Commodity Clips, November/December 2007

Disclaimer: The following Commodity Clips publication features links to related government Web pages. However, ongoing legislative updates mean these pages may change. Please be aware PricewaterhouseCoopers Canada will do its best to ensure Commodity Clips will link to current government information.

A bi-monthly publication of the PricewaterhouseCoopers Indirect Tax Group.

• GST/HST
• British Columbia
• Manitoba
• Ontario
• Nova Scotia
• Customs

CRA Guidance Regarding New Input Tax Credit Allocation
As previously reported in the March/April 2007 Commodity Clips, new rules relating to input tax credit allocation and recovery by financial institutions were proposed in January 2007. The proposed amendments insert section 141.02 into the Excise Tax Act (the Act). New section 141.02 sets out rules with respect to the apportionment of inputs based on the extent to which the inputs are used or consumed, or acquired, imported or brought into a participating province for consumption or use for the purpose of making taxable supplies for consideration, or for other purposes.

New section 141.02 includes some provisions that apply to financial institutions that are qualifying institutions (e.g., the election for the transitional year), some provisions that apply to financial institutions that are not qualifying institutions (e.g., the election to use the prescribed percentage), and some provisions that may apply to all financial institutions (e.g., the allocation rules for excluded inputs).

The CRA has issued the following three documents, which explain the application of these new provisions to the various types of financial institutions.

• GST/HST Technical Information Bulletin B-097 — "Determining Whether a Financial Institution is a Qualifying Institution for Purposes of Section 141.02," issued in September 2007, explains the criteria for determining whether a financial institution is a qualifying institution for purposes of section 141.02.
• GST/HST Technical Information Bulletin B-098 — "Application of Section 141.02 to Financial Institutions That Are Qualifying Institutions," provides information on the rules that apply to qualifying institutions.
• GST/HST Technical Information Bulletin B-099 — "Application of Section 141.02 to Financial Institutions That Are Not Qualifying Institutions," provides information on the rules that apply to financial institutions that are not qualifying institutions.

Automobile Operating Expense Benefit (GST/HST) Regulations
On October 3, 2007, SOR/2007-202 Regulations Amending the Automobile Operating Expense Benefit (GST/HST) Regulations (the "Amending Regulations") was released (see page 14 of the Canada Gazette). Automobile operating expense benefits are benefits based on the amounts paid by an employer or corporation on account of automobile operating expenses incurred in relation to the personal use of an automobile by an employee or shareholder. GST/HST applies to the benefit and must be accounted for and remitted at a prescribed rate. The purpose of the Amending Regulations is to reflect the effect of the July 2006 GST/HST rate reduction on the prescribed rate and to remove outdated and unnecessary provisions.

Streamlined Accounting (GST/HST) Regulations
On October 3, 2007, SOR/2007-203 Regulations Amending the Streamlined Accounting (GST/HST) Regulations (the "Amending Regulations") was released (see page 17 of Canada Gazette). The Streamlined Accounting (GST/HST) Regulations provide small businesses and eligible public service bodies optional simplified methods of calculating their GST or HST remittances. The purpose of the Amending Regulations is to amend the remittance rates for various entities, including municipalities, certain health care facilities and non-profit organizations when applying the "Special Quick Method" to calculate its net tax.

Drop Shipments
Draft Revised GST/HST Memorandum 3.3.1 Drop Shipments was issued in September 2007. It explains the “drop-shipment” rules under the ETA governing transactions involving the transfer of goods by a registrant in Canada to another person in Canada on behalf of an unregistered non-resident for purposes of the GST/HST. It also explains the mechanism of the flow-through of input tax credits for the tax paid by an unregistered non-resident on the importation of goods by the non-resident, and the non-resident rebate for installation services supplied in Canada to a non-resident. The memorandum will cancel and replace GST/HST Memorandum 3.3.1, dated February 2001.

Proposed GST/HST Rate Reduction
On October 30, 2007, the government of Canada announced its proposal to reduce the current GST rate to 5%, effective January 1, 2008. The rate reduction also results in a change of the HST rate for participating provinces (currently Newfoundland and Labrador, New Brunswick and Nova Scotia) from 14% to 13%. The provincial component of the HST remains unchanged at 8%. This latest announcement follows a similar 1% reduction of the GST rate from 7% to 6%, which was effective July 1, 2006.

The same transitional provisions which operated in July, 2006, are expected to apply to this latest rate reduction in January, 2008. Broadly, the rate of tax will be determined by the date on which the GST/HST is paid or becomes payable. The Canada Revenue Agency (CRA) has published a questions and answers document that addresses some of the more common transactions that are likely to be affected by the GST/HST rate reduction, particularly those spanning the January 1, 2008 implementation date. This document addresses the implications of the GST/HST rate reduction from both the perspective of the supplier and recipient.

