Commodity Clips, September/October 2008

Disclaimer: The headings in the following Commodity Clips publication link to the relevant government home pages. This new format prevents linking to government bulletins that change locations on government web sites after legislative announcements.

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

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

Draft GST/HST Technical Information Bulletin on the Input Tax Credit Allocation Methods for Financial Institutions
GST/HST Notice 236 - Draft GST/HST Technical Information Bulletin, Input Tax Credit Allocation Methods for Financial Institutions for Purposes of Section 141.02 of the Excise Tax Act was issued in August 2008. This notice reflects the proposed amendments to the Excise Tax Act contained in the draft legislation announced on January 26, 2007, that provides new rules for financial institutions with respect to input tax credit allocation methodologies. In particular, the draft technical information bulletin sets out criteria, rules, terms and conditions to be applied when determining the extent to which input tax credits may be claimed for exclusive, direct, non-attributable and excluded inputs. Comments are being sought by the Canada Revenue Agency (CRA) and may be submitted up until October 31, 2008.

On September 4, 2008, the CRA released a correction to GST/HST Notice 236. Two corrections are made to example 3 on page 19 of the Notice.

Implementation of the Nisga'a First Nations Goods and Service Tax
GST/HST Notice 237 - Implementation of the Nisga'a First Nations Goods and Service Tax (FNGST) was issued in August 2008. This notice provides information regarding the FNGST that was imposed by the Nisga'a Nation on July 30, 2008. The FNGST is designed to work within the GST/HST framework and no additional forms or changes to registration will be required.

Credit Card Expenses and the Registrant's Use of Factors for Claiming ITCs
GST/HST Policy Statement P-184 - Credit Card Expenses and the Registrant's Use of Factors for Claiming Input Tax Credits was revised on July 31, 2008, replacing the previous version issued on August 24, 1995, and revised on May 5, 1998. This policy statement discusses when a factor method instead of an exact calculation method can be used to compute the eligible ITCs in relation to reimbursements for expenses incurred. It states that the CRA will permit a registrant that is an employer, partnership, charity or public institution to use factors for calculating ITCs on expenses charged to company credit cards, if certain conditions are satisfied.

Due Diligence Defence for Penalties Imposed for Failure to Remit or Pay an Amount or Failure to File a Return
GST/HST Policy Statement P-237 - The Acceptance of a Due Diligence Defence for a Penalty Imposed Under Subsection 280(1) of the Excise Tax Act for Failure to Remit or Pay an Amount When Required, and for a Penalty Imposed Under Section 280.1 for Failure to File a Return When Required , was revised on July 28, 2008, replacing the previous version issued on May 29, 2000. This policy statement outlines the position of the CRA with respect to a due diligence defence in respect of penalties imposed for failure to pay or remit an amount when required. The amended version also includes the CRA position regarding a due diligence defence for penalties, introduced in April 2007 as part of the CRA standardized accounting regime, that are imposed for failure to file a return when required.

Social Service Tax

Refund of Tax Remitted on Sales Written Off as Bad Debts
Bulletin GEN 001 - Refund of Tax Remitted on Sales Written Off as Bad Debts, originally issued in August 1981, was revised in August 2008. The revised bulletin includes a number of minor amendments, including:

• how to calculate the tax that must be remitted for any amount received on the bad debt account after obtaining a refund for PST that was remitted on original sale;
• how to claim a refund with, and without, a tax return; and
• details regarding supporting documentation.

The information in this bulletin applies to Social Services Tax, Hotel Room Tax, Motor Fuel Tax, Tobacco Tax and Carbon Tax.

Tax Information for Vancouver 2010 Olympic and Paralympic Winter Games
In August 2008, the British Columbia Ministry of Small Business and Revenue released " Tax Information for Vancouver 2010 Olympic and Paralympic Winter Games," which replaces the previous version, dated January 2007. The publication provides guidance to assist businesses that plan to conduct business in British Columbia during the Vancouver 2010 Olympic and Paralympic Winter Games to understand how PST will apply to their activities. It includes an overview of PST in British Columbia and information regarding contractors and subcontractors, equipment and materials temporarily in the province, taxable services and PST exemptions for visitors.

