GST/HST Ruling

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

GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 244554

Business Number: [#]

Dear [Client]:

Subject: GST/HST Ruling and Interpretation
Importation of tangible personal property

Thank you for your correspondence which was received in our office on [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the importation of tangible personal property. […].

In your incoming letter, you requested that our response be in English, given the volume of correspondence between the importer and the non-resident supplier. We are pleased to provide the following in the language you requested.

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

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

STATEMENT OF FACTS

Based on the information you provided, we understand the following:

1. The […] (hereafter “the Customer”), located in […], has entered into a rental agreement (hereafter “the Agreement”) with […] (hereafter “the Company”) to rent tangible personal property, specifically a […] (hereafter “the TPP”) from the Company. The Agreement is comprised of the Rental Agreement dated [mm/dd/yyyy] and the accompanying Rental Terms and Conditions.

2. The Customer is registered for GST/HST purposes.

3. The Customer acquired the TPP to make exempt supplies.

4. The Company is a non-resident and is registered for GST/HST purposes.

5. The Customer’s purchase order, addressed to the Company, lists the following:

i) […] months rental of the TPP from [mm/dd/yyyy] to [mm/dd/yyyy] at a cost of $[…] per month, plus GST and provincial sales tax;

ii) […] days rental of the TPP from [mm/dd/yyyy] to [mm/dd/yyyy] at a cost of $[…] per day, plus GST and provincial sales tax;

iii) shipping and handling of the TPP in the amount of $[…], plus GST and provincial sales tax; and

iv) delivery terms of FOB destination.

6. The Rental Agreement provides, in part, the following:

i) the Company agrees to rent the TPP to the Customer at the following “ship to” address, referred to as “the Site” in the Agreement:

[…][Third party address]

ii) the Agreement will commence on or about [mm/dd/yyyy] and end on or about [mm/dd/yyyy];

iii) rental charges are $[…] per month, plus any applicable sales taxes; and

iv) a delivery fee of $[…] is charged.

7. The Rental Terms and Conditions provide, in part, the following: […]

8. The TPP was imported into Canada on [mm/dd/yyyy], pursuant to Canada Customs Coding Form B3 (“Form B3”), which provides the following information:

i) the Customer’s name and address has been entered in the box titled, “Importer name and address”;

ii) the Company’s name and address has been entered in the box titled, “Vendor name”;

iii) an amount of $[…] has been entered in the box titled, “Value for tax”; and

iv) an amount of $[…] has been entered in the box titled “GST”.

9. The Customer paid GST in the amount of $[…] on the importation of the TPP.

10. The Company delivered the TPP to the Customer’s Site on [mm/dd/yyyy].

11. The Company charged the GST on the consideration for the supply of the leased TPP to the Customer.

12. The TPP was shipped back to the Company on [mm/dd/yyyy].

13. The Customer filed an application with the Canada Revenue Agency (“CRA”) for a rebate of 83% of the $[…] GST paid on importation of the TPP.

RULINGS REQUESTED

You would like to know the following:

1. Can the Customer obtain a refund of the GST paid in connection with the importation of the TPP into […] (amount of $[…]) as tax paid in error?

2. If the Customer cannot obtain a refund of tax paid in error, could the Customer transfer 100% of the GST paid ($[…]) to the Company through a mandate/mandator letter considering the lease entered into between the parties?

As noted in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, a ruling provides the Canada Revenue Agency's (CRA's) position on specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person. The CRA reserves the right to not issue a ruling where it would be inappropriate to do so, as in the case of the second ruling request. However, we are able to provide an interpretation in respect of the use of a mandate/mandator letter.

RULING GIVEN

Based on the facts set out above, we rule that the Customer cannot claim a rebate for GST paid in error in connection with the importation of the TPP into […].

EXPLANATION

Generally, all goods imported into Canada are subject to GST/HST under Division III of the ETA. Pursuant to section 212, every person who is liable under the Customs Act to pay customs duty on imported goods, or who would be liable if the goods were subject to such duty, is required to pay 5% GST on the value for duty of the goods. Imported goods may be relieved of GST/HST pursuant to section 213 and Schedule VII to the ETA. As there are no relieving provisions in Schedule VII that apply to the importation of the particular TPP ([…]) for supply by way of lease, the 5% GST on the value for duty of the TPP was payable upon importation.

Based on Form B3, the Customer was named as the importer of record (as required under clause […] of the Agreement) and was therefore responsible under section 12 of the Customs Act for reporting the TPP upon its importation. Additionally, pursuant to subsection 18(2) of the Customs Act, any person who reports goods under section 12 is liable for any customs duties levied on the goods. As a result, the Customer would have been liable for any duties levied on the TPP under the Customs Act and consequently, the Customer was required to pay 5% GST on the value of the TPP under section 212.

Section 261 provides for a rebate of payment made in error where a person pays an amount as or on account of, or that was taken into account as tax, net tax, penalty or interest, and the amount was not payable or remittable by the person. However, because the Customer was required, as the importer of record, to pay 5% GST on the value for duty of the TPP, the Customer cannot claim a rebate under section 261 for tax paid in error.

INTERPRETATION GIVEN

You have asked if the Customer, instead of applying for a rebate of tax paid in error, could transfer to the Company the GST paid under Division III on the importation of the TPP through a mandate/mandator letter. As explained in GST/HST Memorandum 1.4, the CRA will not issue a ruling where a request is for a determination of fact, and the circumstances are such that all of the pertinent facts cannot be established; however, we can provide the following guidance.

“Mandate” corresponds to the common law concept of agency, which is a type of relationship where one person (the principal) authorizes another person (the agent) to represent it and take certain actions on its behalf; whether such a relationship exists is based on a determination of fact and an application of legal principles. In accordance with GST/HST Policy Statement P-182R, Agency, there are three essential qualities that help in determining whether a person is acting as agent in making a transaction on behalf of another person. The three essential qualities are: consent of both the principal and the agent; authority of the agent to affect the principal's legal position; and the principal's control of the agent's actions.

As a result, in order for the Company and the Customer to use a mandate/mandator letter to establish that the Division III GST/HST was paid by the Customer on behalf of the Company it would need to be established that there was a mandate, or agency relationship, in place between the parties in respect of the importation of the TPP.

ADDITIONAL INFORMATION

Section 169 sets out the general rules regarding the entitlement of a person to an ITC in respect of GST/HST paid or payable on the acquisition and importation of property or services.

Generally, a registrant is entitled to an ITC with respect to tax on the importation of goods that is paid or payable by the registrant, if the registrant imports the goods for consumption, use or supply in the course of its commercial activities. However, the person considered to have imported goods for consumption, use or supply in the course of its activities is not necessarily the person who imports the goods and is the importer of record. It is only the de facto importer who may be considered to have imported goods for consumption, use or supply in the course of its commercial activities and, subject to special rules under section 178.8, the only person who may claim an ITC in respect of the Division III GST/HST.

As explained in GST/HST Policy Statement P-125R: Input Tax Credit Entitlement for Tax on Imported Goods, a de facto importer who imports goods for consumption, use or supply in the course of its commercial activities will generally be either a recipient of a supply of goods made outside Canada, or a supplier where it supplies imported goods in Canada.

If a person other than a de facto importer imports goods and acts as the importer of record, it is only the de facto importer who may be considered to have imported the goods for consumption, use or supply in the course of its activities. As a result, the de facto importer will be considered to have paid the Division III GST/HST if evidence is maintained that the importer of record paid that tax on behalf of the de facto importer. The de facto importer will then be required to obtain a copy of the import documentation from the importer of record to satisfy the documentary requirements under subsection 169(4) for claiming an ITC in respect of the Division III GST/HST that was paid or payable.

Based on the information provided, the Company could be the de facto importer if it supplied the TPP in Canada to the Customer, despite the Customer being the importer of record and paying the Division III GST/HST. If the Company retains evidence that the tax was paid by the Customer on the Company’s behalf, the Company would then be able to claim an ITC if it meets the documentary requirements under subsection 169(4).

DISCLAIMER

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the CRA is bound by the ruling given in this letter provided that: none of the issues discussed in the ruling are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation or additional information provided herein.

CONTACT

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-298-1678. Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287 or by fax to 1-418-566-0319.

Sincerely,

Gabrielle Nadeau
Industry Sector Specialist
Border Issues
General Operations and Border Issues Division
GST/HST Rulings Directorate

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

Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 196196

Dear [Client]:

Subject: GST/HST RULINGS & INTERPRETATIONS
Assignment of a right to purchase a residential unit with a lease-back option

Thank you for your [correspondence] of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to your client’s assignment of an interest in a residential property.

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

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

STATEMENT OF FACTS

Based on the documentation you have provided and our telephone conversations, we understand the following:

1. You are the authorized representative of […](the Assignor).

2. The Assignor is a non-resident of Canada and is not registered for the GST/HST.

3. On [mm/dd/yyyy], the Assignor entered into an Agreement of Purchase and Sale (the APS) with […](the Vendor) to purchase a residential condominium unit (the Unit) that was to be built in […][province X](Footnote 1) ,[…].

4. The purchase price of the Unit was $[…].

5. On [mm/dd/yyyy], the Assignor and the Vendor entered into the […](the Amendment), which provides for the deletion of certain terms and the insertion of other certain terms, within […] the APS. Specifically, the Amendment provides that, notwithstanding the terms of the APS:

• there will be no Interim Closing Date or Occupancy License arrangements
• the Assignor will have no right to occupy the Unit prior to the Final Closing Date.

6. On [mm/dd/yyyy], the Assignor entered into the […](the Option). The parties to the Option are the Assignor and […](the Tenant). […] to the Option describe that:

• the Assignor has entered into the APS with the Vendor
• the Tenant has agreed to lease the Unit from the Assignor provided the Assignor exercises […] the Option.

Under the Option, if the Unit is leased to the Tenant, the Tenant will pay rent in the amount of $[…] to the Assignor on a monthly basis for the term of the lease, starting on […][Date X].

7. On [mm/dd/yyyy], the Assignor exercised the Option and agreed to lease the Unit to the Tenant under […](the Rental Program) which provides the following:

• [Date X] means the Final Closing Date;
• the terms of the Rental Program will prevail wherever the terms differ from the terms expressed in the APS (and any amendments thereto) or the Option;
• the Assignor will have no right to access, occupy or use the Unit and will not be issued keys or have access to the Unit until the expiry of the Term or the termination of the Rental Program.

