Commodity Clips, September/October 2007
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A bi-monthly publication of the PricewaterhouseCoopers Indirect Tax Group.
2007 Federal Budget
Bad Debts
Various amendments to section 231 of the Excise Tax Act with respect to bad debts, proposed by Bill C-40 as tabled in Parliament on March 19, 2007, received royal assent on June 22, 2007. The amendments widen the scope of the provision by allowing the "reporting entity for the supply" to claim the relevant bad debt deduction if it has reported the tax for that supply. Depending on the circumstances of each case, the reporting entity for a supply may be:
- the supplier itself; or
- an agent, if an agency relationship exists and an election has been made that the agent will include the tax collectible in its net tax.
Supplies of Agriculture and Fishing Products
GST/HST Memorandum 4.4 — Agriculture and Fishing, originally issued in September 1988 and revised in August 2000, was replaced in July 2007. The memorandum:
- provides detailed information on the GST/HST implications of supplies of agricultural and fishing products;
- indicates that most supplies of agricultural and fishing products are zero-rated; and
- incorporates the information from and supersedes Policy Statement P-235, "Meaning of Fertilizer."
GST/HST Rate Reduction and Real Property
The Canada Revenue Agency (CRA) has amended an existing Information Sheet and issued a new Technical Information Bulletin regarding the transitional rules in respect of real property arising from the change in the GST/HST rate as of July 1, 2006.
- GI-015 — GST/HST Rate Reduction and Purchasers of New Housing, originally issued in May 2006, was revised in July 2007. The July 2007 amendments clarify that the GST/HST transitional rebate cannot be claimed until all specified conditions are met. The revised Information Sheet also includes some procedural information for claiming the rebate, including the requirement that the application be lodged within two years after the day that ownership of the house is transferred to the recipient.
- Technical Information Bulletin B-096 GST/HST Rate Reduction and Real Property was issued in July 2007. This Bulletin provides additional details regarding the transitional issues relating to real property as a result of the reduced GST/HST rate.
Children’s Camps Operated by Public Sector Bodies
GI-037 — Children's Camps Operated by Public Sector Bodies was issued in July 2007. The information sheet describes how the GST/HST applies to fees charged by public sector bodies (PSBs) for children to attend camps involving supervision or instruction in recreational or athletic activities. It clarifies, whether certain types of camps provided by PSBs are taxable or exempt.
Application of Penalties and Interest to Late Returns or Rebate Applications
P-194R2 — Application of Penalties and Interest when a Return and/or Rebate Application, and/or Another Return is Received after the Due Date, originally issued on July 20, 1999, was revised on August 27, 2007. The 6% penalty and prescribed interest rate, which applied to amounts paid to the Receiver General after becoming due, was replaced effective April 1, 2007, with a new rate of interest: the base rate plus 4%. The Policy Statement explains the effect of these changes on a return:
- filed after its due date but before April 1, 2007;
- due after March 31, 2007:
- filed after its due date; or
- filed before its due date; and
- due before April 1, 2007, and filed after March 31, 2007
Administrative Overhead Costs
P-196R — Revised — Whether Administrative Overhead Costs Fall Under Subsection 186(1) of the Excise Tax Act (ETA), originally issued on January 4, 2006, was revised on August 10, 2007. Section 186 of the ETA relates to the availability of input tax credits for related corporations. Specifically, only property or services that can reasonably be regarded as having been acquired or imported by the parent for consumption or use in relation to the shares or indebtedness of a related corporation will fall under s186(1).
Tax Status of Certain Damage Payments
P-218R — Revised — Tax Status of Damage Payments Not within Section 182 of the ETA, originally issued on May 25, 1998, was revised on August 10, 2007. This policy statement explains the application of section 182 of the ETA in the context of damage payments paid by one party as compensation or indemnification for damages suffered or allegedly suffered by another party. Various examples are provided to illustrate the circumstances in which the requirements of section 182 will be met.
Cancellation of the Visitor Rebate Program and Implementation of the New Foreign Convention and Tour Incentive Program — Updated
As previously reported in Commodity Clips, the Government of Canada announced amendments to the ETA that would eliminate the Visitor Rebate Program effective April 1, 2007. The legislative amendments required to make these changes received royal assent on June 22, 2007. The CRA has issued or amended the following documents in relation to the above:
- Notice 221 — Q&As — Proposed Cancellation of the Visitor Rebate Program and Proposed Foreign Convention and Tour Incentive Program, updated on August 31, 2007, constitutes the final set of questions and answers that the CRA is issuing on this subject. In particular, this edition of the Notice includes new chapters on conventions and the addition of several new questions and answers to existing chapters. All new chapters and revised questions and answers are identified as such.
