29 May 2003 GST/HST Ruling 44047 - Application of GST/HST on Netpens

Dear XXXXX:

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

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX (the "Company") sells fish pens to the Aquaculture industry in Canada.

2. The Company offers steel pens in square configurations as well as plastic circle cages.

3. The company's steel pens and plastic circle cages float on the surface of water.

4. Neither the steel pens nor the plastic circle cages come equipped with nets or anchors unless the customer makes a special request.

Ruling Requested

You have requested a ruling concerning the application of GST/HST to the supply of your steel pens and plastic circle cages.

Ruling Given

Based on the facts set out above, we rule that your steel pens and plastic circle cages do not fall under the zero-rating provision in section 10 of Part IV of Schedule VI to the Excise Tax Act ("ETA"). The supply of your steel pens and plastic circle cages are therefore taxable at a rate of 7% GST or 15% HST as applicable pursuant to subsection 165(1) 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

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%.

Section 10 of Part IV of Schedule VI to the ETA zero-rates a supply of prescribed property relating to agriculture or fishing. The Agriculture and Fishing Property (GST/HST) Regulations ("Regulations") lists property that, when supplied by way of sale, is prescribed property for the purposes of section 10 of Part IV of Schedule VI to the ETA.

Paragraph 2(3)(e) of the Schedule to section 2 of the Agricultural and Fishing Property (GST/HST) Regulations lists "manufactured netpens for use in aquaculture" as prescribed property.

Your steel pens and plastic circle cages are not considered "manufactured netpens for use in aquaculture". Our research indicates that netpens are three-dimensional cage-like structures consisting of a floating collar and underwater nets. A floating collar by itself would not be considered a netpen. The function of a netpen is to enclose and contain fish. Clearly, a floating collar without any nets cannot enclose or contain any fish.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-952-9585.

Yours truly,

Cliff Lee
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

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