Commodity Clips, 2009 Issue 2

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
• Ontario
• Customs

Provincial Budget Highlights

Social Service Tax

On Tuesday, February 17, 2009, the British Columbia Minister of Finance, the Honourable Colin Hansen, introduced the province's 2009 budget. Numerous provincial sales tax (PST) exemptions in relation to five broad categories were introduced, expanded or clarified.

1. Production Machinery and Equipment
Commencing February 18, 2009, the following PST exemptions are expanded or clarified

• Equipment for electrical transmission or distribution — The exemption is expanded to include qualifying machinery and equipment that is:
  • used exclusively (over 90%) to transmit or distribute electricity (such as transformers, as well as converters, inverters, regulators, breakers and switches designed for use and used with transformers) if more than 50% of the electricity is to power exempt machinery and equipment or is an integral component of the manufacturing process; and
  • located at a qualifying manufacturing site, mine site, well site, natural gas processing plant or petroleum refinery.
• Repair materials — The exemption is expanded to include materials used to repair, maintain, modify or assemble exempt machinery and equipment.
• Machinery and equipment — The exemption is clarified to include certain machinery and equipment used to move material inputs and finished products within the manufacturing site.

These changes have been incorporated into the following bulletins:

• Bulletin SST 054 — Manufacturers, originally issued June 1989, revised February 2009.
• Bulletin SST 055 — Oil and Gas Industry — Producers and Processors, originally issued March 1985, revised February 2009.
• Bulletin SST 081 — Mining Industry, originally issued March 1989, revised February 2009.
• Bulletin SST 112 — Logging Industry, originally issued July 1997, revised February 2009.
• Bulletin SST 126 — Oil and Gas Industry — Service Providers and Contractors, issued February 2009.
• Bulletin SST 127 — Oil and Gas Industry — Exploration, Discovery and Development, originally issued October 2006, revised February 2009.

2. Heat Generation Equipment
The 2009 budget clarified that the exemption for heat generation equipment includes certain machinery and equipment used to generate heat when the generation of that heat is a step in a manufacturing or processing activity. Refunds previously filed for the period July 31, 2001, to February 21, 2006, inclusive, are payable if they qualify for this exemption. This change is reflected in Bulletin SST 054 — Manufacturers.

3. Bona Fide Farmers
Effective February 18, 2009, egg packing equipment and refrigeration equipment used for cooling or cold storage of farm products is PST-exempt if the equipment is acquired and used solely for a farm purpose. This change has not yet been reflected in Bulletin 023 — Bona Fide Farmers, originally issued April 1982, revised in October 2008.

4. Prescription Drugs and Vaccines
Effective February 18, 2009, to qualify for a PST exemption, prescription drugs and vaccines for human and animal use no longer have to be sold on the prescription of an eligible medical practitioner, but rather must be only a specified product under the Pharmacists, Pharmacy Operations and Drug Scheduling Act. The definition of prescription has also been amended to recognize that midwives, nurse practitioners and pharmacists are authorized to prescribe certain medications. These changes, along with some additional non-taxable medical related products, have been incorporated into the following bulletins:

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

5. Energy Conservation
The following material and equipment used to conserve energy are considered to be exempt:

• ENERGY STAR® qualified windows, doors, skylights and residential heating equipment from February 21, 2007, to March 31, 2011;
• Energy-efficient residential gas-fired water heaters from February 20, 2008, to March 31, 2011;
• Energy-efficient residential furnaces, boilers and heat pumps, from February 16, 2005, to March 31, 2011;
• Qualifying gas-fired water heaters when purchased or leased for residential purposes from February 20, 2008, to March 31, 2011;
• Energy-efficient commercial boilers fired by natural gas or propane with a boiler input rating of at least 200,000 BTU/h from February 18, 2009, to March 31, 2011;
• Devices to reduce idling for commercial vehicles, including auxiliary power units, cabin heaters and engine heaters for certain truck tractors with a gross weight of at least 5,000 kg., from February 18, 2009, to March 31, 2012;
• Aerodynamic devices for commercial vehicles, designed to reduce wind resistance and improve fuel efficiency, effective February 19, 2009;
• Equipment to produce energy from ocean currents, tides and waves, including certain accessories when sold with and as part of the energy-producing equipment, effective February 19, 2009; and
• Hydrogen when used in fuel-cell vehicles, excluding hydrogen produced by electrolysis using coal-generated electricity, unless carbon capture and storage or another process is used to contain the carbon dioxide emitted, effective February 17, 2009.

