Commodity Clips, 2009 Issue 1

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
• Ontario
• Customs

CANADA

2009 Federal Budget Highlights
Federal Minister of Finance Jim Flaherty presented the minority government's budget on January 27, 2009. The budget includes the following announcements from a GST/HST perspective.

Direct Selling Industry
Direct sellers that use a network of commission-based sales representatives to sell goods and that meet certain conditions will now be allowed to use a special GST/HST accounting method. This change will simplify GST/HST compliance and will be available for fiscal years beginning after 2009 if an election is filed. The proposed change allows a direct seller and the seller's sales representatives to enter into an election, the effects of which are as follows:

• the commissions and bonuses received by the sales representatives will not be subject to GST/HST;
• certain supplies by direct seller of sales aids to sales representatives and supplies of host gifts to the sales representatives will not be subject to GST/HST; and
• the sale of goods by the direct seller to the final consumer will continue to be subject to the GST/HST under the normal rules.

Penalties and Interest
GST/HST Memorandum 16-2 — Penalties and Interest was issued in January 2009, superseding GST Memorandum 500-3-2, Penalties and Interest, dated March 1994. The memorandum explains the statutory penalties and the application of interest in accordance with the GST/HST provisions of the Excise Tax Act.

Cancellation or Waiver of Penalties and/or Interest
GST/HST Memorandum 16-3 — Cancellation or Waiver of Penalties and/or Interest was issued in January 2009, superseding GST Memorandum 500-3-2-1, Cancellation or Waiver of Penalties and Interest, dated March 14, 1994. The memorandum sets out the administrative guidelines that the Canada Revenue Agency will follow in applying the provisions of section 281.1 of the Excise Tax Act with respect to late filed returns.

Prepaid Funeral Arrangements
GST/HST Technical Information Bulletin B-091R — Application of GST/HST to Prepaid Funeral Arrangements was revised in November 2008, replacing the previous version dated December 2002. The bulletin clarifies the timing of the application of GST/HST to prepaid funeral arrangements. Notable amendments to the bulletin include commentary regarding the GST/HST treatment of deficits in trust amounts and instalment payment charges.

Interment Rights and Prepaid Cemetery Arrangements
GST/HST Technical Information Bulletin B-093 — Application of GST/HST to Interment Rights and Prepaid Cemetery Arrangements was revised in November 2008 and replaces the previous version dated February 2006. The bulletin clarifies the timing of the application of GST/HST to supplies of interment rights and cemetery property and services provided under prepaid arrangements. Notable amendments to the bulletin include removal of all references to "pre-need" arrangements and inclusion of commentary regarding the GST/HST treatment of instalment payment charges. Illustrative examples are provided.

Eating Establishments
GST/HST Policy Statement P-251 — Eating Establishments was issued on December 17, 2008. The policy statement explains the meaning of "establishment," where an establishment supplying substantially all taxable foods or beverages is required to charge tax on all of its supplies of food and beverages. The Excise Tax Act does not define the term "establishment." This policy statement lists the types of facilities that generally come within the scope of an establishment for the purposes of the Excise Tax Act. It also provides guidance on when an eating facility within a business entity (e.g., a lunch counter within a retail department store) should be considered an "eating establishment."

Agricultural Equipment Supplied Together with Accessories
GST/HST Policy Statement P-252 — Agricultural Equipment Supplied Together with Accessories was issued in January 2009. This policy statement provides that supplies of taxable accessories or equipment when supplied together with zero-rated agricultural equipment will be zero-rated if they are attached to or installed on the zero-rated agricultural equipment at the time of sale and form part of the unit. The policy statement also considers whether or not there is an incidental supply when accessories are supplied together with zero-rated farm equipment but not attached to or installed on the equipment.

Sharecropping
GST/HST Policy Statement P-253 — Sharecropping was issued in January 2009. The policy statement explains the application of the specific provision within the Excise Tax Act that zero-rates the supply of farmland under sharecropping (also known as crop-sharing) arrangements. Specifically, the policy statement provides four criteria, each of which must be satisfied in order to zero-rate a supply of farmland under a sharecropping arrangement.

Fishing Equipment and Products
GST/HST Info Sheet GI-049 — Fishing Equipment and Products was issued in January 2009. This info sheet describes zero-rated equipment and products relating to fishing activities. Two categories of fishing products are zero-rated under the Excise Tax Act:

• fish and other marine or freshwater animals; and
• fish eggs.