8. On [mm/dd/yyyy], the Assignor entered into […](the Assignment) with […](the Assignee) for the assignment of the Assignor’s rights and obligations under the APS. Subject to the Vendor’s consent to the Assignment, the Assignee would pay to the Assignor the amount of $[…], calculated as two components:

• a deposit of $[…] paid at the time of entering into the Assignment,
• the amount of $[…] due on the Final Closing Date.

[…] of the Assignment provides that if the sale is subject to the HST, the tax is included in the purchase price and that the Assignor will certify on or before closing if the sale is not subject to HST. The Assignor made no such certification with respect to the HST.

9. On [mm/dd/yyyy], the Vendor consented to the Assignment under the […].

10. On [mm/dd/yyyy], the Assignor and the Tenant agreed to terminate the Rental Program under a […] whereby the Assignor elected not to proceed with the Rental Program.

11. On [mm/dd/yyyy], the condominium complex was registered as a condominium.

12. On [mm/dd/yyyy], the Final Closing Date, the transaction under the Assignment was concluded. The balance of the assignment amount was paid to the Assignor by the Assignee.

13. The Rental Program was terminated prior to [Date X], therefore the Assignor did not receive any rent revenue from the Tenant.

You have asked a number of questions with regard to the Assignor’s liability for the HST. You have also asked some questions that are general in nature.

RULINGS REQUESTED

You would like to know:

1. Is the Assignment a taxable supply?

2. If the Assignment is a taxable supply, what amounts are subject to the HST: the assignment fee, the reimbursed deposit amount, or both amounts?

3. If the Assignment is a taxable supply, does paragraph 221(2)(a) relieve the Assignor from the liability to charge and collect the HST?

RULINGS GIVEN

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

1. The Assignment is a taxable supply.

2. The amount of the HST is calculated on the value of consideration for the Assignment.

3. The Assignor is not required to collect the HST on the value of consideration for the Assignment.

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.

The CRA will not issue a ruling where it considers that one would not be appropriate; for example, a ruling will not be issued when a request concerns a tax-related calculation. Further, you have clarified that some of your questions are general in nature and are not specific to the subject case. Accordingly, we will address these matters as interpretations following the explanation of our Rulings.

EXPLANATION

1. The Assignment is a taxable supply.

A person who enters into a purchase and sale agreement with the supplier of a residential complex may subsequently assign their rights and obligations under that agreement to another person (an assignee). The assignment of a person’s rights and obligations under such an agreement is generally considered to be a sale of the person’s interest in the complex to the assignee.

The tax status of a sale of a residential complex or an interest in a residential complex is generally dependent on whether the person who makes the supply is a “builder” of the complex. The sale of a residential complex or an interest in a residential complex by a person who is a builder of the complex is generally a taxable supply unless an exemption applies. The sale of a residential complex or an interest in a residential complex by a person who is not a builder of the complex is generally an exempt supply.

Builder

The term “builder” is defined in subsection 123(1). We limit our discussion to paragraph (d) of that definition and specifically, how the definition applies in the case of a residential condominium unit (RCU).

Generally, paragraph (d) of the definition provides that a person is a builder of a residential complex (which includes an RCU) where the person acquires an interest in the complex

(i) in the case of a condominium complex or residential condominium unit, at a time when the complex is not registered as a condominium, or

(ii) in any case, before it has been occupied by an individual as a place of residence or lodging,

for the primary purpose of

(iii) making one or more supplies of the complex or parts thereof or interests therein by way of sale, or

(iv) making one or more supplies of the complex or parts thereof by way of lease, licence or similar arrangement to persons other than to individuals who are acquiring the complex or parts otherwise than in the course of a business or an adventure or concern in the nature of trade.

Paragraph (d) provides that a person’s primary purpose for acquiring an interest in the complex is a factor in finding a person to be a builder. More specifically, subparagraph (d)(iv) provides that a person is a builder of the complex where the person acquires an interest in the complex for the primary purpose of supplying it by way of lease, licence or similar arrangement, with the exception that the person is not a builder of the complex if the person’s intention is to supply it by way of lease, licence or similar arrangement to an individual who will use it other than in the course of a business or an adventure or concern in the nature of trade (that is, where the recipient is an individual who will use it for their personal use).

Certain persons are excluded from the definition of builder by paragraphs (f) through (h). Paragraph (f) provides, in part, that an individual described in paragraph (d) is not a builder of the complex where the individual acquires the complex (or interest therein) otherwise than in the course of a business or an adventure or concern in the nature of trade. The definition of “business” in subsection 123(1) includes any activity engaged in on a regular or continuous basis that involves the supply of property by way of lease, licence or similar arrangement.

The Assignor acquired an interest in the Unit at a time when the condominium complex was not yet registered as a condominium. Further, the Assignor entered into both the APS and the Option on the same day and subsequently exercised the Option to lease the Unit under the Rental Program. Under the terms of the Rental Program, the Assignor would lease the Unit to a corporation (the Tenant). These actions suggest the Assignor’s primary purpose for acquiring the interest in the Unit was to lease the Unit for the purpose of receiving rental income, that is, in the course of a business.

Based on these facts, we find the Assignor is a builder as described by the conditions in subparagraphs (d)(i) and (iv) of that definition; the exclusion in paragraph (f) does not apply. (Footnote 2)

Therefore, we must consider the GST/HST implications in finding a person to be a builder of a residential complex.

Self-supply

Under subsection 191(1), the builder of a residential complex may be subject to a self-supply when the builder leases a newly constructed residential complex to an individual to occupy as a place of residence. Where all conditions of subsection 191(1) are met, the builder is deemed to have made and received a taxable supply by way of sale of the complex and to have paid as a recipient and collected as a supplier, the tax in respect of the sale. The tax that is deemed to have been collected is calculated on the fair market value of the complex at the later of the time when construction of the complex is substantially completed and the time when possession or use of the complex is so given for its occupancy by an individual as a place of residence.

As the Rental Program was terminated prior to [Date X], the conditions under subsection 191(1) are not met. Accordingly, the Assignor is not subject to a self-supply.

Assignment

As noted above, the assignment of a person’s rights and obligations under a purchase and sale agreement for a residential complex is considered to be a sale of the person’s interest in the complex to the assignee.

The sale of a residential complex or an interest in a residential complex is generally a taxable supply unless an exemption in Part I of Schedule V applies to the sale. Subject to certain conditions, section 2 of Part I of Schedule V exempts the sale of a residential complex or an interest in a residential complex when made by a person who is not a builder of the complex. As we have found the Assignor to be a builder of the Unit, the exemption in section 2 of Part I of Schedule V does not apply to the Assignor’s sale of the interest in the Unit to the Assignee.

There are circumstances where a builder’s supply of a residential complex (or an interest therein) may be exempt. Specifically, section 4 of Part I of Schedule V may exempt the sale of an RCU, or an interest in an RCU, where the builder of the RCU was deemed under subsection 191(1) to have received a taxable supply of the RCU by way of sale, and where that supply was the last supply of the complex made by way of sale to the builder.

As noted above, the Assignor is not subject to a self-supply imposed under subsection 191(1). Therefore, the exemption in section 4 of Part I of Schedule V does not apply to the Assignor’s sale of its interest in the Unit to the Assignee.

As there are no other exemptions that apply, the Assignment is a taxable supply.

2. The amount of the HST is calculated on the value of consideration for the Assignment.

Where the sale of a person’s interest in a residential complex is a taxable sale, tax is calculated on the value of consideration for the sale of the interest. By definition, consideration includes any amount that is payable for a supply by operation of law. The consideration charged for the sale of a person’s interest in a residential complex generally includes amounts (for example, deposits) the person has already paid to the developer and wants to recover when assigning their interest in the complex, as well as any amount over and above the amounts the person has paid to the developer.

The Assignment is a taxable sale. Accordingly, consideration for the Assignment is the total of the amounts paid by the Assignee to the Assignor, which includes any amounts identified as the deposits the Assignor has paid to the Vendor.

The amount of the HST is calculated on the total consideration for the Assignment. In the case where the Assignment states that the HST is included in the assignment amount, the total consideration is the total of the amounts paid by the Assignee to the Assignor, less the HST included in that amount. For example, where HST at the rate of 13% is included in the amount paid, the total consideration is calculated by multiplying the total amount paid by the fraction 100/113.

3. The Assignor is not required to collect the HST on the value of consideration for the Assignment.

A person who makes a taxable supply is generally required to collect the tax payable by the recipient in respect of the supply. Subsection 221(2) provides some exceptions to this rule where the supply is a taxable sale of real property. Specifically, paragraph 221(2)(a) provides that a non-resident supplier is not required to collect the tax from the recipient of a taxable sale of real property.

As a non-resident supplier, the Assignor is not required to collect the HST on the consideration for the Assignment.

Where paragraph 221(2)(a) relieves the supplier of real property from collecting the tax that is payable, subsection 228(4) requires the recipient of the supply of the real property to report and remit (self-assess) the tax that is payable on the purchase of the real property.

Therefore, where the recipient is a registrant who is required to self-assess the tax on the taxable purchase of real property and who is using or supplying the property primarily in the course of commercial activities, they will report the tax on their GST/HST return for the reporting period in which the tax became payable. In any other case, the recipient will use form GST60, GST/HST Return for the Purchase of Real Property or Carbon Emission Allowances, to report and remit the tax. The GST60 return must be filed on or before the last day of the calendar month following the month in which the tax became payable.

INTERPRETATIONS REQUESTED

You would like to know if a non-registrant person is eligible to register for the HST so as to claim an input tax credit (ITC) for the HST paid on any fees and expenses related to the taxable sale of real property, for example, realty commission, legal and accounting fees and an assignment fee.

Further, you have asked that we address the calculation of HST where the terms of an agreement provide that HST is included in an amount.

INTERPRETATIONS GIVEN

Registration and ITCs

Subsection 169(1) provides that a person who is a registrant may be able to claim an ITC to recover the GST/HST that is paid or payable on purchases and expenses that are related to the person’s commercial activities. A person is a “registrant” if the person is registered, or is required to be registered, for the GST/HST; “commercial activity” of a person is defined to include the making of a supply of real property, other than an exempt supply.