These amendments have been incorporated into the following bulletins:

• Bulletin SST 011 — Exemption for Material and Equipment Used to Conserve Energy, originally issued September 1981, revised February 2009.
• Bulletin SST 072 — Real Property Contracts, originally issued September 1986, revised February 2009.
• Bulletin SST 073 — Multi-Jurisdictional Vehicles, originally issued November 1995, revised February 2009.
• Bulletin SST 085 — Alternative Fuel Vehicles and Alternative Motor Fuel Tax Concessions, originally issued August 2000, revised February 2009.
• Bulletin SST 122 — Automotive Services and Parts, originally issued April 2006, revised February 2009.

On Wednesday, March 25, 2009, Manitoba's Minister of Finance, Greg Selinger, presented the province's 2009 budget. From a commodity tax perspective, the budget extends or enhances the following retail sales tax exemptions:

• Manure slurry tanks and lagoon liners — This exemption, which was to expire June 30, 2009, was made permanent.
• Educational workbooks — The sales tax exemption for books is expanded to include educational workbooks, effective May 1, 2009.

Sales Tax Harmonization

After 18 years of maintaining a retail sales tax alongside the federal GST, Ontario is making a bold move to modernize sales taxes in the province. In his budget, Finance Minister Dwight Duncan announced that Ontario will be harmonizing its sales tax system with the GST, effective July 1, 2010. Instead of a 5% federal GST and 8% Ontario Retail Sales Tax (RST), there will be a single 13% Harmonized Sales Tax (HST) in Ontario. This system has been in operation in Newfoundland and Labrador, Nova Scotia and New Brunswick since 1997.

The Ontario HST will be administered by the Canada Revenue Agency. To facilitate administration, the tax base and basic operational rules for the Ontario portion of the combined tax will be substantially the same as for the GST. Registrants will file a single return. Nevertheless, the Ontario portion of the HST will differ from the federal portion in a number of key areas. These are described in detail in the PricewaterhouseCoopers Tax Memo in relation to Ontario Sales Tax Harmonization.

Most economists will observe this decision as a step towards improving the productivity and competitiveness of Ontario's economy. However, it will have a different impact on the province's industry sectors. The following industry-specific Tax Memos share how the HST may affect your business and provide ways to prepare for the transition:

• Electricity Utilities
• Financial Services
• Forestry
• Information Technology
• Manufacturing
• Mining
• Municipalities, Universities, Schools and Hospitals
• Not-For-Profit and Charity
• Real Estate Development
• Retail Trade
• Telecommunications

Increase in the Rate of Quebec Sales Tax (QST)
The 2009-2010 Quebec budget, tabled on March 19, 2009, announced plans to raise the Quebec Sales Tax rate by one percentage point from 7.5% to 8.5%. This is one of four initiatives being put forward by the Government of Quebec to gradually eliminate the deficit in Quebec. If enacted, the rate change is planned to take effect on January 1, 2011.

Residential Care Facilities
GI-050 — Residential Care Facilities and the GST/HST Election to Adjust Net Tax for the Self-Supply of a Residential Complex — was issued in February 2009. The information sheet explains the new election as it relates to builder-operators of residential care facilities. It includes information on when a builder-operator is eligible to file the election and the effects of making the election. Before February 27, 2008, the self-supply rules generally did not apply to facilities, such as nursing homes, that were providing nursing/personal care services and that also included the provision of a residential unit. As a result of legislative amendments, the self-supply rules now apply to these facilities if the self-supply occurs after February 26, 2008.

Zero-Rated Farm Equipment
GI-051 — Zero-Rated Farm Equipment — was issued in February 2009. It describes farm equipment that is zero-rated for GST/HST. The information sheet provides specific guidance in relation to leases of farm equipment, accessories and seven categories of zero-rated farm equipment. The list of selected zero-rated agricultural equipment is generally limited to major equipment of a type purchased exclusively by farmers.

First Nations Self-Government Refund
Notice 241 — Whether an Application for the First Nations Self-Government Refund May Include the FNGST — was issued in January 2009. Certain First Nations have self-government agreements/tax agreements that provide for a self-government refund of the GST/HST. This notice confirms that when a First Nation qualifies for such a refund, the application may include any FNGST paid, in the same manner as it includes any GST and the federal portion of HST.

