Commodity Clips, 2009 Issue 5

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.

This is a bi-monthly publication of the PricewaterhouseCoopers Indirect Tax Group.

• Goods and Services Tax/Harmonized Sales Tax (GST/HST)
• British Columbia
• Saskatchewan
• Ontario
• Nova Scotia
• Customs

Financial Services Sector: Finance Releases Updated Draft Legislation
On September 23, 2009, the Honourable Jim Flaherty, federal Minister of Finance, released updated draft legislation regarding the proposed changes to the application of GST to the financial services sector and pension plan trusts. The draft legislation updates the proposals that were released on January 26, 2007, some of which were first announced on November 17, 2005. Despite industry concerns and appeals to revise the proposals released on January 26, 2007, the latest release is in most respects substantially similar. Finance appears to believe that the major concerns raised by the financial services sector, especially in connection with imported taxable supplies, are addressed in this new release.

The latest draft legislation covers the following areas:

• imported taxable supplies;
• input tax credit allocation methods;
• annual information schedule;
• extension of GST/HST return filing due date for financial institutions; and
• new GST rebate for registered pension plan trusts.

Complete details of the proposed amendments can be found in the following documents issued by the Department of Finance:

• News Release
• Backgrounder
• Legislative Proposals, Draft Regulations and Explanatory Notes Relating to the Excise Tax Act
• Legislation
• Regulations
• Explanatory Notes

Interested parties are invited to provide comments on the draft legislation by October 23, 2009.

Harmonization of the Ontario Retail Sales Tax with the GST
Notice 244 — Harmonization of the Ontario Retail Sales Tax with the Goods and Services Tax — Questions and Answers on Housing Rebates, Transitional Rules for Housing and Other Real Property Situated in Ontario was issued by the Canada Revenue Agency (CRA) in September 2009. The notice provides questions and answers that reflect the tax changes as announced in the 2009 Ontario budget with respect to the proposed Ontario Harmonized Sales Tax and in Information Notice No. 2, June 2009 — Helping Homebuyers and the Housing Industry with an Enhanced New Housing Rebate, a New Rental Housing Rebate and Transitional Rules, released by the Government of Ontario on June 18, 2009.

Conventions
GST/HST Memorandum 27.2 — Conventions was released on August 27, 2009, replacing the previous April 1995 version. This memorandum provides information with respect to:

• foreign and domestic conventions;
• eligibility requirements that sponsors and non-registered organizers of foreign conventions have to meet to claim a GST/HST rebate in respect of supplies of the convention facility and related convention supplies;
• how non-resident non-registered exhibitors attending conventions in Canada may claim a GST/HST rebate in respect of the tax paid on the acquisition of exhibition space at a convention and related convention supplies;
• how Canadian suppliers can pay to, or credit in favour of, sponsors and non-registered organizers of foreign conventions an amount on account of a rebate; and
• how GST/HST applies to supplies made by sponsors of domestic conventions, including admissions and supplies made to exhibitors.

Proposed Harmonized Sales Tax

Backgrounder — Harmonized Sales Tax
On September 1, 2009, British Columbia Finance Minister Colin Hansen released Budget Update 2009 — Backgrounder Harmonized Sales Tax (B.C. HST). The backgrounder provides high level details with respect to the proposed B.C. HST, including the rate, benefits, savings, various point-of-sale rebates and other measures specific to British Columbia.

Social Service Tax

Printers and Publishers
Bulletin SST 029 — Printers and Publishers, originally issued in October 1982, was completely rewritten in August 2009, replacing the previous version, dated June 1996. The bulletin includes information about the production machinery and equipment exemption and information to help printers and publishers determine when tax is applicable.

Rentals and Leases of Tangible Personal Property
Bulletin SST 082 — Rentals and Leases of Tangible Personal Property, originally issued in March 1987, was revised in September 2009. The revised bulletin now includes guidance with respect to the specific rules that became effective on September 2, 2009, for leased tangible personal property that becomes part of real property. After September 1, 2009, leased tangible personal property that becomes part of real property during the term of the lease is considered to have been sold as a retail sale immediately before it becomes part of real property. The lessee is required to pay PST on the fair market value of the tangible personal property as of the date of the sale. This is in addition to any PST paid, or payable, on the lease price for the tangible personal property.

Oil and Gas Industry
Bulletin SST 126 — Oil and Gas Industry — Service Providers and Contractors, originally issued in October 2006, was revised in August 2009. The revised bulletin includes information to clarify eligibility for the production machinery and equipment exemption, temporary-use formulas and change-of-use provisions.

