14 April 1998 GST/HST Interpretation HQR0001039 - Zero-rated Sales for Export

                                                                        GST/HST Rulings and Interpretations
Place Vanier, Tower C, 9th Floor
25 McArthur Avenue
Vanier, Ontario
K1A 0L5

Gentlemen:

Thank you for your letter of January 21, 1998, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the supply of potash for export to XXXXX[.]

You advise that a Manufacturer, who is a GST/HST registrant and resident in Canada, is engaged in the production of a bulk commodity (i.e., potash). The Manufacturer sells the potash in Canada (F.O.B. Manufacturer's facility) to a Distributor who is also registered for GST/HST purposes and a resident of Canada. The Distributor sells the potash to a Customer who is a resident of XXXXX and is not registered for GST/HST purposes.

The following scenarios were outlined in your letter:

1. Potash is shipped directly by train from the Manufacturer's facilities to a Canadian port, where it is temporarily stored and then loaded into ships destined for XXXXX[.] You state that the potash is loaded onto a train by the Manufacturer (at which point the Distributor acquires title to the property), transported by train to a Canadian port, loaded onto a ship (at which point the Customer acquires title to the property), and transported by ship to XXXXX[.]

2. Existing export documentation names the Distributor as the exporter of the potash, including the "Canada Customs Export Declaration B13A", commercial invoicing and bills of lading. In addition, the Distributor is responsible for arranging and co-ordinating the loading of potash onto the vessel and has approval over whether a particular vessel is satisfactory for shipment. Under the terms of the written sales agreement between the Distributor and the Customer, title to the potash is transferred to the Customer after the vessel has been loaded, has cleared inspection and is ready to set sail. As a consequence of the timing of the transfer of title, the Customer assumes financial responsibility for the sale delivery of the product to its destination in XXXXX[.]

3. In this scenario, potash is shipped by train from the Manufacturer's facilities to a Canadian port where it is loaded into vessels destined for XXXXX[.] Under the terms of the written sales agreement, the Distributor receives payment for the potash three days after the loaded vessel departs the Canadian port. As a consequence, payment is received at a point in time when the potash is at a location outside Canada.

Interpretations Requested

1. The supply of potash from the Manufacturer to the Distributor is zero-rated under the provisions of Schedule VI, Part V, section 12 to the Excise Tax Act (Act).

2. The supply of potash from the Manufacturer to the Distributor is zero-rated under the provisions of Schedule VI, Part V, section 1 to the Act.

3. The supply of potash by the Distributor to the Customer is made at the time the consideration is due under the written agreement, i.e., three days after the vessel containing the potash leaves port. Secondly, when the supply is made three days after the vessel left port and is at that point at a location that is outside Canada, the first supply of potash from the Manufacturer to the Distributor in Canada is zero-rated under the provisions of Schedule VI, Part V, section 1.

Interpretation Given

Under the provisions of Schedule VI, Part IV, section 5 to the Act, the following supply is subject to the GST/HST at 0% (i.e., zero-rated):

"A supply of fertilizer (other than a good sold as soil or as a soil mixture, whether or not containing fertilizer) made at any time to a recipient when the fertilizer is supplied

(a) in bulk, or

(b) in a container that contains at least 25 kg of fertilizer, where the total quantity of fertilizer supplied at that time to the recipient is at least 500 kg."

Potash is considered to be a fertilizer for purposes of the Act. Therefore, based on the information provided, the supply of potash from the Manufacturer to the Distributor, which is being supplied in bulk quantities exceeding 500 kg, would qualify for zero-rating under the provisions of Schedule VI, Part IV, section 5.

As the supply of the potash is zero-rated under another provision, it is not necessary to consider the zero-rating provisions of Schedule VI, Part V, sections 1 or 12. In addition, a determination as to when the supply of potash from the Distributor to the Customer occurs is not relevant.

Although not relevant to the above interpretation, but because it was referred to in scenario 2, I wish to advise that the Canada Customs B13 form is not acceptable as proof of export in any circumstances.

The foregoing comments represent our general views with respect to the subject matter of your letter. Unannounced proposed or future amendments to the 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.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6743.

Yours truly,

Garry L. Ryhorchuk
Senior Rulings Officer
Border Issues Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate

c.c.:      G. Ryhorchuk
            S. Mailer

Legislative References:           Schedule VI, Part IV, section 5,
GST Q&A 4j.28
XXXXX
Technical Information Bulletin B-062 dated November 8, 1991
Section 4.4 - GST Memoranda Series