyy], title in the Equipment had not been transferred to [Company Y] and the Equipment was still in possession of [Company X], with the exception of [...] stored in [Province B], you submit that, since the equipment was paid for, the title of the Equipment vested with [Company Y] with the majority stored at a [Company X] facility in [...][Country X] (the exception consisting of [...] valued at $[...]) on behalf of [Company Y]. This was due to the delay of [Company Y] not to ship the equipment.

9. [...] while the Supply Agreement was in force, [Company X] had possession and ownership of the equipment in [Company X's] storage facilities in [Country X] on the unpaid amounts stipulated in the Agreement. Furthermore, the Supply Agreement stipulates that title on the Equipment items stored in [Country X] passed to [Company Y] as and when payments were received from [Company Y].

10. The Termination Agreement included a payment of $[...] (the Payment) from [Company X] to [Company Y] and according to the Termination Agreement, the payment was to include any and all applicable taxes, without limitation of federal and provincial sale taxes.

11. According to the Termination Agreement:

• In consideration of the Payment, [Company X] and [Company Y] are to execute the [...][(Transfer Document)] (Appendix [...]) and a [...][(Release Document)]

(Schedule [...]).

• According to the [Release Document], [Company Y], generally, is to waive, release and discharge [Company X] from all manner of rights, actions, causes of action, etc. which [Company Y] ever had, now has, or may in the future have against [Company X] for or by reason of: the Supply Agreement, the Equipment, and the Guarantees.

• According to the [Transfer Document], [Company Y], generally, agreed to assign, transfer, convey to [Company X] all of its rights, title and interests in the Equipment. [...]. The [Transfer Document] shall be governed by the laws of [...][Province A] and does not contain any mention of delivery, other than delivery of the [...][Equipment stored in Province B] as described above.

12. Finally, the Termination Agreement sets out that in consideration of the payment, [Company Y] is to remit the originals of the Guarantees to [Company X] and to deliver the [Equipment stored in Province B] to [Company X].

13. According to additional correspondence from [Company X] and its representative to CRA:

• for the period [mm/dd/yyyy] to [mm/dd/yyyy], since pursuant to the Termination Agreement, the payment of $[...] "includes any and all applicable taxes, including without limitation, the federal and provincial sale taxes", tax at [...]% was included in the payment [...][Direct quote] thus supporting the input tax credit (ITC) claimed on the payment to [Company Y] ([#] of $[...] = $[...]).

• [Company X] claimed the ITC of $[...] despite [Company Y] not issuing an invoice stipulating the amount of [...][GST/HST] charged and collected.

Ruling Requested

You would like to know if [Company X] is entitled to claim an ITC as a fraction of the [#] on the payment made to [Company Y] under the Termination Agreement.

Ruling Given

Based on the facts set out above, we rule that [Company X] is not entitled to claim an ITC on the payment made to [Company Y] under the Termination Agreement.

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

Explanation

Generally, every recipient of a taxable supply made in Canada shall pay tax calculated at the rate of 5% on the value of the consideration for the supply (15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador and 12% in British Columbia) unless the supply is zero-rated. Pursuant to subsection 165(3), the tax rate in respect of a zero-rated supply (i.e., a supply included in Schedule VI) is 0%.

Subsection 182(1) of the ETA may apply where, as a consequence of a breach, modification or termination of an agreement for the making of a taxable supply (other than a zero-rated supply) of property or a service in Canada by a registrant, an amount is paid or forfeited to that registrant otherwise than as consideration for that supply. Where subsection 182(1) applies, the amount paid is deemed to be a tax included amount. Subsection 182(1) does not apply to the payment made under the Termination Agreement as the payment was not paid or forfeited to a registrant as a consequence of a breach modification or termination of an agreement for the making of a taxable supply by the registrant. Where subsection 182(1) does not apply, generally a damage or penalty payment is not consideration for a supply, as it is compensatory or punitive in nature, and not given in exchange for a supply of property or services by another party. Such a payment would not be subject to GST/HST, even if the payee agrees to release the payer from further liability.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (902) 426-6940. 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,
Nancy Jardine
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

UNCLASSIFIED

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

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
July 14, 2009

Case Number: 96454

Subject:

GST/HST RULING
Consulting Services Supplied by a Polysomnographic Technologist

Dear XXXXX:

This letter is in reply to your XXXXX and XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the consulting services supplied by your client, XXXXX, under contract to the XXXXX located at the XXXXX. It is also further to our letter of XXXXX (case number XXXXX) on this matter. We apologize for the delay in our response.

You advised that XXXXX is a polysomnographic technologist who works as an independent consultant. Your request concerns the interpretation of section 10 of Part II of Schedule V to the Excise Tax Act (the ETA). We understand that you would like us to review the letter of XXXXX, in which it is stated that the supply of polysomnographic services by a registered polysomnographic technologist to a health care facility would not fall within the scope of section 10 of Part II of Schedule V and that since no other exemptions apply, this supply is taxable.

After careful consideration of the additional information you provided, we are confirming the statements in our letter of XXXXX that polysomnographic services supplied to a health care facility do not fall within section 10 of Part II of Schedule V. In addition, as requested we are providing you with this GST/HST ruling.

HST applies at the rate of 13% in the participating provinces of Nova Scotia, New Brunswick and Newfoundland and Labrador. GST applies at the rate of 5% in the remaining provinces and territories.

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

Statement of Facts

You included the following documents with your request:

• XXXXX,

XXXXX.

• XXXXX.

On the basis of your letter, the above-noted documents and our research, we understand the facts as follows:

1. XXXXX has the status of an independent consultant associated with the XXXXX.

2. XXXXX is a polysomnographic technologist (sleep study technologist) who is certified as a sleep specialist in XXXXX.

3. XXXXX is not a "medical practitioner" as that term is defined in the ETA as he is not entitled under the laws of a province in Canada to practise the profession of medicine.

4. In Canada, a person may obtain a Registered Polysomnographic Technician Certificate from various colleges. Polysomnography program graduates assist in the diagnosis and treatment of disorders of sleep and daytime alertness that include narcolepsy, sleep apnoea, insomnia and many others. The program prepares the graduate to operate a variety of sophisticated electronic monitoring devices that record brain activity (EEG), muscle and eye movement, respiration, blood oxygen and other physiological events (reference: XXXXX).

5. The XXXXX is a hospital outpatient department of the XXXXX.

6. Staff at the XXXXX includes physicians, nurses and other health care professionals. Various services are available at this site through several clinics and centres, which include the services at the XXXXX supplies these services through its employees and independent contractors.

7. XXXXX.

8. The principal activities of XXXXX include the management of sleep disorders, such as:

• Sleep apnoea and other pulmonary sleep disorders;
• Narcolepsy;
• Psychological and psychiatric sleep disorders;
• Neurological sleep disorders;
• Disorders of the circadian rhythm; and
• Parasomnias.

9. Staff at the XXXXX includes certified sleep specialists and physicians trained in other complementary specialties such as psychiatry, neurology, and internal medicine-respirology. XXXXX

10. Polysomnography (PSG) is a testing procedure used to detect a variety of sleep disorders. The PSG tests are done on the order of a physician. It is the collective process consisting of several steps that involve attended monitoring and overnight recording of physiological data during sleep, including sleep-related respiratory disturbances, for the purpose of identifying and assisting in the treatment of sleep and wake disorders. The PSG tests include the quantification of the recorded data (scoring), verification of the technical quality and scoring, preliminary interpretation and reporting on the findings and require the involvement of a number of professionals. It includes a technologist applying a variety of electrodes to the individual's body:

• Head - to measure brain waves to monitor the phases of sleep.

• Face - to monitor breathing, snoring and eye movements.

• Chest - to monitor breathing and heart rhythm.

• Arms and legs - to record abnormal movement during sleep.

• Finger - to monitor and record blood oxygen levels.

11. After applying the electrodes, the technologist will calibrate the equipment and observe the individual during sleep. All information, including video and audio, is recorded and the technologist notes all abnormal observations and keeps detailed records of the individual's actions during sleep. The technologist then scores the data, abnormalities are marked, and the information is provided to the individual's physician for interpretation and diagnosis.

12. XXXXX duties involve the analysis, interpretation and reporting on the PSG tests performed in the XXXXX. XXXXX, XXXXX performs duties of data verification, preliminary interpretation and reporting on PSG tests, and occasional scoring of the most complex sleep studies.