- The Government of Canada official brochure and form RC4117(E) in relation to Tax Refunds for Business Travel to Canada, has been issued. This pamphlet is for non-resident businesses that are not registered for GST/HST and that are claiming a refund of GST/HST paid on eligible short-term accommodation or tour packages.
- The Government of Canada official brochure and form RC4031(E) in relation to Tax Refunds for Visitors to Canada has been issued. This pamphlet is for:
- non-resident individuals who bought eligible goods or short-term accommodation while visiting Canada,
- non-residents who bought eligible goods for personal use while travelling on business in Canada; and
- non-resident sole proprietors who bought both eligible goods for personal use and short-term accommodation while travelling on business in Canada.
Application of GST/FNGST to Yukon First Nations and their Members
GST/HST Notice 143R4 — Application of GST/FNGST to Yukon First Nations and their Members, originally issued on September 2004, was replaced by a new version issued in July 2007. Among other things, the notice explains that tax relief outlined in Technical Information Bulletin (TIB) B-039R3, GST/HST Administrative Policy – Application of the GST/HST to Indians, no longer applies to First Nations and their Members in the Yukon.
Implementation of the Kwanlin Dun FNGST
GST/HST Notice 222 — Implementation of the Kwanlin Dun First Nations Goods and Services Tax (FNGST) was issued in August 2007. It explains that the Kwanlin Dun First Nation has entered into a final agreement with the Government of Canada allowing the FNGST to be imposed on their settlement lands. It applies, as of August 20, 2007, to supplies made on the Kwanlin Dun settlement lands.
First Nations Goods and Services Tax (FNGST)
Implementation of the Nunatsiavut FNGST
GST/HST Notice 223 — Implementation of the Nunatsiavut First Nations Goods and Services Tax (FNGST) was issued in September 2007. It explains the agreement entered into by the Nunatsiavut Government and the Government of Canada, allowing the FNGST to be imposed under the Nunastiavut GST Act 2006. It applies, as of August 20, 2007, to supplies made on the Nunastiavut lands.
Constructing or Purchasing, and Operating a Residential Care Facility
GST/HST Notice 224 — Draft Policy Statement: The GST/HST Real Property Implications of Constructing or Purchasing, and Operating a Residential Care Facility was issued in September 2007. The Notice states that the CRA is revising the draft policy issued by way of GST/HST Notice 207 in February 2006. The revisions take into account representations made by interested parties and recent decisions of the Tax Court of Canada relating to residential care facilities. The policy applies to facilities that are generically described as care homes, personal care homes, congregate housing, assisted living residences, seniors’ residences, retirement residences, nursing homes and homes for the aged.
Social Services Tax
Lease or Rental of Vehicles, Equipment and Other Goods
In August 2007, the British Columbia Ministry of Small Business and Revenue issued Notice to Businesses that Lease or Rent Out Vehicles, Equipment and Other Goods. The notice clarifies how social service tax, also called provincial sales tax (PST), applies when customers reimburse the leasing or rental company for damage to rental property.
Change to Due Date for Tax Returns
In August 2007, the British Columbia Ministry of Small Business and Revenue issued Notice to Vendors and Operators — Clarification of Change to Due Date for Tax Returns. As of April 1, 2007, the due date for remitting tax returns and payments was extended to the 23rd of the month following the end of the reporting period. The notice clarifies that tax returns and payments must be received by the Ministry of Small Business and Revenue before close of business on the due date to be considered on time.
Pharmaceutical Companies
In September 2007, the British Columbia Ministry of Small Business and Revenue issued Notice to Pharmaceutical Companies. The notice clarifies the PST exemption for promotional drug samples supplied by pharmaceutical companies to physicians, dentists and veterinarians.
Medical Supplies and Equipment
Bulletin SST 006 — Medical Supplies and Equipment, originally issued January 1982, has been revised in July 2007 to include carbon monoxide (CO) detectors in the list of non-taxable items sold by medical service providers. To qualify for the exemption, the detectors must give an audible warning of danger in a similar manner to smoke detectors.
Goods for Personal Use Imported by British Columbia Residents at International Borders
Bulletin SST 013 — Goods for Personal Use Imported by British Columbia Residents at International Borders, originally issued in October 1981, was revised in July 2007 to include specific guidance on bringing vehicles into the province. The Bulletin states that PST is paid to the Insurance Corporation of British Columbia (ICBC) when the vehicle is registered, or if the vehicle is not registered, PST must be self-assessed. In addition, the Bulletin also clarifies that PST is not paid on goods that would be exempt if purchased in British Columbia. A request for a refund of PST paid may be made in these cases and should be sent (with supporting documentation) to customs refund centres.