Advertising Agencies
Bulletin SST 035 - Advertising Agencies, originally issued in February 1983, was revised in August 2008, replacing a previous version, dated October 2006. The revised bulletin clarifies how the tax application changes when incorporating tangible products with advertising services. The original copy, or the first final version, of a design provided to a client on a tangible medium, such as paper, disk or electronic file, qualifies as incidental to an advertising design service and is not subject to PST. PST applies to any subsequent copies provided. However, if the primary purpose of the contract is to produce a tangible product, PST applies to the total amount of the contract, including design services, materials and labour charges.

Motor Vehicle Dealers and Leasing Companies
Bulletin SST 042 - Motor Vehicle Dealers and Leasing Companies, originally issued in September 1986, was rewritten in August 2008 and combined with Bulletin SST 103 - Lessors of Motor Vehicles and Trailers. The rewritten bulletin includes information for motor vehicle dealers and leasing companies on the application of PST to sales, trade-ins, manufacturers' rebates, discounts and incentives, vehicle modifications and business equipment installation. Also included is information with respect to the application of PST to leases, repair fees, reductions and exemptions, vehicle inventory, taxable services, the environmental levy on batteries and vehicle returns and refunds.

Registering to Collect PST
Bulletin SST 044 - Registering to Collect Provincial Sales Tax (PST), originally issued in August 1984, was revised in July 2008 to include specific information of when registration is required for out-of-province businesses. An out-of-province business is required to register if it meets the four criteria as outlined in the bulletin. The revised bulletin clarifies that delivery of goods into British Columbia includes goods that are shipped physically or electronically, even if the goods are delivered through a third party such as a courier.

Real Property Contractors
Bulletin SST 072 - Real Property Contractors, originally issued in September 1986, was revised in July 2008. The revised bulletin explains the application of PST to real property contracts entered into before October 1, 2008, and real property contracts entered into after October 1, 2008. Generally, for real property contracts entered into before October 1, 2008, the structure of the contract (i.e., based on lump-sum or fixed price, time and materials, or services to existing real property) will determine whether PST is charged on materials and equipment supplied and installed to complete the contract. For real property contracts entered into after October 1, 2008, the real property contractor is required to pay PST on all materials and equipment supplied and installed to complete the contract, unless it is agreed in writing that the customer will pay the PST.

Fixtures
Bulletin SST 078 - Fixtures, originally issued in January 1987, was revised in September 2008 to outline how PST applies to machinery, equipment and apparatus used directly in the manufacture, production, processing, storage, handling, packaging, display, transportation, transmission or distribution of tangible personal property, or in the provision of a service. The application of PST depends upon whether that machinery qualifies as tangible personal property, as a fixture, or as an improvement to real property. The bulletin also reflects the amendments discussed above with respect to the application of PST to real property contracts and improvements to real property.

Mining Industry
Bulletin SST 081- Mining Industry, originally issued in March 1989, was revised in August 2008 to include information on the changes to the application of PST to real property contracts entered into after October 1, 2008, as noted above under the heading 'Real Property Contractors'. Also included is further information regarding the exemption for catalysts, direct agents and chemical substances which became effective February 20, 2008.

Security Systems
Bulletin SST 121 - Security Systems, originally issued in August 2006, was revised in September 2008. The revised bulletin provides that security systems are taxable for PST purpose to either the system seller/installer or the customer - depending on the type of system supplied/installed and when the contract is entered into. The amendments largely reflect those discussed above with respect to the application of PST to real property contacts and improvements to real property. Broadly, for contracts entered into on, or after, October 1, 2008, the supplier is required to pay PST on security system components that are supplied and installed to complete the contract unless the supplier and the customer agree, in writing, that the customer will pay the PST.

Graphic Designers
Bulletin SST 128 - Graphic Designers, originally issued in August 2006, was revised in August 2008 to clarify how the application of PST changes when incorporating tangible products with design services. Generally, PST applies to the sale of tangible products. In addition, PST will also apply to an entire contract, including costs for design services, labour, materials, printing, etc., even when the design services or labour costs are separately identified on the invoice. The bulletin includes examples to illustrate the application of PST when producing tangible products, combined services and sales and bundled goods and services.

Innovative Clean Energy (ICE) Fund Levy
The Ministry of Small Business and Revenue has recently released two publications regarding the Innovative Clean Energy Fund Levy (the Levy).

