GST/HST Ruling

Dear XXXXX

Thank you for your letter of XXXXX, addressed to our Technical Interpretation Services Office (now GST/HST Rulings) in XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to fees for services related to an application for a liquor licence. Your letter was transferred to this office for reply. We regret the delay in our response caused by consultations on this matter.

Statement of Facts

Our ruling is based on the following facts obtained from your letter and from our telephone conversation of XXXXX.

1. XXXXX (the City) is a municipality incorporated pursuant to the XXXXX.

2. The City is a "municipality" for GST/HST purposes as defined in subsection 123(1) of the Excise Tax Act (ETA).

3. The City is registered for GST/HST purposes and has been assigned GST/HST registration number XXXXX.

4. An applicant wishes to obtain a provincial liquor licence for a location in the City and in this regard makes an application to the City and to the XXXXX of the Provincial Government.

5. XXXXX is responsible for the issuance, renewal, transfer, suspension or cancellation of licences as provided by XXXXX.

6. XXXXX.

7. XXXXX In order to assess the views of residents, the City will require that a public notice be posted advising that an application for a liquor licence has been made for the area; it may enter into a contract with a Referendum Company to carry out a referendum or it may conduct public meetings or telephone surveys.

8. The applicant for the liquor licence is required to pay for internal costs incurred by the City in relation to the administration of the referendum and for the other activities carried on by the City to obtain public input on the issuance of the licence. For example, the City will bill the applicant for the final costs of the referendum, including internal costs at cost plus overhead XXXXX and the cost of the referendum.

9. If the City endorses the application, and if all other requirements of provincial legislation, regulations and policy are satisfied, the XXXXX will issue a liquor licence to the applicant or advise of the next steps in the application process.

10. To the best of your knowledge, none of the issues described herein is being considered by a Canada Customs and Revenue Agency office in connection with a GST/HST return and none of the issues is under objection or appeal.

Ruling Requested

Does the GST/HST apply to amounts the City charges the applicant for the cost of services provided by the Referendum Company and for internal costs and overhead incurred by the City in order to obtain public input on the issuance of the licence?

Ruling Given

Based on the facts provided, we rule that the charges by the City to the applicant in relation to the costs described above are not subject to the GST/HST.

Explanation

Section 20 of Part VI of Schedule V to the ETA provides an exemption for certain supplies made by a government or municipality or by a board, commission or other body established by a government or municipality.

Paragraph 20(c) of this Part exempts a supply of a licence, permit, quota or similar right (other than such a right supplied in respect of the importation of alcoholic beverages) and the supply of any service in respect of an application for such a right.

The issuance of a liquor licence by XXXXX of the Provincial Government is exempt pursuant to paragraph 20(c) of Part VI of Schedule V.

Before a liquor licence can be issued, the province may require that the City solicit the views of residents in the area affected by the licence application. In this situation, the City will require that notices be posted advising the residents that an application for a liquor licence is being considered for an establishment in their area. The City may enter into a contract with a Referendum Company to solicit public feedback; it may conduct public meetings, arrange for telephone surveys, etc. The applicant for the liquor licence will pay the City the costs it incurs for the referendum, public meetings or surveys, including internal costs and overhead.

It is our view that these amounts paid by the licence applicant to the City are consideration for services that are integral to the granting of the liquor licence. The rationale for conducting the referendum, the public meetings or the surveys in these circumstances is to support the application for the licence. Therefore, the referendum and other activities carried out to obtain the views of the public on the application are part of a single regulatory process.

As mentioned above, paragraph 20(c) of Part VI of Schedule V also provides an exemption for the supply of any service in respect of an application for a licence, permit, quota or similar right when supplied by a government, municipality or by a board, commission or other body established by a government or municipality. The fees paid by the applicant in this situation are consideration for exempt services supplied by the City in respect of the application for the liquor licence.

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

Services provided by the Referendum Company to the City

You also requested confirmation that the charge by the Referendum Company to the City will be taxable and that the City will be entitled to claim a rebate of 57.14% of the GST paid to the Referendum Company.

Interpretation Given

We have not been provided with information concerning the Referendum Company, its relationship to the City or the nature of any agreements between the company and the City, therefore; we cannot provide a ruling on the tax status of its supplies to the City. We can however, provide a general interpretation that if the Referendum Company is a GST/HST registrant providing these services to the City in the course of a commercial activity, then the services will be taxable.

The City would be entitled to claim a public service body rebate of 57.14% of the non-creditable tax charged on the consideration for these services pursuant to subsection 259(3) of the ETA.

These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

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

Yours truly,

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

Dear XXXXX:

Thank you for your letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to buying groups in general, and more specifically, whether your client's supplies are considered to be pass-through supplies for purposes of section 178.6 of the Excise Tax Act (the ETA).

Our understanding of the facts is as follows:

1. XXXXX (the "Buyer") is a corporation incorporated under the Business Corporation Act (Ontario) by Articles of Incorporation dated XXXXX;

2. The Buyer was formed by XXXXX ("CANCO A") and XXXXX ("CANCO B") for the purpose of carrying on a business of sourcing and purchasing food products, including private label products, packaging, smallwares, foodservice equipment and ancillary products and services (collectively referred to as "the products") from various suppliers for re-sale to the Buyer's customers;

3. CANCO A is a taxable Canadian corporation and a public corporation within the meaning of the Income Tax Act. CANCO A carries on business in Canada as a food services provider and as a franchisor of food services businesses. CANCO A and its franchisees will be customers of the Buyer;

4. CANCO B is a taxable Canadian corporation and a wholly-owned indirect subsidiary of XXXXX whose shares are listed on the XXXXX. CANCO B and its wholly-owned direct and indirect Canadian subsidiaries carry on food services businesses in Canada and will be customers of the Buyer;

5. CANCO A and CANCO B deal with each other at arm's length;

6. CANCO A is also the controlling shareholder of XXXXX, another taxable Canadian corporation that directly and indirectly through subsidiary corporations also carries on business in Canada as a food services provider and as a franchisor of food services businesses. This third corporation and its franchisees will also be customers of the Buyer;

7. The Buyer will purchase and acquire title to the products and will be liable as principal for the payment to the suppliers of the price of the products acquired. The Buyer will re-sell the products to its customers at a price equal to the price charged by the suppliers;

8. The Buyer may subsequently receive rebates, allowances or similar cash amounts (collectively referred to as "rebates") from the suppliers. Such rebates shall be for the account of the Buyer and will be distributed as outlined in various agreements described below. It is not intended that the franchisees, who are customers of the Buyer, participate in such distributions;

9. Under the XXXXX Agreement with each of its customers, all of the Buyer's customers will benefit over the term of their participation in the buying group arrangement by obtaining lower prices for the products at the time the supplies are made, i.e., prior to the payment of rebates by the suppliers, and/or better terms of supply than would otherwise be available to the customers if they were making their purchases individually on their own directly from the suppliers;

10. Under the XXXXX Agreement, the Buyer will appoint the customer as its agent to make purchases of the products from the suppliers on its behalf. Arrangements with the suppliers will provide that the Buyer will take title and that the suppliers will issue their invoices to the Buyer for the price of the products. The suppliers will be authorized and directed to deliver the products directly to the Buyer's customers together with a copy of the particular supplier's invoice for those products;

11. Under the terms of the XXXXX Agreement, the copy of the suppliers' invoices issued to the Buyer but delivered to the customers will be deemed to constitute invoices from the Buyer to the customers, and the customers will be authorized and directed to pay the invoice amounts directly to the suppliers on behalf of the Buyer;

12. The Buyer's revenue will consist of membership fees and rebates;

13. CANCO A, on behalf of itself and the other taxable corporation, and CANCO B and its wholly-owned direct and indirect Canadian subsidiaries agree to pay the Buyer an annual membership fee. The membership fees paid to the Buyer will approximately equal the Buyer's operating costs including bad debts;

14. Where a customer of the Buyer fails to pay a supplier on the Buyer's behalf, the Buyer will pay the supplier directly and will incur a bad debt if the amount is not ultimately recovered from the customer. These bad debts will be funded through additional membership fees charged to CANCO A or CANCO B, as the case may be;

15. The Buyer will distribute its rebate revenue on a yearly basis to its voting shareholders pro rata as set out in XXXXX of the Shareholders Agreement. The distribution is intended to be in accordance with the sales volumes for each product or with each supplier generated by each voting shareholder; and

16. Franchisees will not participate in the distribution of rebate revenue. In accordance with XXXXX of the Shareholders Agreement, CANCO A and the third corporation referred to in fact #6 above are entitled to additional rebates in respect of purchases made by their respective franchisees.

Ruling Requested

Do the products, as described above, meet the definition of pass-through supplies as provided for in subsection 178.6(1) of the ETA.

Ruling Given

Based on the facts above, we rule that the supplies of the products as described under fact #2 above that are made by the suppliers to the Buyer and that are, in turn, supplied by the Buyer to its customers are pass-through supplies for purposes of section 178.6 of the ETA.

