Commodity Clips, 2009 Issue 4

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
• Manitoba
• Ontario
• Quebec
• Customs

Calculating the GST/HST on Tour Packages
GST/HST Memoranda Series 27.1 – Calculating the GST/HST on Tour Packages was released in June 2009 and replaces GST/HST Memorandum 27.1, Zero-Rated Travel Services, dated November 2006. The memorandum explains that suppliers who sell tour packages are required to identify the various elements of the package to determine the amount of GST/HST collectible and sets out the rules for determining the portions of the tour package that are subject to GST/HST at 5%, 13% or 0%. The memorandum also includes an example of a certificate of zero-rated entitlement that a tour operator may use when purchasing a domestic passenger transportation service that is a leg of an international continuous journey from a supplier.

Ferries, Toll Roads and Toll Bridges
GST/HST Memorandum 28.1 – Ferries, Toll Roads and Toll Bridges was released in June 2009 and replaces GST/HST Memorandum 28.1 – Ferry, Road and Bridge Tolls, dated May 1998. The memorandum explains how GST/HST applies to supplies of ferry services, supplies made on board ferries, place of supply rules with respect to supplies made on board a ferry, and tax status of other supplies related to ferry services. It also explains how GST/HST applies to supplies of a right to use a road or a bridge if a toll is charged for that right.

Social Service Tax

Proposed British Columbia Sales Tax Harmonization
In a joint press release issued on July 23, 2009, B.C. Premier Gordon Campbell and Finance Minister Colin Hansen announced that the province intends to harmonize its Provincial Sales Tax (PST) with the federal Goods and Services Tax (GST), effective July 1, 2010. Instead of a 5% federal GST and 7% PST, there will be a single 12% Harmonized Sales Tax (HST) in British Columbia. The announcement, which follows that made by Ontario earlier this year, proposes to introduce a similar system to that which has been in operation in Newfoundland and Labrador, Nova Scotia and New Brunswick since 1997.

No legislation has been released to date and these proposed changes are subject to approval by the parliaments of British Columbia and Canada. However, several proposed features were outlined in the press release, including some customizations specific to British Columbia. The proposed features announced include:

• point-of-sale rebates on a number of consumer products including gasoline and diesel fuel for motor vehicles;
• partial rebates on the provincial portion of the B.C. HST for new housing;
• refundable B.C. HST credit for low income earners; and
• temporary restriction of input tax credits for certain purchases by large business.

With less than one year until the proposed implementation date, we anticipate the release of proposed legislation in the coming months.

Dry Cleaning
Bulletin SST 005 – Laundry and Dry-Cleaning Businesses, originally issued in May 1989, was revised in May 2009 and replaces the previous version, dated April 2007. The bulletin provides information for laundry and dry-cleaning businesses, including the application of PST on sales and purchases.

Environmental Levies
Bulletin SST 015 – Environmental Levies, originally issued in July 1990, was rewritten in June 2009 and replaces the previous version, dated June 2008. The bulletin provides information regarding environmental levies, including the Battery Levy, the Innovative Clean Energy (ICE) Fund Levy and Other Eco or Enviro Levies.

Motor Vehicles Modified to Accommodate Persons with a Disability
Bulletin SST 070 – Motor Vehicles Modified to Accommodate Persons with a Disability, originally issued in June 2000, was rewritten in June 2009 and replaces the previous version, dated October 2004. Persons who purchase or lease a vehicle that has been modified to accommodate a person with a disability may be eligible for a reduction in the PST payable on the purchase or lease of the vehicle. The bulletin provides information to help motor vehicle dealers understand how to calculate the PST payable on the sale or lease of qualifying motor vehicles.

Alternative Fuels and Fuel Efficient Vehicles
Bulletin SST 085 – Alternative Fuel Vehicles and Fuel Efficient Vehicles, originally issued in August 2000, was rewritten in June 2009 and replaces the version, dated February 2009. It has been combined with Bulletin SST 087 – Alternative Fuel Vehicles: Calculating the Tax Reduction, and Notices to Motor Vehicle Dealers – Vehicles that Qualify for a PST Reduction and Notice to Motor Vehicle Dealers – PST Reduction for Qualifying Fuel Efficient Vehicles. The bulletin provides specific information to help motor vehicle dealers understand the PST reduction for alternative fuel vehicles and fuel efficient vehicles. It also provides information to help vehicle purchasers understand when they qualify for a refund of PST paid on these vehicles.