Subsection 240(1) sets out the conditions under which a person is required to be registered, with certain exceptions. Specifically, paragraph 240(1)(b) provides that a person is not required to be registered where the person’s only commercial activity is the making of supplies of real property by way of sale otherwise than in the course of a business.

Voluntary registration is permitted in some circumstances. For example, paragraph 240(3)(a) permits a person who is engaged in a commercial activity in Canada to voluntarily register for the GST/HST. The effective date for voluntary registration is generally the date the CRA receives the application for registration. An earlier effective date may be accepted where the date requested is within thirty days of the application for registration, or where the person collected the GST/HST prior to the date on which the application is received.

A person who is neither registered nor required to be registered cannot claim an ITC.

For more information on GST/HST registration, please refer to GST/HST Memorandum 2.1, Required registration and GST/HST Memorandum 2.3, Voluntary registration.

Tax collected in error

As explained above, subsection 221(2)(a) provides that a non-resident supplier who makes a taxable sale of real property is not required to collect the GST/HST payable by the recipient. This provision is mandatory and does not permit the parties to an agreement to alter the application of the legislation by including terms that are contrary to the legislation. A person who is required to self-assess the tax under subsection 228(4) is not relieved of that obligation if the person pays tax to the supplier instead.

GST/HST that is charged or collected in circumstances where it should not be charged or collected is considered to be charged or collected in error. For example, even where the terms of a contract provide that the GST/HST is included in the amount of a purchase, the amount is collected in error if the supplier is not required to collect the GST/HST that is payable.

Any amounts that a person collects as or on account of GST/HST, including GST/HST collected in error, are deemed to be held in trust for the Crown and must be included in the person’s net tax calculation for the reporting period in which the tax became collectible or was collected. A non-registrant person’s reporting period is a calendar month; any positive amount of net tax must be remitted to the Receiver General within one month after the end of the reporting period.

In this regard, a non-registered person will use form GST62, Goods and Services Tax/Harmonized Sales Tax Return (Non-personalized) to report and remit the tax.

A person who has charged or collected from another person an amount of tax in error (for example, a non-resident supplier) may, pursuant to subsection 232(1), refund or credit the amount of tax to the other person within two years after the day the amount was collected. Alternatively, a person who has paid an amount of tax in error (for example, the recipient of the supply) may apply to the CRA for a rebate under section 261 within two years after the day the amount was paid. Please refer to GST/HST Memorandum 12.2, Refund, Adjustment, or Credit of the GST/HST under Section 232 of the Excise Tax Act for further discussion.

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretations given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretations or the additional information provided herein.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 780-504-3442. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Johanne Cairo
Real Property Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

FOOTNOTES

1 […]

2 No other exclusion applies to an individual who is a builder described by paragraph (d).

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

GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 234969

Attention: [Client]

Dear [Client]:

Subject: GST/HST RULING
[…][Loan Guarantee Program]

Thank you for your correspondence of [mm/dd, yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the […][loan guarantee program].

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

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

STATEMENT OF FACTS

From your correspondence dated [mm/dd, mm/dd, and mm/dd, yyyy], our telephone conversation of [mm/dd, yyyy] and the documents you have provided to us, we understand the following:

1. Under the […] ([…] [Provincial Act]) :

• […][About the administration of laws].
• […][Allows for the establishment of a Program].
• […][Allows for the guarantee of a loan].

2. […][Pursuant to the Provincial Act the Program is established and continued].

3. As defined under the Program Guidelines webpage at […] :

[…][Definitions provided]

4. Under the […][Provincial legislation]:

• […][Indicates the purpose of the Program].
• […][States the intent of the Program].
• […][Outlines the requirements of participants].
• […][Describes the use and purpose of an assurance account].
• […][States the purpose of the loan].
• […][Indicates conditions of issuing an order form].
• […][Indicates conditions of using an order form].
• […][Requires participants enter into a contract, which outlines the terms and conditions].
• […][Description of contractual requirements].
• […][Description of how proceeds of sale are applied].
• […][Description of guarantee agreement].

5. Under the […] webpage at [...]:

• […][Description of how the Program works].
• […][Description of how loan guarantee is allocated to participants subject to a loan agreement].

Loan Agreement

6. A sample copy of a […][loan agreement] with the […] [[…](Lender)] was provided to us. […][Regional Entities] borrow from a variety of different lenders, but the [Lender] loan agreement is representative of the others.

7. […][Description of requirements under the loan agreement].

8. The following security is required:

[…]

9. The following financial covenants are required:

[…]

[Contract]

10. […][Description of ownership].

11. […][Description of the payment of net proceeds].

12. […][Requirement to have necessary financial resources].

13. […][Use of loan is restricted to its intended use].

14. […][Purchase will be in the name of the Regional Entity].

15. […][Condition stating that the member cannot claim any security interest].

16. […]:

[…][Actions required to be taken by the member]

17. […][Permission to enroll in risk management programs].

18. […]:

[…][Outlines the conditions for Regional Entity to pay the member the net proceeds].

19. […]:

[…][Outlines the conditions for Regional Entity to return the member’s deposit]

20. […]:

[…][Outlines the conditions for Regional Entity to transfer ownership of residual livestock]

21. […] outlines the circumstances where a [Regional Entity] may take possession of some or all the [livestock] purchased under the [contract] and sell [the livestock].

22. […][Order form is part of the contract]:

• […][Description of the order form].
• The member is also required to confirm the amount spent, along with related expenditures, on the [livestock] purchased in relation to the [order form].

Correspondence

23. The [Program] operates whereby a not-for-profit [Regional Entity] negotiates bulk lending from a financial institution for [livestock] purchases by its members. Each [Regional Entity] member determines the funds they request from the [Regional Entity], purchases the [livestock], is responsible for all care and feeding costs, and sells the [livestock].

24. [Regional Entities] do not make any profit off of the loan. Operating revenue is only generated through […]. These are charged on a cost recovery basis.

25. While the [Regional Entity] retains legal ownership of the [livestock], the members, not the [Regional Entity], make the decisions and arrangements relative to livestock purchases, management, and sales. Members use [order forms] issued by the [Regional Entity] to purchase [livestock] and have discretion to purchase [livestock] from whomever they choose and the [livestock] to purchase. Members negotiate, or bid, a price for the [livestock], but their purchase cannot exceed what is approved by the [Regional Entity] through the [order form] and any unused amounts are returned to the [Regional Entity].

26. The [Regional Entity] does not record the [livestock] for inventory purposes on its financial statements. Its statements show the asset as either a contract or loan receivable and on the liability side it would be noted as a loan payable to lender or bank loan. Members record the [livestock] as inventory on their financial statements, and the loan as a liability.

27. The [Regional Entity] carries an insurance policy on the [livestock], which the member is charged for as part of his or her agreement. Any proceeds from insurance claims go directly to the loan. Any death loss not covered by insurance, is absorbed by the member. The member is still responsible for covering the full amount of their obligation.

Member and [Regional Entity] Loan Default Process

28. […]. You also outlined the loan default process in your correspondence:

• Generally, shortfalls are addressed by the following steps below:
• Member is asked to pay any shortfall out-of-pocket;
• […][Additional steps of the default process are outlined]
• [Regional Entity] may take legal action against the member to recover funds used through the assurance account and any cash reserves, such as lien on the sale of a property.
• A member is responsible for their individual debt related to borrowings from the [Regional Entity]. Other members are also responsible for any shortfalls but their liability is limited to their security deposits held by the [Regional Entity], and potentially any future profits from [livestock] they sell.
• The manner in which the government guarantee is calculated, it minimizes the risk of non-defaulting members future profits being used to cover an outstanding debt. In the unlikely case that the […] guarantee is insufficient, then the profits from these members may be at risk.
• […].

RULING REQUESTED

You would like to know whether [Regional Entity] members are supplying a taxable service to the [Regional Entity] and therefore would the proceeds remitted to the members from [livestock] sale attract HST.

RULING GIVEN

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

The members are considered the recipients of the supply of the [livestock] when they first acquire the [livestock] under the name of the [Regional Entity]. The members are also considered the suppliers of the [livestock] when they are ready for market and sold.

The members, when selling the [livestock], are not required to charge HST since they are making a zero-rated supply pursuant to section 1 of Part IV of Schedule VI to the ETA.

As members are considered to be both the recipients and suppliers of the [livestock] they are not providing a service to the [Regional Entities].

The [Regional Entities] provide an exempt financial service of lending money to its members.

EXPLANATION

The agreements signed between the members and the [Regional Entities] state that the members agree that the [Regional Entity] is the owner of the [livestock] and that the members shall not have the right to use the [livestock] as collateral or security or encumber title thereto in any manner whatsoever. In other words, the [livestock] are purchased in the name of the [Regional Entity] […]. The [Regional Entity] retains legal ownership of the [livestock] at all times or until the loan is paid off.

All expenses associated with the purchase and sale of the [livestock] are incurred in the name of the [Regional Entity]. When the [livestock] are purchased, the member must ensure that the purchase document for the [livestock] names the [Regional Entity] as owner of the [livestock].

When the [livestock] are sold, the purchaser pays the [Regional Entity]. The proceeds are applied to the loan, which is equal to the principal and the interest charged by the financial institution. The [Regional Entity] then provides the member with the net proceeds, if the member or [Regional Entity] are not in default.

Under subsection 123(1):

Recipient of a supply of property or a service means:

(a) where consideration for the supply is payable under an agreement for the supply, the person who is liable under the agreement to pay that consideration,

(b) where paragraph (a) does not apply and consideration is payable for the supply, the person who is liable to pay that consideration, and

(c) where no consideration is payable for the supply,

(i) in the case of a supply of property by way of sale, the person to whom the property is delivered or made available,

(ii) in the case of a supply of property otherwise than by way of sale, the person to whom possession or use of the property is given or made available, and

(iii) in the case of a supply of a service, the person to whom the service is rendered,
and any reference to a person to whom a supply is made shall be read as a reference to the recipient of the supply;

Supplier, in respect of a supply, means the person making the supply; and

Supply means, subject to sections 133 and 134, the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition.