• On July 31, 2008, the list of frequently asked questions was updated. This list addresses questions including what the Levy is used for, how the Levy is calculated, whether the Levy and PST can be combined on invoices, whether the Levy applies to gas for cars and whether the Levy applies to biodiesel and biofuel blended with heating oil.
• Notice 2008-033 - Notice to Sellers of Electricity, Natural Gas, Fuel Oil and Propane: Innovative Clean Energy (ICE) Fund Levy Extension was issued in July 2008. This notice explains that the Levy will continue after September 1, 2008, outlines the Levy requirements and exemptions and replaces the notices dated July 2007 and January 2008.

Retail Sales Tax

Information for Printers and Desktop Publishers
Information Bulletin PST-20 - Information for Printers and Desktop Publishers was revised in July 2008 and replaces the previous version issued in November 1985. The revised information bulletin includes amendments to the tax application in respect of desktop publishing, direct agents, printed materials produced for own use, tangible personal property and real property, real property contracts and services, and maintenance contracts and photocopier toner. A number of additional items have been added to the lists of taxable printed materials and exempt printed materials.

Information for Veterinarians and Veterinary Supply Firms
Information Bulletin PST-26 - Information for Veterinarians and Veterinary Supply Firms was revised in June 2008 and replaces the previous version issued in March 1987. The revised information bulletin inserts a new section "Consumables and Items Sold as Part of a Veterinary Service," which explains the application of tax to purchases made by a veterinarian, depending on whether the item was purchased for resale or if it is to be consumed in the course of providing veterinarian services. Examples in the bulletin illustrate the different tax treatment of consumables and retail items.

Retail Sales Tax

Corporations, Partnerships and Joint Ventures
Retail Sales Tax Information Bulletin No. 042 - Corporations, Partnerships and Joint Ventures was issued in September 2008. The bulletin summarizes the PST application on taxable tangible personal property purchased or sold by a corporation, partnership, joint venture or trust.

Retail Sales Tax

Exemption for Nicotine Replacement Therapies
RST Information Notice - Retail Sales Tax Exemption for Nicotine Replacement Therapies was issued by the Ontario Ministry of Revenue in August 2008. A temporary point-of-sale exemption was introduced on August 13, 2007, for certain non-prescription nicotine replacement therapies. Effective March 26, 2008, this exemption became permanent.

Exemption for Destination Marketing Fees Charged on Transient Accommodation
RST Information Notice - Retail Sales Tax Exemption for Destination Marketing Fees Charged on Transient Accommodation was issued by the Ontario Ministry of Revenue in July 2008. The notice explains the temporary RST exemption for destination marketing fees (DMF) charged by vendors who provide transient accommodation and the conditions that must be satisfied for the exemption to apply to DMF billed on or before June 30, 2010.

Tax for Fuel Conversion List 2009 Model Year
On August 13, 2008, the Ontario Ministry of Revenue updated their Tax for Fuel Conversion List for 2009 model year passenger vehicles and sport utility vehicles.

Québec Sales Tax

Supply of Food Products to Educational Institutions
TVQ 133-1/R1 - Supply of Food Products to Educational Institutions was revised on June 30, 2008, replacing the previous version, dated September 29, 1995. This version of the bulletin was revised to take into account the amendments made to section 132 of the Act respecting the Quebec sales tax (AQST) in respect of supplies of food and beverages made to a school authority, public college or university after June 30, 1996

Documentary Requirements for Claiming Input Tax Refunds: Procurement Cards
TVQ 201-1/R1 - Documentary Requirements for Claiming Input Tax Refunds: Procurement Cards was revised on June 30, 2008, replacing the previous version, dated March 31, 2008. The bulletin was revised to correct an error in line 10 of the table contained in the illustrative example. Aside from this correction, the interpretation remains unchanged and is effective from July 11, 2005.

Private Colleges that Qualify for a Partial QST Rebate
TVQ 386-2/R1 - Private Colleges that Qualify for a Partial Quebec Sales Tax Rebate Within the Context of a Subsidy Program was revised on June 30, 2008, and replaces the previous version, dated August 30, 1996. The bulletin was revised to reflect the amendments made to the definitions of 'public college' and 'selected public service body' for the purpose of computing the partial rebate under section 386 of the AQST.

Automobile Insurance
TVQ 519-1 - Automobile Insurance was issued on June 30, 2008. It explains how the QST applies to automobile insurance premiums, including which motor vehicles are covered by automobile insurance policies and which are covered by home insurance policies. The bulletin also includes the interpretation of the term 'similar policy'.