Carbon Tax Rate Changes
Notice 2009-007 – Carbon Tax Rate Changes was released in May 2009. The notice explains that the carbon tax rates that apply to the purchase or use of fuels in British Columbia will increase effective July 1, 2009.

Fuel Efficient Vehicles
2009 – Fuel Efficient Vehicles Qualifying for a PST Reduction was updated June 2009 to include the Toyota RAV4 (automatic). This list is located on the Motor Vehicle Dealer's industry website.

Retail Sales Tax (RST)

Beekeepers
Bulletin 022 – Sales to Beekeepers, originally issued in May 2000, was revised in June 2009. The revised bulletin adds a number of items to the lists of conditionally exempt items, unconditionally exempt items and taxable items with respect to farm implements, machinery and other items used principally for farming that are used by beekeepers.

Proposed Ontario Harmonized Sales Tax

Single Sales Tax
Information Notice 1 – Single Sales Tax, was released in June 2009. The notice provides general information about the proposed "Single Sales Tax" in Ontario, as announced in the 2009 Ontario Budget. It includes information regarding the effect on prices, how the proposed 'Single Sales Tax' would work, non-taxable sales, transitional credits, administration and temporary restricted input tax credits.

Enhanced New Housing Rebate, New Rental Housing Rebate and Transitional Rules
Information Notice 2 – Enhanced New Housing Rebate, a New Rental Housing Rebate and Transitional Rules was released in June 2009. The notice explains a number of proposed changes to the new housing rebate that were announced in the Ontario provincial budget on June 18, 2009. In particular, it is proposed that the new housing rebate be enhanced so that new homes purchased as primary residences, across all price ranges, would qualify for a rebate of up to $24,000. A similar rebate is available for new rental housing, including investment properties to be rented out for use as primary places of residence. Qualifying housing would include substantially renovated housing, co-operative housing, owner-built housing, housing on leased land, mobile homes and modular homes. The new rental housing rebate would also apply across all price ranges up to a maximum rebate of $24,000.

The proposed "Single Sales Tax" will not apply to sales of new or substantially renovated homes if ownership or possession transfers to the purchaser before July 2010. Furthermore, the new tax will not apply to sales of new or substantially renovated homes if the supply is made under a purchase and sale agreement made before June 18, 2009 (the date of announcement for the new rules).

The notice explains that all new agreements entered into from June 18, 2009, will be subject to the proposed "Single Sales Tax," unless legal ownership or physical possession of the home transfers to the purchaser before July 2010. As such, for all written agreements entered into after June 18, 2009 and before July 2010, the builder must disclose in the written agreement "whether the provincial portion of the proposed single sales tax will apply to the sale and, if so, whether the stated price in the agreement includes the applicable provincial portion of the proposed single sales tax, net of the Ontario new housing rebate."

Various transitional measures and grandparenting provisions aimed at helping homebuyers and builders move to the proposed "Single Sales Tax" are explained in the notice. These proposed transitional rules for new housing would be similar to the transitional rules that applied when the GST was introduced.

Retail Sales Tax (RST)

Ontario Electronic Stewardship Fees
RST Information Notice 74 – Ontario Electronic Stewardship Fees, was released in May 2009. The notice explains how RST applies to environmental fees passed on to consumers under the Waste Electrical and Electronic Equipment (WEEE) Program Plan. When the industry stewards choose to recover this cost by passing it on to retailers, the environmental fees form part of the fair value of the products sold. If retailers in turn choose to recover this cost by passing it on to their customers, the fee is also included in determining fair value of the product.