Sale, in respect of property, includes any transfer of the ownership of the property and a transfer of the possession of the property under an agreement to transfer ownership of the property.

Although the [Provincial legislation] and legal agreements indicate that the [Regional Entity] has legal, beneficial and equitable interest in the [livestock] acquired by the member through the issuance of [order form], it is the member who has possession, use, risk and control of the [livestock].

Members are responsible for the individual loans advanced to them through the [order forms]. Members assume the risks of ownership, agree to maintain the health of the [livestock] and to pay all related costs. Members are responsible for repaying the loan in a case of loss of [livestock] and are also responsible for insurance coverage. It is the member who makes the decisions and arrangements relative to livestock purchases, management, and sales of the [livestock]. Members are allowed to enroll in any risk management programs in their own name and receive any benefits from those risk management programs directly. The member and not the [Regional Entity] records the [livestock] as inventory on their financial statements.

The [contract] and [order forms] between the members and the [Regional Entity] are intended to secure the debt related to the purchase of the [livestock]. The transfer of ownership of the [livestock] to the [Regional Entity] and payment of funds to the [Regional Entity] on the sale of the [livestock] is for the purpose of securing payment of the debt, which has been incurred by the member. Upon payment in full of the debt, legal title of any residual [livestock] can be transferred to the member.

The [Regional Entity] assists its members in producing [livestock] by providing competitive financing and terms.

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 343-553-3972. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

David Phoenix, CPA, CGA
Services and Intangibles Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate

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

GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 225768

Dear [Client] :

Subject: GST/HST RULING
Application of GST/HST to services rendered by a social worker

Thank you for the letter of June 6, 2021 from […], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to services rendered by a social worker. We apologize for the delay in our response.

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

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

STATEMENT OF FACTS

We understand the following:

1. You are registered for GST/HST […] under GST/HST registration number […].

2. You practice in […] (the Province) and are licensed under the Alberta College of Social Workers (ACSW). According to the ACSW’s registrar, you are a Registered Social Worker (RSW) holding registration number […].

3. According to the ACSW website (Footnote 1) , “Social Work” is a profession that is regulated in Alberta under the Health Professions Act (HPA). Registration is mandatory for persons with a recognized social work credential, practicing within the scope of social work, with clients located in […] (the Province). As such, only registered social workers can identify as a “Social Worker”.

4. The Scope of Practice of a Social Worker in the Province is explained in Schedule 27 (section 3) of the HPA as follows:

“In their practice, social workers do one or more of the following:

(a) enhance or restore the social functioning of individuals, families, groups, organizations and communities by improving developmental, problem-solving and coping capacities of people and systems,

(b) promote effective and humane systems that provide resources, opportunities and services to people and link people to those systems,

(c) contribute to the development and improvement of social policy, and

(c.1) teach, manage, and conduct research in the science, techniques and practice of social work, and

(d) provide restricted activities authorized by the regulations.” (Footnote 2)

5. As an RSW, you work extensively in high conflict evaluation, developing parenting plans and positive communication.

6. You are also a licensed […] coach for […].

7. You have additional specialised training in family mediation. You are a Registered Family Mediator (RFM) with a specialization in Divorce and Separation.

8. The Alberta Family Mediation Society (AFMS) states it is a non-profit organization governing RFMs.

9. As an RFM, you provide mediation and coaching for families who are restructuring including separation, divorce, co-parenting and blended families. Your mediation services would cover common issues such as the division of property, assets, and debts, the creation of parenting plans, the calculation of child support and the determination of spousal support.

10. Your services are rendered within a professional-client relationship.

11. The types of services you provide include unbundled and bundled mediation services:

• The unbundled mediation services include […]. Additional services are also available such as mediation roadmaps, parenting plans, resolution summaries among others.
• The bundled mediation services include four different mediation packages, […][description of different mediation packages, A and B]. All “B” packages include a meeting to review and finalize the mediation agreement.

12. A copy of the […] (Sample Agreement) between you and your clients has been made available.

13. Section 1 of the Sample Agreement defines “mediation” as:

“ [a process in which the mediator’s role] is to be an impartial facilitator who will help the parties with their negotiation process. [The mediator] will help them get the necessary information and review options so that they will make informed decisions. [The mediator] will not make decisions about what the agreement should be.

The goal of the mediation is a wise, equitable and workable agreement rather than a settlement at any cost. At no time should the parties feel coerced or threatened into an agreement.”

14. According to the Sample Agreement, the mediation process can result in three types of mediation reports:

• If the mediation is successful:
  • a “without prejudice” Mediation Report is provided and can be utilized as an informal roadmap for future use; or
  • a “without prejudice” Separation Report is provided and can be used by lawyers to turn it into a legally binding document;
• If the mediation is unsuccessful:
  • a “without prejudice” Mediation Report is provided outlining the tentative agreements reached and the issues still unresolved and can be used by lawyers to restart a negotiation process.

In all cases, the reports are not legally binding nor enforceable unless they are drafted into a formal Separation Agreement reviewed and signed by the lawyers and the parties involved.

15. According to the Sample Agreement, the billing process differs between bundled and unbundled services.

• For bundled packages:
  50% of the package price will be charged at time of the booking and the rest charged at completion of the services included in the package.
• For unbundled services:
  Fees will be based on an hourly rate depending on the time spent on a client’s file and are charged at the end of each session.
• Additional services such as, telephone discussions, email correspondence with parties or lawyers, and the writing of mediation reports or agreements will also be billed as additional fees.

RULING REQUESTED

You would like to know whether the services rendered to your clients in the Province are exempt from GST under section 7.2 of Part II of Schedule V to the ETA.

RULING GIVEN

Based on the facts set out above, we rule that the supplies of mediation services are taxable and subject to the GST.

EXPLANATION

Generally, all supplies of goods and services made in Canada are taxable unless an exemption from the GST/HST applies. Taxable supplies are supplies made in the course of a commercial activity and may be taxable at the rate of 0% (zero-rated supplies), 5%, 13%, or 15% on the value of the consideration for the supply depending on the province in which the supply is made. Zero-rated supplies are included in Schedule VI. Exempt supplies are not subject to the GST/HST and are included in Schedule V.

Social worker services

Section 7.2 of Part II of Schedule V exempts certain supplies of services rendered in the practice of the profession of social work. In particular, section 7.2 states:

“A supply of a service rendered in the practice of the profession of social work where

(a) the service is rendered to an individual within a professional-client relationship between the particular individual who renders the service and the individual and is provided for the prevention, assessment or remediation of, or to assist the individual in coping with, a physical, emotional, behavioural or mental disorder or disability of the individual or of another individual to whom the individual is related or to whom the individual provides care or supervision otherwise than in a professional capacity; and

(b) either

(i) if the particular individual is required to be licensed or otherwise certified to practise the profession of social work in the province in which the service is supplied, the particular individual is so licensed or certified, or

(ii) if the particular individual is not required to be licensed or otherwise certified to practise that profession in that province, the particular individual has the qualifications equivalent to those necessary to be licensed or certified to practise that profession in a province in which such a requirement exists.”

According to section 7.2 of Part II of Schedule V, a supply of a service rendered in the profession of the practice of social work is exempt where:

• the service is rendered to an individual (or to a relative or caregiver of the individual with a disorder or disability) within a professional-client relationship between the social worker and the individual;
• the service is provided for the prevention, assessment or remediation of a physical, emotional, behavioural, or mental disorder or disability of the individual, or to assist the individual in coping with a disorder or disability, and,
• the person providing the services must be licensed or otherwise certified to practise the profession of social work in the province in which the services are supplied. Alternatively, where the person is not required to be licensed or otherwise certified in that province, the person must have qualifications equivalent to those required for licensing or certification in another province.

It is important to note that section 7.2 does not apply to all the services rendered in the practice of the profession of social work. Paragraph (a) of the section restricts the exemption to circumstances where social work services are rendered to prevent, assess, remediate or to assist a person in the coping with an illness, disability or disorder at the physical, emotional, behavioural and/or mental level.

It is therefore important to identify the exact nature and scope of the service that is performed by a social worker in order to determine if the exempting provision of section 7.2 of Part II of Schedule V applies. The simple fact that a social worker performs social work is insufficient to conclude that the supply of the service is exempt under section 7.2.

Based on the above-stated facts, the Alberta College of Social Workers (ACSW) regulates the practice of social work in the Province. You are licensed with the ACSW and practice as a registered social worker. You provide mediation services in order to better assist individuals to plan for separation and divorce. You act as an impartial third party to help assist individuals in resolving any conflict relating to their divorce/separation such as financial conflict, asset separation, child support and spousal support payments among other issues through open communication and negotiation.

Although your services fall within the scope of practice of social work as dictated by the ACSW, divorce counselling and mediation services are not services that are among the scope of what’s allowable within the exemption of section 7.2 of Part II of Schedule V. Such services, even if considered to be social work services by the provincial governing body, will not be part of the exemption provision in section 7.2. Therefore, pursuant to section 7.2 of Part II of Schedule V, the bundled and unbundled services rendered are not exempt. Since no other exempting provision applies, the services you render are subject to GST.

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 343-553-4626. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

Amal Khorchid
Health Care Sectors Unit
Public Service Bodies and Governments Division
GST/HST Rulings Directorate
FOOTNOTES

1 https://acsw.ab.ca/site/registration?nav=sidebar

2 Health Professions Act: Schedule 27 - Profession of Social Workers https://www.qp.alberta.ca/1266.cfm?page=H07.cfm&leg_type=Acts&isbncln=9780779826650&display=html

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

GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5

[Client Address]

Case Number: 237569

Dear [Client]:

Subject: GST/HST ruling and interpretation
GST/HST registration requirement

This letter is further to the correspondence of [dd/mm/yyyy] […], concerning […][Company]’s requirement to register for the goods and services tax/harmonized sales tax (GST/HST). […].

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

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

STATEMENT OF FACTS

Based on the correspondence and the website […][Company’s website], we understand the following:

1. [Company] (NonResCo) is located in […][city outside Canada], and it produces […] (Products).

2. […].

3. […].

4. The Products are offered in preselected designs or can be custom made. […].

5. NonResCo sells its Products in Canada exclusively online through its website or […][a marketplace platform], without any physical presence in Canada.