Registering to Collect PST
Bulletin SST 044 — Registering to Collect PST, originally issued August 1984, was completely re-written in July 2007 and replaces the previous version (dated February 2007). The revised Bulletin now includes a comprehensive list, by way of example, of situations in which a British Columbia business is required to register with the ministry. The four criteria, which require a business located outside British Columbia to register if all are met, are now more clearly stated. The circumstances in which registration is not required remain the same, but have been clarified. Administrative requirements regarding registration, including an explanation of the federal business number (BN), have been updated and new commentary has been included in relation to the requirements for registered vendors.
Liquor Sellers
Bulletin SST 094 — Liquor Sellers, originally issued in November 1988, was revised in August 2007 to include additional guidance on bundled sales (i.e., sales of non-taxable goods or services together with taxable goods or services) in the context of liquor sales. The Bulletin confirms that when liquor is included in a bundled sale, PST is charged at the rate of 10% on the fair market value of the liquor, and at the rate of 7% on the fair market value of the other goods or services. In addition, the Bulletin states that PST is to be paid on free promotional items used in business, such as drinks given to customers or staff, and on items taken from resale inventory for business or personal use.
Environmental Levies
Battery Levy and Innovative Clean Energy (ICE) Fund Levy
As reported in the July/August 2007 edition of Commodity Clips, effective September 1, 2007, a provincial ICE Fund levy of 0.4% applies to sales of electricity, natural gas, fuel oil and propane sold on a grid system. The following publications were amended by the British Columbia Ministry of Small Business and Revenue to reflect the introduction of this new environmental levy:
- Bulletin SST 015 — Environmental Levy on Batteries, originally issued in July 1990, was revised in August 2007.
- Bulletin SST 016 — Provincial Social Service Tax (PST) and Federal Goods and Services Tax (GST), originally issued in December 1990, was revised in August 2007.
- Bulletin SST 030 — Purchases by Non-Residents of British Columbia, originally issued in October 1982, was revised in August 2007 to explain the exemption from payment of the battery levy for non-residents and to include details of the ICE Fund Levy.
- Bulletin SST 043 — Goods Purchased from Out-of-Province Suppliers, originally issued in February 1984, was revised in August 2007.
- Bulletin SST 133 — Home-Based Businesses, originally issued in November 2006, was revised in August 2007 to highlight that the PST exemption for residential use of electricity, natural gas, fuel oil and propane does not apply to the ICE Fund levy. The levy is paid on these products whether or not they are used for business or residential purposes.
Hotel Room Tax
Registering to Collect Hotel Room Tax
Bulletin HRT 005 — Registering to Collect Hotel Room Tax, originally issued in September 1984, was revised in August 2007 to update the circumstances in which registration is and is not required. The Bulletin includes additional commentary on the basis for determining the number of units of accommodation offered in British Columbia. It also includes a comment in respect of fishing lodges, guide outfitters and guest ranches.
Registered Operators of Hotels, Motels or Other Lodgings
Bulletin HRT 006 — Accommodation — Registered Operators of Hotels, Motels or Other Lodgings, originally issued in June 1983, was revised in August 2007 to include certain "other responsibilities" of registered operators, including the requirement to display the Certificate of Registration in a prominent place in each business location. The updated Bulletin also includes guidance on the Innovative Clean Energy (ICE) Fund Levy, effective September 1, 2007.
Bed and Breakfast Operators
Bulletin HRT 008 — Bed & Breakfast Operators, originally issued in July 2006, was revised in August 2007 to include several changes. The Bulletin now provides further guidance regarding when hotel room tax applies and the registration requirements for bed and breakfast operators, including the basis for determining the number of units of accommodation offered in British Columbia. Information in relation to the Innovative Clean Energy (ICE) Fund levy is also included.
Retail Sales Tax
Funded and Unfunded Benefits Plans
In July 2007, the Ministry of Revenue issued Retail Sales Tax Information Notice 57 — Retail Sales Tax — Funded and Unfunded Benefits Plans. The Notice was issued as a result of royal assent being given on December 20, 2006, to legislative amendments to the Retail Sales Tax Act with respect to funded and unfunded benefits plans. The Notice highlights the changes to the definition of "premium" in respect of funded benefits plans and the requirement for plan holders of new and existing benefit plans to designate their plans as funded or unfunded.