Sales Tax

Reminder Notice to Electricity Bulk Vendors
Sales Tax Bulletin No. 5071 - Reminder Notice to Electricity Bulk Vendors - "Your Energy Rebate" was issued on August 20, 2008. The bulletin is a reminder to bulk vendors of electricity that effective September 1, 2008, the rebate on electricity will resume for Nova Scotian households being charged a domestic service rate.

Fuel Tax

Purchase of Gasoline, Diesel Oil and Propane
On August 11, 2008, Service Nova Scotia and Municipal Relations reissued a series of Retail Sales Tax Guides regarding purchases of gasoline, diesel oil and propane. Each guide replaces an earlier version and provides direction on the application of Fuel Tax as it applies to purchases of gasoline, diesel oil and propane by certain purchasers. The following guides were re-issued:

• Retail Sales Tax Guide 2001R7 - Purchase of Gasoline and Diesel Oil by Commercial Fishers
• Retail Sales Tax Guide 2002R5 - Purchase of Gasoline and Diesel Oil by Commercial Farmers
• Retail Sales Tax Guide 2003R6 - Purchase of Gasoline and Diesel Oil by Commercial Loggers
• Retail Sales Tax Guide 2004R5 - Purchase of Gasoline and Diesel Oil by Commercial Manufacturers
• Retail Sales Tax Guide 2005R3 - Purchase of Gasoline, Diesel Oil and Propane by Aquaculturists

Canada

Canada and Jordan - Free Trade Agreement Negotiations
On August 25, 2008, Canada concluded free trade agreement negotiations with Jordan. Now that negotiations have been concluded, a legal review will be carried out, followed by Cabinet approval and signatures by the parties. Once implemented, the agreement will remove tariffs on the vast majority of current Canadian exports to Jordan and create new market opportunities for exports of Jordanian goods to Canada.

Customs Tariff: Invitation to Submit Views on Proposed Most-Favoured Nation Tariff Elimination on Certain Machinery and Equipment
The Department of Finance is seeking input on the proposed elimination of the Most-Favoured Nation tariff rates on machinery and equipment classified in 239 tariff items. Current duty rates for the tariff items included in the proposal range from 2.5% to 9%.

• Valuation: ski apparel, video recording apparatus, large household appliances, parts of gas turbines, bulk shipments of ore, light-duty automotive goods;
• Country of origin: large household appliances, sport/fishing equipment, swimming pools, air-conditioners; and
• Tariff classification: juice products.

Companies that import these goods into Canada - and, in the case of the origin audit targets, companies that export these products to Canada - should be prepared to be audited over the coming year.

Partners in Protection (PIP)
The modernized PIP program was introduced on June 30, 2008, to implement minimum security requirements:

• mandatory site validations;
• denial, suspension, cancellation, reinstatement and appeal policies and procedures, and an automated application process.

All PIP members who joined before June 30, 2008, will have to reapply under the modernized program. Failure to re-apply will result in cancellation of a company's PIP membership on January 1, 2009.

Memorandum D11-6-6: Self-Adjustment to Declarations of Origin, Tariff Classification, Value for Duty, and Diversion of Goods
This memorandum, originally issued October 15, 2003, was revised September 9, 2008. Paragraph 12 was revised to remove the reference to GST/HST "registrants."

Business Simplification Initiative
As a result of the CBSA Business Simplification Initiative and the Government of Canada's Paper Burden Reduction Initiative, an increased number of D-memos and Customs notices have been revised to ensure the documents are more streamlined.

Memorandum D15-2-51: Certain Seamless Carbon or Alloy Steel Oil and Gas Well Casing Originating in or Exported from the People's Republic of China
This memorandum, issued August 29, 2008, outlines the application of anti-dumping and countervailing duties to importations of certain seamless carbon or alloy steel oil and gas well casing originating in or exported from the People's Republic of China. These goods are generally classified in tariff items 7304.29.00.11, 7304.29.00.19, 7304.29.00.21, 7304.29.00.29.

Memorandum D17-1-21: Maintenance of Records in Canada by Importers
This memorandum, previously titled D17-1-21 Maintenance of Records and Books in Canada by Importers, dated June 28, 2000, was revised September 4, 2008, to explain the CBSA's policy concerning maintaining records at a place other than the importer's place of business, in and outside of Canada.

United States

U.S. First Sale Declaration
Effective for a one-year period beginning August 20, 2008, importers must declare on the U.S. customs entry, when the transaction value of the imported merchandise is determined on the basis of the "first or earlier sale" of goods, or any other sale earlier than the last sale before the introduction of the merchandise into the United States.