6. Once an order is received, NonResCo manufactures the item(s) […][outside Canada] and ships the Product directly to the customer in Canada. NonResCo does not have an inventory or a warehouse in Canada.

7. NonResCo has exceeded $30,000 in worldwide taxable supplies over a 12 month period for sales made through its website.

RULING REQUESTED

You would like to know whether NonResCo must register for the GST/HST.

RULING GIVEN

Based on the facts set out above, we rule that

1. NonResCo is not required to register for GST/HST purposes under subsection 240(1); and

2. As explained in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, a ruling provides the Canada Revenue Agency's (CRA's) position on specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person. Since all the pertinent facts relevant to a determination under subsection 211.22(2) cannot be established at this time, we are unable to rule on NonResCo’s requirement to register under subsection 211.22(2). Instead, we are providing general information which we trust will be of assistance.

EXPLANATION

Subsection 240(1)

Under paragraph 240(1)(c), every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to register for GST/HST purposes except where the person is a non-resident who does not carry on any business in Canada.

Generally, a non-resident person will be considered to be carrying on business in Canada where they have a significant presence in Canada. GST/HST Policy Statement P-051R2, Carrying on Business in Canada (P-051R2), sets out a series of factors and principles that assist in determining whether a non-resident person is carrying on business in Canada for GST/HST purposes. For a business involved in the manufacture and sale of tangible personal property, some of the relevant factors to consider in making this determination include the location of:

• employees or agents
• delivery of goods
• inventory
• a branch, an office or a warehouse
• manufacture or production

The determination of whether a non-resident is carrying on business in Canada for GST/HST purposes is not based on a mechanical application of a specific number of factors. Rather, the determination requires judgment in establishing the importance of each factor in light of the type of supply that is being made in the context of the relevant facts.

Since the only factor connecting NonResCo’s business to Canada is the shipment of the Products to online customers in Canada, NonResCo does not have a significant presence in Canada and would not be considered to be carrying on business in Canada. Accordingly, it would not be required to register for GST/HST purposes under subsection 240(1).

INTERPRETATION GIVEN

Subsection 211.22(2)

With the addition of the new digital economy provisions, suppliers of tangible personal property into Canada, including non-resident suppliers, may have new GST/HST obligations. Specifically, suppliers may be required to register for the GST/HST under the new digital economy rules in subsections 211.22(2) and 240(1.5). Accordingly, a non-resident person who does not carry on any business in Canada should consider whether the following registration provisions apply to them.

Pursuant to subsection 211.22(2), every person that is a non-resident person that does not at any time make supplies in the course of a business carried on in Canada is required at that time to be registered for GST/HST purposes if, for any period of 12 months (other than a period that begins before July 2021) that includes that time, the person’s threshold amount exceeds CAN$30,000. Generally, the threshold amount is the total of all amounts, each of which is an amount that is, or that could reasonably be expected to be, the value of the consideration for a taxable supply that is, or that could reasonably be expected to be, a qualifying tangible personal property supply made during that period by the person to a specified recipient, excluding the value of consideration for a qualifying tangible personal property supply made by the person through a specified distribution platform during the period.

Subsection 211.1(1) defines qualifying tangible personal property supply as

“a supply made by way of sale of tangible personal property that is, under the agreement for the supply, to be delivered or made available to the recipient in Canada, other than

…

(b) a supply of tangible personal property sent by mail or courier to the recipient at an address in Canada from an address outside Canada by the supplier or by another person acting on behalf of the supplier, if the supplier maintains evidence satisfactory to the Minister that the property was so sent;

…”

Subsection 211.22(1) defines a specified recipient as “a person that is the recipient of a supply of property (other than a non-resident person that is not a consumer of the property) and that is not registered under Subdivision D of Division V.”

Subsection 211.1(1) defines a specified distribution platform as “a digital platform through which a person facilitates the making of specified supplies by another person that is a specified non-resident supplier or facilitates the making of qualifying tangible personal property supplies by another person that is not registered under Subdivision D of Division V.”

In summary, where a non-resident person that does not make taxable supplies in the course of a business carried on in Canada makes qualifying tangible personal property supplies to specified recipients, they will be required to register for GST/HST purposes under subsection 240(1.5) if they exceed the CAN$30,000 threshold (described above) within a 12-month period.

However, where a non-resident supplier of tangible personal property, or a person acting on their behalf, sends the property by mail or courier to a recipient at an address in Canada from an address outside Canada, and maintains satisfactory evidence of such, the supply would be excluded, in accordance with exclusionary paragraph (b) of the definition of ‘qualifying tangible personal property supply’ from the calculation of the CAN$30,000 threshold for mandatory registration described at subsection 211.22(2).

Based on the limited facts provided, we cannot confirm NonResCo’s method of delivering Products into Canada or the registration status of its customers. As such, we cannot determine if NonResCo is making qualifying tangible personal property supplies to specified recipients or if they are required to register for the GST/HST pursuant to subsection 211.22(2).

However, if NonResCo makes qualifying tangible personal property supplies to specified recipients and the amount of such sales, as determined by the formula described at subsection 211.22(2), exceeds CAN$30,000 within a 12 month period, NonResCo would be required to register under subsection 240(1.5) of Subdivision D of Division V pursuant to subsection 211.22(2).

DISCLAIMER

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling given in this letter provided that: none of the issues discussed in the ruling are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation given in this letter is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation provided herein.

CONTACT

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 819-271-7136.

Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Sincerely,

Megan MacDonald
Rulings Officer
Border Issues Unit 2
General Operations and Border Issues Division
GST/HST Rulings Directorate

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

GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 229977

Dear [Client]:

Subject: GST/HST ruling - Supply of canary seeds

Thank you for your correspondence of July 21, 2021, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to canary seeds. We apologize for the delay in this response.

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

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

STATEMENT OF FACTS

We understand the facts as follows based on your correspondence, the Canadian Grain Commission’s website at grainscanada.gc.ca and the Canary Seed Development Commission of Saskatchewan’s website at canaryseed.ca:

1. The news release from the Canadian Grain Commission published on June 9, 2021, (canada.ca/en/grain-commission/news/2021/06/canary-seed-will-soon-become-an-official-grain.html) designated canary seed as an official grain under the Canada Grain Act effective August 1, 2021, and provided the following information:

• under the Canada Grain Act, the Canadian Grain Commission is responsible for establishing and maintaining Canada’s grain grading system;
• Canada accounts for 65% of global production and about 80% of total export of canary seed; and
• Saskatchewan accounts for over 95% of Canadian acreage and production and is the world’s leading producer and exporter of canary seed.

2. The scientific report from the Canadian Grain Commission published on February 1, 2021, (grainscanada.gc.ca/en/grain-research/scientific-reports/canary) provided the following information:

• traditionally, canary seeds (Phalaris canariensis L.) were used exclusively as a birdseed due to the presence of hair-like silica fibres, called trichomes, attached to the hulls. These early ‘hairy’ canary seeds were not suitable for human consumption because the small hairs contaminated the hulled whole kernels during dehulling and were deemed hazardous and potentially carcinogenic to human health;
• in the late 1990’s […] a canary seed breeder from the University of Saskatchewan’s Crop Development Center developed a hairless canary seed […] in which the trichomes were completely absent from the hull and glumes. The new ‘hairless’, or glabrous, species was not only easier to handle, but could also be safely consumed and utilized by the food industry as a cereal grain; and
• in 2015, Health Canada and the Food and Drug Administration gave GRAS (Generally Regarded as Safe) status to glabrous canary seeds and approved them as a novel food product.

3. The Canary Seed Development Commission of Saskatchewan (CSDCS) established in 2006 funds canary seed breeding and agronomic work.

4. The news release from the CSDCS published on January 6, 2022, (canaryseed.ca/2022-01-06-canary-seed-alpiste-for-human-food-now-available.html) provided the following information:

• with de-hulled canary seed becoming available to food processors and consumers, the CSDCS has launched a new consumer-facing website to provide nutritional information and promote the suppliers.
• canary seed for human use is being branded with its Spanish name, alpiste, and the website is alpistecanada.ca; and
• the human food market for canary seed is still in its infancy, but having companies interested and product available is a big step.

5. In page 6 of the newsletter from the CSDCS (Newsletter) - Summer 2022 Edition (canaryseed.ca/documents/Canary_Seed_News_Summer_2022.pdf) it is provided that most of the canary seed acreage is still seeded to the old non-glabrous varieties […] because they still have the best yields.

6. In page 2 of the Newsletter - Fall 2022 Edition (canaryseed.ca/documents/Canary_Seed_News_Fall_2022.pdf) it is provided that over the years, the CSDCS has expended considerable resources […] to facilitate this alternative market and that progress has been slow and the vast majority of canary seed is still for the birdseed market.

RULING REQUESTED

You would like to know if the supply of canary seeds (Phalaris canariensis L.) is zero-rated under section 2 of Part IV of Schedule VI.

RULING GIVEN

Based on the facts set out above, we rule that the supply of canary seeds (Phalaris canariensis L.) is not zero-rated under section 2 of Part IV of Schedule VI and subject to the GST/HST at the applicable rate.

EXPLANATION

Generally most supplies of goods and services that are made in Canada are taxable supplies subject to the GST/HST unless the supply is specifically identified as being an exempt supply (not subject to the GST/HST) or a zero-rated supply (subject to the GST/HST at a rate of 0%). Exempt supplies are listed in Schedule V while zero-rated supplies are listed in Schedule VI.

Section 2 of Part IV of Schedule VI provides, in part, that a supply of grains or seeds (Seeds) is zero-rated when all of the following conditions are met:

1. the Seeds are supplied in their natural state, treated for seeding purposes, or irradiated for storage purposes;

2. the Seeds are ordinarily used as, or to produce, food for human consumption or feed for farm livestock or poultry;

3. the Seeds are supplied in a quantity that is larger than the quantity that is ordinarily sold or offered for sale to consumers; and

4. the Seeds or mixtures of the Seeds are not packaged, prepared or sold for use as feed for wild birds or as pet food.

As stated in the Newsletters the market for human food products made from canary seeds is still in the development stage and the vast majority of canary seeds are used as a component of feed mixtures for pet birds which is excluded from the zero-rating provision of section 2 of Part IV of Schedule VI.