Graphic Designers
RST Guide 520 – Graphic Designers, was released in June 2009. The guide provides information to help graphic design firms and independent graphic designers understand how RST applies to their business operations. The type of products or services supplied by a graphic designer varies depending on the nature of the agreement entered into between the customer and a graphic designer. That is, designers may provide services only, products only, a combination of products and services, or may enter into real property contracts with their customer. The guide provides guidance on the application of RST to the provision of non-taxable services, tangible design, materials transferred electronically, bundled charges, real property contracts and manufacturing.

Municipalities
RST Guide 810 – Municipalities, was released in July 2009. It contains information to assist municipalities understand how RST applies to their sales and purchases, including admissions, aggregates, asset transfers, blue box and green bin distribution, construction and repair of real property, emergency medical service operations, fire fighting vehicles, fleet vehicles, libraries, manufacturing operations, parking fees, refunds and water and sewage treatment plants.

Quebec Sales Tax (QST)

Contracts for the Replacement of Ophthalmic Lenses
Interpretation Bulletin TVQ. 176-1/R2 – Contracts for the Replacement of Ophthalmic Lenses was issued on June 30, 2009, and replaces the previous version dated May 31, 1999. The bulletin explains that the supply of ophthalmic lenses, with or without frames, constitutes a zero-rated supply when the lenses are supplied on the written order of an eye-care professional for the correction or treatment of a defect of vision of the consumer named in the order.

Eyeglasses and Ophthalmic Lenses
Interpretation Bulletin TVQ. 176-2/R3 – Eyeglasses and Ophthalmic Lenses was issued on June 30, 2009, and replaces the previous version dated August 31, 2001. The bulletin explains how QST applies to a supply of eyeglasses and ophthalmic lenses obtained on the order of an eye-care professional, non-prescription sunglasses and clip-on sunglasses. In particular, the bulletin clarifies that a supply of non-prescription sunglasses is not a zero-rated supply while a supply of clip-on sunglasses is a zero-rated supply for QST purposes, because the latter are considered an accessory specially designed for prescription eyeglasses.

Expense Allowances
Interpretation Bulletin TVQ. 211-2/R1 – The Characteristics of an Expense Allowance was cancelled on June 30, 2009. The characteristics of an expense allowance are instead included in Interpretation Bulletin TVQ. 211-3/R2 – Input Tax Refunds in Respect of Expense Allowances, which was updated on June 30, 2009, and replaces the version of July 31, 1998. This updated bulletin clarifies the requirement that an allowance be paid "for supplies all or substantially all of which are taxable supplies," and to include and provide clarifications concerning allowances paid in the construction industry, which was previously the subject of bulletin TVQ. 211-4 (also cancelled). The principles concerning the application of the simplified method for calculating input tax refunds in respect of expense allowances are now the subject of bulletin TVQ. 211-5 – Simplified Calculation Method for Input Tax Refunds in Respect of Expense Allowances.

Interpretation Bulletin TVQ. 212-1/R3 – Simplified Calculation Methods for Input Tax Refunds in Respect of Expense Reimbursements was issued in June 2009 and replaces the version of January 30, 2004. The bulletin clarifies the Ministry's administrative policy concerning the simplified calculation methods that may be used by employers to determine the input tax refunds to which they are entitled in respect of expenses they reimburse to employees.

Canada

Amendments to the Valuation Provisions of the Customs Act
Customs Notice 09-17 – Amendments to the Valuation of the Customs Act was issued on July 17, 2009. This notice describes changes to certain sections of the Customs Act that deal with the various methods for determining the value for duty. The changes affect, among others, the provisions that describe the circumstances under which the methods described in section 48, 49 and 50 can be used (the transaction value method, the transaction value of identical goods method, and the transaction value of similar goods method, respectively).

Customs Valuation – Purchase in Canada Regulations
Memorandum D13-1-3 – Customs Valuation – Purchaser in Canada Regulations, was issued July 8, 2009 and supersedes the previous version dated April 9, 2001. This memorandum has been revised to provide, among other things, a revised interpretation of the expression "carrying on business" and more extensive guidance regarding the term permanent establishment.