Medicaments
The British Columbia Ministry of Small Business and Revenue has clarified that, effective February 18, 2009, medicaments exempt from PST, whether they are sold with or without a prescription include vaccines listed on Schedule I or II of the Drug Schedules Regulation or vaccines that are a veterinary drug within the meaning of the Veterinary Drugs Act. The following bulletins have been updated to include this exemption:

• Bulletin SST 006 — Medical Supplies and Equipment, originally issued in January 1982, revised in September 2009.
• Bulletin SST 026 — Grocery and Drug Stores, originally issued in April 1983, revised in September 2009.
• Bulletin SST 038 — Veterinarians, originally issued in October 1981, revised in September 2009.
• Bulletin SST 086 — Pet Industry, originally issued in August 1987, revised in September 2009.

Passenger Vehicle Rental Tax
The British Columbia Ministry of Small Business and Revenue has clarified how Passenger Vehicle Rental Tax (PVRT) is calculated. PVRT is calculated according to a 24-hour period or portion of a 24-hour period, in which the vehicle is rented. The following bulletins have been updated to reflect this clarification:

• Bulletin SST 042 — Motor Vehicle Dealers and Leasing Companies, originally issued in September 1986, revised in September 2009.
• Bulletin SST 122 — Auto Services and Parts, originally issued in April 2006, revised in September 2009.

Courtesy Vehicles Provided Under an Alternative Transportation Program (ATP)
Notice 2009-013 — Courtesy Vehicles Provided Under an Alternative Transportation Program (ATP) Prior to November 1, 2008, was issued in September 2009. The notice explains how PST applied to courtesy vehicles provided under an ATP before and after the Alternative Transportation Service (ATS) was introduced by the Insurance Corporation of British Columbia (ICBC) on November 1, 2008.

Provincial Sales Tax (PST)

Grocery and Drug Stores
Information Bulletin PST-2 — Information for Grocery and Drug Stores, originally issued in November 1991, was revised in June 2009. The revised bulletin includes additional examples of some of the more common taxable and exempt items sold in grocery and drug stores, such as aerochambers (taxable) and magnetic bracelets and necklaces (also taxable).

Information for Service Enterprises
Information Bulletin PST-46 — Information for Service Enterprises, originally issued in December 1995, was revised in June 2009. The revised bulletin includes additional examples of businesses that provide exempt services, such as fitness centres, landscapers, spas and tanning salons.

Proposed Ontario Harmonized Sales Tax

Updated Website
The Ontario Ministry of Revenue has updated its website with respect to the tax changes as a result of the Ontario Harmonized Sales Tax that is proposed to be implemented on July 1, 2010. The site includes a list of frequently asked questions, including the following:

• Would I end up paying more taxes?
• Won't certain things cost more?
• Would the government collect more money because of the proposed HST?
• Will businesses really pass on the savings?
• Why are these changes happening now?

The "tax change for a stronger Ontario" site includes information for families, businesses, consumers, seniors, farmers and homebuyers. Importantly for businesses, there is a section of the site dedicated to "transitioning to the HST."

Retail Sales Tax (RST)

Private Sales of Used Motor Vehicles
RST Guide 209 — Private Sales of Used Motor Vehicles — was released in July 2009. This guide replaces the "Used Vehicle Information Program" guide dated January 1998. The guide includes information regarding when RST is payable, fair market value, motorcycles, imported vehicles, trade-ins, appraisals, exempt transfers and refunds.

Harmonized Sales Tax (HST)

HST to be Removed from Home Electricity
On September 10, 2009, Nova Scotia Premier Darrell Dexter announced that, effective October 1, 2009, the provincial portion of HST will no longer apply to basic home electricity charges. The reduction will be in the form of a rebate equal to the 8% provincial portion of HST.

Global Updates

Tax Changes in Mexico
On September 8, 2009, the Mexican Executive Branch presented its proposed revenue package to Congress. The package included significant tax law changes that, if passed, will become effective January 1, 2010. These proposals will be subject to Congressional approval and likely subject to significant changes before being made final. Primary taxes still remain in effect, including income tax, flat tax (IETU), value-added tax (VAT), excise tax and others.

The more significant proposed sales tax changes can be summarized as follows:

• Tax on cash deposits: The tax on cash deposits (IDE) would be increased from the current rate of 2% to 3%, and the monthly limit on the aggregate tax-free cash deposits would be reduced from a current floor of Mx$25,000 to Mx$15,000. The IDE would still be creditable against other taxes.
• Excise tax: The current excise tax would apply, with possible increases for alcoholic beverages, cigarettes, telecommunications charges, and gambling/lottery activities.
• New consumption tax: A new 2% tax on sales similar to the VAT would be enacted to help reduce poverty — with a few exemptions, such as export sales. This tax would be creditable by businesses. The effect would be to increase the total consumption tax rate to 17%.

January 1, 2010, is the anticipated implementation date of these changes.

Canada

Canadian Government Proposes Sweeping Unilateral Duty Reductions — Comments Sought
The federal government has announced its intention to unilaterally remove the customs duty on a wide range of imported products. The Department of Finance is seeking comments from stakeholders on a proposal to remove the duty on over 1,500 specific tariff items. Each tariff item may encompass a broad selection of products. Finance will also consider submissions for the removal of duty on tariff items not on their list.