First Nations Goods and Services Tax (FNGST)

Tsleil-Waututh Nation
Notice 239 — The Tsleil-Waututh Nation Implements the First Nations Goods and Services Tax (FNGST) was issued in November 2008. Commencing November 27, 2008, the FNGST applies to supplies made on the Tsleil-Waututh Nation (Burrard) reserve in British Columbia.

Whitecap Dakota First Nation
Notice 240 — First Nations Goods and Services Tax Imposed by the Whitecap Dakota First Nation was issued in December 2008. Commencing January 2, 2009, the FNGST applies to supplies made on the Whitecap Dakota First Nation reserve, in Saskatchewan. Whitecap Dakota is the first First Nation in Saskatchewan to impose an FNGST. Everyone, including status Indians, pays the FNGST.

Excise Tax

Insurance Premiums
B280 Information Notice — Excise Tax on Insurance Premiums was issued in January 2009. The bulletin provides guidance on the application of the 10% Excise Tax to certain insurance premiums against risks in Canada, as provided for under Part I of the Excise Tax Act. It explains when the tax applies, what insurance is exempt, who has to pay the tax and how to complete the excise tax return.

Social Service Tax

Small Business Guide to PST
In October 2008, the British Columbia Ministry of Small Business and Revenue released the Small Business Guide to PST. The guide provides high-level information on topics such as:

• what is PST;
• what is taxable and not taxable for PST purposes;
• registration, collection, remittance and bookkeeping requirements; and
• audit procedures.

PST and GST
Bulletin SST 016 — Provincial Social Service Tax (PST) and Federal Goods and Services Tax (GST), originally issued in December 1990, was completely rewritten in January 2009 and replacing the previous version dated August 2007. The rewritten bulletin includes guidance to assist businesses to understand how to calculate PST when they also charge GST. This guidance is set out under three main headings:

• PST on goods and services;
• PST on liquor; and
• PST on provincial environmental levies.

Completing the Social Service Tax Return
Bulletin SST 032 — Completing the Social Service Tax Return, originally issued in February 1985, was revised in November 2008. The revised bulletin sets out amendments to the amount of commission payable to registered vendors who file their tax return and pay the PST by the due date. The increased commission amounts became effective November 1, 2008.

Partnerships
Bulletin SST 096 — Partnerships, originally issued in February 2008, was revised in December 2008. The revised bulletin provides that limited partnerships in which one or more of the general or limited partners is an Indian or Indian band may qualify for a full or partial exemption from PST if the purchase meets all of the criteria for exemption under the Indian Act

Prototypes
Bulletin SST 109 — Prototypes, originally issued in June 1996, was completely rewritten in January 2009, replacing the previous version dated April 2001. The guidance provided in the rewritten bulletin is set out under the headings:

• prototypes and mock-ups;
• purchases;
• software;
• improvements to real property;
• claiming the exemption; and
• the production machinery and equipment exemption.

Vehicles that Qualify for a PST Reduction
Notice 2008-036 — Notice to Motor Vehicle Dealers: Vehicles that Qualify for a PST Reduction was issued in November 2008. It provides an online link to the list of 2008 and 2009 fuel-efficient and alternative fuel vehicles that qualify for the PST reduction.

Welding Gases and Equipment
Notice 2008-039 — Welding Gases and Equipment was issued in November 2008. The notice explains how the PST exemption for catalysts and direct agents applies to welding gases and equipment. Specifically, welding gases are exempt from PST when used to protect the molten weld and the heat-affected zone from oxidation and other contaminates. Some equipment used in the welding process, including nozzles, torches and hoses, are also exempt from PST, while other equipment, including gas cylinders, tanks and storage devices, continue to be taxable.

Hotel Room Tax

Completing the Hotel Room Tax Return
Bulletin HRT 003 — Completing the Hotel Room Tax Return, originally issued in February 1985, was revised in November 2008. The revised bulletin sets out amendments to the amount of commission payable to registered vendors who file their tax return and pay the PST by the due date. The increased commission amounts became effective November 1, 2008.

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 December 2008 and replaces the previous version dated June 2008. The revised bulletin includes guidance with respect to purchases from out of province suppliers, including when and how to pay PST in such circumstances.