Post-Importation Payments or Fees "Subsequent Proceeds"
Memorandum D13-4-13 – Post-Importation Payments or Fees "Subsequent Proceeds" was issued on July 8, 2009. This is an important new memorandum in which the Canada Border Services Agency (CBSA) describes its interpretative policy regarding post-importation payments, including fees for management and administrative fees, research and development fees, marketing and promotional fees and year-end adjustments.

Canada-Peru Free Trade Agreement (CPFTA)
On July 17, 2009, the CBSA issued Customs Notice 09-016 – Canada-Peru Free Trade (CPFTA). The notice provides an overview of the future changes to the Customs Tariff and the Customs Act and summarizes the requirements for taking advantage of the CPFTA preferential duty rates.

Genetically Modified Organisms (GMOs)
Canada and the European Communities have agreed to end a six-year World Trade Organization dispute regarding the approval and marketing of biotechnology products or GMOs. Resolving the dispute will result in improved market access for commercially produced Canadian GMO products.

SOR 2009-188 Customs Tariff Regulations amending the NAFTA Rules of Origin Regulations
Although these regulations involve no change in policy, they are essential in maintaining Canada's obligations under NAFTA. The amendments introduced in these regulations align the NAFTA Rules of Origin with the changes to the Harmonized System, which came into effect on January 1, 2007.

NAFTA Rules of Origin: Amendments to Appendix 6, Annex 300-B-Short Supply Goods
On July 1, 2009, Canada and the United States implemented measures to liberalize the NAFTA Rules of Origin applicable to certain textile goods that are made from acrylic staple fibres not available from domestic production in commercial quantities – the so-called short-supply goods.

Wood Slats from Mexico and China
On July 15, 2009, the Canadian International Trade Tribunal issued orders following the expiry review of its findings, concerning the dumping of wood slats originating in or exported from Mexico and the People's Republic of China. The Tribunal found that the dumping of wood slats from Mexico and China was unlikely to result in injury and therefore will not continue to impose anti-dumping duties on these products.

The European Free Trade Association (EFTA) Free Trade Agreement
On July 2, 2009 the Canada-EFTA Free Trade Agreement came into effect. As a result, many Canadian exporters and producers will immediately benefit from duty-free access to the markets of Iceland, Liechenstein, Norway and Switzerland.

European Union VAT

Recovery of VAT on certain acquisitions or importations of goods used to supply telecommunications services
The European Court of Justice (ECJ) has confirmed the right to recover input VAT incurred on the acquisition or importation of goods used to supply telecommunications services, if those services are supplied to a taxable person in another Member State (EGN B.V. – Filiale Italiana: C-377/08).

The taxpayer, an Italian subsidiary of a Dutch company, supplied telecommunications services to customers in Ireland during 1999. At that time, the Italian authorities had successfully applied for a derogation which allowed Italy to treat telecommunications services as supplied where the customer belongs. The taxpayer was therefore consistently in a VAT repayment position as its supplies to Ireland were not liable to Italian VAT. However, when the taxpayer sought repayment of the input VAT which it had incurred, the Italian authorities refused the application for refund. The basis of the refusal, which was supported by the first level Italian Court, was that the right to deduction arose only when supplies that would have been taxable in Italy were actually made in another member state. For reverse charge services, the argument was that "fictitious" extraterritoriality did not lead to the same right to deduct.

The taxpayer appealed and the Corte suprema di cassazione referred the following question to the ECJ:

"Is it permissible under article 17(3)(a) of the Sixth VAT Directive, in cases involving the supply of telecommunications services between taxable persons resident in different Member States of the Community and where the recipient is liable to value added tax, for the supplier to deduct the tax payable on the acquisition or importation of goods connected with the supply of telecommunication services which that supplier would be entitled to deduct if he provided the same services within his own country?"

The ECJ answered the question as follows:

"Article 17(3)(a) of Sixth Council Directive ... must be interpreted as meaning that a supplier of telecommunications services such as the one at issue in the main proceedings, which is established in the territory of a Member State, is entitled under that provision to deduct or obtain a refund in that Member State of input value added tax on telecommunications services that have been supplied to an undertaking having its principal place of business in another Member State, since such a supplier would have had that right if the services at issue had been supplied in the territory of the former Member State."