It is therefore our conclusion that the supply of canary seeds does not meet the zero-rating provision of section 2 of Part IV of Schedule VI. If sometime in the future, the use of canary seeds changes, we would be prepared to re-examine our position. Please note that the other conditions under section 2 of Part IV of Schedule VI must also be met for the sale of canary seed to be zero-rated.

DISCLAIMER

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.

CONTACT

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 236-330-8126.

Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Sincerely,

Sungjin Kim
Rulings Officer
Services and Intangibles Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate

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

GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 247361
Business Number: […]

Dear [Client]:

Subject: GST/HST Ruling - GST/HST Status of […][a chocolate product]

Thank you for your correspondence of March 18, 2024, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to […][a chocolate product] (the Product).

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

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

STATEMENT OF FACTS

We understand the following:

1. The Product is manufactured by […] (the Manufacturer) and sold by […] (the Retailer).

2. The Product is identified on the packaging as […].

3. The Product is packaged in a [#] gram resealable bag that contains approximately [#] individually wrapped pieces of the Product. The wrapping for each piece resembles wrapping typically used for candies like chocolates.

4. The outer packaging for the Product also resembles packaging typically used for candies and confection.

5. The front of the product packaging describes the Product as […].

6. Marketing contained on the Manufacturer’s corporate website […] includes the following statement: […].

7. The ingredients of the Product, as listed on the product packaging, are as follows: […].

8. The Retailer has indicated that the Product is created in its “candy category” and is sold alongside confectionary items and cookies.

9. The Manufacturer is generally in the business of manufacturing chocolate products.

RULING REQUESTED

You would like to know whether the supply of the Product is zero-rated under section 1 of Part III of Schedule VI.

RULING GIVEN

Based on the facts set out above, we rule that the supply of the Product is a taxable supply that is excluded from zero-rating under paragraph 1(e) of Part III of Schedule VI of the ETA.

EXPLANATION

Section 1 of Part III of Schedule VI zero-rates supplies 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) unless an exclusion set out in paragraph 1(a) through 1(r) of that section applies.

Paragraph (e)

Paragraph 1(e) excludes from zero-rating candy, 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, including fruits, seeds, nuts and popcorn when they are coated or treated with candy, chocolate, honey, molasses, sugar, syrup or artificial sweeteners.

This exclusion is intended to apply quite broadly as it applies not only to candy, but also to supplies of confectionery which may be classed as candy and supplies of goods which are sold as candy. Furthermore, it applies whether the product at issue is artificially or naturally sweetened. Thus, the exclusion is intended to apply not only to supplies of candy but supplies of anything that is likely to compete with candy in the marketplace. Accordingly, if the main ingredient is a form of sugar or chocolate, this is a strong indicator that the item is a candy or confectionery as it will likely compete with other candies or confectionery.

It is CRA’s position that where sugar or chocolate are the main ingredient, the product will ordinarily fall within paragraph (e) unless the nature of the product indicates that it should not be classed as a candy, confectionery that may be classed as candy or goods sold as candies.

Paragraph (m)

Paragraph 1(m) excludes supplies of cakes, muffins, pies, pastries, tarts, cookies, doughnuts, brownies, croissants with sweetened filling or coating, or similar products where:

(i) they are packaged for sale to consumers in quantities of less than six items each of which is a single serving, or
(ii) they are not prepackaged for sale to consumers and are sold as single servings in quantities of less than six,

but not including bread products, such as bagels, English muffins, croissants or bread rolls, without sweetened filling or coating.

Some other factors to also consider in determining the GST/HST treatment of products include the product labelling, packaging and marketing within a store and/or on a website. With regards to marketing, it is important to consider whether certain marketing is related to the flavour of a particular item as opposed to characterizing the product itself. […] Although the flavour of the product may be described in paragraph 1(m), it is important to recognize that this is simply the flavour of the product that is being promoted through marketing and not the nature of the product. Such products may fall within paragraphs (e) based on the nature of the product rather than falling within paragraph (m). […].

The main ingredients of the Product are chocolate and sugar. With respect to the marketing and advertising of the Product, both the package and the manufacturer’s website identify and promote the Product as a chocolate. Furthermore, packaging for the Product resembles packaging typically used for candies and confectionary. In addition to each piece being individually wrapped, pieces of the Product resemble bite-sized pieces of chocolate. […] Therefore, supplies of the Product would be excluded from zero-rating under paragraph 1(e) of Part III of Schedule VI of the ETA as candy or confectionary that may be classed as candy.

DISCLAIMER

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the CRA is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.

CONTACT

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 289-356-2627.

Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287 or by fax to 1-418-566-0319.

Sincerely,

Zubair Patel
Senior Rulings Officer
Strategic and Emerging Issues Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate

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

GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 247578
Business Number: […]

Dear [Client]:

Subject: GST/HST Ruling - GST/HST Status of […][bites]

Thank you for your correspondence of April 25, 2024, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to […][bites] (the Product).

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

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

STATEMENT OF FACTS

We understand the following:

1. The Product is manufactured by […] (the Manufacturer) and sold by […] (the Retailer).

2. The Product is identified on the packaging as […].

3. The front of the product packaging describes the Product […].

4. The Product is packaged in a [#] gram resealable bag that contains approximately [#] pieces of the Product. The pieces are not individually wrapped.

5. The Product is created by the Retailer under its candy category and is sold alongside confectionary items and cookies.

6. The ingredients of the Product, as listed on the product packaging, are as follows: […][fruit], […][other ingredients].

7. Marketing contained on the Manufacturer’s corporate website […] includes the following statements: […].

RULING REQUESTED

You would like to know whether the supply of the Product is zero-rated under section 1 of Part III of Schedule VI.

RULING GIVEN

Based on the facts set out above, we rule that the supply of the Product is a taxable supply that is excluded from zero-rating under paragraph 1(l) of Part III of Schedule VI of the ETA.

EXPLANATION

Section 1 of Part III of Schedule VI zero-rates supplies 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) unless an exclusion set out in paragraph 1(a) through 1(r) of that section applies.

We set out below the Canada Revenue Agency’s (CRA) position concerning the application of the exclusions to snacks that are sweetened and are sold in the form of mini balls, bites, chunks or other similar forms. Such products may be subject to the following exclusionary paragraphs:

• 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 (paragraph (e));
• granola products, but not including any product that is sold primarily as a breakfast cereal (paragraph (h));
• fruit bars, rolls or drops or similar fruit-based snack foods (paragraph (l)); or
• cakes, muffins, pies, pastries, tarts, cookies, doughnuts, brownies, croissants with sweetened filling or coating, or similar products where

(i) they are prepackaged for sale to consumers in quantities of less than six items each of which is a single serving, or
(ii) they are not prepackaged for sale to consumers and are sold as single servings in quantities of less than six,

but not including bread products, such as bagels, English muffins, croissants or bread rolls, without sweetened filling or coating (paragraph (m)).

It should be noted that snacks that are unsweetened but sold in the form of mini bites, balls or other similar forms may be subject to the exclusion in paragraph (f) as a similar snack food to chips, crisps, puffs, curls or sticks where the snacks are salty or savoury.

Paragraph (e)

Paragraph 1(e) excludes from zero-rating candy, 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, including fruits, seeds, nuts and popcorn when they are coated or treated with candy, chocolate, honey, molasses, sugar, syrup or artificial sweeteners.

As set out in GST/HST Info Sheet GI-020, Bars, nut bars generally include one or more types of nuts and syrup or honey as the main ingredients. These bars fall under the candy and confectionery category because they contain nuts coated or treated with honey, molasses, sugar, syrup or artificial sweeteners. Similar to nut bars, nut-based bites, balls and chunks generally include one or more types of nuts and syrup or honey as the main ingredients. Accordingly, as with nut bars, these items would also fall within the candy and confectionery category when they contain nuts coated or treated with honey, molasses, sugar, syrup or artificial sweeteners as main ingredients as well. Please note that CRA considers coconut to be a nut and not a fruit for GST/HST purposes.

This exclusion is intended to apply quite broadly as it applies not only to candy, but also to supplies of confectionery which may be classed as candy and supplies of goods which are sold as candy. Furthermore, it applies whether the product at issue is artificially or naturally sweetened. Thus, the exclusion is intended to apply not only to supplies of candy but supplies of anything that is likely to compete with candy in the marketplace. Accordingly, if the main ingredient is a form of sugar or chocolate, this is a strong indicator that the item is a candy or confectionery as it will likely compete with other candies or confectionery. However, certain foods with sugar or chocolate as a main ingredient may not by their nature fall within this paragraph. For example, some Indian sweets may have sugar as a main ingredient and have the appearance similar to bites, balls or chunks, however, the intention of these items is to be consumed similar to types of sweetened baked goods and would not generally be classed as a candy or confectionery. With such items, the marketing of the item can give a strong indication of the nature of the product.

It is CRA’s position that where sugar or chocolate are the main ingredient, the product will ordinarily fall within paragraph (e) unless the nature of the product indicates that it should not be classed as a candy, confectionery that may be classed as candy or goods sold as candies.

Paragraph (h)

Paragraph 1(h) excludes granola products except for those which are sold primarily as breakfast cereal. Paragraphs 63 and 64 of GST/HST Memorandum 4.3, Basic Groceries identifies granola products as generally having a mixture of cereals (e.g., rolled oats, rice, or other whole grains) and honey and/or syrup as the main ingredients, and may include nuts and dried fruits. The ingredients in granola bars are not processed to a great extent, thereby retaining the distinct character of each ingredient within the bar. Granola bars may also have a chocolate or sweetened coating.

Where mini bites, balls, chunks or other similar forms have the ingredients of a granola product and the ingredients of the product are not processed to the extent that the distinct character of each ingredient is lost, it is likely that such a product would be excluded from zero-rating under paragraph 1(h) unless the product is sold primarily as a breakfast cereal.

Paragraph (l)

Paragraph 1(l) excludes “fruit bars, rolls or drops or similar fruit-based snack foods” from zero-rating. Mini bites, balls, chunks and other similar forms are considered “fruit-based” when the product contains fruit and at least one other ingredient. Products having fruit as an important ingredient, such that the product is represented to consumers as being fruit-based, will be within this exclusion.