Social Service Tax

Aircraft
Bulletin SST 051 — Aircraft, originally issued in March 1985, was revised in January 2009. The revised bulletin adds the following goods and services to the list of non-taxable items:

• services or repairs to turbine aircraft;
• conversion kits or other parts to convert a non-turbine aircraft to a turbine aircraft;
• any aircraft leased with a pilot; and
• flying lessons that include the use of a non-turbine aircraft.

Equipment Brought into British Columbia for Temporary Use
Bulletin SST 098 — Equipment Brought Into British Columbia for Temporary Use (1/3 Formula), originally issued in November 1989, was completely rewritten in February 2009 and replaces the previous version, dated February 2007. The bulletin provides guidance on when to use the temporary-use formula, how to calculate the formula, the application of the temporary use formula for leased equipment, service and replacement parts and exempt production machinery and equipment.

PST on Administrative Materials
Notice 2009-002 — PST on Administrative Materials was issued in March 2009. The notice explains the change to the PST treatment of imported administrative materials for use in British Columbia, such as invoices, statements, pre-printed administrative forms and financial reports. The notice clarifies that:

• refunds may be claimed for administrative materials sent out of the province, including administrative materials shipped to individual customers for use outside the province; and
• PST must be self-assessed on administrative materials brought into the province, including administrative materials shipped to individual customers for use outside the province.

Retail Sales Tax (RST)

Vehicles Powered by Alternative Fuels
RST Guide 702 — Vehicles Powered by Alternative Fuels was rewritten in March 2009 to replace the previous August 2006 version. The guide provides information about the PST rebate available to purchasers of vehicles powered by alternative fuels, including hybrid electric vehicles (HEVs).

Canada

Canada-EFTA Free Trade Agreement
The Free Trade Agreement between Canada and the States of the European Free Trade Association, or EFTA (Norway, Switzerland, Iceland and Liechtenstein) was signed on January 26, 2008, and is expected to come into force by July 1, 2009.

Canada-European Union Joint Report: Towards a Comprehensive Economic Agreement
In October 2008, the EU and Canada released their joint study "Assessing the Costs and Benefits of a Closer EU-Canada Economic Partnership". The study indicates that the liberalization of trade in goods and services will benefit both the EU and Canada. Canada and the EU have now established specific areas of relevance for the negotiation of a comprehensive economic agreement. The Government of Canada, in consultation with the provinces, territories and Canadian stakeholders, will now prepare its detailed negotiating mandate.

Government of Canada Seeks Public Views on Comprehensive Economic Partnership with India
The Government of Canada is seeking the views of Canadians on the scope of a possible comprehensive economic partnership agreement with India. The Government of Canada wants to be fully aware of the interests and potential sensitivities of Canadians with respect to this initiative. The public comment period will run until April 6, 2009.

Danone Canada Inc. v. AGC et al.
Danone Canada Inc. ("Danone") applied for and was granted a stay in the application of a tariff classification ruling by the Canada Border Services Agency in respect the company's "DanActive" product. The ruling — which would have resulted in the imposition of the "over access commitment" duty rate of 237.5% — reversed a previous ruling by the agency that the product was classified in a tariff item that permitted it to be imported duty-free as a NAFTA originating good. The stay was granted while Danone appeals the revised ruling.

This case is noteworthy, firstly, because it demonstrates that rulings from the Canada Border Services Agency are not "cast in stone." Secondly, it gives importers — who rely upon such rulings when making business commitments and investments — a possible means of levelling the playing field with the Agency, by allowing them to avoid the "irreparable harm" that would result from the application of the ruling, even if, in the end, the importer wins its appeal.

A & G Inc. D.B.A. Alstyle Apparel v. President of the Canada Border Services Agency, Appeal No. AP-2007-007. Decisions and Reasons issued Thursday, March 12, 2009.
The issue in this appeal was whether various long- and short-sleeved knitted 100% cotton T-shirts were entitled to the benefit of the United States Tariff, as asserted by A & G, or of the Mexico Tariff, as determined by the CBSA.

The CITT determined that the goods were in fact entitled to the benefit of the United States Tariff. The appeal was allowed.