Exemptions to Farmers Expanded
In August 2007, the Ministry of Revenue issued Retail Sales Tax Information Notice 59 — Retail Sales Tax — Exemptions to Farmers Expanded. The Notice was issued to highlight the August 28, 2007, amendments to Regulation 1013 under the Retail Sales Tax Act, which expanded the definition of "farming."
Sales Tax
Medical Equipment and Supplies
Revenue Tax Guide RTG 172 — The Application of Revenue Tax (PST) to Medical Equipment and Supplies was issued in August 2007. The Guide includes two non-exhaustive list:
- items that may be purchased by consumers exempt of PST; and
- items that are subject to PST at the time of the purchase.
Licensing Fees on Entertainment Devices
Revenue Tax Guide RTG 173 — Licensing Fees on Entertainment Devices was issued in August 2007. The Guide highlights the licence fees that must be paid by owners of an entertainment device before the device is installed at a location to which the public have access.
Excise Taxes and Special Levies
Diesel Fuel Used in the Generation of Electricity for the Provision of Hotel Services on Vehicles
Draft Excise Taxes and Special Levies Policy Statement (EP-003), Application of Excise Tax to Diesel Fuel used in the Generation of Electricity for the Provision of Hotel Services on Vehicles, has been issued in draft form for comments from the public. The CRA is revising its policy to include two main changes:
- application of the "primarily test"; and
- establishment of the point of usage assessment at the "global level" for purposes of the exemption to payment of excise tax.
Excise tax is not payable in the case of diesel fuel for use in generation of electricity, except when the electricity generated is primarily for use in the operation of a vehicle.
Canada
Customs Notice 07-021: Withdrawal of General Preferential Tariff (GPT) from the Republic of Belarus
Effective August 1, 2007, the benefits of the General Preferential Tariff (GPT) are withdrawn for all goods imported into Canada that originate in the Republic of Belarus. These goods must be accounted for under the Most-Favoured-Nation Tariff (MFNT).
Customs Notice 07-022: General Preferential Tariff withdrawal Order
Effective August 1, 2007, the benefits of the General Preferential Tariff (GPT) are withdrawn from all goods originating in Bulgaria and Romania when imported into Canada. These goods must be accounted for under the Most-Favoured-Nation Tariff (MFNT).
Customs Notice 07-024: Report of in-transit cargo
The purpose of this notice is to highlight a change introduced in Memorandum D3-1-8, “Cargo Export Movements,” respecting the report of in-transit cargo exported from Canada by air, highway, marine and rail carriers. Under this policy, the carrier need not submit a paper copy of the previous cargo control document, provided that the previous cargo control number and the complete, accurate details of the in-transit movement are submitted as required. The policy also allows carriers approved as participants under the Export Memorandum of Understanding (MOU) to report the complete, accurate details of the in-transit movement under MOU time frames.
Customs Notice 07-027: Alternative Methods of transmitting Certificates of Origin
To reduce the use of paper versions, the Canada Border Services Agency (CBSA) is examining options that would allow for the electronic transmission of certificates of origin. Issued August 30, 2007, this notice’s purpose is to inform all parties involved in importing commercial goods into Canada of the options considered acceptable by the CBSA for the electronic transmission of certificates of origin. New options are:
- scanned certificates of origin;
- certificates of origin with power of attorney; and
- electronic certificates of origin (for Custom Self Assessment (CSA) program participants only).
Memorandum D10-14-51: Tariff Classification Policy — Tariff Item 9948.00.00
This memorandum outlines the Canada Border Services Agency’s policy as it relates to the tariff classification of goods under tariff item 9948.00.00.00 of the Customs Tariff.
Articles may be imported duty-free under this tariff item for use in:
- automatic banknote dispensers;
- automatic data processing machines and units thereof, magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data;
- automatic word-processing machines;
- chart recorders and other instruments for measuring or checking electrical quantities, designed for use with automatic data processing machines; electronic calculating machines;
- magnetic discs;
- numerical control panels with built-in automatic data processing machines; power supplies of automotic data processing machines and units thereof; process control apparatus, excluding sensors, which converts analog signals from or to digital signals;
- video games used with a television receiver, and other electronic games; and
- parts and accessories of the foregoing,
The term “for use in,” as defined in the Customs Tariff, means that the goods muse be wrought or incorporated into or attached to computers and other high-tech products identified in tariff item 99948.00.00.
Canada and the Netherlands sign a Customs Mutual Assistance Agreement
On August 15, 2007, Canada and the Netherlands signed a Customs Mutual Assistance Agreement. The Agreement provides for the exchange of certain customs information and intelligence to prevent, investigate and combat customs offences and allow for cooperation on critical global issues such as security. It is the seventh such agreement signed by Canada.