Where it is established that a product is “fruit-based”, the item will be considered a “similar fruit-based snack food” if it is marketed as a snack food. Fruit-based mini bites, balls, chunks or similar snacks are similar enough to fruit bars. They are both snacks and are both eaten for similar purposes. The only real difference is that a fruit bar is larger and constituted in a bar form as opposed to a bite, ball or chunk.

Paragraph (m)

Paragraph 1(m) excludes supplies of cakes, muffins, pies, pastries, tarts, cookies, doughnuts, brownies, croissants with sweetened filling or coating, or similar products where:

(i) they are packaged for sale to consumers in quantities of less than six items each of which is a single serving, or
(ii) they are not prepackaged for sale to consumers and are sold as single servings in quantities of less than six,

but not including bread products, such as bagels, English muffins, croissants or bread rolls, without sweetened filling or coating.

Paragraph (m) generally applies to items referred to as sweetened baked goods. In paragraph (m), the phrase “or similar products” could include the types of sweetened mini bites, balls, chunks and other similar items that do not fall within paragraphs (e), (h) or (l). This can apply to items where fruit, sugar and chocolate are not significant ingredients. They may be ingredients however not a significant ingredient.

Some other factors to also consider in determining the GST/HST treatment of bites, balls, chunks or similar products include the product labelling, packaging and marketing within a store and/or on a website. With regards to marketing, it is important to consider whether certain marketing is related to the flavour of a particular item as opposed to characterizing the product itself. For example, certain products may be sold as brownie, pie, or cookie flavoured. Although the flavour of the product may be described in paragraph 1(m), it is important to recognize that this is simply the flavour of the product that is being promoted through marketing and not the nature of the product. Such products may fall within paragraphs (e), (g) or (l) based on the nature of the product rather than falling within paragraph (m). […].

In light of the above, it is our opinion that, as the Product contains [fruit] as primary ingredients, comes in a form similar to a fruit bar and is marketed and represented as a fruit-based snack, supplies of the Product are excluded from zero-rating under paragraph 1(l) and therefore are taxable at the full rate of GST/HST.

DISCLAIMER

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the CRA is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.

CONTACT

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 289-356-2627.

Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Sincerely,

Zubair Patel
Senior Rulings Officer
Strategic and Emerging Issues Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate

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

GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]
Case Number: 200294

Dear [Client]:

Subject: GST/HST RULING - Drop shipment of […][machinery parts]

Thank you for your correspondence of June 3, 2019, concerning the application of the goods and services tax/harmonized sales tax (GST/HST), in particular the drop shipment rules, to the supply of construction services […]. We apologize for the delay in this response.

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

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

STATEMENT OF FACTS

We understand the following:

1. […], […][Corporation A], is a non-resident person based in […][Country A] (NonResCo).

2. NonResCo is not registered for purposes of the GST/HST and does not carry on any business in Canada.

3. […] (Operator) is […] based in [city] with premises at […][Location A] in [city, province].

4. The Operator is registered for purposes of the GST/HST.

5. The Operator and NonResCo have entered into a contract dated [mm/dd/yyyy], […] (collectively, the “Agreement”).

6. The “Site” refers to the Operator’s premises at [Location A] in [city, province]. ([…])

7. Under the terms of the Agreement, […], NonResCo agrees to supply and install at Operator’s Site […][Parts], with fully integrated operational electrical and control systems, […]. The Plant includes the machinery, apparatus materials and all things to be provided under the contract for incorporation into the Works. ([…])

8. The Agreement specifies that NonResCo is responsible for […] (the Works). ([…])

9. The Works are to be completed and the Operator is set to take over […] at [Location A] Site on or before [mm/dd/yyyy]. ([…])

10. NonResCo shall provide all the necessary equipment, superintendence, labour and all necessary facilities for implementing the Works at the Site. ([…])

11. NonResCo shall apply in writing to the […][Project Manager] for permission to deliver any Plant or any of its equipment to the Site. No Plant or equipment may be delivered to the Site without the [Project Manager]’s written permission. NonResCo shall be responsible for the shipment, risk of loss or damage, unloading and reception on Site of the Plant and equipment.

NonResCo shall deliver the Plant at [Location A] in [city, province], Canada within the time specified in the Agreement […].

[…]

12. NonResCo shall set out the Works in relation to the original points, lines and levels of reference given by the Project Manager in writing […]. ([…])

13. […]

14. NonResCo shall submit to the [Project Manager] and the Operator for their approval the […][Project Plan] which shall conform in all respects with the specifications […]. ([…])

15. […]

16. […], NonResCo shall provide all the equipment necessary to complete the Works. […]

17. NonResCo shall observe all applicable regulations regarding safety on Site […]. ([…])

18. NonResCo shall be entitled without charge to use for purposes of the Works electricity and water as may be available on Site. ([…])

19. […]. On completion of the Works, NonResCo shall remove all of its equipment and leave the whole of the Site and the Works clean and in a workmanlike condition, […]. ([…])

20. NonResCo shall afford to […] persons lawfully upon the Site all reasonable opportunities for carrying out their work, […]. ([…])

21. No persons other than the employees of NonResCo and its subcontractors shall be allowed on the Site except with the consent of the [Project Manager]. ([…])

22. During the performance of the Work, NonResCo shall be responsible for internal security and protection of all Plant and Works. […]. ([…])

23. NonResCo shall be responsible for the provision of adequate first-aid facilities at the Site for all personnel employed or retained by NonResCo or any of its subcontractors in the performance of the Work. […]. ([…])

24. NonResCo shall be responsible for fire prevention and fire protection practices in connection with the performance of the Work. […].

[…]

25. NonResCo shall furnish and maintain, or arrange to obtain, at each of its work areas adequate waste disposal and toilet facilities and potable water for the use of its employees. In addition, NonResCo shall comply with all laws, standards, codes and regulations relating to sanitation at the Site, […]. ([…])

26. […]

27. The Operator shall in reasonable time grant NonResCo access to and possession of the Site, which may, however not be exclusive to NonResCo. […]. ([…])

28. NonResCo shall perform such tests (“Tests on Completion”) in accordance with the Operator’s requirements […] to show that the Works meet the performance specifications and agreed tolerances specified in the Agreement […] after demonstrating to the [Project Manager] that the Works are complete except in minor respects that do not affect the use of the Works for their intended purpose. ([…])

29. The Works shall be taken over by the Operator when they have been completed in accordance with the Agreement, […]. ([…])

30. NonResCo shall be responsible for the care of the Works or any Section thereof from the Commencement Date (the date of the execution of the Agreement) until the Risk Transfer Date […]. ([…])

31. […]

32. […]

33. NonResCo shall insure the Works for their full replacement value […] from the Commencement Date until the Risk Transfer Date against any loss or damage […]. ([…])

34. NonResCo shall insure its equipment for its full replacement value […] against all loss or damage. ([…])

35. NonResCo shall insure against liability to third parties for any death or personal injury and loss of or damage to any physical property arising out of the performance of the Agreement […].

[…]

36. Plant to be supplied pursuant to the Agreement shall become the property of the Operator once it has been delivered to the Site and has passed tests upon completion. ([…])

37. Before the Operator takes over the Works, NonResCo shall supply operation and maintenance manuals […].

38. NonResCo shall not subcontract the whole of the Works.

Except where otherwise provided by the Agreement, NonResCo shall not subcontract any part of the Works without the prior consent of the [Project Manager]. […].

NonResCo shall be responsible for the acts, defaults and neglect of any subcontractor, his agents or employees […]. ([…])

39. As permitted under the Agreement, NonResCo has retained the services of two local subcontractors, both registered for purposes of the GST/HST, for assistance with the completion of separate portions of the Works at the Site. […].

40. NonResCo has hired […] (“MechanicalCo”), a firm specializing in mechanical industrial projects, to assist with the offloading […] and the assembly […] of the Parts at [Location A] Site.

41. NonResCo has hired […] (“ElectricalCo”) to assist with the assembly of the electrical and control systems of the Works at the Site.

42. Both MechanicalCo and ElectricalCo have charged GST/HST […] to NonResCo on the consideration for the supply of their services to NonResCo.

RULING REQUESTED

You would like to know whether:

1) The supply of services made to NonResCo by its subcontractors, MechanicalCo and ElectricalCo, would be deemed to be made outside Canada by virtue of subsection 179(2) (“drop-shipment rules”).

2) The GST/HST paid on those supplies may be recovered as GST/HST paid in error under section 261.

RULING GIVEN

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

1) The supply of services made to NonResCo by its subcontractors, MechanicalCo and ElectricalCo, would not be deemed to be made outside Canada by virtue of subsection 179(2).

2) The GST/HST paid on those supplies cannot be recovered as GST/HST paid in error under section 261.

EXPLANATION

Under the Agreement, NonResCo agreed to supply the Parts on an installed basis (the Works) to the Operator at its premises at [Location A]. The Parts were shipped directly to the Site and installed, in fact, incorporated, into the real property at the Site. The Operator obtained ownership of the Works once the installation work was completed to the Operator’s satisfaction. NonResCo contracted with MechanicalCo to unload the Parts […] and to install them on Site at [Location A], that is, NonResCo hired MechanicalCo to provide the service of constructing the Works at the Site. NonResCo further contracted with ElectricalCo in order to have the electrical and control systems installed with respect to the Works at the Site. Under the circumstances, both MechanicalCo and ElectricalCo would have had to perform their construction services relating to the Works on Site at [Location A].

In order for the drop-shipment provisions of subsection 179(2) to apply in this case, there must be an agreement between a registrant and a non-resident person who is not registered under section 240 for the supply of a commercial service in respect of tangible personal property. The registrant must acquire physical possession of the property for the purpose of making a taxable supply of a commercial service in respect of the property to the unregistered non-resident person and must subsequently transfer physical possession of the property at a place in Canada to a third person or to the non-resident person.

[…], we understand […] that NonResCo entered into agreements with […][MechanicalCo and ElectricalCo] for the provision of construction services with respect to the Works. However, further to the Agreement between NonResCo and the Operator, we understand that the Parts were shipped directly to [Location A] Site, and the unloading, installation and other related services performed by the subcontractors on the Parts necessarily took place at the Site at [Location A] where the Works were incorporated into the real property held by the Operator. As a result, the subcontractors, MechanicalCo and ElectricalCo, would not have acquired physical possession of the property; rather their services would have been in respect of property that was already in the Operator’s physical possession at [Location A]. Accordingly, the drop-shipment rule does not apply and the commercial services supplied by MechanicalCo and ElectricalCo to NonResCo would not be deemed to be made outside Canada pursuant to subsection 179(2).