This proposal, if implemented, could result in unconditional duty-free entry into Canada of products classified in Chapters 25-90 of the Harmonized System, including chemicals, fibres, manufactures of stone, glass and metals, and tools, machinery and equipment. In some cases, the duty rates may end up being phased out over a maximum five-year period. The deadline for comments, whether in favour of or opposed to this initiative, is November 6, 2009.

Amendments to the Canadian Customs Act
In June 2009, amendments were made to the Customs Act in support of the Canadian government's strategy to strengthen security and facilitate trade. The amendments can be summarized as follows:

Advance Commercial Information: With the introduction of eManifest, all commercial trade chain members will be required to submit trade information electronically, before their shipments arrive in anada.

Customs-controlled areas: Under the new amendments, border services officers will have the authority and flexibility to examine goods and to question and search people anywhere within a customs-controlled area.

Proposed Amendments to the NAFTA Rules of Origin for Certain Textiles
On August 21, 2009, the Department of Finance issued a notice seeking views from interested parties regarding proposed amendments to the rules of origin under the North American Free Trade Agreement (NAFTA). The proposed changes would liberalize the rules of origin applicable to certain textile products that are made from:

• rayon fibre, other than lyocell;
• synthetic filament tow, modacrylic; and
• acrylic or modacrylic staple fibres,

that are not available in commercial quantities from domestic producers in the NAFTA territory.

Customs Self Assessment Program for Importers
On August 19, 2009, the Canada Border Services Agency (CBSA) issued Memorandum D17-1-7 — Customs Self Assessment Program for Importers to explain the policies and procedures relating to the accounting, revenue reporting, payment of duties and adjustment of goods imported into Canada by an importer authorized under the Customs Self Assessment (CSA) Program.

Customs Self Assessment Program for Carriers
On August 19, 2009, the CBSA issued Memorandum D3-1-7 — Customs Self Assessment Program for Carriers, to provide regulatory and procedural information about the Customs Self Assessment (CSA) Program for Carriers. The memorandum reflects amendments made to the Accounting of Imported Goods and Payment of Duties Regulations, Reporting of Imported Goods Regulations and Transportation of Goods Regulations under the CSA program.

Negotiating a Canada-Panama Free Trade Agreement
On August 11, 2009, Canada and Panama announced the conclusions of negotiations toward a Free Trade Agreement (FTA) as well as a Labour Cooperation Agreement and an Environment Agreement. An FTA will help enhance the bilateral commercial relationship and generate increased export and investment opportunities for Canada by creating a more preferential and predictable trade and investment environment.

Duty Deferral
Duty deferral information for entrepreneurs importing into Canada has been published on the CBSA website. Under this program, CBSA may waive, postpone or refund duties and taxes generally payable on imported goods. An importer can use the program's options individually or in combination in the way that best suits business needs. The program offers Canadian businesses many of the same duty and tax incentives as those found in free trade zones around the world.

European Union

EU and Eastern and Southern Africa Further Trade and Development Partnership
The European Union has signed an interim Economic Partnership Agreement with countries from the Eastern and Southern Africa (ESA) regional grouping. These countries are Mauritius, Seychelles, Zimbabwe and Madagascar. Zambia and Comoros have indicated that they will sign at a later date. Under the agreement, the ESA countries that signed the agreement will have immediate and full access to EU markets (with transition periods for rice and sugar), together with improved rules of origin.

EU and Papua New Guinea Trade and Development Agreement
The Interim Economic Partnership Agreement was signed by the EU and Papua New Guinea on July 30, 2009. Under the agreement, all imports from Papua New Guinea and Fiji will have immediate duty-free and quota-free access to the European market (with transition periods for rice and sugar). Papua New Guinea will remove customs duties on 88% and Fiji on 87% of their imports from the EU over the next 15 years.

Training, Events and Seminars

Save the Date

Sales Tax Harmonization: Thursday, November 26, 2009
On July 1, 2010, Ontario and British Columbia will harmonize their Retail Sales Taxes with the Goods and Services Tax. What does this mean for you?

In this seminar, we will examine the impact of sales tax harmonization on you and your clients. You will be provided with the background necessary to comply with your new obligations and will understand your entitlements to recover input tax under the new system. We will also focus discussion on transitional and place-of-supply rules.

Agenda
8:00 a.m. — 8:30 a.m. Continental breakfast
8:30 a.m. — 12:00 p.m. Presentation and Q&A

Location
PricewaterhouseCoopers LLP
Sztuka and Gresham rooms
Mississauga Executive Centre
1 Robert Speck Parkway, Suite 1100
Mississauga, Ontario

Cost (including GST)
$50 for a single seminar
$120 for three seminars
We accept all major credit cards.