Municipal and Regional District Tax
Bulletin HRT 007 — Municipal and Regional District Tax, originally issued in October 1990, was revised in December 2008. The revised bulletin adds the Regional District of East Kootenay (Invermere Area) to the list of Municipalities where an additional hotel room tax of 2% applies. This change is effective February 1, 2009.

Provincial Sales Tax
Information Bulletin — Notification of a Change in the Application of Tax to Used Light Vehicles, originally issued in November 2007 was revised in December 2008. Effective January 1, 2009, the mandatory period for which a used light vehicle must be registered by the current owner in order to receive a trade-in allowance for PST purposes is reduced from six months to 90 days. If the current owner is unable to provide sufficient documentation at the time of sale, the dealer must collect tax on the full selling price, with no PST allowance for the trade.

Motor Dealers and Leasing Companies
Information Bulletin — Information for Motor Dealers and Leasing Companies, originally issued in October 1986, was revised in December 2008. The revised bulletin includes several amendments that reflect the reduction to the mandatory period for which a used vehicle must be registered by the current owner in order to receive a trade-in allowance for PST purposes from six months to 90 days.

Retail Sales Tax (RST)

Exemption for Newspapers
The Ontario Ministry of Revenue issued Information Notice — Exemption for Newspapers in December 2008. This notice explains the change to the definition of newspaper in Regulation 1013 under the Retail Sales Tax Act, which was amended on December 15, 2008. An exempt newspaper is now defined as a printed publication that:

• contains news, advertising and literary matter;
• is published on or after January 1, 2000; and
• accumulates at least five points as set out in the "Characteristics of Newspapers" table.

Rebates and Exemptions for Energy Efficient Goods
The Ontario Ministry of Revenue issued Tax Tips — Common Retail Sales Tax Rebates and Exemptions for Energy Efficient Goods in November 2008. This document lists rebates or exemptions for the following energy efficient goods, as well as when and how to apply for them:

• Solar Energy Systems Rebate;
• Wind, Micro Hydro-Electric and Geothermal Energy Systems Rebate;
• Vehicles Powered by Alternative Fuels Rebate; and
• ENERGY STAR® Qualified Household Appliances and Lighting Products Exemption.

Canada

Importation of Vehicles
Memorandum D19-12-1: Importation of Vehicles, originally issued November 2002, was revised December 3, 2008, to clarify and update Transport Canada's vehicle import requirements and the requirement of the Registrar of Imported Vehicles program. This memorandum deals specifically with the requirements relating to Transport Canada and the Canadian Food Inspection Agency, with a brief reference to the customs prohibition that applies to used and second-hand vehicles under the Customs Tariff.

Information Pertaining to Remission Orders
Memorandum D8-4-1: Information Pertaining to Remission Orders, originally issued August 7, 1998, has been revised on January 15, 2009 to include the application process for remission orders. The governing authorities for granting a remission of customs duties and taxes are section 115 of the Customs Tariff and section 23 of the Financial Administration Act.

Extended reapplication deadline for legacy Partners in Protection (PIP) members
The Canada Border Services Agency has extended the deadline for eligible legacy members who joined PIP before June 30, 2008, to reapply by March 31, 2009.

2009 Federal Budget Highlights

Notice to Amend the Customs Act
In an effort to assist Canadian industry, the 2009 budget has removed tariffs from a variety of machinery and equipment making 214 tariff items duty free under Most Favoured Nation. Examples of goods affected are of certain air filters, pulleys, shafts, speed drive controllers, magnets, electrical apparatus and electrical insulators.

This measure also seeks to simplify the Customs Tariff with respect to these tariff items. A number of tariff items have been revoked and replaced by more general tariff items. In a few instances, additional tariff items are being created to take into consideration comments received from stakeholders.

European Union VAT

Major Changes in EU VAT effective from January 1, 2010 — The VAT Package
The EU has adopted the so-called VAT Package, which brings with it significant changes to key areas of VAT legislation that will affect companies that do business in the EU, in respect of:

• place of supply of services;
• electronically supplied services;
• certain reporting obligations; and
• the VAT refund mechanism for businesses established in the EU.

By the time of implementation, businesses will have to be compliant with the new regulations in order to avoid potential penalties for incorrect accounting. Companies have to start addressing the issues quickly to allow sufficient time to reconfigure accounting systems and to minimize the business disruption that these changes may cause. The changes will come into effect on January 1, 2010.

Watch out for upcoming PwC awareness sessions on the VAT Package.