13. XXXXX activities include monitoring brain waves, eye movements, muscle activity, multiple breathing variables, and blood oxygen levels during sleep. He then generates, scores, analyzes and interprets the data pertaining to the patient's sleep condition. He is present throughout the diagnosis and provides support services to the treatment of sleep related problems, including helping patients to use devices for the treatment of breathing problems during sleep and assisting them to develop optimal sleep habits. The only part of the testing that is not performed by XXXXX is the mechanical preparation of the patient for diagnosis, which is the positioning of the patient and securing the electrodes.

14. Fees for polysomnography diagnostic services are charged XXXXX.

15. XXXXX duties are elements of the PSG tests provided at the XXXXX and he is remunerated XXXXX for his consulting services. XXXXX.

16. XXXXX:

XXXXX:

1. XXXXX.

2. XXXXX.

3. XXXXX.

17. XXXXX

18. XXXXX.

19. XXXXX:

XXXXX:

* XXXXX
20. XXXXX

21. XXXXX.

22. XXXXX.

23. XXXXX:

XXXXX (iFootnote 1) XXXXX (iiFootnote 2) XXXXX:

a. XXXXX; or
b. XXXXX.

XXXXX (iiiFootnote 3) XXXXX.

XXXXX XXXXX.

24. XXXXX XXXXX:

(i) XXXXX.

(ii) XXXXX.

(iii) XXXXX.

(iv) XXXXX (ivFootnote 4)

(v) XXXXX.

25. XXXXX.

26. XXXXX:

(i) XXXXX.

(ii) XXXXX.

(iii) XXXXX.

(iv) XXXXX.

(v) XXXXX.

(vi) XXXXX.

(vii) XXXXX.

27. XXXXX:

(i) XXXXX; and
(ii) XXXXX.

XXXXX:

(iii) XXXXX;
(iv) XXXXX; and
(v) XXXXX.

Ruling Requested

You are asking whether the consulting services supplied by XXXXX to the XXXXX as an independent contractor of analysis, interpretation and reporting on PSG tests performed at the XXXXX are exempt supplies under section 10 of Part II of Schedule V.

Ruling Given

Based on the facts set out above, we rule that the consulting services supplied by XXXXX to the XXXXX as an independent contractor consisting of analysis, interpretation and reporting on PSG tests performed at the XXXXX are taxable supplies under the ETA pursuant to section 165. Accordingly, as these supplies are made in the XXXXX the GST is collectible on the value of the consideration for these supplies at the rate of 5%.

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

Explanation

You advised that XXXXX is an independent consultant to the XXXXX. As an independent consultant XXXXX is a supplier for GST/HST purposes. Under a transactional tax system such as the GST/HST, XXXXX consulting services constitute a separate supply made to the XXXXX that is distinct from any supply made by the XXXXX.

Generally, all goods and services supplied in Canada are taxable for GST/HST purposes. There are exceptions for certain health care services listed in Part II of Schedule V as being exempt from the GST/HST. If a service is not included in the list of exemptions in Schedule V, then the supply of the service is taxable and the result is that the value of the consideration charged for the supply is subject to the GST/HST at the rate of 5% or 13%. vFootnote 5 As explained below, the consulting services supplied by XXXXX are not included in the list of exemptions in Schedule V.

Section 10 of Part II of Schedule V exempts the supply of a prescribed diagnostic, treatment or other health care service rendered to an individual if made on the order of a medical practitioner, practitioner, or on the order of a registered nurse authorized under the laws of a province to order such a service if the order is made within a nurse-patient relationship. For purposes of this section, a prescribed health care service is described in the Health Care Services (GST/HST) Regulations to include a laboratory, radiological or other diagnostic services generally available in a health care facility and the administration of drugs, biologicals or related preparations provided in conjunction with these services.

XXXXX consulting services performed at the XXXXX on the XXXXX patients, or on the patients of the physicians, are acquired by the XXXXX for use, consumption or supply in the course of the XXXXX providing PSG tests. The facts are determinative that XXXXX consulting services supplied to the XXXXX are not separate diagnostic services but are a component of an institutional health care service viFootnote 6 rendered to a patient of the XXXXX that is operated by the XXXXX.

The XXXXX is the person who supplies the PSG tests that are rendered to the patients of the XXXXX. The constituent elements of these tests are the premises, equipment, supplies and personnel remunerated by the XXXXX for the technical and professional components. The technical component of the PSG test may involve a technician or technologist applying electrodes to the patient's body, continuous technician attendance during the study period, monitoring the patient, preparing and providing records of the test results, scoring the data, and preparing and transmitting an interpretative report of the PSG test to a physician. The professional component of the PSG test includes clinical supervision by a physician and the interpretation by a physician of the results of the test.

In the course of supplying the PSG tests the XXXXX or the physicians at the XXXXX delegate certain of the technical activities to XXXXX for which he is remunerated by the XXXXX. All the activities that comprise the PSG tests are carried out and concluded at the XXXXX that the supplier - the XXXXX - has established for this purpose where all the necessary human and technical resources are located to make the supply. XXXXX does not supply PSG tests independently of the XXXXX.

Each individual element of the PSG test is not a separate PSG test (i.e., a diagnostic service). The PSG test supplied by the XXXXX is the aggregate of all of these elements, including the activities performed for the XXXXX by XXXXX or by another technologist. We note that the opinion you provided also expresses this finding. That is, the ETA exempts a supply made by the operator of a health care facility of an institutional health care service, which could include a diagnostic service such as a PSG test as well as the services of persons who are remunerated by the operator rendered to a patient of its facility where the service is provided in its facility. The XXXXX remunerates XXXXX for his consulting services that are part of the technical component of the PSG test supplied by the XXXXX. We concur with the opinion that it would be artificial to segregate XXXXX consulting services from the supply made by the XXXXX and that XXXXX consulting services are elements of the supply of the PSG test made by the XXXXX that is rendered to patients of the XXXXX.

We also note XXXXX activities are performed under the direction and supervision of a physician at the XXXXX and his activities form part of the XXXXX services that the XXXXX provides to its patients. The physician and the XXXXX also assume any risk associated with the work performed by XXXXX. XXXXX. These factors indicate that XXXXX consulting services are not diagnostic services. Therefore, section 10 of Part II of Schedule V does not apply to XXXXX supplies of consulting services made to the XXXXX.

We considered XXXXX status as a polysomnographic technologist. However, there is no exempting provision in the ETA for services supplied by a polysomnographic technologist whether the person holds a Registered Polysomnographic Technician Certificate issued by a college in Canada or is otherwise recognized by a law or regulatory body of a health care profession in Canada as a registered polysomnographic technician or technologist.

We also considered whether the XXXXX payments made to the XXXXX for the PSG tests would impact the tax status of XXXXX supplies. As you are aware, section 9 of Part II of Schedule V exempts a supply if and to the extent that the consideration for the supply is payable by a government under a provincial health insurance plan such as XXXXX.

We understand that under XXXXX, the liability to pay the consideration for services related to the PSG tests is only to the XXXXX. Thus the XXXXX is the direct beneficial recipient of the XXXXX payments. XXXXX liability to the XXXXX and the relationship between the XXXXX and XXXXX indicate that the consideration for XXXXX supplies is not payable or reimbursed under XXXXX. Rather, the amounts payable to XXXXX are made under the terms of a separate agreement with the XXXXX. The fact that under this separate agreement the XXXXX has decided to calculate the remuneration it pays XXXXX based on a percentage of the fees it charges XXXXX for its supplies of PSG tests rendered in the XXXXX is not determinative that XXXXX receives payment from XXXXX for his services. In conclusion, as XXXXX is remunerated for his services by the XXXXX, his services are not exempt supplies under section 9 of Part II of Schedule V.

In summary, XXXXX consulting services are subsumed into the supply of the PSG test made by the XXXXX. This finding is further supported by the fact that the PSG test rendered to a patient at the XXXXX for which the XXXXX charges the fee to XXXXX includes the activities performed by XXXXX. The facts are determinative that each constituent element collectively forms the supply of the PSG test rendered to a patient of the XXXXX that is made by the XXXXX, where each constituent element is directly related to each other and has no use without the other. As such, XXXXX activities cannot be sensibly or realistically separated from the remaining constituent elements of this supply and characterized as a separate supply of a PSG test or other diagnostic service made to the XXXXX.

The CRA is responsible for administering the ETA and its regulations as passed by Parliament. The CRA cannot change the legislation that governs the application and collection of the GST/HST. The wording of the exempting provisions in Part II of Schedule V does not allow an interpretation that would include therein services supplied by XXXXX. An amendment to the ETA would be required to treat the supplies made by XXXXX as exempt.

Should you have additional questions on the interpretation and application of GST/HST, you may contact the Ontario GST/HST Rulings Centre at 1-800-959-8287.

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

i 1. XXXXX.

XXXXX

ii 2. XXXXX.

XXXXX

iii 3. XXXXX.

XXXXX
iv 4. XXXXX

v 5. The current case does not involve zero-rated supplies listed in Schedule VI to the ETA.

vi 6. We understand that PSG tests are diagnostic services. "Health care facility" is defined in section 1 of Part II of Schedule V and this definition includes, in part, a facility operated to provide hospital care. "Institutional health care service" is also defined in this section and it includes, in part, laboratory, radiological or other diagnostic services provided in a health care facility, medical or surgical equipment and supplies used by the operator of the facility to provide these diagnostic services that are supplied to a patient otherwise then by way of sale, as well as services provided in the facility that are rendered by persons who receive remuneration therefor from the operator of the facility.

---------------

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---------------

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UNCLASSIFIED

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

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX

Case Number: 99354
Business Number: XXXXX
Attention: XXXXX
XXXXX
January 30, 2009

Subject:

GST/HST RULING
Eligibility for the public service body rebate

Dear XXXXX:

Thank you for your letter of XXXXX, concerning the XXXXX eligibility for a rebate of Goods and Services Tax (GST)/Harmonized Sales Tax (HST).

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

Statement of Facts

We understand the following:

1. XXXXX.

XXXXX
XXXXX
XXXXX
XXXXX
Rulings Requested

You would like to know if the XXXXX is entitled to claim XXXXX% of the non-creditable tax charged relating to GST paid on expenses relating to the XXXXX project.

You would also like to know if the information requirements imposed under subsection 286(1) of the ETA are applicable if the XXXXX is entitled to claim XXXXX% of the non-creditable tax charged relating to GST paid on expenses relating to the XXXXX project.

Rulings Given

Based on the facts set out above, we rule that the XXXXX is entitled to claim a PSB rebate in respect of the non-creditable tax charged relating to GST paid on goods and services that relate to the property it holds in the XXXXX Trust (that is, on its XXXXX% beneficial interest in the trust property).

We also rule that the information requirements imposed under subsection 286(1) of the ETA are applicable to the XXXXX for all rebate applications.

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

Explanation

Under subsection 259(3) a university may apply for a PSB rebate of 67% of "non-creditable tax charged" in respect of property or services. "Non-creditable tax charged" is generally tax paid on property or services that is not recoverable by way of an input tax credit (ITC).

Although the Administrator applied for and received various sources of funding, the XXXXX established that the Administrator received those funds on behalf of the Participants, one of which is the XXXXX. The XXXXX XXXXX also authorized the Administrator to contract in its name on behalf of the Participants in carrying out the XXXXX project.

The XXXXX Trust acknowledges that the Administrator received funding from various sources on behalf of the Participants, and held all assets purchased with this funding in trust for the benefit of those Participants.

The XXXXX and the XXXXX Trust established that the Administrator was an agent acting on behalf of the Participants to manage the funding and the XXXXX XXXXX. There are no provisions in the ETA that permit an agent (in this case the Administrator) to request a PSB rebate on behalf of a principal (in this case the XXXXX).

In addition, the property XXXXX was acquired in a bare trust. Based on the information found in GST/HST Technical Information Bulletin B-101 Trusts, GST/HST Technical Information Bulletin B-068 Bare Trusts, and GST/HST Policy Statement P-015 Treatment of Bare Trusts under the Excise Tax Act, a beneficiary, and not the bare trustee, is regarded as being the person who acquires property for GST/HST purposes. In the case of eligibility for PSB rebates on property held in a bare trust, it is the CRA's position that each beneficial owner should claim a rebate in respect of the GST paid on its share in the trust property.

As the XXXXX holds a XXXXX% beneficial interest in the XXXXX Trust, and this trust is a bare trust, the XXXXX owns XXXXX% of the property held by the XXXXX Trust. The funds in the XXXXX Trust were used to pay for the XXXXX. Therefore, the XXXXX may claim the PSB rebate in respect of the GST paid on the goods and services relating to the property it owns in the XXXXX Trust (that is, its XXXXX% beneficial interest in the trust property) for the XXXXX.

Subsection 286(1) of the ETA provides that very person who makes an application for a rebate shall keep records in such form and containing such information as will enable the determination of the amount of any rebate or refund to which the person is entitled. This would include any rebates relating to the GST paid for the XXXXX.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-4206. 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,
Carol A. Gaudet
Charities, Non-profit organizations and Educational Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

UNCLASSIFIED

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

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
Case Number: 99615-2
Attention: XXXXX XXXXX
December 22, 2009

Dear XXXXX:

Subject:

GST/HST RULING
GST Treatment of XXXXX Cards

We are writing further to your letter of XXXXX, and related telephone conversation with Mr. Bao Tran of this office, concerning our ruling letter of February 29, 2008 (our file RITS 99615), XXXXX. At issue was the GST/HST treatment of vouchers issued by XXXXX.

We understand that the facts on which we based our ruling have not changed. As such, they are not repeated here. All legislative references are to the Excise Tax Act ("ETA").

In our letter, we ruled that the XXXXX vouchers at issue (the "Vouchers") are not reimbursable coupons to which subsection 181(2) applies and, as a result, XXXXX is not entitled to notional input tax credits ("ITCs") under subsection 181(5) on the amount reimbursed to XXXXX. You have asked us to review our ruling in light of XXXXX raised in your current submission.

Legislation

The legislation relevant to the issues is contained in section 181. Subsection 181(2) applies where a registrant accepts a coupon that entitles the recipient of a taxable supply (other than a zero-rated supply) to a reduction in the price of the supply equal to a fixed-dollar amount and the registrant can reasonably expect to be reimbursed for the redemption of the coupon by another person.

Where subsection 181(2) applies, the supplier is required to collect and remit tax on the full amount of the sale price without reference to the value of the coupon. Pursuant to paragraph 181(2)(b), an amount equal to the "tax fraction" of the coupon would be included in the supplier's net tax for the reporting period in which the coupon was accepted. The tax fraction collectible by the supplier under paragraph 181(2)(b) might then be recoverable as an input tax credit by the person who pays the reimbursement, subject to the terms of subsection 181(5).

Issues

In your letter, you maintain that while a customer may acquire goods for less than the maximum stated value of a particular Voucher (e.g., $100), the Voucher is nevertheless a fixed-value coupon that falls within the provisions of subsection 181(2) and XXXXX is entitled to a notional ITC on the corresponding reimbursement under subsection 181(5). In support of your position, you make reference to statements made by Lamarre, J. in President's Choice Bank v The Queen [2009] ETC 2892 ("PC Bank") at paragraph 76:

"What we need to determine is whether a fixed dollar value exists at the time of redemption. There is a cash value at that time: there is a paper coupon or an electronic device showing a fixed dollar amount for the points redeemed; that amount is applied as a discount on the price of groceries purchased and is recorded on the customer's invoice."

Lamarre, J. went on to determine that that the coupon issuer (i.e., PC Bank) would have, but for circumstances peculiar to the PC Bank decision, been entitled to claim notional ITCs pursuant to subsection 181(5) when the issuer redeemed the coupon from the vendor (i.e., Loblaw). However, we note that this determination is predicated upon specific facts pertaining to PC Bank, namely those detailed in paragraph 7 of the judgement. Subparagraph 7(ii) is particularly relevant:

"... The PC Points could be redeemed, subject to the Loyalty terms and conditions, against the purchase of any eligible products, as defined in the LSA. Loblaw customers (Members) were required to earn a minimum of 20,000 PC Points before the points could be redeemed. Upon accumulating 20,000 PC Points, the Member could redeem the points acquired for the purchase of goods for a fixed value to [sic] equal to $20.00. PC Points could be further redeemed in fixed increments of 10,000 points, e.g., 30,000 points could be redeemed for $30.00, 40,000 points could be redeemed for $40.00, etc. A Member could only apply a PC Points redemption to a purchase of goods with a value equal to or greater than the value of the points being redeemed..."

The conclusion at paragraph 76 of the judgement is based on the facts pertaining to PC Bank, which indicate that the fixed amount reflects the terms and conditions outlined at paragraph 7; i.e., a fixed amount of $20 for each redemption of 10,000 points. The terms and conditions surrounding the use of the Vouchers in the present case are materially different from the terms and conditions of point redemptions in PC Bank: the price reduction attributable to a particular Voucher will vary with the actual purchase price of the good against which it is used, up to and including a maximum amount specified in the Voucher.

Ruling

It is our position that a particular device falling within section 181 may have a fixed value where that value can be determined without reference to the cost of the property or service for which the device is exchanged. Where, as here, the value of the device may vary depending on the final charge, the value of the device is variable and not fixed. In such cases, subsection 181(2) will not apply.

Accordingly, we confirm our previous ruling that the Vouchers do not meet the conditions of subsection 181(2). Since the actual price reduction accorded by a Voucher may vary with each purchase (albeit to the maximum specified amount), the Voucher cannot be considered as conferring a price reduction equal to a fixed dollar value, as is required by subsection 181(2). Moreover, we confirm that XXXXX is not entitled to a notional ITC under subsection 181(5) for the tax fraction of the amount reimbursed to XXXXX.

We further confirm that subsection 181(4) of the ETA will apply to the Vouchers. Under this provision, when a registrant accepts, in full or partial consideration for a supply of a property or service, a coupon that may be exchanged for the property or service or that entitles the recipient of the supply to a reduction of, or a discount on, the price of the property or service and subsection 181(2) does not apply in respect of the coupon, the value of the consideration for the supply is deemed to be the amount, if any, by which the value of the consideration for the supply exceeds the discount or exchange value of the coupon. As a result, when the Vouchers were redeemed at XXXXX stores for XXXXXequipment, they should have been treated as a reduction of consideration for GST purposes. No input tax credits are available in respect of redemptions of coupons that fall under subsection 181(4).

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

Lastly, we wish to acknowledge that because subsection 181(4) requires that GST/HST apply to the purchase price of a particular supply net of the price reduction conferred by a particular Voucher, a customer who has paid tax on the full purchase price of the supply will have paid an excessive amount of tax. Note that subsection 232(1) would apply to remedy this situation by allowing a purchaser who has paid an amount as or on account of tax in error to seek a refund or credit of the amount from the supplier within two years after the date the amount was charged or collected by the supplier. Further information is provided in GST/HST Memorandum 12.2, Refund, Adjustment, or Credit of the GST/HST Under Section 232 of the Excise Tax Act, available at www.cra-arc.gc.ca. However, if the supplier chooses not to refund or credit an amount of tax collected in error, then the purchaser may apply for a rebate of the amount under subsection 261(1). An application for this rebate must be filed within two years from the day the amount in question was paid. Further information is provided in the guide entitled General Application for GST/HST Rebates, also available at the aforementioned website.

We regret that we could not provide you with a more favourable response. If you wish to discuss any of these matters further, please call me directly at (613) 952-9219.

Yours truly,
Paul Hawtin
A/Manager
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
XXXXX

UNCLASSIFIED

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

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
XXXXX

Case Number: 85921
Attention: XXXXX
September 21, 2009

Dear XXXXX:

Subject:

GST/HST RULING
Non-resident Non-Profit Organization

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

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

Statement of Facts

We understand that:

1. XXXXX is a body corporate incorporated by special act of the Parliament of XXXXX.

2. The activities of XXXXX are primarily governed by the provisions of the XXXXX ("Act").

3. The XXXXX Act sets out XXXXX objects to be: XXXXX.

4. The XXXXX Act mandates XXXXX activities to include: XXXXX.

5. XXXXX is permitted to perform these functions in cooperation with members of the XXXXX industry as well as governments and agencies in XXXXX and internationally.

6. The XXXXX Act sets out limits on how XXXXX can manage its money. XXXXX.

7. The XXXXX Act does not address the issue of profit, nor does it provide for the winding up of XXXXX.

8. XXXXX promotes XXXXX by maintaining offices in various countries around the world including Canada.

9. The XXXXX Act specifically prohibits XXXXX from carrying on business as XXXXX.

10. The XXXXX Act requires XXXXX to file an annual report with the government XXXXX responsible for overseeing its operations.

11. XXXXX Annual Reports for the XXXXX - XXXXX fiscal year and for the XXXXX - XXXXX fiscal year both substantiate that XXXXX was operating in a manner consistent with its statutory mandate for those XXXXX fiscal years.

12. These annual reports included financial statement information for the XXXXX fiscal years ending in XXXXX. During these XXXXX fiscal years XXXXX main sources of revenue were government appropriations, industry contributions, advertising revenues, and interest earned on investments.

13. In each of the XXXXX fiscal years under review, appropriations by the Government of the XXXXX accounted for more than XXXXX % of XXXXX total annual revenue.

14. In each of those XXXXX years under review, XXXXX revenue from the sale of goods and services accounted for less than XXXXX % of the total annual revenue.

15. In the fiscal year ending in XXXXX, XXXXX financial statements show total revenue of $ XXXXX. The total expenditures for that fiscal year were $ XXXXX resulting in XXXXX.

16. The financial statements for the fiscal year ending in XXXXX show total revenue of $ XXXXX. The appropriations by the Government of XXXXX were lower than in the previous fiscal year. The total expenditures for the XXXXX fiscal year were $ XXXXX resulting in XXXXX.

17. In the fiscal year ending in XXXXX, XXXXX financial statements show total revenue of $ XXXXX. Appropriations by the Government of XXXXX were again reduced from the amount provided in the XXXXX fiscal year. However, total expenditures for that fiscal year were $ XXXXX resulting in XXXXX.

18. The financial statements for the fiscal year ending in XXXXX show total revenue of $ XXXXX. After XXXXX years of XXXXX, the appropriations by the Government of XXXXX in this fiscal year. The total expenditures for the XXXXX fiscal year were $ XXXXX resulting in XXXXX.

19. During this XXXXX year period, the largest annual operating XXXXX realized by XXXXX ($ XXXXX) amounted to only XXXXX % of its total revenue for that fiscal year.

Ruling Requested

You would like to know if XXXXX qualifies as a "non-profit organization" as that term is defined in the Excise Tax Act ("the ETA").

Ruling Given

Based on its statutory mandate and the contents of its Annual Reports, we rule that XXXXX is considered to be a person organized solely for a purpose other than profit, with no part of its income payable to or otherwise available for the personal benefit of any member; and that for fiscal years ending in XXXXX it operated for a purpose other than profit. Therefore, for those fiscal years it did qualify as a non profit organization under s. 123(1) of the ETA.

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

Explanation

The definition of "non profit organization" set out in the ETA is as follows:

"non-profit organization" means a person (other than an individual, an estate, a trust, a charity, a public institution, a municipality or a government) that was organized and is operated solely for a purpose other than profit, no part of the income of which is payable to, or otherwise available for the personal benefit of, any proprietor, member or shareholder thereof unless the proprietor, member or shareholder is a club, a society or an association the primary purpose and function of which is the promotion of amateur athletics in Canada;

In order for XXXXX to be a non-profit organization under the ETA, it must meet four criteria.

1. "... a person (other than a...government) ..."

The ETA defines "government" as follows: "'government' means Her Majesty in right of Canada or a province". XXXXX was incorporated by a special act of the Parliament of XXXXX and is therefore not a "government" as that term is used in the ETA.

XXXXX is not otherwise one of the organizations excepted from being considered a non-profit organization under the ETA.

2. "... that was organized...solely for a purpose other than profit ..."

Our policy P-215 Determination of Whether an Entity is a "Non-Profit Organization" in the ETA states as follows:

[CRA] will examine the purposes for which the entity was organized to determine whether the entity was organized solely for non-profit purposes. ... An entity may be considered to be organized solely for non-profit purposes if its aims and activities are directed toward the general improvement of conditions within one or more areas of business. ... If the activities of such an entity were consistent with these aims, then it would qualify as a non-profit organization provided that all other conditions with respect to non-profit organizations as defined in subsection 123(1) were complied with.

The following elements of its statutory mandate confirm that XXXXX was organized for a purpose other than profit:

• The objects and functions of XXXXX are directed solely toward the general improvement of conditions within one area of business: XXXXX;
• XXXXX is prohibited from carrying on business as a XXXXX;
• There is nothing in XXXXX statutory mandate which requires it to realize an operating profit;
• There is no statutory obligation on XXXXX to return any of its funds to the Government of XXXXX; and
• XXXXX funds remain subject to the limitation that they be spent solely on XXXXX's operations.

3. "... operated solely for a purpose other than profit ..."

The determination of whether an entity is operated solely for non-profit purposes is a question of fact at any given time. Therefore any determination of whether an entity operated solely for non-profit purposes is specific to the time the determination is made. An organization should review its operations on a yearly basis so as to ascertain whether it continues to satisfy the ETA's requirements for a "non-profit organization".

The annual reports filed by XXXXX for the period under review demonstrate that the organization was operated solely for the purpose of achieving its objects and was not operated for profit:

• The vast majority of XXXXX annual income came in the form of appropriations from the Government of XXXXX;
• The revenue XXXXX generated from the sale of its goods and services accounted for less than XXXXX % of its total income;
• The annual operational XXXXX realized by the activities of XXXXX were not excessive given the organization's over-all budget; and
• When XXXXX realized a XXXXX at the end of a fiscal year, its funding from the Government of XXXXX was reduced in the subsequent fiscal year.

Therefore, we are satisfied that for the fiscal years ending XXXXX, XXXXX operated for a purpose other than profit.

4 "... no part of the income of which is payable to or otherwise available for the personal benefit of, any proprietor, member or shareholder thereof ..."

XXXXX has not been given the power to declare or pay a dividend or otherwise distribute its resources among its members.

The XXXXX Act mandates that the money of XXXXX can only be used to pay or discharge the costs, expenses and other obligations incurred by XXXXX in the performance of its functions. Any remuneration or allowances payable under the XXXXX Act are set by an independent tribunal.

The financial statements for the fiscal years ending in XXXXX confirm that no moneys have been paid to any members of XXXXX nor returned to the Government of XXXXX which created it and continues to fund it.

For fiscal years ending in XXXXX, our review of the statutory mandate and the contents of the Annual Reports confirm that XXXXX:

• Is not an organization who is specifically excluded from being considered a non profit organization;
• Is considered to be a person organized solely for a purpose other than profit;
• With no part of its income payable or otherwise available for the personal benefit of any member; and
• It operated for a purpose other than profit.

Therefore, for those fiscal years it did qualify as a non profit organization under s. 123(1) of the ETA.

If XXXXX statutory mandate remains unchanged and it continues to operate for a purpose other than profit, it would likely continue to qualify as a non profit organization under the ETA.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-0329. 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,
Michael Mavis
Charities, Non-Profit Organizations and Educational Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
XXXXX

UNCLASSIFIED

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

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX

Case Number: 89039Business Number: XXXXX
Attention: XXXXX
February 27, 2009

Subject:

GST/HST RULING
Supply of land held in joint tenancy

Dear XXXXX:

Thank you for your letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to certain real property transactions between your clients XXXXX and XXXXX, and XXXXX. Your query was forwarded to our office for reply by the XXXXX GST/HST Rulings Centre. Please accept my apology for the delay in providing our response.

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

Statement of Facts

We understand the facts as follows.

1. XXXXX has been registered for GST/HST purposes as a sole proprietor since XXXXX, in relation to his XXXXX business.

2. His wife, XXXXX, is not active in the XXXXX business and is not registered for GST/HST purposes.

3. The XXXXX are the registered owners in joint tenancy of XXXXX-acre parcel of land in XXXXX, legally described as XXXXX, and hereafter referred to as "the Lands".

4. The XXXXX use or supply the Lands as follows:

a) Mr. XXXXX uses approximately XXXXX acres XXXXX in the course of his XXXXX business;

b) they lease approximately XXXXX acres to XXXXX under a verbal agreement stipulating semi-annual lease payments totalling $XXXXX plus GST per year. No residential structures are situated on this leased portion of the Lands;

c) they granted XXXXX ("CanCo") certain rights and interests as described below; and
d) they reserve the remainder of the Lands for their family home.

5. On XXXXX, the XXXXX and CanCo executed a Licence and Option to Lease Agreement in relation to the Lands (hereafter referred to as the "Licence Agreement"), the relevant provisions of which may be summarized as follows.

a) The Licence Agreement is for a XXXXX-year term (the "Term"), renewable by CanCo for a further term of XXXXX years ("Renewal Term").

b) The XXXXX grant CanCo, XXXXX an exclusive licence to enter the Lands, or certain portions of the Lands as determined by CanCo, for the purpose of assessing the suitability of the Lands for wind energy conversion and transmission of electric power and related activities.

c) In consideration of the rights and privileges granted in the Licence Agreement, CanCo agrees to pay the following sums yearly, in advance:

(i) $XXXXX for each of the first XXXXX years of the Term;
(ii) $XXXXX for the balance of the Term; and
(iii) $XXXXX for each year of the Renewal Term.

d) In consideration of these payments, the XXXXX also grant CanCo an exclusive and irrevocable option (the "Option") to lease the Lands, or certain portions of the Lands, as determined by CanCo.

e) Nothing contained in the Licence Agreement is to be construed as creating a relationship of principal and agent, lessor and lessee, or of partnership or joint venture between the parties. If the Option is exercised, a relationship of lessor and lessee is created.

f) The XXXXX permit CanCo to register a notice of the Option in the appropriate Land Registry Office or Land Titles Office.

g) Schedule XXXXX to the Licence Agreement sets out the terms and conditions for the lease of the Lands (the "Lease") in the event that CanCo exercises the Option.

6. On XXXXX, CanCo registered the Licence Agreement in the Registry Office XXXXX, confirming that it had an unregistered estate, right, interest or equity in the Lands.

7. On the same date, CanCo exercised the Option, bringing the Lease into effect in relation to approximately XXXXX acres of the Lands (referred to XXXXX as the "Portions"). The relevant terms and conditions of the Lease for purposes of this ruling may be summarized as follows.

a) The XXXXX, for the purposes and rental set out in the Lease, agree to lease the Portions to CanCo for a term of XXXXX for the purposes of wind energy conversion, the collection and transmission of electric power ("Energy") and related activities including, without limitation:

(i) determining the feasibility of wind energy conversion and other power generations, including studies of wind speed, wind direction and other meteorological data, XXXXX;
(ii) constructing, installing, maintaining and operating wind turbines, overhead and underground electrical transmission XXXXX, electric transformers, energy storage facilities, XXXXX, power generation facilities to be operated in conjunction with large wind turbine installations, XXXXX, meteorological towers and wind measurement equipment, XXXXX, and related facilities and equipment (collectively referred to as the "Wind Power Facilities") on the Portions; and
(iii) undertaking any other activities, whether accomplished by CanCo or a third party authorized by CanCo, that CanCo reasonably determines are necessary, useful or appropriate to accomplish any of the foregoing.

b) CanCo shall have the right for itself or may grant any utility the right to construct, operate and maintain electrical transmissions interconnections and switching facilities on the Portions pursuant to any standard form of easement, leasehold or any other agreement used for or proposed by the utility.

c) CanCo shall pay the XXXXX on the execution of the Lease and, if and when the Wind Power Facilities are installed on the Portions and begin delivering Energy to a utility or other purchaser, an annual rent equal to:

XXXXX.

d) Notwithstanding the foregoing, if the taxes, rates and assessments assessed or levied against the Lands are increased as a result of the use or occupancy of the Portions by CanCo, CanCo shall promptly pay and satisfy such increased taxes, rates and assessments and the XXXXX shall have no responsibility for same.

e) Notwithstanding the above, CanCo agrees to pay any multi-stage sales, sales, use, consumption, value added or other similar taxes imposed by the Government of Canada upon the XXXXX or CanCo in respect of this Lease.

8. In the course of its activities, CanCo installed Wind Power Facilities XXXXX on the Portions and began delivering Energy XXXXX to a third party who is not a consumer.

9. The XXXXX received the first of the rent payments described in Fact 7(c) in XXXXX.

10. As evidenced by XXXXX for the production month of XXXXX, issued by CanCo to XXXXX and dated XXXXX, the rental calculation did not initially reflect any GST payable. CanCo's position, XXXXX, was that "XXXXX".

11. In light of subsequent discussions with Canada Revenue Agency (CRA) representatives, CanCo paid GST calculated on the value of all rents described in Fact 7(c) that became payable in 2007 and early 2008. However, following the February 26, 2008, announcement of proposed amendments to the ETA, CanCo issued written notice to the XXXXX that it would refrain from paying tax on all future rents payable by it under the Lease.

12. Mr. XXXXX has declared for income tax purposes the value of all these rents as well as any expenses incurred in relation to the XXXXX' supplies under the Licence Agreement and the Lease. He has also reported GST collectible on these payments (treating them until 2007 as a GST-inclusive amount) and claimed ITCs related to this activity on his GST/HST returns.

13. Any and all taxes, rates and assessments described in Fact 7(d) levied against the Lands by the XXXXX have been paid by CanCo directly to that XXXXX.

14. The XXXXX did not collect, report or remit GST on the value of any payments made by CanCo directly to the XXXXX in relation to taxes or assessments described in Fact 7(d). Nor did either of them declare the value of these payments as income for income tax purposes.

15. Mr. XXXXX has for income tax purposes declared all revenue and expenses in relation to the land leased to XXXXX. As a GST/HST registrant, Mr. XXXXX has reported and remitted the GST collectible on the full value of these lease payments and claimed ITCs related to this activity.

16. The XXXXX have provided written authorization for the CRA to XXXXX, for purposes of this ruling request.

Ruling Requested

You would like to know if the supplies of the Lands to CanCo under the Licence Agreement and the Lease are taxable supplies subject to GST.

Rulings Given

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

1. the XXXXX' supplies of the Lands made under the Licence Agreement and under the Lease before February 26, 2008, and for which the consideration became payable prior to that date, are taxable supplies subject to GST;
2. the XXXXX' supplies of the Lands made under the Licence Agreement and under the Lease before February 26, 2008, and for which the consideration became payable on or after that date, or is paid on or after that date without having become due, are deemed not to be supplies and are therefore not subject to GST; and
3. the XXXXX' supplies of the Lands made under the Licence Agreement and under the Lease on or after February 26, 2008, are deemed not to be supplies and are therefore not subject to GST.

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

Explanation

It is important to recognize at the outset that the fact that real property is owned in joint tenancy has a bearing on the GST/HST implications of a supply of the property. This stems from the nature of joint tenancy at common law.

When real property held in joint tenancy is supplied by way of sale, or by way of lease, licence or similar arrangement, the supply is a single supply made by all of the joint tenants. In turn, a payment of consideration and tax made by the recipient of a supply of real property that is held in joint tenancy is a payment made to all of the joint tenants. These points are relevant when considering the GST/HST implications of the XXXXX' supplies of the Lands.

The wording of subsection 136.1(1) is also relevant to the issue at hand. Subsection 136.1(1) stipulates in part that supplies of property made by way of lease, licence or similar arrangement are treated for GST/HST purposes as a series of separate supplies for each period (referred to as the "lease interval") to which a particular payment is attributable. The supply for each lease interval is deemed to be made on the earlier of the first day of the lease interval, the day when the payment attributable to that period becomes due, and the day on which the payment that is attributable to the lease interval is paid.

With the foregoing in mind, we will address the XXXXX supplies made under the Licence Agreement and under the Lease.

Nature of the supplies

A supply of real property made otherwise than by way of sale may be made by way of lease, licence or similar arrangement. Policy Statement P-062, Distinction between Lease, Licence and Similar Arrangement, addresses the characteristics of each.

The XXXXX granted CanCo, XXXXX an exclusive licence under the Licence Agreement to enter the Lands for the purpose of assessing the suitability of the Lands for its purposes, which is the predominant element of the supply made by the XXXXX under this agreement. This right or privilege is characteristic of a licence.

The XXXXX' subsequent supply of the Portions to CanCo made under the Lease is fully characteristic of a lease, in accordance with the aforementioned policy statement.

Tax status of the supplies

Supplies of real property made in Canada are taxable supplies for which GST/HST is collectible unless a specific relieving provision applies. CanCo relied on subsection 162(2) to relieve the XXXXX' supplies made under the Licence Agreement and the Lease from the GST.

As worded at the time of your enquiry, subsection 162(2) stipulated that for GST/HST purposes a supply of
(a) a right to explore for or exploit a mineral deposit, a peat bog or deposit of peat or a forestry, water or fishery resource,
(b) a right of entry or user relating to a right referred to in paragraph (a), or
(c) a right to an amount computed by reference to the production (including profit) from, or to the value of production from, any such deposit, bog or resource,

shall be deemed not to be a supply and any consideration paid or due, or any fee or royalty charged or reserved, in respect of the right shall be deemed not to be consideration for that right.

Moreover, subsection 162(3) provided that subsection 162(2) did not apply to a supply of a right to take or remove forestry products, products that grow in water, fishery products, minerals or peat, or a right of entry or user relating thereto, where the supply is made to a consumer or a person who is not a registrant and who acquires the right in the course of a business of the person of making supplies of the products, minerals or peat to consumers.

The above wording of subsection 162(2) did not extend relief to the supplies made by the XXXXX under the Licence Agreement or under the Lease. Given that no exemptions or other relieving provisions applied, the XXXXX are considered to have made taxable supplies to CanCo under the Licence Agreement and under the Lease.

However, proposed amendments to subsections 162(2) and 162(3), among others, were announced in the Budget tabled February 26, 2008. These proposed amendments were included in the Notice of Ways and Means Motion tabled by the Minister of Finance on March 11, 2008, and have now received Royal Assent.

Accordingly, subsection 162(2) is amended to add new paragraph 162(2)(d), which deems a supply of a right to enter or use land to generate, or evaluate the feasibility of generating, electricity from the sun or wind not to be a supply, and consideration for that supply not to be consideration, for GST/HST purposes.

In addition, subsection 162(3) is amended to provide that the deeming provisions in subsection 162(2) do not apply to a supply of a right to enter or use land to generate, or evaluate the feasibility of generating, electricity from the sun or wind if that supply is made to a consumer or to a non-registrant who acquires the right in the course of a business of making supplies to consumers.

As enacted, these amendments apply to supplies made on or after February 26, 2008. They also apply to supplies made before that date but only in respect of the portion of the consideration for the supply that becomes payable, or is paid without having become payable, on or after February 26, 2008.

To the extent that new paragraph 162(2)(d) applies to the Licence Agreement and the Lease, its effect is twofold. First, it means that any amounts payable by CanCo to which paragraph 162(2)(d) applies are not to be included in calculating Mrs. XXXXX' small supplier threshold. Second, it means that although Mr. XXXXX is a GST/HST registrant, he is not required to collect GST in respect of these amounts.

That said, it is necessary to establish the value of the consideration for those supplies made by the XXXXX to which this new provision does not apply.

Value of consideration

Establishing the value of the consideration is important both for purposes of calculating a person's small supplier threshold and for purposes of calculating the GST/HST payable for a given taxable supply.

"Consideration" is defined for GST/HST purposes to include any amount that is payable for a supply by operation of law.

Therefore, as new paragraph 162(2)(d) does not apply to any amounts payable by CanCo before February 26, 2008, in relation to supplies made by the XXXXX prior to that date, all of those amounts must be included when calculating Mrs. XXXXX small supplier threshold (refer to GST/HST Memorandum 2.2, Small Suppliers, for full details). They must also be included when calculating the GST payable by CanCo under the Licence Agreement and the Lease.

We note that wherever CanCo failed to pay GST on any sums payable under the Licence Agreement or on any of the rents described in Fact 7(c), Mr. XXXXX treated the payments as GSTincluded amounts. Based on the facts, this was incorrect. The full value of each payment is consideration under the ETA and GST should be calculated on the full value of each payment.

Furthermore, consideration generally includes any amount that a tenant is required under a lease agreement to pay in respect of property taxes assessed against the owner of the property. Where a separate amount is paid by a lessee on account of property taxes to meet the property owner's liability to pay the property taxes, this amount is part of the consideration paid for the rental of the property, even if the lessee pays the amount directly to the taxing authority. Where 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 CanCo may be responsible under the Lease to pay any increased taxes, rates and assessments levied by the XXXXX as a result of CanCo's use of the Portions, the ultimate liability to pay the property taxes rests with the XXXXX as the registered owners of the property. Subsection XXXXX provides that land shall be assessed against the owner of the land. XXXXX is defined in section XXXXX to include "XXXXX".

In summary, the amounts paid by CanCo directly to the taxing authority XXXXX in respect of increased property taxes assessed against the XXXXX and to which new paragraph 162(2)(d) does not apply are additional consideration for the supplies of the Portions made by the XXXXX. As such, these amounts are also subject to GST.

Requirement to collect GST

As a general rule, every person who makes a taxable supply in Canada is required to collect the tax payable by the recipient in respect of the supply. However, section 166 excludes any part of the consideration for a taxable supply that becomes due, or is paid before it becomes due, when the supplier is a small supplier from the calculation of tax payable in respect of the taxable supply. The effect of section 166 is to relieve small suppliers who are not registrants from the requirement under subsection 221(1) to collect GST/HST in respect of their taxable supplies, with the exception of sales of real property and certain sales of capital property.

In light of section 166, Mrs. XXXXX would be relieved from collecting GST in respect of the taxable supplies made to CanCo under the Licence Agreement and under the Lease as long as she qualifies as a small supplier.

On the other hand, given that Mr. XXXXX is a GST/HST registrant, CanCo would be required to pay and Mr. XXXXX would be required to collect GST at the applicable rate on the value of the consideration payable for the taxable supplies made under these agreements to which new paragraph 162(2)(d) does not apply.

Effective July 1, 2006, the rate of the GST was reduced from 7% to 6% and the rate of the HST from 15% to 14%. The new rates generally apply to supplies made on or after July 1, 2006, and supplies for which the GST/HST is paid on or after July 1, 2006, without having become payable before that date. Effective January 1, 2008, the rate of the GST has been further reduced from 6% to 5% and the rate of HST from 14% to 13%. The new rates generally apply to supplies made on or after January 1, 2008, and supplies for which the GST/HST is paid on or after January 1, 2008, without having become payable before that date. Specific transitional rules apply to certain supplies, including real property. For more information on the transitional rules for the GST/HST rate reduction in 2006, please refer to Technical Information Bulletin B-096, GST/HST Rate Reduction and Real Property. For more information on the transitional rules for the 2008 rate reduction, please refer to GST/HST Notice 226, GST/HST Rate Reduction in 2008.

Liability to report and remit GST

The final issue stemming from your query is the XXXXX' respective obligation to report and account for amounts collectible or collected as or on account of GST in their respective net tax calculation and to remit any positive amounts of net tax.

As explained above, the XXXXX, as joint tenants, are considered to have made a separate supply of the Lands for each lease interval under the Licence Agreement and under the Lease. Furthermore, for the reasons previously cited, Mr. XXXXX was required to collect GST in respect of these taxable supplies where new paragraph 162(2)(d) does not apply. Subsection 225(1) therefore required him to include amounts that became collectible by him and amounts he collected as or on account of tax in a particular reporting period, when determining his net tax for that reporting period.

Provided that Mrs. XXXXX was, in fact, a small supplier, Mrs. XXXXX was not required to collect GST in respect of these taxable supplies. Despite this, in light of the common-law principles of unity that apply in respect of real property that is held in joint tenancy, both Mr. and Mrs. XXXXX would be viewed as having collected amounts actually paid by CanCo as or on account of tax. Subsection 225(1) requires a person such as Mrs. XXXXX who collects amounts as or on account of tax to include the amounts collected in her net tax calculation. Further, subsection 222(1) deems Mrs. XXXXX to hold the amounts collected as or on account of tax in trust for the Crown until the amounts are remitted to the Receiver General or withdrawn as an input tax credit or net tax deduction under subsection 222(2).

Ordinarily, amounts collected by a non-registrant as or on account of tax are to be reported on GST/HST returns, each reflecting the amounts collected during a particular calendar month. A non-registrant is required to file its returns and remit the net tax by the end of the month following the month in which the tax was collected.

Where Mr. and Mrs. XXXXX are both required to account for amounts collected as or on account of tax, the accounting of the amount and the remittance of any resulting positive amount of net tax by one of the parties will discharge the liability of both parties. As such, where Mr. XXXXX reports the amounts of GST in respect of the taxable supplies to which paragraph 162(2)(d) does not apply in his GST returns and remits any resulting positive amounts of net tax, Mrs. XXXXX liability to remit the amounts collected as or on account of GST will be discharged.

Right of supplier to sue for tax remitted

As you may be aware, section 224 applies where a supplier (i) has made a taxable supply to a recipient; (ii) is required to collect tax from the recipient in respect of the supply; (iii) has properly disclosed the tax to the recipient; and (iv) has accounted for or remitted the tax to the Receiver General, but has not collected the tax from the recipient due to the recipient's refusal to pay the tax. Under these circumstances, section 224 gives the supplier the right to bring an action in a court of competent jurisdiction to recover the tax as though it were a debt due by the recipient to the supplier.

Additional Comments

Although not the subject of your initial enquiry, we would like to draw your attention to the fact that the common law principals addressed here apply equally to the XXXXX' lease of the Lands to XXXXX, and must be taken into consideration when determining the GST/HST implications of this activity and its impact on Mrs. XXXXX small supplier status.

We also wish to advise that new paragraph 162(2)(d) will not have an adverse effect on Mr. XXXXX entitlement to claim input tax credits (ITCs) for expenses related to the supplies made under the Licence Agreement or under the Lease.

Subsections 141.01(2) and (3) generally provide that inputs must be used or consumed in the course of making taxable supplies for consideration in order to claim ITCs. However, subsection 141.01(7) provides an exception to this rule. It stipulates, in part, that where a provision such as section 162 deems consideration for a supply not to be consideration for the supply, or a supply not to have been made, that "deeming shall not apply" for the purposes of any of subsections 141.01(1) to (4). In other words, subsection 141.01(7) ensures that, for purposes of claiming ITCs, the supplies made by the XXXXX under the Lease are considered supplies, and the consideration payable by CanCo is recognized as consideration. Mr. XXXXX therefore remains eligible to claim ITCs where all other statutory and documentary requirements have been satisfied.

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

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

Yours truly,
XXXXX
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

UNCLASSIFIED

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

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX

Case Number: 90170
Attention: XXXXX
XXXXX
18th February 2009

Subject:

GST/HST RULING
Supplies of Drugs Prescribed by Pharmacists and Associated Dispensing Fees

Dear XXXXX:

This is further to your letter of XXXXX, and your XXXXX, in which you requested confirmation of the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies made by pharmacies of drugs prescribed by pharmacists in the Province of Alberta and to dispensing fees for drugs prescribed by pharmacists and other health care professionals who are not medical practitioners.

As we discussed in our telephone conversations in XXXXX, officials of the Department of Finance had advised the Canada Revenue Agency (CRA) that they were reviewing this matter. On February 26, 2008, the Minister of Finance announced proposed amendments to section 1 and paragraph 3(b) of Part I of Schedule VI to the Excise Tax Act (ETA) concerning the application of the GST/HST to supplies made by pharmacies of drugs prescribed by pharmacists and health care professionals who are not medical practitioners. These amendments received Royal Assent on June 18, 2008. As discussed in the Explanation below, these amendments extend zero-rated status to supplies made after February 26, 2008 of drugs prescribed by authorized individuals.

All legislative references are to the ETA and the regulations thereunder, unless otherwise specified.

Statement of Facts

On the basis of your letter and our research, our understanding of the facts is as follows:

1. XXXXX.

2. In the Province of Alberta, the Pharmacists Profession Regulation made pursuant to section 131 of the Health Professions Act, RSA 2000, c. H-7, came into effect on April 1, 2007.

3. The Pharmacists Profession Regulation grants clinical pharmacists licensed by the Alberta College of Pharmacists authority to prescribe a drug listed in Schedule 1 of the Pharmacy and Drug Act, RSA 2000, c. P-13 under limited conditions and to administer drugs by injection.

4. A "clinical pharmacist" is defined in the Pharmacists Profession Regulation. These pharmacists are members of the Alberta College of Pharmacists who are registered in the clinical register category of the regulated members register.

5. Drugs listed in Schedule 1 of the Pharmacy and Drug Act include drugs in Schedule F to the Food and Drug Regulations made under the Food and Drugs Act, R.S.C. 1985, c. F-27 and drugs set out in a Schedule to the Controlled Drugs and Substances Act, S.C. 1996, c. 19.

6. Pharmacist prescribing differs from prescribing by other health professionals in that generally a pharmacist will prescribe in partnership with another health professional after a diagnosis or decision for treatment has been made by the other health professional. This means that pharmacists may alter a dosage or formulation or regimen to ensure that the prescribed therapy best meets the need of the patient.

7. Pharmacists may also provide a refill of a prescription that a patient takes regularly, as long as the pharmacist determines that it is in the best interests of the patient to continue the therapy. The refill is intended to tide patients over until they can see their physician.

8. If a patient has an immediate need for drug therapy and cannot see another health professional to receive a prescription, a pharmacist may prescribe a small amount of a drug to treat symptoms until the patient can see someone to make a diagnosis.

9. Other provinces are also considering regulatory changes to provide pharmacists with the authority to prescribe drugs for human use.

Rulings Requested

1. In the Province of Alberta and other jurisdictions where pharmacists may legally prescribe drugs for human use, zero-rated status would apply to the supply made by the pharmacy of a drug prescribed by a pharmacist.

2. Zero-rated status applies to dispensing fees charged by pharmacies for supplies of drugs prescribed by pharmacists and other health care professionals who are not medical practitioners in jurisdictions where they may legally prescribe drugs.

Rulings Given

1. Effective for supplies made after February 26, 2008, in the Province of Alberta and other jurisdictions where pharmacists are authorized to prescribe drugs, a supply made by a pharmacy of a drug for human use that is prescribed by a pharmacist for the personal consumption or use of an individual named in the prescription is zero-rated pursuant to paragraph 3(b) of Part I of Schedule VI to the ETA.

2. A supply made by a pharmacy of a service of dispensing a drug where the supply of that drug is included in Part I of Schedule VI is zero-rated pursuant to section 4 of this Part. Therefore, effective for supplies made after February 26, 2008, zero-rated status applies to a dispensing fee charged by pharmacies for a supply of a drug made in the circumstances described in Ruling 1 above where the drug is:

• prescribed by a medical practitioner; and
• prescribed by a health care professional other than a medical practitioner who is authorized to prescribe drugs for individuals.

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

Explanation

Paragraph 3(b) of Part I of Schedule VI zero-rates a supply of a drug made by a pharmacy if the drug is for human use and is dispensed by a pharmacist on the prescription of a medical practitioner or authorized individual for the personal consumption or use of the individual named in the prescription.

As noted above, the Minister of Finance expanded this zero-rating provision to include drugs that are prescribed by an authorized individual. The relevant definitions to the zero-rating provision in question are found in section 1 of Part I of Schedule VI and are as follows:

A "medical practitioner" means a person who is entitled under the laws of a province to practise the profession of medicine or dentistry.

An "authorized individual" means an individual, other than a medical practitioner, who is authorized under the laws of a province to make an order directing that a stated amount of a drug or mixture of drugs specified in the order be dispensed for the individual named in the order.

A "prescription" means a written or verbal order, given to a pharmacist by a medical practitioner or authorized individual, directing that a stated amount of any drug or mixture of drugs specified in the order be dispensed for the individual named in the order.

A "pharmacist" means a person who is entitled under the laws of a province to practise the profession of pharmacy.

As a result of these amendments, paragraph 3(b) of Part I of Schedule VI has the effect of zero-rating supplies made by pharmacies of a drug prescribed by a medical practitioner or by an authorized individual who is authorized to prescribe the drug under provincial legislation, when the drug is dispensed for the personal consumption or use of the individual named in the order. As previously indicated, these amendments apply to a supply made after February 26, 2008. However, a transitional rule provides that these amendments also apply to a supply made on or before February 26, 2008, if no GST/HST was charged, collected or remitted on or before that day in respect of the supply.

Consequently, if a pharmacy did charge, collect or remit the GST/HST on or before February 26, 2008 in respect of a supply made on or before that day, the amendment will not apply. Therefore, no refund or rebate is available for any GST/HST charged, collected or remitted on these supplies of a drug prescribed by a pharmacist or other health professional, including the associated dispensing fee.

As noted in the Statement of Facts, clinical pharmacists were also given authority under Pharmacists Profession Regulation to administer drugs by injection in limited conditions. Please note that with the exception of dispensing services, this ruling does not apply to services rendered by pharmacists, including consultation services and administering drugs by injection.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-6761. 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,
Susan Eastman
Municipalities and Health Care Service Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

UNCLASSIFIED

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

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
XXXXX

Case Number: 117113
Attention: XXXXX
August 31, 2009

Dear XXXXX:

Subject:

GST/HST RULING
XXXXX products

Thank you for your letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to XXXXX Drink and Bar products.

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

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX Drink products are available in XXXXX varieties: XXXXX (Product A), XXXXX (Product B), XXXXX (Product C), and XXXXX (Product D).

2. Products A, B, C, and D are packaged in XXXXX mL containers and are sold individually or in multiples of XXXXX pre-packaged by the producer.

3. Products A, B, C, and D are marketed for people with XXXXX.

4. Products A, B, C, and D are labelled as "Meal Replacement".

5. XXXXX, the producer of Products A, B, C, and D states that XXXXX Drink products qualify as meal replacements under the Food and Drugs Act Regulations.

6. Regarding XXXXX Drink products, the XXXXX Website states: "XXXXX."

7. XXXXX Bars are available in a XXXXX g bar in two varieties: XXXXX (Product E), and XXXXX (Product F).

8. Products E and F are labelled as "Nutritional Supplement".

9. XXXXX, the producer of Products E and F states that XXXXX Bars qualify as nutritional supplements under the Food and Drugs Act Regulations.

10. Regarding XXXXX Bars, the XXXXX Website states: "XXXXX."

Ruling Requested

You would like to know how the GST/HST applies to supplies of Products A, B, C, D, E, and F.

Ruling Given

Based on the facts set out above, we rule that supplies of Products A, B, C, D, E, and F are zero-rated pursuant to section 1 of Part III of Schedule VI.

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

Explanation

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

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

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

The CRA's approach is based on the views of an "average consumer". Products that meet the special dietary needs of certain segments of the population, such as those with restricted or special purpose diets, high performance athletes and dieters may not necessarily be viewed by the average consumer as food or beverages. These types of products are commonly referred to as dietary supplements.

However, the CRA's approach would not preclude a product from zero-rating that is specially processed or formulated to meet the dietary requirements of a person in whom a physical or physiological condition exists as a result of a disease, disorder or injury or whom a particular effect is to be obtained by a controlled intake of food. Although these products are different from what an ordinary consumer would view as food, their main purpose is to provide nutrition and nourishment for people with a medical condition.

Products that qualify as formulated liquid diets, meal replacements, or nutritional supplements under the Food and Drug Act and Regulations are considered to be basic groceries for GST/HST purposes and are zero-rated under section 1 of Part III of Schedule VI. All supplies of formulated liquid diet, meal replacement, and nutritional supplement products are zero-rated (except when sold from a vending machine).

If a product is represented as being a formulated liquid diet, a meal replacement or nutritional supplement as evidenced by the label, the CRA will accept this information as fact in determining its tax status. If, however, after a ruling has been issued, it is determined that a product is in fact not a formulated liquid diet, a meal replacement or nutritional supplement, in accordance with GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the ruling will not be valid.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9585. 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,
Ben Boboski
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

UNCLASSIFIED

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

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 20th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX

Case Number: 119039
Attention:XXXXX
November 4, 2009

Dear XXXXX:

Subject:

GST/HST RULING
Refunds under the Excise Tax Act

Thank you for your letter of XXXXX, which was forwarded to us on XXXXX, concerning the application of excise tax on gasoline product lost due to a leak.

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

Statement of Facts

We understand that the gasoline product was lost due to a leak in the underground storage tank.

Ruling Requested

You would like to know the reason why the excise tax on the lost gasoline product cannot be refunded.

Ruling Given

No provisions exist in the ETA that would allow for a refund of excise tax under the circumstances described.

The ETA does provide for refunds of excise tax under certain circumstances. For those that do not hold a licence under the ETA refunds can be allowed for:

• Goods Exported.

• A vendor who sells fuel for use as Ships' Stores.

• A vendor who sells diesel fuel exclusively as heating oil.

• An end-user who purchases diesel fuel and uses it as heating oil.

• An end-user who purchases diesel fuel and uses the diesel to generate electricity, except where the electricity so generated is primarily used in the operation of a vehicle.

• End-user who purchases and uses fuel for use as Ships' Stores.

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

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-4138. 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,
Nathalie Robitaille
Excise Taxes and Other Levies Unit
Excise Duties and Taxes Division Division
Excise and GST/HST Rulings Directorate
2009/10/02 - RITS 116671 - Activities of a Tobacco Licensee

UNCLASSIFIED