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

Additional Interpretation Given

As such, the Buyer may apply to use the buying group accounting method as set out in subsection 178.6(5) of the ETA if all or substantially all of the supplies of property or services made by the Buyer are pass-through supplies. It is recognized that in addition to the pass-through supplies made by the Buyer, the Buyer is supplying services and rights to the customers for which CANCO A and CANCO B and its wholly-owned direct and indirect Canadian subsidiaries are paying a fee that is described in the XXXXX Agreement as a membership fee.

An application for the designation of the Buyer as a buyer for purposes of the buying group method of accounting for the GST/HST under subsection 178.6(5) of the ETA should be forwarded to the Buyer's local tax services office for consideration.

It is important to note that where a person is designated by the Minister as a buyer for purposes of section 178.6 of the ETA, the buyer and the ultimate recipients, i.e., the Buyer's customers, are jointly and severally liable for the payment of the GST/HST in respect of the supplies made by the original suppliers, i.e. the suppliers of the products. As such, a buyer could be assessed for tax payable pursuant to subsection 296(1) of the ETA where the ultimate recipient has not paid the tax. For instance, if an ultimate recipient has claimed ITCs for tax payable in respect of the products, subsequently encounters financial difficulty and is unable to pay the tax, the Canada Customs and Revenue Agency (the CCRA) could raise an assessment against the buyer to recover the unpaid tax. In such cases, the buyer would be required to pay the tax, however, the buyer would not be entitled to recover the tax paid pursuant to the assessment. Even where the buyer pays the tax on behalf of the ultimate recipient, the buyer is not entitled to ITCs in respect of the products supplied by the suppliers as the supplies made to the buyer and by the buyer to the ultimate recipients are deemed not to have occurred for GST/HST purposes pursuant to paragraph 178.6(5)(d) of the ETA. Furthermore, where the buyer is unable to recover the tax from the ultimate recipient, the buyer would not be able to claim a bad debt adjustment under section 231 of the ETA due to the application of above noted paragraph.

In addition to the above, where an amount is refunded, adjusted, or credited to a purchaser, after the tax has been charged or collected, as a volume rebate for simply surpassing a certain volume of purchases, it is the CCRA's position that the amount is a reduction of consideration for purposes of subsection 232(2) of the ETA. Where the supplier refunds, adjusts or credits the tax in respect of the reduction in consideration, the supplier is required to issue a credit note, unless the purchaser issues a debit note, containing prescribed information for the amount of the refund, adjustment or credit.

Under the buying group method, if the supplier issues a credit note in respect of a reduction in consideration to the buyer, the buyer is deemed to have received the note on behalf of the ultimate recipients (i.e., the customers of the Buyer in your case). As such, the ultimate recipients are required to add an amount to their net tax calculation to the extent that they have previously claimed an ITC. The ultimate recipients are also required to make a net tax adjustment where the buyer issues to the supplier a debit note in respect of the refund, adjustment or credit.

If a refund, credit or adjustment of tax is not made, a credit note, or debit note, need not be issued for GST/HST purposes, and there will be no corresponding adjustment to the net tax of either the supplier or the ultimate recipients.

The foregoing comments subsequent to the above ruling represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the CCRA with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-8813.

Sincerely,

Marcel R. Boivin
A/Manager
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

Dear XXXXX

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

Statement of Facts

Our understanding of the facts, is as follows:

A. XXXXX (Product A)

1. Product A is a powdered vitamin and mineral drink packaged in XXXXX packets (XXXXX packets per box) intended to be mixed with XXXXX of cold water or milk before consumption.

2. Product A is manufactured by XXXXX of XXXXX. and imported into Canada.

3. According to the label, Product A contains the following:

•   XXXXX of exclusive XXXXX protein,

•   XXXXX essential vitamins and minerals,

•   XXXXX of calcium,

•   XXXXX of fat,

•   high concentration of glutamine, and

•   XXXXX lactose free.

4. The label for Product A states that it is for therapeutic use only with a recommended adult dose of one serving (XXXXX packet) daily.

5. The label for Product A identifies the various ingredients as either Medicinal Ingredients or as Non-Medicinal Ingredients.

6. Product A has been issued a Drug Identification Number (XXXXX).

7. XXXXX XXXXX XXXXX — XXXXX XXXXX[.]

8.  Product A is available in various flavours including chocolate (sample provided).

9. According to the XXXXX, a consumer can lose body fat and sculpt their body by using Product A. The XXXXX claims that using Product A coupled with a recommended exercise program XXXXX[.]

B. XXXXX (Product B)

1. Product B is a XXXXX vitamin/mineral supplement bar (XXXXX bars per box).

2. Product B is manufactured by XXXXX. of XXXXX. and imported into Canada.

3. Product B has been issued a Drug Identification Number (XXXXX).

4. The label for Product B identifies the various ingredients as either Medicinal Ingredients or as Non-Medicinal Ingredients.

5. According to the product label, the recommended adult dose is XXXXX daily for therapeutic use only.

6. XXXXX Product B is available in various flavours including XXXXX (sample provided).

7. The non-medicinal ingredients of the XXXXX bar are: Corn Syrup, XXXXX high fructose corn syrup, XXXXX, Milk Chocolate Chips, Dutch Cocoa, natural and artificial flavours, pantothenic acid, and copper.

C. XXXXX (Product C)

1. Product C is a XXXXX high protein bar (XXXXX bars per box).

2. Product C is manufactured by XXXXX. and imported into Canada

3. Product C is manufactured in a variety of flavours including Peanut Butter (sample provided).

4. The ingredients of the Product C sample provided are: Protein blend, chocolate flavoured coating, glycerin, maltitol, peanut flour, natural and artificial flavor, crystalline fructose, salt and potassium sorbate.

Ruling Requested

Are supplies of the above-described products zero-rated pursuant to section 165 of the Excise Tax Act (ETA)?

Ruling Given

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

Supplies of Product A, B and C are taxable at 7% GST (or 15% if made in a province participating in the Harmonized Sales Tax [HST]) pursuant to section 165 of the ETA.

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

Explanation

A supply 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) is zero-rated (i.e., taxed at a rate of 0%) pursuant to section 1 of Part III of Schedule VI to the ETA. Certain food or beverages (e.g., carbonated beverages) are taxable at 7% (or 15% in participating provinces) because they are excluded from zero-rating by paragraphs 1(a) to 1(r) of Part III. For example, paragraph 1(e) of Part III excludes from zero-rating supplies of candies, confectionery that may be classed as candy, or any goods sold as candies, such as candy floss, chewing gum and chocolate, whether naturally or artificially sweetened, and including fruits, seeds, nuts and popcorn when they are coated or treated with candy, chocolate, honey, molasses, sugar, syrup or artificial sweeteners.

The terms "food" and "beverage" are not defined in the ETA. The CCRA considers that a product is a food or a beverage if an average consumer would recognize and purchase the product as a food or beverage in the ordinary course of buying basic groceries. Put differently, products would be considered to be a food or a beverage if they would be consumed by an average consumer when food or beverages are typically consumed, such as at mealtimes or for a snack. It is the CCRA's view that an average consumer would generally accept that a product in bar format was food.

Therefore, our review of the material submitted on Product B and Product C leads us to conclude that they are taxable at 7% GST (or 15% HST, as applicable) because they are excluded from zero-rating pursuant to paragraph 1(e) of Part III.

Consumers usually consume food for enjoyment or to allay hunger, while beverages are usually consumed for enjoyment or to quench thirst. That is, food and beverages are consumed to sustain or maintain life, to allay hunger or thirst, or for enjoyment, rather than for therapeutic or preventative effects (e.g., to correct actual or perceived health problems) or to achieve specific beneficial effects related to performance or physique. Therefore, products that are labelled, packaged or marketed as products to be consumed to facilitate the intake of certain ingredients (nutritive or otherwise) or which place an emphasis on claims relating to the benefits of the product, for example, therapeutic or preventive effects, or enhancing performance or physique, are not considered to be products that an average consumer would ordinarily purchase in the course of buying food or beverages. Moreover, products that meet special dietary needs of certain segments of the population such as those with restricted or special purpose diets, high performance athletes and dieters may not necessarily be viewed by the average consumer as food or beverages.

These products, commonly described as "dietary supplements", are not considered to be food, beverages or ingredients, and are taxable at 7% GST or 15% HST. Such products are generally made from synthetic or natural ingredients that are ingestible and that may be nutritive. They are available in a variety of formats: solids, (including powders), pills, capsules, gels, liquids (including oil) and tinctures. They may contain vitamins, minerals, fibre, protein, amino acids, fatty acids, enzymes, or compounds derived from plant or animal products. As mentioned earlier, these products are purchased and consumed for therapeutic or preventative purposes or to achieve specific beneficial effects.