Waterproof Footwear from China and Vietnam — Notice of Commencement of Preliminary Injury Inquiry
The Canadian International Trade Tribunal initiated a preliminary injury inquiry into a complaint by the Shoe Manufacturers Association of Canada, of Baie d'Urfé, Quebec, that it has suffered injury as a result of dumped imports of waterproof footwear, and waterproof footwear in nearly finished form, from the People's Republic of China and Vietnam. The tribunal will determine whether there is a reasonable indication that the alleged dumping has injured the domestic industry. If so, the CBSA will continue its investigation and, by April 28, 2009, will issue a preliminary determination.

Any interested person, association or government that wished to participate in the tribunal's inquiry was required to do so by filing a Notice of Participation on or before March 13, 2009.

Memorandum D2-3-2: Former Residents of Canada Tariff Item No. 9805.00.00
This memorandum, originally issued February 3, 2006, was updated February 13, 2009, to include limitations to the importation of tobacco products as per the Excise Act, 2001.

Memorandum D10-14-27: Tariff Classification of Front-Mount Mowers
This memorandum, originally issued January 28, 1998, was updated February 13, 2009, to outline and explain the classification of front-mount mowers 8701.90.00. This revision is a result of the decision of the Canadian International Trade Tribunal in appeals AP-93-311 and AP-93-388.

Memorandum D19-5-1: Administration of the Hazardous Products Act and Regulations
This memorandum, originally issued August 29, 1995, was updated February 20, 2009, to:

• reflect CBSA's role in administering the provisions of the Hazardous Products Act;
• update the terminology to reflect changes in the CBSA's organizational structure; include a legislative reference section to identify relevant sections of the Customs Act, Canada Border Services Agency Act and Hazardous Products Act;
• replace the designated symbols and signal words in Appendix A with a list of Product Safety Offices;
• replace the hazardous products list in Appendix B with designated hazard symbols;
• reflect the new time frames for detention of goods; include new information regarding responsibility for disposal of goods;
• add information on the Radiation Emitting Devices Act and the Cosmetic Regulations;
• update the contact information section.

Memorandum D19-7-3: Importation and Exportation of Hazardous Waste and Hazardous Recyclable Material
This memorandum, originally issued November 15, 1994, was updated February 13, 2009, to reflect the Export and Import of Hazardous Waste and Hazardous Recyclable Material Regulations and provide procedures for the control and inspection of shipments of hazardous waste and hazardous recyclable material.

Customs Notice 09-001: New Carrier Export Penalty
Customs Notice 09-001, dated February 2, 2009, describes the implementation of a new penalty under AMPS C369. The contravention is "Carrier failed to report the export of cargo at the time, the place and/or in the manner prescribed." For the first six months following its introduction, penalty C369 will be applied only as a warning; no monetary penalties will be assessed. The monetary penalty amounts and the retention period will become effective on August 2, 2009, and will be applied starting at level one, regardless of how many penalties a carrier may have received during the grace period.

Customs Notice 09-002: New Canadian Requirements for Wood Packaging Material from China
The purpose of this customs notice, issued on March 4, 2009, is to inform importers about a change to the Canadian Food Inspection Agency's (CFIA) wood packaging policy. Effective June 1, 2009, wood packaging materials require a valid International Plant Protections Convention (IPPC) mark. Starting September 1, 2009, the CBSA will refuse entry of any wood packaging material certified with a Chinese phytosanitary certificate in lieu of a valid IPPC mark.

Customs Notice 09-003: Extension of Most-Favoured-Nation Tariff to Libya
This notice, dated March 17, 2009, outlines that effective January 29, 2009, the Most-Favoured-Nation (MFN) tariff treatment was extended to Libya. If goods have been accounted for under the General Tariff on or after January 29, 2009, the importer may request a refund under paragraph 74(1)(e) of the Customs Act for the difference between the rate of duty paid under the General Tariff and the rate of duty applied under the MFN.

Training, Events and Seminars

Export Controls and Value Added Tax (VAT)
Friday, May 29, 2009

This seminar will identify export control and VAT issues that you may encounter as you expand beyond North America. As emerging companies enter the global market, it is not uncommon for them to run afoul of export control and VAT requirements, often resulting in debilitating penalties. After attending this seminar, you will have an understanding of some common pitfalls and traps in doing business outside Canada.

Agenda
7:30 a.m. — 8:00 a.m. (Continental breakfast)
8:00 a.m. — 11:30 a.m. (Presentation and Q&A)

Location
PricewaterhouseCoopers, Conference Room A
Royal Trust Tower, TD Centre
77 King Street West, 30^th floor
Toronto, Ontario

Cost (including GST)
$50 for a single session

For additional information contact: