31 August 2006 GST/HST Ruling 51877 - XXXXX Grass Supplied as a Forage Crop

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

Dear XXXXX:

Thank you for your letter and attachments XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies of sprigs of XXXXX grass.

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

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

Statement of Facts

We understand the facts to be as follows, based on your submission and also on information obtained from the XXXXX web site and other Internet sources as indicated further on.

XXXXX grass is a warm-season, deep-rooted perennial grass that can be used for grazing or hay. However, the usage of this grass extends across lawns, golf courses, athletic fields, bowling greens, tennis courts, home putting greens, high traffic areas and landscaping areas of all kinds. It also has great soil erosion capacity for roadsides, water banks, ditch banks, and use for low maintenance area in the full sun. Depending upon the cultivar, it can be used in pastures and for haying purposes.

XXXXX grass has been found growing in many native forms all over the world. The grass is a drought tolerant, fast growing, full sun grass and can grow on soils of low fertility as long as they are well draining. This is a tenacious grass and in one form or another is found growing in approximately one third of the United States XXXXX.

XXXXX.

XXXXX.

XXXXX.

You are importing a type of XXXXX grass known as XXXXX grass, named after the company that developed and sells it. XXXXX grass is not a new strain of XXXXX grass. It was discovered growing in XXXXX. It is a naturally occurring mutant strain of XXXXX grass. It is like a hybrid in that it produces no viable seed, yet it was not a crossbreed of two other cultivars.

XXXXX grass is also being used on sports fields, lawns, and other high-traffic areas.

XXXXX. It is successfully growing as far north as XXXXX, but the company does not guarantee that it will do so in every case. In most cases, the further north the latitude, the more management the grass will require.

XXXXX grass only comes as "sprigs," which are live root material with some runner or stem material attached. They are approximately 6 to 9 inches long and are packaged by the box, with five bushels to the box. The sprigs can typically live out of the ground for approximately five days.

There are XXXXX primary methods for planting XXXXX grass:

•   XXXXX.

According to the Canadian Hay Association web site, the main forages in Canada are timothy, alfalfa and mixed hays (none of which were identified as containing XXXXX grass).

Ruling Requested

You would like to know whether the supply of sprigs of XXXXX grass is a zero-rated supply.

Ruling Given

Based on the facts set out above, we rule that the supply of sprigs of XXXXX grass is taxable at 6% GST or 14% HST.

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

Explanation

Section 2 of Part IV of Schedule VI to the Excise Tax Act (ETA) zero-rates the following:

A supply of

(a) grains or seeds in their natural state, treated for seeding purposes or irradiated for storage purposes,

(b) hay or silage, or

(c) other fodder crops,

that are ordinarily used as, or to produce, food for human consumption or feed for farm livestock or poultry, when supplied in a quantity that is larger than the quantity that is ordinarily sold or offered for sale to consumers, but not including grains or seeds or mixtures thereof that are packaged, prepared or sold for use as feed for wild birds or as pet food.

It is our view that XXXXX grass is not ordinarily used as, or to produce, feed for farm livestock or poultry in Canada. Webster's Third New International Dictionary defines "ordinarily" as meaning "in the ordinary course of events" or "to the usual extent". It defines "ordinary" as meaning "occurring or encountered in the usual course of events, not uncommon or exceptional, not remarkable, routine, normal". In Canada, XXXXX grass is not commonly used as a forage crop or to produce hay. XXXXX grass is primarily a warm weather grass. The XXXXX web site acknowledges that although it is successfully growing as far north as XXXXX, the company does not guarantee that it will do so in every case.

As noted in the Statement of Facts, the Canadian Hay Association identifies the main forages in Canada as being timothy, alfalfa and mixed hays (none of which included XXXXX grass). A review of the web sites of some of the larger Canadian suppliers of forage grasses seeds showed that they do not list XXXXX grass among their products. We were not able to find any references indicating that XXXXX grass is a common forage crop in Canada.

It is therefore our conclusion that the use of XXXXX grass as or to produce feed for farm livestock or poultry is not common or normal in Canada. If sometime in the future, the use of XXXXX grass as a forage crop becomes common, we would be prepared to re-examine our position.

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

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 952-7909.

Yours truly,

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

2006/09/25 — RITS 52094 — Independent Medical Examinations and Other Independent Assessments