If a product's tax status is in doubt, the CCRA will consider the manner in which the product is labelled, packaged, and marketed to determine its tax status. There are a number of factors that the CCRA considers in determining whether a product would be considered by an average consumer to be a food, beverage or ingredient. The following are some of the factors that apply to Product A:

•   Identification as a supplement or dietary supplement. XXXXX

•   Claims that the product has a therapeutic or preventive effect, enhances mental or physical performance, or enhances physique with emphasis on particular nutrient(s) prominently displayed on the label. The XXXXX for Product A links the use of Product A (with an exercise program) to replacing unwanted fat with lean, toned muscle and the XXXXX Product A's exclusive protein ingredient to building lean body mass and carbohydrates to replenishing muscle glycogen;

•   A listing of active or medicinal ingredients separate from those components considered non-active or non-medicinal; Product A identifies various ingredients as either medicinal or non-medicinal ingredients;

•   Restrictions related to the amount to be consumed; Product A is recommended for therapeutic use only with a recommended adult dose of XXXXX XXXXX daily.

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

Yours truly,

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

Dear XXXXX

Thank you for your letter to the XXXXX GST/HST Rulings Centre of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the distribution of digitized artwork. Your request was transferred to us for response. We apologize for the delay in responding to your enquiry.

Statement of Facts

Our understanding of the facts is as follows:

XXXXX a GST/HST-registrant, distributes digitized artwork (the Artwork) to resident and non-resident clients, such as newspapers and magazines. XXXXX[']s office and server are both situated in XXXXX.

To access the Artwork, a client must first register with XXXXX. While logged in to XXXXX's Web site (XXXXX), the client can "buy and download" the Artwork. They have access to it for 24 hours from the first download. When buying the Artwork, they can also choose currency and payment options.

The "Terms of Use" of the Licence agreement (the Agreement) stipulates that XXXXX grants the client a personal, non-transferable, non-exclusive licence, for a one-time use of the selected Artwork in the client's print or on-line product. Under the Agreement, the client is authorized to utilize each piece of Artwork purchased in one publication only. In the event that the client wishes to further use the Artwork in any means, the client must first obtain written consent from XXXXX and pay the applicable fees. The client agrees to publish with each piece of Artwork any credit line and trademark or copyright notice [or both] that is included with the Artwork. In addition, XXXXX has the right to restrict or withhold any Artwork, and maintains the right to immediately revoke a licence granted. The Agreement does not restrict the use of the Artwork to any one province, territory or country.

Ruling Requested

You have requested clarification on the tax status of the Artwork when supplied to clients in Canada including those who are located in a participating province (Nova Scotia, New Brunswick and Newfoundland and Labrador). However, as XXXXX's clients include non-residents, and to provide you with a complete response, we shall also address the tax status of the Artwork when supplied to clients who are non-residents.

Ruling Given

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

XXXXX's supply of the Artwork is deemed to be made in Canada, pursuant to subsection 142(1) of the Excise Tax Act (ETA).

We further rule that XXXXX's supply of Artwork that is downloaded off its Web site by:

1. a resident client is subject to the GST at a rate of 7%, pursuant to subsection 165(1) of the Excise Tax Act (ETA) whether or not the client is located in a participating province;

2. a non-resident client who is registered under Subdivision d (This Subdivision includes the requirements for registration for GST/HST purposes.) of Division V of Part IX of the ETA at the time the supply is made is subject to the GST at a rate of 7%, pursuant to subsection 165(1) of the ETA; and

3. a non-resident client who is not registered under Subdivision d of Division V of Part IX of the ETA at the time the supply is made is zero-rated under section 10 of Part V of Schedule VI to the ETA.

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

Explanation

The supply of the right to use XXXXX's Artwork is a supply of intangible personal property (IPP). A taxable [other than zero-rated] supply of IPP made in Canada is subject to GST at the rate of 7% or HST at the rate of 15% [where the supply is made in a participating province]. A taxable supply that is zero-rated is taxed, under subsection 165(3) of the ETA, at a rate of 0%.

As stipulated in paragraph 142(1)(c) of the ETA, a supply of IPP is deemed to be made in Canada if the IPP may be used [meaning "allowed to be used"] in whole or in part in Canada. As the Agreement does not restrict use of the Artwork exclusively to "in Canada" or "outside Canada", under this paragraph, the supply is deemed to be made in Canada since the Artwork may be used in Canada.

Section 144.1 of the ETA works in conjunction with the rules set out in Schedule IX to the ETA to determine the province in which the supply is made.

As the Artwork is IPP that is not related to real property, tangible personal property or services, paragraphs 2(d) and 3(d) of Part III of Schedule IX to the ETA must be examined when determining the place of supply for the Artwork. Subparagraph 2(d)(i) of this Part states that a supply of IPP is considered to be made in a province if all or substantially all [90% or more] of the Canadian rights (Section 1 of Part III of Schedule IX to the ETA defines "Canadian rights", in respect of IPP, to be that part of the property that can be used in Canada.) in respect of the IPP can be used only in the province. Where there are no restrictions regarding which province or groups of provinces the IPP can be used, subparagraph 2(d)(i) and similarly, paragraph 3(d) of this Part are not applicable.

Subparagraph 2(d)(ii) of Part III of Schedule IX to the ETA states that a supply of IPP will be considered to be made in a province if the place of negotiation (Section 1 of Part I of Schedule IX to the ETA defines "place of negotiation" to be "... the location of the supplier's permanent establishment at which the individual principally involved in negotiating for the supplier the agreement for the supply ordinarily works ...") of the supply is in the province, and the IPP can be used otherwise than exclusively outside the province. Where there are no restrictions regarding the province in which the IPP can be used, it will always be the case that the IPP can be used otherwise than exclusively [90% or more] outside the province where the place of negotiation occurred. Therefore, as a GST/HST-registrant with a permanent establishment in XXXXX that is the place of negotiation, the supplies of the Artwork by XXXXX are deemed to be made in XXXXX, a non-participating province. As such, XXXXX is required to collect the GST at a rate of 7% on the supply of the Artwork even in cases where the recipient of the Artwork may be located in a participating province.

The next step is to ascertain whether there is a zero-rating provision that could apply to the Artwork. Under section 10 of Part V of Schedule VI to the ETA, the supply of, or the right, licence or privilege to use, IPP that is intellectual property is zero-rated when supplied to a non-registered non-resident person. Intellectual property includes an invention, patent, trade secret, trademark, trade name, copyright, or industrial design. Under these conditions, XXXXX is able to zero-rate its supply of Artwork to a non-registered non-resident client.

For your information, we have enclosed GST/HST Memoranda Series Chapter 4.5.1, Exports - Determining Residence Status. Appendix B of this Memorandum describes the documentation that Canada Customs and Revenue Agency will generally accept as proof that the recipient is both not resident in Canada and not registered for GST/HST purposes. Also enclosed is GST/HST Memoranda Series Chapter 4.5.3, Exports - Services and Intellectual Property.

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

Yours truly,

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

Dear XXXXX:

Thank you for your letter of XXXXX, with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of services by private companies to the City XXXXX for operation of the XXXXX system.

Statement of Facts

1. As a result of a study carried out by the XXXXX Division of the City's XXXXX Department, the City operated transportation services for the physically handicapped XXXXX XXXXX.

2. XXXXX the Committee XXXXX recommended that XXXXX continue to operate as a permanent segment of the overall public transit service provided to citizens of the City.

3. On XXXXX, the City Council of the City approved the contracting out of 100% of the XXXXX service for the City.

4. A Request for Proposals Package XXXXX was issued on XXXXX for the provision of transportation service for all XXXXX users for the period covering XXXXX. The deadline for receipt of offers in respect of RFP XXXXX was XXXXX. A similar Request for Proposals Package (XXXXX) was issued for the period XXXXX. The two Request for Proposal Packages are, in all material essence, identical. As a result, this statement of facts will reference

RFP XXXXX only but the conclusions reached in this letter will be applicable to the contractual agreements resulting from both Request for Proposal Packages. XXXXX of the Bidding Instructions states,

"XXXXX"

5. Proposals were submitted by XXXXX companies. There was limited interest in the work item that required the largest vehicles and a second Request for Proposals XXXXX was issued on XXXXX covering this work item only. The terms and conditions of the work item in RFP XXXXX were identical to those listed for the specific work item in RFP XXXXX, with the added option of making an offer to purchase XXXXX of the fleet of XXXXX vehicles owned by the city and appropriate for the specific work item.

6. The City decided to enter into contracts with XXXXX companies for the various work items covered by RFP XXXXX. The City chose one company to enter into a contract with for the work item outlined in RFP XXXXX.

7. On XXXXX, the City entered into an Agreement with XXXXX, one of the successful bidders. The preamble to the Agreement states,

"XXXXX"

8. XXXXX to the Agreement states,

"XXXXX"

XXXXX, is identified in XXXXX of the Agreement as the Contract Administrator.

9. XXXXX to the Agreement states,

"XXXXX"

10. The supplemental conditions outlined in XXXXX provide a clause for third party liability insurance. XXXXX outlines the obligations of the contractor to obtain a third party liability insurance policy of at least XXXXX dollars, all inclusive and to include the City as an additional insured, with a cross-liability clause.

11. The "Specifications" outlined in XXXXX to the Agreement list the service specifications for work to be carried out under the Agreement. XXXXX refers to the scheduling of the service to be provided. XXXXX of XXXXX states,

"XXXXX"

12. XXXXX to the Agreement refers to the fares to be collected in respect of the transportation service. XXXXX

"TXXXXX" "TXXXXX"

13. XXXXX indicates that work under the contract will be measured on a unit basis (i.e. hourly rate and flat rate service) and that the Contractor will submit a monthly invoice showing the total number of vehicle hours provided during the month and the total number of passenger trips and no-shows provided in the month. Payment is made XXXXX days following the receipt and approval of the contractor's invoice.

14. XXXXX

"XXXXX"

15. XXXXX

"XXXXX"

16. In order for an individual to be registered to use the XXXXX system, an application form must be filed with the City.

17. XXXXX

Ruling Requested

You would like us to confirm that the payments made by the City to the contractors with respect to the XXXXX system are not taxable pursuant to subsection 165(1) of the Excise Tax Act.

Ruling Given

Based on the facts set out above, we rule that the payments made by the City to the contractors with respect to the XXXXX system are consideration for a taxable supply. Pursuant to subsection 165(1) of the ETA, the City as recipient of a taxable supply is required to pay tax in respect of the supply calculated at the rate of 7% on the value of consideration for the supply.

Explanation

Your submissions included a description of the application of GST legislation, as you understand it. References were made to the exemption for "municipal transit services" in section 24 of Part VI of Schedule V to the ETA. The exemption cited plays a role in the application of GST legislation to the XXXXX system, however your understanding is not in line with the Canada Customs and Revenue Agency's current policy on the issue.

Section 24 of Part VI of Schedule V to the ETA provides for an exempt supply of a municipal transit service (or a public passenger transportation service designated by the Minister to be a municipal transit service).

A "municipal transit service" is defined in section 1 of Part VI of Schedule V to the ETA as a public passenger transportation service (other than a charter service or a service that is part of a tour) that is supplied by a transit authority all or substantially all of whose supplies are of public passenger transportation services provided within a particular municipality and its environs.

An entity will only be considered a transit authority if it is a division, department, or agency of a government, municipality or school authority or if it is a specific type of non-profit organization (i.e. a non-profit organization that: (i) receives funding from a government, municipality or school authority to support the supply of public passenger transportation services, or (ii) is established and operated for the purpose of providing public passenger transportation services to individuals with a disability.). The contractors employed under the XXXXX system could only be providing a "municipal transit service" as defined in the ETA if they qualified as one of these types of entities or if they provided a public passenger transportation service designated by the Minister to be a municipal transit service.

It should be pointed out that the CCRA would only designate a public passenger transportation service to be a municipal transit service as defined in the ETA if the supply is made directly to the public. The CCRA does not consider the supply made by the contractors under the XXXXX system to be made directly to the public. It is our view that there are two supplies made with respect to the XXXXX system. The public passenger transportation service being provided to the public is a supply by the City's transit department, a transit authority, which is an exempt supply. The supply made by the contractors is a supply to the City. For this reason, the supply made by the contractors would not qualify for exemption under section 24 of Part VI of Schedule V to the ETA.

Your submission referred to the possibility that the payments made by the City to contractors under the XXXXX system were grants made in the public interest and not consideration for a taxable supply. The CCRA's administrative policy concerning the tax treatment of grants and subsidies determines a payment made by a grantor to be consideration for a supply where there is a "direct link" between the payment made and a supply to the grantor, or to a third party, by the recipient of the transfer payment. It is our view that the City's purpose in making the payment to the contractors is to "contract out" services that the City needs to perform in the course of providing their exempt municipal transit service to the public. We find a "direct link" between the payments made by the City and the services rendered by the contractors to the City.

Our view that the City is purchasing services from contractors as inputs to their exempt supply of a municipal transit service to the public is supported by a number of facts. An application form for registration in the XXXXX system must be filed with the City. The City issues and sells the tickets used in the XXXXX system, not the contractor. The contractor is required to obtain third party liability insurance naming the City as an insured. The City schedules all trip requests and receives customer complaints. The City's signage is displayed on vehicles used by the contractors in the provision of its services to handicapped individuals. These facts, coupled with direct language from the Agreement that names the contractors as contractors and explicitly states that the fares collected by the contractor are the property of the City, add weight to our view that the payments made by the City to the contractors in respect of the XXXXX system are consideration for a taxable supply.

XXXXX[.] Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-4157.

Yours truly,

Trent MacDonald
Government Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

Dear Sir:

Thank you for your letter of XXXXX, requesting that we reconsider the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) application ruling of XXXXX, that the amounts charged by XXXXX for its supplies of medical reports are consideration for taxable supplies. Your request is based on the Tax Court of Canada judgment in Riverfront Medical Evaluations Limited v. HMQ.

Based on the information that was provided, this letter confirms our ruling that, for purposes of the Excise Tax Act, the amounts charged by XXXXX to individuals and their primary insurers are consideration paid to XXXXX for a taxable supply. As stated in our ruling, the taxable supply consists of arranging for a medical practitioner to assess an individual and a medical report. XXXXX is required to collect the GST/HST on the consideration for this taxable supply.

Please note that the Canada Customs and Revenue Agency is appealing the Tax Court of Canada's judgment. Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6761.

Yours truly,

Susan Eastman
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division

Dear Sir:

This is in reply to your facsimile of XXXXX, our subsequent telephone conversations, and the supplementary information you provided on May 13, 2002, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to annual or block fees charged by medical practitioners (i.e., "physicians") to their patients. The annual or block fee is an amount charged by physicians to their patients for the right to future services over a specified period of time.

Statement of Facts

On the basis of the information you provided, as well as additional information we obtained from the College of Physicians and Surgeons XXXXX, our understanding of the facts is as follows:

1. Physicians may charge their patients a fee for services that are not insured under a provincial health insurance plan. Typical uninsured services include items such as telephone advice, renewal of prescriptions by telephone, completion of various forms and documents associated with medical assessments, and certain patient-related interviews or discussions with professionals.

2. Consideration for uninsured services may be charged directly to patients at the discretion of the physician. There is no legislation that specifically fixes a set fee to be charged by a physician for rendering uninsured services.

3. Patients may pay for uninsured services on an individual service-by-service basis or as an alternative, physicians may offer their patients the choice of paying an annual or block fee in advance to cover the delivery of uninsured services.

4. At the time the annual or block fee is charged to the patient, there are no specific services being rendered by the physician. A basic characteristic of the annual or block fee is that it is not dependent on the services performed - there may be no services, very few services, or there may be extensive services performed in connection with this fee. In addition, the exact type of service to be provided may or may not be predetermined. We understand that in all cases the patient who chooses the annual or block fee option will not be charged any additional amount no matter how many uninsured services are provided.

5. You advised that the annual or block fee is a payment for a plan that provides for a variety of medical and non-medical services to be provided to the patient. You indicated that in this context, "non-medical" services are services that fall outside the scope of the exemptions in Part II of Schedule V to the Excise Tax Act (the "ETA"). Some of the services covered under the annual or block fee plan may, if supplied individually, be considered exempt supplies for purposes of section 5 of Part II of Schedule V to the ETA, while other services covered under the plan are not exempt.

Ruling Requested

You are requesting a ruling that physicians are not required to collect the GST/HST on annual or block fees in the following two situations:

1. When the physician charges an annual or block fee only in relation to specific medical services that are described in a list. The list would not include non-medical services.

2. When the physician charges two separate and distinct annual or block fees. The first fee would relate to medical services described in one list while the second fee would relate to non-medical services described on a separate list. The GST/HST would apply only to the second fee relating to non-medical services.

Ruling Given

Based on the facts set out above, we rule that annual or block fees are consideration for a taxable supply of intangible personal property. Accordingly, the GST at the rate of 7% (or where applicable, the HST at the rate of 15%) applies to annual or block fees charged by physicians to their patients in the two situations noted above for which you requested a ruling.

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

Explanation

Section 5 of Part II of Schedule V to the ETA exempts a supply made by a physician of a consultative, diagnostic, treatment or other health care service rendered to an individual that is not performed solely for cosmetic purposes.

Annual or block fees are not consideration for a health care service rendered to an individual and at the time these fees are charged by a physician, no service was in fact rendered. Secondly, annual or block fees cannot be directly linked to any particular service provided as they are not dependent on the actual services provided. Annual or block fees are consideration payable by a patient for the "right" to future services. In effect, the annual or block fee is comparable to the purchase of a plan that covers a menu of services that a patient may request over the course of a specific time period. The "right" or the plan is not a supply of a service but of intangible personal property that is not exempt under section 5 of Part II of Schedule V to the ETA. Therefore, the annual or block fee represents consideration for a taxable supply. However, if the physician were not a registrant, then no GST/HST would be collectible on the fee.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6761.

Yours truly,

Susan Eastman
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division

Dear XXXXX:

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

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

Statement of Facts

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

1. At some time after XXXXX, you began construction of a nursing home in XXXXX. The general contractor that you hired to construct the nursing home will charge you the GST for supplies made to you. In addition to the building construction costs, you will incur GST on kitchen equipment and interior furnishings purchased for use in the rooms in the nursing home.

2. You will own and operate the XXXXX-bed nursing home, which will be operated on a for-profit basis and will be licenced by the provincial Ministry of Health. You will not be eligible for grants or rebates for the cost of construction of the nursing home or the purchase of land related thereto.

3. You will enter into a Long Term Care Facility Admission Agreement (the Agreement) with each resident of the nursing home, wherein you agree to provide residents of the home with accommodation, care, services, programs and goods that are required to be provided in accordance with XXXXX (the NHA).

4. Provisions of the Agreement include the following:

(a) The resident (or their representative or substitute decision maker, hereinafter referred to as the resident) understands and agrees that you will provide a service for which a charge is levied and for which the resident is responsible to pay.

(b) Upon being accepted for admittance, the resident has entered into a fee for service arrangement.

(c) You agree to provide the accommodations, care, services, programs and goods that are set out in XXXXX to the Agreement XXXXX XXXXX. These basic care services are legislated under the NHA. It is not possible for you to supply any one of these elements to the exclusion of the others. While some services are not covered under the basic care component, but are offered at an additional fee (e.g. valet service, hair styling and other services set out in XXXXX to the Agreement), the basic care includes both accommodations and other supplies.

(d) The resident agrees to pay a monthly fee (or daily fee in the case of part of a month), which varies depending on the type of accommodation provided (private, semi-private, or ward). The fee rate set out in XXXXX to the Agreement is as follows:

(i) XXXXX per month for private accommodations

(ii) XXXXX per month for semi-private accommodations

(iii) XXXXX (or a reduced rate) for ward accommodations

The fee is payable in respect of the basic care, programs and services you provide. If the resident does not pay the contracted fee rate, the resident agrees to move to the applicable room type in accordance with the fee they do pay. There is no reference in the Agreement that a resident is assigned to a specific room in the nursing home, only to the type of room based on the fee paid. (XXXXX provides that you have the right to move a resident, at any time and without notice, to the type of accommodation the resident is paying for.)

5. A resident is admitted to the nursing home generally when they have lost some capacity for self-care and require different types of assistance in their daily lives. The purpose of entering the nursing home is not to receive rehabilitative care such that they can return to living on their own. Rather, the resident is treated based on their specific needs and those needs generally increase the longer the patient stays in the nursing home. A resident of a nursing home typically moves into the home on an indeterminate basis and typically leaves the nursing home only when they die.

Ruling Requested

You are enquiring as to your eligibility to the new residential rental property rebate (NRR) as set out in section 256.2 of the ETA.

Ruling Given

Based on the facts set out above, we rule that you are not eligible to the NRR in respect of the construction and operation of this nursing home.

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

Explanation

A person who begins construction of a residential complex after February 27, 2000, will qualify for the NRR provided all of the following conditions are met:

1. The person is a builder of a residential complex and makes exempt supplies of residential units in the complex by way of lease, licence or similar arrangement where those supplies are included in section 6 of Part I of Schedule V (A builder who makes an exempt supply under any of sections 5.1, 6.1 or 7 of Part I of Schedule V to the ETA may also qualify for the rebate. None of these sections, however, apply to the situation you described.) to the ETA and which result in the person being deemed to have made and received a taxable supply by way of sale of the complex under section 191.

2. Tax in respect of the deemed supply made under section 191 is deemed to have been paid by the person.

3. The residential complex includes one or more qualifying residential units.

4. The person is not entitled to include the tax payable on the deemed supply under section 191 in determining an input tax credit of the person.

5. In respect of the tax included in determining the NRR, the person would not otherwise be entitled to include the tax in determining a rebate under section 254, 256, 256.1 or 259.

6. The person files an application for a rebate within two years of the end of the month in which the person is deemed to have paid tax under section 191 in respect of the complex. If the end of that month is before the day on which the legislation received Royal Assent, the person will have two years from the date of Royal Assent to claim the rebate.

As set out in the first condition, in order to be eligible to the NRR, the builder of a residential complex must make exempt supplies under section 6 of Part I of Schedule V to the Act. Section 6 of Part I of Schedule V exempts a supply:

"(a) of a residential complex or a residential unit in a residential complex by way of lease, licence or similar arrangement for the purpose of its occupancy as a place of residence or lodging by an individual, where the period throughout which continuous occupancy of the complex or unit is given to the same individual under the arrangement is at least one month; or

(b) of a residential unit by way of lease, licence or similar arrangement for the purpose of its occupancy as a place of residence or lodging by an individual, where the consideration for the supply does not exceed $20 for each day of occupancy".

In determining whether you are making a supply under section 6 of Part I of Schedule V, it is necessary to examine the nature of the supply. Specifically, it is necessary to consider whether you are making a single supply or multiple supplies. In that regard, enclosed policy paper P-077R, "Single and Multiple Supplies", provides assistance.

Under the Agreement, you agree to provide the basic care, programs and services set out in XXXXX to the Agreement. These basic care services are legislated under the NHA and as such, it is not possible for you, at least in a nursing home scenario, to provide only accommodations to the exclusion of the other programs and services. The basic care services you offer include much more than simply accommodations. Once an individual is admitted to the facility, the resident receives all of the basic care, programs and services set out in XXXXX. As such, based on the terms of the Agreement, the facts surrounding this case and the factors listed in P-077R, we consider you to be making a single supply. Your supply to a resident is not simply that of accommodations as set out in section 6 of Part I of Schedule V, as there are far more elements to your supply than contemplated by section 6.

Therefore, because your supply to a resident is not made under section 6 of Part I of Schedule V to the ETA, one of the conditions for claiming the NRR is not met and a rebate eligibility does not arise.

Additional Information

Section 191 sets out 'self-supply' rules where a builder constructs or substantially renovates a residential complex and supplies the complex by way of lease, licence or similar arrangement for the purpose of its occupancy by an individual as a place of residence. The builder is treated as having sold and repurchased the complex and is generally required to remit the GST on the fair market value of the complex. In respect of a multiple unit residential complex, one of the conditions that must be present in order for the self-supply rule to apply is that the builder must give possession of a unit in the complex to a person under a lease, licence or similar arrangement for the purpose of the occupancy of the unit by an individual as a place of residence. In the case at hand, we do not consider that this condition exists. Therefore, you are not treated as having sold and repurchased the nursing home and you are not required to account for GST on the fair market value.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-4393. If you require assistance with other GST/HST matters, please contact your district tax services office at: XXXXX[.]

Yours truly,

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

Dear XXXXX:

Thank you for your letter of XXXXX, (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to certain amounts charged in respect of a site you occupy in the XXXXX. Your letter was forwarded to us from the XXXXX GST/HST Rulings office in XXXXX for our response.

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

Statement of Facts

Our understanding of the facts and transactions is as follows:

1. XXXXX (the Landlord) operates XXXXX (the Park), a piece of land containing XXXXX recreational vehicle sites located on XXXXX.

2. Persons wishing to use a site in the Park originally purchased a share in the capital of the Landlord. Under the share purchase agreement, the share purchasers (Members) gained the right to the exclusive use of a specific site in the Park for a period of XXXXX years for the purpose of placing a vehicle or trailer designed for recreational use (collectively, the "Trailers") thereon. Members were required to make more than a nominal payment when entering into the share purchase agreement for the use of a site in the Park. We have not seen a copy of the share purchase agreement, however we understand that the agreement amounted to a lease of a site in the Park made by the Landlord to a Member. We understand that a Member was also required to pay a yearly fee to cover the Landlord's costs of operating the Park and to pay an amount in respect of property taxes assessed against the Park.

3. The Trailers rest on concrete pads, but none of them are permanently affixed to their sites in the same manner as a house normally would be, nor do any of the Trailers qualify as a "mobile home" pursuant to the definition of that term in subsection 123(1). The Park is serviced and accessible throughout the year and you use your trailer as your primary place of residence.

4. A XXXXX was filed and approved under the XXXXX to convert the Park into a "shared interest" development. The XXXXX had the effect of dividing the fee simple estate in the Park into XXXXX undivided interests (the "Interests"). The Park is not governed by the XXXXX and an Interest is not a condominium or XXXXX. Persons acquiring an Interest will be registered in the relevant land titles office as a registered owner ("Owner") of an undivided XXXXX interest in fee simple of the Park. Owners are required to enter into a Co-Owners Agreement. Pursuant to the Co-Owners agreement, ownership of an Interest confers upon the Owner the right to the exclusive use of a particular site within the Park and to use the common areas and facilities of the Park. (Generally, each Owner who occupies a site in the Park would own a XXXXX interest in the Park, however, there is nothing that prevents a person from acquiring more than one interest in the Park. For example, a person could own a XXXXX interest and thus be entitled to occupy two sites in the Park.) Each Owner acknowledges that all other Owners have also been granted exclusive use of a site in the Park and the Owner agrees to refrain from interfering with any of the rights granted to the other Owners.

5. Under the Co-Owners Agreement, the Landlord will continue to operate the Park until XXXXX XXXXX (the Owners Association), or XXXXX, whichever is earliest (the Turnover Date). The Owners Association is a "non-profit organization" as that term is defined in subsection 123(1) and will be composed of those persons who purchase an Interest in the Park.

6. Since the filing of the XXXXX, Members have had the option of acquiring an Interest from the Landlord. An opting Member pays no additional consideration to the Landlord upon acquiring an Interest. There is no requirement for Members to acquire an Interest in the Park. Persons who wish to occupy a site in the Park and who were not Members prior to the establishment of the shared interest development must now purchase an Interest. That is, these 'newcomers' do not have the option of leasing a site in the Park - if they want to use a site in the Park, they must purchase an Interest. These persons also pay more than a nominal amount for the acquisition of their Interest.

7. A number of Members have opted to acquire Interests. Members who have not converted their memberships to Interests retain their exclusive right to occupy their particular site for a total of XXXXX years and to use common areas and facilities in the Park. Once the Owners Association has assumed responsibility for management of the Park, the Landlord will continue to lease sites in the Park to those Members who have not opted to become Owners, should any such Members remain.

8. A number of sites in the Park have remained unoccupied since the Park was first developed in XXXXX. The Landlord has had the corresponding Interests listed for sale since the filing of the XXXXX. (The Landlord has ownership interests in the sites occupied by Members, but those sites are not listed for sale as Members already occupy them.)

9. The Landlord sets an annual budget to estimate the costs involved in running the Park. Included in the budget are costs (the Costs) related to a water system, sewage disposal system, internal roads, fencing, washrooms, laundry facilities, and various recreational facilities. The Costs are shared equally by all Members and Owners in the form of an annual maintenance fee (the "Fee"), which is administered by the Landlord. The Fee is currently $XXXXX annually for each Owner and Member. (Although the XXXXX indicates that certain amounts in respect of property taxes would be included in the Costs, we understand that such amounts are not included.)

10. XXXXX of the Co-Owners Agreement provides that each Owner is to pay property taxes assessed against their site and an equal portion of the assessment made on the common areas of the Park. In the event that the assessing authority does not provide separate assessments against each site, the Landlord or the Owners Association (whichever is operating the Park) is to allocate the assessment for the Park against each site. We understand that the Landlord, Owners and Members bear the property taxes for the Park in proportion with the number of sites owned or otherwise occupied by the Landlord, an Owner, or a Member. In other words, each Owner or Member occupying a site contributes XXXXX of the total property tax assessment relating to that site (the Property Tax amount) while the Landlord is responsible for the remaining portion of the total property tax assessment. The Landlord pays the full assessment on behalf of all Owners then requests reimbursement of the Property Tax amount from the Owners and Members by issuing an invoice for the appropriate amount. Nevertheless, the liability for paying the property taxes to the assessing authority remains with the Landlord and each Owner.

11. To date, the Landlord, a GST/HST registrant, has been collecting and remitting GST on the Fee and on the Property Tax amount in respect of sites occupied by Owners and Members.

Ruling Requested

You have requested a ruling on whether the Fee and the Property Tax amount are subject to the GST.

Rulings Given

You did not indicate whether you were an Owner or a Member. Therefore, our ruling will address both possibilities.

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

1. With respect to supplies made to a Member, the Fee and the Property Tax amount are consideration for an exempt supply and are therefore not subject to the GST.

2. With respect to supplies made to an Owner, the Fee is subject to the GST. The Property Tax amount is not consideration for a supply made by the Landlord and is therefore not subject to the GST.

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

Explanation

Before addressing your specific question, it will be necessary to outline the nature of the supplies of sites in the Park made by the Landlord. We will then address your specific question on the application of the GST to the Fee and the Property Tax amount.

Supply to Members by way of lease, licence or similar arrangement

Paragraph 7(b) of Part I of Schedule V to the Act provides exemption for the supply of a site in a residential trailer park made under a lease, licence or similar arrangement which provides for continuous possession or use of the site for a period of at least one month to the owner, lessee or person in occupation or possession of a mobile home or a travel trailer, motor home or similar vehicle or trailer, situated or to be situated on the site.

In order for the exemption in paragraph 7(b) to apply, a site must be situated in a residential trailer park. A "residential trailer park" is defined in subsection 123(1) as a trailer park encompassing at least two sites, where:

(a) substantially all of the sites in the trailer park are supplied under a lease, licence or similar arrangement, or are intended to be supplied under a lease, licence or similar arrangement, under which continuous possession or use of a site is provided for a period of at least

• one month, in the case of mobile homes or other residential unit, or

• twelve months in the case of travel trailers or motor homes, or similar vehicles that are not residential units;

and

(b) the sites would be suitable for use by occupants of a mobile home (whether or not the park in fact has mobile homes) as a place of residence of individuals throughout the year. This means the sites must be serviced and accessible for use by a mobile home throughout the year.

A "trailer park" of a person is defined in subsection 123(1) as an area of land that is owned by or leased to the person that consists exclusively of:

(a) one or more sites, each of which is or is intended to be supplied by way of lease, licence or similar arrangement to a person who will place a mobile home, travel trailer or motor home (or similar vehicle or trailer) on the site;

(b) other land that is or is intended to be reasonably necessary for the use and enjoyment of the sites by the occupants; and

(c) land that is reasonably necessary for the operation of the park.

Based on the foregoing, the lease of sites to Members is exempt under paragraph 7(b) of Part I of Schedule V to the Act. The Fee and the Property Tax amount payable by a Member are viewed as additional consideration for the exempt supply by way of lease and accordingly, are not subject to the GST.

The Fee charged to an Owner is in respect of a supply by the Landlord of property and services where the supply is made in the course of operating the Park. No exemptions exist for this supply and accordingly, the Fee is subject to the GST.

With respect to the Property Tax amount that is charged to an Owner, each Owner is ultimately responsible to pay their portion of the property taxes in respect of the Park. The Landlord is not making a supply for consideration when the Landlord pays an amount on behalf of an Owner and is subsequently reimbursed by the Owner. Therefore, no GST applies to the Property Tax amount paid by an Owner to the Landlord.

Additional Information

If you have paid an amount of tax to the Landlord that was in fact not payable, you can request a refund or credit of the amount from the Landlord. If you cannot get a refund or credit from the Landlord, you can apply for a rebate of the amount. To that end, we enclose the GST/HST guide, "General Application For GST/HST Rebates". Please note that you must file a rebate application within two years after the day you paid the amount in error.

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

Yours truly,

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

Encl.

Dear XXXXX:

We refer to our telephone calls of the last several months and the various documents submitted to our office in relation to an enquiry received from one of the residents at the XXXXX. The resident was enquiring as to the application of the Goods and Services Tax (GST) to certain fees you are charging in respect of supplies of the sites. As you requested in one of those telephone calls, we are issuing a ruling on the status of your various supplies of sites in the XXXXX.

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

Statement of Facts

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

1. XXXXX (the Landlord) operates XXXXX, a piece of land containing XXXXX recreational vehicle sites located on XXXXX. The XXXXX is legally described as XXXXX (the "Park"). Legal title to the Park rests with XXXXX, which is a trustee for the Landlord, while beneficial ownership rests with the Landlord. We are assuming that XXXXX is a bare trust.

2. Persons wishing to use a site in the Park originally purchased a share in the capital of the Landlord. Under the share purchase agreement, the share purchasers (Members) gained the right to the exclusive use of a specific site in the Park for a period of XXXXX years for the purpose of placing a vehicle or trailer designed for recreational use (collectively, the "Trailers") thereon. The Landlord retained beneficial ownership of the Park. Members were required to make more than a nominal payment when entering into the share purchase agreement for the use of a site in the Park. We have not seen a copy of the share purchase agreement, however we understand that the agreement amounted to a lease of a site in the Park made by the Landlord to a Member. We understand that a Member was also required to pay a yearly fee to cover the Landlord's costs of operating the Park and to pay an amount in respect of property taxes assessed against the Park.

3. The Trailers rest on concrete pads, but none of them are permanently affixed to their sites in the same manner as a house normally would be, nor do any of the Trailers qualify as a "mobile home" pursuant to the definition of that term in subsection 123(1). XXXXX of the sites are occupied by individuals that use a Trailer situated on the site as their primary place of residence. The remainder of the sites that are currently occupied are for the recreational use of the occupant. The Park is serviced and accessible throughout the year.

4. A XXXXX was filed and approved under the XXXXX to convert the Park into a "shared interest" development. The XXXXX had the effect of dividing the Park into XXXXX undivided interests (the "Interests"). The Park is not governed by the XXXXX XXXXX and an Interest is not a condominium or XXXXX. Persons acquiring an Interest will be registered in the relevant land titles office as a registered owner ("Owner") of an undivided XXXXX interest in fee simple of the Park. Owners are required to enter into a Co-Owners Agreement. Pursuant to the Co-Owners agreement, ownership of an Interest confers upon the Owner the right to the exclusive use of a particular site within the Park and to use the common areas and facilities of the Park. (Generally, each Owner who occupies a site in the Park would own a XXXXX interest in the Park, however, there is nothing that prevents a person from acquiring more than one interest in the Park. For example, a person could own a XXXXX interest and thus be entitled to occupy two sites in the Park.) Each Owner acknowledges that all other Owners have also been granted exclusive use of a site in the Park and the Owner agrees to refrain from interfering with any of the rights granted to the other Owners.

5. Under the Co-Owners Agreement, the Landlord will continue to operate the Park until XXXXX (the Owners Association), or XXXXX, whichever is earliest (the Turnover Date). The Owners Association is a "non-profit organization" as that term is defined in subsection 123(1) and will be composed of those persons who purchase an Interest in the Park. The Co-Owners Agreement does not contemplate any Members remaining after the Turnover Date.

6. The Landlord indicated that they had two objectives in converting the Park to a shared interest development. The first objective was to allow occupants to acquire equity in the Park by acquiring an interest therein. This allowed the Owners to use their Interest as collateral for a loan (including a mortgage loan), which the occupants were generally not able to do when they did not hold an interest in the Park. The second objective was for the Landlord to divest themselves of operating the Park by selling Interests and eventually having the Owners Association operate the Park.

7. Since the filing of the XXXXX, Members have had the option of acquiring an Interest from the Landlord. An opting Member pays no additional consideration to the Landlord upon acquiring an Interest. There is no requirement for Members to acquire an Interest in the Park, although most have opted to do so. Persons who wish to occupy a site in the Park and who were not Members prior to the establishment of the shared interest development must now purchase an Interest. That is, these 'newcomers' do not have the option of leasing a site in the Park - if they want to use a site in the Park, they must purchase an Interest. These persons also pay more than a nominal amount for the acquisition of their Interest.

8. To date, XXXXX Members have opted to acquire Interests, including XXXXX individuals who occupy a Trailer as their primary place of residence. Members who have not converted their memberships to Interests retain their exclusive right to occupy their particular site for a total of XXXXX years and to use common areas and facilities in the Park. There are XXXXX such Members remaining. Once the Owners Association has assumed responsibility for management of the Park, the Landlord will continue to lease sites in the Park to those Members who have not opted to become Owners, should any such Members remain. To the extent that the Landlord is not able to sell all Interests, the Landlord will continue to have an ownership interest in the Park. These Interests will not be supplied from the Landlord to the Owner's Association at the Turnover Date.

9. XXXXX sites in the Park have remained unoccupied since the Park was first developed in XXXXX[.] The Landlord has had the XXXXX corresponding Interests listed for sale since the filing of the XXXXX. (The Landlord has ownership interests in the sites occupied by Members, but those sites are not listed for sale as Members already occupy them.)

10. The Landlord sets an annual budget to estimate the costs involved in running the Park. Included in the budget are costs (the Costs) related to a water system, sewage disposal system, internal roads, fencing, washrooms, laundry facilities, and various recreational facilities. The Costs are shared equally by all Members and Owners in the form of an annual maintenance fee (the "Fee"), which is administered by the Landlord. The Fee is currently XXXXX annually for each Owner and Member. (Although the XXXXX indicates that certain amounts in respect of property taxes would be included in the Costs, you confirmed that such amounts are not included.)

11. XXXXX of the Co-Owners Agreement provides that each Owner is to pay property taxes assessed against their site and an equal portion of the assessment made on the common areas of the Park. In the event that the assessing authority does not provide separate assessments against each site, the Landlord or the Owners Association (whichever is operating the Park) is to allocate the assessment for the Park against each site. You confirmed that the Landlord, Owners and Members bear the property taxes for the Park in proportion with the number of sites owned or otherwise occupied by the Landlord, an Owner, or a Member. In other words, each Owner or Member occupying a site contributes XXXXX of the total property tax assessment relating to that site (the Property Tax amount) while the Landlord is responsible for the remaining portion of the total property tax assessment. The Landlord pays the full assessment on behalf of all Owners then requests reimbursement of the Property Tax amount from the Owners and Members by issuing an invoice for the appropriate amount. Nevertheless, the liability for paying the property taxes to the assessing authority remains with the Landlord and each Owner.

12. To date, the Landlord, a GST/HST registrant, has been collecting and remitting GST on the Fee and on the Property Tax amount in respect of sites occupied by Owners and Members. The Landlord has also been collecting GST on leases of sites to Members made under the share purchase agreement and on the sales of Interests in the Park.

Rulings Requested

You are enquiring as to the application of the GST on the Fee and the Property Tax amount. You are also enquiring on the application of the GST to these amounts once the Owners Association assumes responsibility for the operation of the Park

Rulings Given

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

1. With respect to supplies made by the Landlord to a Member, the Fee and the Property Tax amount are consideration for an exempt supply and are therefore not subject to the GST.

2. With respect to supplies made by the Landlord to an Owner, the Fee is subject to the GST. The Property Tax amount is not consideration for a supply made by the Landlord and is therefore not subject to the GST.

3. With respect to the supplies made by the Owners Association to an Owner, the Fee is subject to the GST. The Property Tax amount is not consideration for a supply made by the Owners Association and is therefore not subject to the GST.

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 Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Explanation

In order to address your questions, it will be necessary to outline the nature of the supply of sites in the Park made by the Landlord. We will then address your specific questions on the application of the GST to the Fee and the Property Tax amount and to the status of these fees once the Owners Association is managing the Park.

Supply to Members by way of lease, licence or similar arrangement

Paragraph 7(b) of Part I of Schedule V to the Act provides exemption for the supply of a site in a residential trailer park made under a lease, licence or similar arrangement which provides for continuous possession or use of the site for a period of at least one month to the owner, lessee or person in occupation or possession of a mobile home or a travel trailer, motor home or similar vehicle or trailer, situated or to be situated on the site.

In order for the exemption in paragraph 7(b) to apply, a site must be situated in a residential trailer park. A "residential trailer park" is defined in subsection 123(1) as a trailer park encompassing at least two sites, where:

(a) substantially all of the sites in the trailer park are supplied under a lease, licence or similar arrangement, or are intended to be supplied under a lease, licence or similar arrangement, under which continuous possession or use of a site is provided for a period of at least

•   one month, in the case of mobile homes or other residential unit, or

•   twelve months in the case of travel trailers or motor homes, or similar vehicles that are not residential units;

and

(b) the sites would be suitable for use by occupants of a mobile home (whether or not the park in fact has mobile homes) as a place of residence of individuals throughout the year. This means the sites must be serviced and accessible for use by a mobile home throughout the year.

A "trailer park" of a person is defined in subsection 123(1) as an area of land that is owned by or leased to the person that consists exclusively of:

(a) one or more sites, each of which is or is intended to be supplied by way of lease, licence or similar arrangement to a person who will place a mobile home, travel trailer or motor home (or similar vehicle or trailer) on the site;

(b) other land that is or is intended to be reasonably necessary for the use and enjoyment of the sites by the occupants; and

(c) land that is reasonably necessary for the operation of the park.

The lease of sites to Members is exempt under paragraph 7(b) of Part I of Schedule V to the Act. The exemption would apply both before and after the Landlord began to sell Interests in the Park. The Fee and the Property Tax amount payable by a Member are viewed as additional consideration for the exempt supply by way of lease and accordingly, are not subject to the GST.

The Fee and Property Tax Amount Payable by Owners

The Fee charged to an Owner is in respect of a supply by the Landlord of property and services where the supply is made in the course of operating the Park. No exemptions exist for this supply and accordingly, the Fee is subject to the GST. Such is the case whether the Fee is charged to an Owner by the Landlord or by the Owners Association.

With respect to the Property Tax amount that is charged to an Owner, each Owner is ultimately liable to pay their portion of the property taxes in respect of the Park to the assessing authority. The Landlord is not making a supply for consideration when the Landlord pays an amount on behalf of an Owner and is subsequently reimbursed by the Owner. Therefore, no GST applies to the Property Tax amount paid by an Owner to the Landlord. Similarly, no GST will apply to the Property Tax amount payable by an Owner to the Owners Association.