PST

Update to British Columbia Ministry of Small Business and Revenue Web site
The British Columbia Government has recently restructured the administration of commodity taxes including PST, making this area the responsibility of the Ministry of Small Business and Revenue. Consequential updates have been made to the Government Web site, which has caused many links to publications included in previous editions of Commodity Clips to no longer work. The following Web sites should now be used to access publications in relation to British Columbia commodity taxes:

• Sales Tax Bulletins
• Hotel Room Tax Bulletins
• Motor Fuel Tax Bulletins
• Tobacco Tax Bulletins

Notice to Automotive Repair Industry: Passenger Vehicle Rental Tax (PVRT)
In September 2007, the Ministry of Small Business and Revenue issued a Notice to the Automotive Repair Industry that explains that the application of the passenger vehicle rental tax (PVRT) to courtesy vehicles is currently under review and that the ministry is delaying the implementation of the PVRT to courtesy vehicles, which was originally scheduled for October 1, 2007.

Notice to Pharmaceutical Companies
In September 2007, the Ministry of Small Business and Revenue issued a Notice to Pharmaceutical Companies that clarifies that the PST exemption applies to promotional drug samples supplied by pharmaceutical companies to physicians, dentists and veterinarians.

Notice to Taxpayers: PST on Legal Services
In October 2007, the Ministry of Small Business and Revenue issued a Notice to Taxpayers regarding PST on Legal Services. The Notice explains how eligible low-income individuals can apply for a refund of PST paid on legal services billed after February 7, 2005, and before May 25, 2007. It outlines the eligibility criteria and the refund application process.

Medical Supplies and Equipment
Bulletin SST 006 — Medical Supplies and Equipment, originally issued January 1982, has been revised in October 2007 to provide updated information on when syringe injectors are PST-exempt. Resuscitators purchased for medical or emergency use were also included in the list of non-taxable items sold by medical service providers, while paramedic cardiac scanners were included in the list of taxable items sold by medical service providers.

Children's Clothing
Bulletin SST 009 — Children's Clothing, originally issued in August 1981, was revised in September 2007 to clarify that PST is not charged when larger or adult-sized clothing and footwear is purchased for children under age 15, if certification from the customer is obtained.

Completing the Social Services Tax Return
Bulletin SST 032 — Completing the Social Services Tax Return, originally issued in February 1985, was revised in November 2007. The bulletin has been completely rewritten and replaces the previous February 2007 version.

Exemption for Indians and Indian Bands
Bulletin SST 046 — Exemption for Indians and Indian Bands, originally issued in July 1996, was revised in September 2007. The bulletin provides specific tax information to help businesses understand how the PST applies to sales to Indians and Indian bands. It has been amended to remove any reference to the now obsolete environmental levy on batteries and to include information regarding the provincial environmental levy on new lead-acid batteries and Innovative Clean Energy (ICE) Fund levy.

Automotive Services and Parts
Bulletin SST 122 — Automotive Services and Parts, originally issued in April 2006, was revised in September 2007. The bulletin includes comprehensive additional information regarding the application of PST to courtesy vehicles including compensation from insurers, compensation from customers, purchases of courtesy vehicles, changes from exempt to taxable use, changes from taxable to exempt use, and refunds.

Hotel Room Tax

Fishing Lodges, Guide Outfitters, Guest Ranches and Accommodation Packages
Bulletin HRT 002 — Fishing Lodges, Guide Outfitters, Guest Ranches and Accommodation Packages, originally issued in January 1991, was revised in October 2007. This Bulletin provides specific guidance on the application of Hotel Room Tax (HRT) to outfitters and operators of fishing lodges, guest ranches and other establishments. Various amendments were recently made to the bulletin regarding taxable accommodation, non-taxable accommodation, registration requirements and taxable value of accommodation.

Completing the Hotel Room Tax Return
Bulletin HRT 003 — Completing the Hotel Room Tax Return, originally issued in February 1985, was revised in November 2007. The bulletin has been completely rewritten and replaces the previous April 2007 version.

Municipal and Regional District Tax
Bulletin HRT 007 — Municipal and Regional District Tax, originally issued in October 1990, was revised in October 2007 to include the Town of Osoyoos in the list of prescribed municipalities and regional districts. The municipalities and regional districts listed in the bulletin are approved to collect additional sales tax on accommodation within their jurisdictional boundaries. The funds collected are used by the municipalities and regional districts to develop their tourism industries.

Accommodation Providers to Natural Resources Industries
Bulletin HRT 009 — Accommodation Providers to Natural Resources Industries, originally issued in July 2006, was revised in October 2007. The bulletin now provides updated guidance on when to register, when not to register and when to charge hotel room tax.

"Do I Need to Register?".
In August 2007, Manitoba Finance issued a general guide for businesses and other organizations to help them determine if they need to register for Manitoba taxation, entitled "Do I Need to Register?". The guide covers registration requirements for Retail Sales Tax, Payroll Tax, Tobacco Tax, Gasoline Tax, Motive Fuel Tax and Corporation Capital Tax.

PST

Retail Sales Tax Exemption for Bicycles and Related Safety Equipment
In November 2007, the Ontario Ministry of Revenue issued RST Information Notice — Retail Sales Tax Exemption for Bicycles and Related Safety Equipment. This notice explains the announced point-of-sale PST exemption for bicycles and related safety equipment including helmets, reflectors, lights, mirrors, etc., which will be effective from December 1, 2007.

Bulk Vendors — Recovery of the 8% Provincial Component of HST related to Bad Debts
In September 2007, Service Nova Scotia and Municipal Relations issued Bulletin 5065 — Notice to Bulk Vendors — Recovery of the 8% Provincial Component of HST related to Bad Debts. The bulletin provides that bulk vendors participating in the "Your Energy Rebate Program" (YERP) are required to deduct the 8% provincial component of the HST from their YERP reimbursement claim if:

• the energy sales for which a YERP reimbursement has been claimed are written off as bad debts;
• a credit of the HST has been received from the CRA in respect of the bad debt written off; and
• a YERP reimbursement has already been claimed for the energy sales.

Canada

Customs Notice N-07-029: Measures to Increase the Use of Electronic Data Interchange (EDI) for Release Purposes
This notice is for the attention of importers, customs brokers and service providers and updates Customs Notice N-07-008, "Measures to increase the use of Electronic Data Interchange (EDI) for related purposes," issued on March 23, 2007. The Canada Border Services Agency (CBSA) recognizes the diligence of its clients in their attempts to meet the October 15, 2007, implementation date stated in Customs Notice N-07-08 and in an effort to facilitate client preparedness, will take a phased approach to mandatory EDI and will implement a six-month transition period for clients to fully implement their EDI capabilities.

Customs Notice N-07-030: Summary of the Regulations Implementing the United Nations Resolution on Lebanon
This notice informs exporters of the key provisions of the Regulations implementing the United Nations Resolution on Lebanon that relate to the prohibition of arms and related material exported to Lebanon. The CBSA will assist the Department of Foreign Affairs and International Trade Canada in administering the regulations.

Customs Notice N-07-031: United States Proof of Export Requirements for Imported Motor Vehicles
The purpose of this notice is to clarify when the United States proof of export is required for vehicles being imported into Canada. The United States proof of export is a confirmation by US Customs and Border Protection (CBP) of the authenticity of the title or other ownership documents submitted for all motorized vehicles being exported from the United States. A CBP stamp on the Certificate of Title or Salvage Title, confirming that documents have been authenticated is sufficient for CBSA purposes.

Customs Notice N-07-032: Certain Steel Structural Tubing
This notice advises that on September 27, 2007, the CBSA initiated a re-investigation of the normal values and export prices of certain steel structural tubing originating in or exported from the Republic of Korea, South Africa and Turkey pursuant to the Special Import Measures Act (SIMA). The re-investigation is part of the CBSA's enforcement of the finding made by the Canadian International Trade Tribunal (CITT) on December 23, 2003.

Memorandum D10-14-52: Tariff Classification of Deactivated and Replica Firearms and Firearms Reproductions
This memorandum outlines the CBSA policy as it relates to the tariff classification of deactivated and replica firearms and firearm reproductions under the Customs Tariff.

European Union

European Union and Russia Sign Trade Agreement on Steel Products
The European Union and Russia reached an agreement on trade in certain steel products at the E.U.-Russia Summit in Portugal. The two sides agreed on quota levels for 2007 and 2008 on certain flat steel and long steel products, to replace autonomous E.U. measures that had been in place since January of 2007. Quota levels were raised to take into account the enlargement of the European Union with Bulgaria and Romania, as well as to cover deliveries to steel service centres in E.U. member states.

Training, Events and Seminars

Sales Tax Course
PricewaterhouseCoopers is offering a full-day GST/HST and PST course designed to provide practical training, updates and answers to questions on GST/HST and PST ("sales tax"). This informative day, led by PricewaterhouseCoopers sales tax professionals, is targeted to assist people that work in tax, accounting, accounts payable, purchasing, credit and collections.

Thursday, December 6, 2007
Toronto Congress Centre
Etobicoke, ON
8:00 a.m. — 5:30 p.m.