GST/HST Rulings and Interpretations Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Road
Vanier, Ontario
XXXXX K1A 0L5
XXXXX Case: HQR0000312
XXXXX
XXXXX September 10, 1997
Dear Sir:
Thank you for your letter of June 11, 1996 regarding the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the purchase of scrap metal and the supply of refined gold.
Interpretation Requested
In your letter you state that a person, who is registered for the GST, purchases scrap metal from registrants and non-registrants. The scrap metal is sent to a refinery for the purpose of extracting pure gold from the scrap metal. The registrant then sells the pure gold at the gold market price. The scrap metal purchased by the registrant may take many different forms, including the form of coins.
It is your contention that the supply of the pure gold is a zero-rated supply pursuant to section 3 of Part IX of Schedule VI to the Excise Tax Act (the "Act"). As such, the registrant is involved in a commercial activity and is entitled to claim input tax credits on the acquisition of scrap metal. You also state that in circumstances where scrap metal was purchased from a non-registrant after 1993, the registrant is entitled to claim a notional input tax credit pursuant to subsection 176(1) of the Act.
Subsection 176(5) of the Act restricts the claiming of actual and notional input tax credits in respect of "specified tangible personal property" (STPP) acquired in excess of prescribed amounts, except where such property is acquired for supply in the course of the registrant's commercial activity. The definition of STPP in subsection 123(1) of the Act includes coins. However, you contend that the scrap metal purchased by the registrant in the form of a coin, does not constitute STPP since the coin is acquired as scrap rather than for investment purposes. As such, you conclude that the registrant is entitled to claim actual and notional input tax credits for purchases of coins.
Interpretation Given
The definition of a zero-rated supply is a supply that is included in Schedule VI to the Act. Section 3 of Part IX of Schedule VI to the Act zero-rates a supply of a financial service that is the supply of precious metals where the supply is made by the refiner thereof or by the person on whose behalf the precious metals were refined. A precious metal is defined in subsection 123(1) of the Act as a bar, ingot, coin or wafer that is composed of gold, silver or platinum and that is refined to a purity level of at least 99.5% in the case of gold and platinum, and 99.9% in the case of silver.
In addition to meeting the definition of "precious metal" in subsection 123(1) of the Act, it is the Department's position that gold, silver or platinum bars, ingots or wafers must be in the required purity levels and they must be generally recognized and accepted for trading on Canadian financial markets. Typically, these products will bear markings that indicate the purity level of the metal and have an identification mark of the issuing financial institution or refinery. With respect to the form "coin", only those metals at the required purity levels that have been issued by a government authority and that may be used as currency will qualify as "coins".
If the above conditions are met, then the supply will be zero-rated pursuant to section 3 of Part IX of Schedule VI to the Act and the registrant will be entitled to claim input tax credits for the purchase of scrap metal as explained below. Amendments made to section 176 of the Act have an impact with respect to the availability of input tax credits. The amendments are applicable to transactions after April 23, 1996, and are included in the analysis below.
There are four scenarios that could apply in these circumstances.
1) Purchases of scrap metal from registrants prior to April 24, 1996
Prior to April 24, 1996, subsection 176(5) of the Act was applicable to STPP acquired by way of sale for consideration that exceeded prescribed amounts. Where such property was acquired otherwise than exclusively for the purpose of supply, the registrant is deemed to have acquired the property for use exclusively in activities other than commercial activities. As stated above, the definition of STPP in subsection 123(1) of the Act includes coins. The Specified Tangible Personal Property (GST) Regulations indicate that the prescribed amount applicable to coins is zero.
Input tax credits are allowed for the GST paid on purchases of scrap metal, other than for purchases of coins. Notwithstanding that the scrap coins are purchased for refining purposes, the Act does not distinguish between the possible uses of the coins. Therefore, the coins are considered to be STPP and, since any amount paid would exceed the prescribed amount, the registrant may not claim input tax credits for the GST paid for purchases of coins.
2) Purchases of scrap metal from registrants after April 23, 1996
Subsection 176(5) of the Act has been repealed and is applicable to transactions after April 23, 1996. Therefore, there is no restriction to claiming input tax credits with respect to STPP. Input tax credits are allowed for the GST paid on purchases of scrap metal, regardless of the form of the scrap.
3) Purchases of scrap metal from non-registrants after 1993 and before July 1, 1996
For purchases after 1993, notional input tax credits were available to registrants who purchased used goods from non-registrants where the goods were acquired for the purpose of consumption, use or supply in the course of commercial activities of the registrant. Amendments to section 176 of the Act eliminated notional input tax credits for supplies made after June 30, 1996. Therefore, where a person not required to charge tax supplies a used good to a registrant before July 1, 1996, a notional input tax credit will be available to the registrant if the good was acquired for the purpose of consumption, use or supply in the course of the commercial activities of the registrant. Subsection 176(5) of the Act has been repealed and is applicable to transactions after April 23, 1996.
For the period after 1993 and before April 24, 1996, subsection 176(5) of the Act would be applicable. Therefore, notional input tax credits are allowed for purchases of scrap metal, other than for purchases of coins. As a result of the amendments to section 176 of the Act, notional input tax credits would continue to be allowed for purchases of scrap metal made before July 1, 1996. As the rules restricting the availability of notional input tax credits, with respect to STPP, do not apply to transactions made after April 23, 1996, notional input tax credits would also be allowed for purchases of coins made after April 23, 1996 and before July 1, 1996.
4) Purchases from non-registrants after June 30, 1996
Amendments to section 176 of the Act eliminated notional input tax credits. Therefore, notional input tax credits are not allowed for transactions after June 30, 1996.
As correctly indicated in your letter, the definition of STPP also includes jewellery. The Specified Tangible Personal Property (GST) Regulations indicate that the prescribed amount applicable to jewellery is $2,000. Therefore, should jewellery be purchased by the registrant where the consideration per item exceeds $2,000, the input tax credit restrictions applicable to the purchase of the coins, would also apply to the purchase of the jewellery.
Based on the information provided in your letter, the four year time limit imposed by paragraph 225(4)(b) of the Act for claiming input tax credits would apply to each of the four scenarios.
However, should the registrant be involved in other activities such that it meets the definition of "specified person" in subsection 225(4.1) of the Act, the time limit would be two years.
The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, 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 Memoranda Series, do not bind the Department with respect to a particular situation.
I have enclosed a copy of the Department of Finance press release 96-057 and GST/HST Technical Information Bulletin B-084 "Treatment of Used Goods". If you have any further questions or would like to discuss this matter, please contact me at (613) 957-8222.
Yours truly,
Tim A. Krawchuk
Rulings Officer
Financial Institutions Unit
Financial Institutions & Real Property Division
GST/HST Rulings and Interpretations Directorate
Encl.: Department of Finance Press Release 96-057
GST/HST Technical Information Bulletin B-084
Legislative References: ss. 123(1) - "precious metal", "specified tangible personal property", ss. 169(1), s. 176, ss. 225(4)
NCS Subject Code(s): I 7; 11783-2/123(1) "precious metal", specified tangible personal property"
Email this Content