Additional Information

Adjustment, Refund or Credit of the GST

Section 232 permits an adjustment, refund or credit of the GST where an excess amount of tax has been charged or collected. The Landlord may subtract from its net tax the amount of tax adjusted, refunded or credited to the extent that the tax has previously been accounted for. Further information on this topic is available in the enclosed Technical Information Bulletin B-042, "Refund, Adjustment Or Credit Of GST".

Sales of Interests in the Park

In general, section 5.3 of part I of Schedule V to the Act exempts the supply by way of sale of a residential trailer park or an interest therein. Paragraph 5.3(a) provides that, in order to qualify for the exemption, the supplier must have acquired the land as an exempt residential trailer park - i.e., the acquisition by the supplier was exempt under this section - or the supplier was deemed, under section 190 or the change-in-use rules for real property, to have received a taxable supply of the land as a result of using the land as a residential trailer park. Section 5.3 further provides that the exemption does not apply if the person supplying the park claimed an input tax credit in respect of the last acquisition of the park or an addition thereto, or in respect of an improvement to the park or additional area after the last acquisition of the park or the addition.

A person who first supplies a site in a residential trailer park on this exempt basis is generally deemed, under subsection 190(4), to have made and received a supply by way of sale of the entire residential trailer park. The person is deemed to have paid and collected tax calculated on the fair market value of the entire park at the time the person first gives possession or occupancy of the site to the recipient of the exempt supply.

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

Yours truly,

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

Encl.

Dear XXXXX

Thank you for your letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your purchases of printed books, audio recordings of printed books and printed versions of religious scriptures. We apologize for the delay in responding to your request.

Statement of Facts

According to your letter and our telephone conversations, our understanding of the facts is as follows:

The XXXXX (the "School") operates an elementary and secondary school. The courses being taught at the school meet the standards of educational instruction established by the Ministry of Education in the Province of XXXXX XXXXX.

The library is located in the school and has a collection of books that may be borrowed by students and parents. A librarian is employed by the school to maintain the library. It is not open to the general public.

Ruling Requested

Is the School eligible for a rebate of 100% of the GST paid on printed materials, audio recordings and printed versions of religious scriptures purchased for purposes other than sale?

Ruling Given

Based on the facts set out above, we rule that the School is a "specified person" for purposes of section 259.1 of the Excise Tax Act (ETA) and therefore eligible for the rebate of 100% of the GST payable on certain printed books, audio recordings of printed books and printed versions of religious scriptures purchased for purposes other than sale.

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

Explanation

Section 259.1 of the ETA provides for a 100% rebate of the GST payable by a "specified person" in respect of the purchase of certain printed books and scripture that are acquired for purposes other than for sale. For the purposes of Part IX of the ETA, a sale includes any transfer of the ownership of the property such as a donation or a barter transaction.

A school authority is regarded as a "specified person" for purposes of the book rebate. A school authority as defined under subsection 123(1) of the ETA "means an organization that operates an elementary or secondary school in which it provides instruction that meets the standards of educational instruction established by the government of the province in which the school is operated". The School is recognized as a school authority and thereby regarded as a specified person for purposes of the book rebate.

The rebate provision for printed material, pursuant to subsection 259.1(2) of the ETA, is for the GST payable on the purchase of:

"... (a) a printed book or an update of such a book,

(b) an audio recording all or substantially all of which is a spoken reading of a printed book, or

(c) a bound or unbound printed version of scripture of any religion, ...".

A further explanation of the terms printed book, audio recording and scripture is contained in the enclosed GST/HST Memoranda 13.4, Rebates for Printed Books, Audio Recordings of Printed Books and Printed Versions of Religious Scriptures".

Enclosed is a copy of form GST 66(00), Application for GST/HST Public Service Bodies' Rebate and GST Self-Government Refund, which you may use to file for the rebate. Please note that the claim must be filed within four years after the end of the claim period in which the GST became payable.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-952-0420.

Yours truly,

Debra Murphy
Charities, Non-Profit Organizations and Educational Services Unit
Public Service Bodies and Government Division
Excise and GST/HST Rulings Directorate

Encl.

Dear XXXXX:

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

Statement of Facts

Our understanding of the facts as submitted and information available on the various XXXXX are as follows:

Product 1:

XXXXX Product 1 is a powder consisting of a blend of XXXXX nutrients including XXXXX[.] The manufacturer promotes the beneficial effects of consuming Product 1 for the following people: XXXXX Product 1 is promoted to affect personal health in the following ways: XXXXX According to the manufacturer's directions of how to use Product 1, it can be taken XXXXX

XXXXX

Product 2:

XXXXX

Product 2 is a powder consisting of various XXXXX Product 2 is labelled and promoted as a product consumed to "XXXXX " through enhanced fibre for healthy XXXXX.

The manufacturer's directions for consumption are: XXXXX

Product 3:

XXXXX Product 3 is a powder described as XXXXX XXXXX.

Product 3 is described as a powerful combination of XXXXX Product 3 is promoted as a natural choice for XXXXX.

Ruling Requested

Are the listed products zero-rated supplies pursuant to section 1 of Part III of Schedule VI to the Excise Tax Act (ETA)?

Ruling Given

Based on the facts set out above, we rule that all of the above-described powdered products are considered to be dietary supplements and are taxable at 7% GST (or 15% HST, as applicable).

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

Explanation

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

A supply 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) is zero-rated pursuant to section 1 of Part III of Schedule VI to the ETA. Certain food or beverages (e.g., carbonated beverages) are taxable at 7% (or 15% in participating provinces) because they are excluded from zero-rating by paragraphs 1(a) to 1(r) of Part III. For example, paragraph 1(e) of Part III excludes from zero-rating supplies of candies, confectionery that may be classed as candy, or any goods sold as candies, such as candy floss, chewing gum and chocolate, whether naturally or artificially sweetened, and including fruits, seeds, nuts and popcorn when they are coated or treated with candy, chocolate, honey, molasses, sugar, syrup or artificial sweeteners.

The terms "food" and "beverage" are not defined in the ETA. The CCRA considers that a product is a food or a beverage if an average consumer would recognize and purchase the product as a food or beverage in the ordinary course of buying basic groceries. Put differently, products would be considered to be a food or a beverage if they would be consumed by an average consumer when food or beverages are typically consumed, such as at mealtimes or for a snack.

Consumers usually consume food for enjoyment or to allay hunger, while beverages are usually consumed for enjoyment or to quench thirst. That is, food and beverages are consumed to sustain or maintain life, to allay hunger or thirst, or for enjoyment, rather than for therapeutic or preventative effects (e.g., to correct actual or perceived health problems) or to achieve specific beneficial effects related to performance or physique. Therefore, products that are labelled, packaged or marketed as products to be consumed to facilitate the intake of certain ingredients (nutritive or otherwise) or which place an emphasis on claims relating to the benefits of the product, for example, therapeutic or preventive effects, or enhancing performance or physique, are not considered to be products that an average consumer would ordinarily purchase in the course of buying food or beverages. Moreover, products that meet special dietary needs of certain segments of the population such as those with restricted or special purpose diets, high performance athletes and dieters may not necessarily be viewed by the average consumer as food or beverages.

Products commonly described as "dietary supplements" are not considered to be food, beverages or ingredients, and are taxable at 7% GST or 15% HST. Such products are generally made from synthetic or natural ingredients that are ingestible and that may be nutritive. They are available in a variety of formats: solids, (including powders), pills, capsules, gels, liquids (including oil) and tinctures. They may contain vitamins, minerals, fibre, protein, amino acids, fatty acids, enzymes, or compounds derived from plant or animal products. As mentioned earlier, these products are purchased and consumed for therapeutic or preventative purposes or to achieve specific beneficial effects.

It should be noted that products which qualify and are labelled as "nutritional supplements" or "meal replacements" pursuant to the Food and Drugs Act and Regulations (FDR) are considered food or beverages for purposes of section 1 of Part III of Schedule VI to the ETA. Moreover, they are not subject to the exclusions under paragraphs 1(a) to 1(r) of Part III and, therefore, are zero-rated.

Furthermore, the CCRA considers a product to be an ingredient if an average consumer would recognize the product as an ingredient into food or a beverage, and it is the view of the CCRA that an average consumer would consider a product to be an ingredient if the product added to flavour, texture or appearance of the final product; that is, if it was integral to the final product. As with food and beverages, it is also recognized that products that are consumed for their therapeutic, preventative, or performance or physique enhancing properties would not be recognized by an average consumer as ingredients. Moreover, in order to be regarded as an ingredient to a food or beverage, the final product, in and of itself, would be considered to be a food or beverage by the average consumer.

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

If a product's tax status is in doubt, the CCRA will consider the manner in which the product is labelled, packaged, and marketed to determine its tax status. For greater detail, please refer to GST/HST Policy Statement P-240, Application of GST/HST to Products Commonly described as "Dietary Supplements".

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

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

Yours truly,

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