DISCLAIMER

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.

CONTACT

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 343-553-3873.

Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287 or by fax to 1-418-566-0319.

Sincerely,

Anna Messore
Manager, GST/HST Rulings
Border Issues 2 Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate

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

GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5

[Client Address]

Case Number: 245570
Business Number: [#]

October 22, 2024

Dear [Client]:

Subject: GST/HST ruling - Supply of fractional ownership in a horse

Thank you for your correspondence of February 15, 2023, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the supply of a fractional ownership interest in a horse. We apologize for the delay in this response.

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

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

STATEMENT OF FACTS

Based on your correspondence and our telephone conversation, we understand the following:

1. You are a sole proprietor doing business […] in […][city outside Canada] where you own and breed […] horses.

2. You are a non-resident person who is registered as a sole proprietor for GST/HST purposes […].

3. […], you wish to purchase a share representing a […][fraction] ownership interest in […][horse name] (Horse).

4. The Horse […] was originally owned and raced by co-owners […][Owner 1] of [Canadian City], […][Owner 2] of [Canadian City] and […][Owner 3] of [city outside Canada], collectively the “Sellers”.

5. At the end of the [yyyy] racing season, the Sellers retired Horse from racing and syndicated him to stand at stud at […][Sellers’ Agent].

6. You have provided an […] agreement entitled […] (Agreement), […], by which the Sellers convert their undivided co-ownership of the Horse into distinct fractional ownership shares.

7. The Agreement assigns the day-to-day management of the Horse to [Sellers’ Agent], appointed agent of the Sellers and Syndicate Manager. […].

8. [Sellers’ Agent] is a Canadian resident corporation registered for the GST/HST.

9. The Agreement divides the ownership of the Horse into [#] distinct fractional ownership interests in the Horse (“shares”), each share representing an equal, undivided [fraction] ownership interest in the Horse. Each share is issued by and over the signature of the Syndicate Manager, acting as agent of the Sellers. […]

10. The Agreement lays out the terms and conditions that govern the ownership of the shares as well as the supervision and management of the Horse by the Syndicate Manager on behalf of the shareholders. […]

11. […]

12. The Horse is assigned to the care of the Syndicate Manager and is kept at their stables located at […][address in Canada] […].

13. The Syndicate Manager […] has complete custody, management and control of the Horse with full decision making authority, including for the management and supervision of the Horse’s breeding career. […]

14. The Sellers confirm that the sale of shares by them shall be arranged for and managed by the Syndicate Manager. […]

15. The Agreement accords the Syndicate Manager annual remuneration ($[...]) […]. Net revenues resulting from the Horse breeding program, less expenses, are distributed to the shareholders bi-annually. […]

16. […], each shareholder is required to pay to the Syndicate Manager, for each share owned, [fraction] of all […] expenses […] in connection with the maintenance, breeding and promotion of the Horse. […]

17. Each share gives the shareholder the right to exercise certain breeding rights in the Horse subject to the fees specified in the Agreement. […]

18. You propose to purchase one share in the Horse from [Owner 3] for a total of $[…].

19. [Owner 3] is a non-resident corporation that is not registered for GST/HST purposes.

RULING REQUESTED

You would like to know whether:

1. your purchase of a share in the Horse is subject to the GST/HST;

2. you are eligible to claim an input tax credit (ITC) with respect to the purchase of the share.

RULING GIVEN

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

1. your purchase of the share is subject to the GST/HST at the applicable rate;

2. you may be eligible to claim ITCs in respect of the GST/HST you have paid on a share acquired for consumption use or supply in the course of your commercial activities.

EXPLANATION

Under the terms of the Agreement, each share represents a [fraction] fractional ownership interest in the Horse. A horse, including an ownership interest in a horse, is considered to be tangible personal property (TPP) for GST/HST purposes.

The Sellers are engaged in a commercial activity with respect to the exploitation of the Horse, initially for racing and subsequently for breeding purposes, followed by syndication of the Horse whereby Sellers may collectively sell up to [#] separate fractional ownership shares in the Horse to third party purchasers. The commercial activity in connection with the Horse takes place in Canada where the Horse is located.

Pursuant to paragraph 142(1)(a), a supply by way of sale of TPP is deemed to be made in Canada if the TPP is, or is to be, delivered or made available in Canada to the recipient of the supply. "Made available" refers to situations where delivery of the TPP under the applicable law of the sale of goods is effected by constructive delivery (i.e., actual physical possession of the TPP is not transferred to the recipient of the supply yet is recognized as having been intended by the parties and as sufficient in law). The Horse remains standing at the Syndicate Manager’s farm in Canada and therefore it will be made available to you in Canada upon purchase of the share.

There are no exempting or zero-rating provisions that apply to [Owner 3]’s supply of the share to you. Accordingly, the supply is a taxable supply of TPP deemed to be made in Canada on which the GST/HST at the applicable rate must be collected either by [Owner 3], as a registrant, or by the Syndicate Manager as their agent.

Subsection 169(1) generally provides that a registrant is eligible to claim an ITC for GST/HST paid or payable on property or a service to the extent that the property or service was acquired, imported or brought into a participating province for consumption, use or supply in the course of the person's commercial activities, provided that all the conditions for claiming an ITC are met.

For more information with respect to the general ITC rules, please see GST/HST Memorandum 8.1, General Eligibility Rules.

DISCLAIMER

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the rulings given in this letter provided that: none of the issues discussed in the rulings are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.

CONTACT

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 819-271-7136.

Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Sincerely,

Megan MacDonald
Rulings Officer
Border Issues Unit 2
General Operations and Border Issues Division
GST/HST Rulings Directorate

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

GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5

[Addressee]

Case Number: 245954r
Business Number: […]

Dear [Client]:

Subject: GST/HST ruling
[…][prepackaged, ready-to-drink beverage]

This letter is further to our letter of [mm/dd/yyyy], in response to your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to […][a prepackaged, ready-to-drink beverage] (Product). We are providing you with this revised response to clarify the application of the ruling provided in our Ruling Given section of the letter of [mm/dd/yyyy].

The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.

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

STATEMENT OF FACTS

We understand the following:

1. […] ([…][the Company]) is the manufacturer of the Product.

2. The Product is a prepackaged, ready-to-drink […][beverage].

3. The Company sells the Product to retailers, and to consumers on its website, […].

4. The Product is prepackaged for sale in [#] and [#] packages of [#] ml containers. There are [#] flavours: […].

5. The Product is not carbonated nor does it contain any natural fruit juice.

6. The ingredients of the Product are:

[…]

7. On the front label, the Product is described as […][a beverage] containing […][protein] and the volume indicator describes the Product as being a […][beverage serving under 600ml]

8. The following statements appear on the Company’s website:

[…]

RULING REQUESTED

You would like to know whether supplies of […][the various flavours] of the Product are zero-rated under section 1 of Part III of Schedule VI when sold in multiples prepackaged by the Company.

RULING GIVEN

Based on the facts set out above, we rule that supplies of [the various flavours] of the Product are zero-rated supplies under section 1 of Part III of Schedule VI when sold in multiples prepackaged by the Company.

EXPLANATION

Generally, in accordance with section 165, every recipient of a taxable supply made in Canada shall pay tax calculated at the rate of 5% on the value of the consideration for the supply (or at the rate of 13% in Ontario; 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island) unless the supply is zero-rated. The tax rate in respect of a zero-rated supply is 0%. A zero-rated supply is a supply that is included in Schedule VI.

Section 1 of Part III of Schedule VI zero-rates supplies 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), other than supplies listed in paragraphs (a) to (r) of that section.

The terms “food” and “beverage” are not defined in the ETA. The CRA’s approach is that these terms are to be read according to their ordinary meaning. As stated in GST/HST Memorandum 4.3, Basic Groceries (Memo 4.3), we consider a product to be a food or beverage if an average consumer would recognize and purchase the product as such in the ordinary course of buying basic groceries (i.e., food, beverages, and ingredients marketed for human consumption). This approach is based on the view that food and beverages are usually consumed by an average person 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 benefits related to performance or physique. These latter types of products are commonly referred to as dietary supplements.

Among other factors, the CRA will consider the labelling, packaging and marketing of a product to determine whether an average consumer would consider it to be a dietary supplement rather than a food, beverage or ingredient. It should be noted that no one factor is determinative of the nature of a product and changes in the labelling, packaging and/or marketing would not necessarily result in a change in status. Paragraphs 148 to 159 of Memo 4.3 provide detailed information on dietary supplements.

Based on our review of the labelling and packaging […], and the marketing of the Product on the Company’s website, we conclude that […][supplies of the various flavours] the Product are not dietary supplements. As a consequence, [the various flavours] of the Product are subject to section 1 of Part III of Schedule VI and its exclusionary paragraphs.

Paragraph 1(n) of Part III of Schedule VI is the relevant exclusionary paragraph that needs to be considered. Paragraph 1(n) of Part III of Schedule VI excludes beverages (other than unflavoured milk) from zero-rating, except when

1) prepared and prepackaged specially for consumption by babies,

2) sold in multiples, prepackaged by the manufacturer or producer, of single servings, or

3) the cans, bottles or other primary containers in which the beverages or products are sold contain a quantity exceeding a single serving.

For GST/HST purposes, a single serving for beverages includes all servings under 600 ml in volume. [the various flavours] of the Product are sold in multiples, prepackaged by the manufacturer, of single servings; therefore, paragraph 1(n) of Part III of Schedule VI is not applicable to exclude the supplies from zero-rating. As there are no further applicable exclusions, supplies of [the various flavours] of the Product are zero-rated, pursuant to section 1 of Part III of Schedule VI.

For further information on the application of the GST/HST to beverages, refer to the information under the heading, “Non-carbonated beverages” in GST/HST Info Sheet GI-036, Beverages.

DISCLAIMER

In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.

CONTACT

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 778-952-5178.Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Sincerely,

Ben Lui
Industry Sector Specialist
Strategic and Emerging Issues Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate