Commodity Clips, March/April 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
• Manitoba
• Ontario
• Québec
• Customs

Recovery of GST on Pension Plan Costs
On February 22, 2008, the Tax Court of Canada (TCC) released its long-awaited decision in the case of General Motors of Canada Limited v. The Queen (2004-3594(GST)G, 2008 TCC 117). The TCC had to determine if General Motors of Canada Limited (GMCL) was entitled to recover an input tax credit (ITC) the Goods and Services Tax (GST) incurred by GMCL, directly or through the pension trusts, on investment management fees.

The TCC performed a detailed review of the role and responsibilities of GMCL as administrator of its various pension plans and concluded that GMCL was entitled to claim as an ITC the GST paid on those fees. In spite of certain deeming rules concerning trusts and trustees, the TCC accepted GMCL's argument that it acquired the services, was liable for the tax, and used the supplies in the course of its commercial activity. GMCL was successful in convincing the TCC that the constating documents of the plans, and the powers and duties imposed by the Ontario Pension Benefits Act were broad enough to justify the claims.

Sponsors of defined benefit pensions may want to revisit their policies and procedures concerning ITC recoveries pertaining to pension plan costs, in light of that decision and their own specific situations. In January 2007, the general principles of new rules were published for comments. The new rules, introduced, would effectively overturn the GM decision and instead grant partial rebates to all trusts.

In reviewing its policies, an employer will therefore have to factor in all those elements, including the risk of retroactive legislation. We understand that the Canada Revenue Agency (CRA) will appeal the decision.

Visitor Rebate Program and Foreign Convention and Tour Incentive Program
As previously reported in the May/June 2007 edition of Commodity Clips the CRA replaced the Visitor Rebate Program (VRP) with the Foreign Convention and Tour Incentive Program (FCTIP), effective April 1, 2007. The following Information Sheets, originally issued in April 2007 to explain the FCTIP, have been revised as a result of the GST/HST rate reduction, which became effective January 1, 2008:

• GI-027, Foreign Convention and Tour Incentive Program — Sponsors of Domestic Conventions: Applications of the GST/HST to Admissions Sold to Non-Residents
• GI-028, Foreign Convention and Tour Incentive Program — Non-resident Exhibitors: Application of GST/HST to Purchases and Rebate for Purchases
• GI-029, Foreign Convention and Tour Incentive Program — Sponsors of Foreign Conventions: What is a Foreign Convention and Rebate for Purchases?
• GI-030, Foreign Convention and Tour Incentive Program — Non-Registered Organizers of Foreign Conventions: Rebate for Purchases
• GI-031, Foreign Convention and Tour Incentive Program — Registrant Organizers and Convention Facility Operators: Paying and Crediting the Rebate Amount for Foreign Conventions
• GI-032, Foreign Convention and Tour Incentive Program — Non-Residents Purchasing Tour Packages: Rebates for Eligible Tour Packages
• GI-033, Foreign Convention and Tour Incentive Program — Non-Resident Tour Operators: Rebate for Accommodation Sold in Eligible Tour Packages
• GI-044, Foreign Convention and Tour Incentive Program — Tour Packages: What is an Eligible Tour Package?

Rebates on Short-term Accommodation
Information Sheet
GI-026, Visitor Rebate Program — Non-Residents Purchasing Accommodation: When is the Rebate Still Available?
Originally issued April 2007, was completely rewritten in February 2008. The Information Sheet explains the rules that apply during the transitional period after cancellation of the VRP. The CRA explains that during the transitional period, non-resident individuals, businesses, organizations and tour operators will still be eligible to claim a rebate of the GST/HST paid on short-term and/or camping accommodation when certain conditions are met.

Residential Care Facilities
On February 26, 2008, the Minister of Finance presented the 2008 federal budget and tabled a Notice of Ways and Means Motion that included proposed changes to the GST/HST new residential rental property rebate and the self-supply rules under section 191 of the Excise Tax Act. Information Sheet GI-045, Residential Care Facilities and Proposed Changes in the 2008 Budget was released in March 2008 to explain some of these changes, including how the proposed amendments affect both purchasers and builder-operators of residential care facilities and the extension of the new residential rental property rebate to those facilities.

Standardized Accounting
In February 2008, the CRA issued Notice 231 — Notice of Change GST/HST Technical Information Bulletin B-100, Standardized Accounting to announce a change to question 4 in the Appendix — Frequently Asked Questions (FAQs). The answer to question 4 now addresses whether an automated hold will be placed on a refund or rebate owing to a corporation or charity because of either an outstanding corporate income tax return (T2) of the corporation that is exempt from paying income tax or an outstanding information return of the charity.

Social Service Tax

2008 Budget Highlights
On February 19, 2008, the British Columbia Minister of Finance announced changes to the taxation legislation administered by the Ministry of Small Business and Revenue. These changes are summarized in Budget Bulletin 2008 Changes to the Legislation Administrered by the Ministry of Small Business and Revenue.

The following are the key highlights of the 2008 budget:

• Carbon Tax: A new carbon tax on fossil fuels purchased in British Columbia was announced, and will be matched by an equal reduction in other taxes, so that the proposed carbon tax will be revenue-neutral. The carbon tax will be effective July 1, 2008, and applies to the first sale of fossil fuel in B.C. In February 2008, a Notice was issued explaining the details of the proposed British Columbia Carbon Tax.
• PST review inititatives: A PST review was conducted by the Ministry of Small Business and Revenue over the past two years to develop neutral options for simplifying, streamlining and enhancing the fairness of the tax. A list of changes resulting from phase two of the PST review. These changes include:
  • bona fide farmers and aquaculturists — clarification of the exemption from PST on purchases of all-terrain-vehicles (ATVs) acquired solely for farm or aquaculture use, SST 025 and SST 050;
  • coloured fuel used in farm vehicles — the exemption for coloured fuel used in farm vehicles used on public highways;
  • work-related safety equipment — of the exemption from PST on work-related safety equipment and apparel worn by or attached to a worker and purchased to meet the requirements of the Worker's Compensation Act or the Mines Act;
  • contracts to improve real property — Notice to Real Property Contractors provides that a contractor is responsible for PST on any tangible personal property used in completion of a contract to improve real property, unless the contract states that the customer is liable for the tax;
  • trusts and amalgamations — clarification of the application of PST to Trusts;
  • partnerships — clarification of the application of PST to Partnerships; and
  • well sites — clarification of the PST exemption for well sites.
• Fuel-efficient vehicles: point of sale PST rebates have been announced for the purchase or lease of new conventional fuel efficient vehicles that meet the fuel efficiency criteria set out in the federal government's ecoAUTO rebate program and will equal the federal rebate. Notice to Motor Vehicle Dealers: PST Reduction for Qualifying Fuel Efficient Vehicles was updated to reflect this change.
• Biodiesel fuel: exempt when used for non-motor fuel purposes.
• Coal and coke: PST is payable on coal and coke, except when it is purchased for use in a residential dwelling.
• Managed compliance program: refinements to the managed compliance program by simplifying the process for manufacturers who wish to acquire all property on a PST-exempt basis, and then self-assess on property that is used in a non-exempt manner.
• Charities: improvement to the refund to charities for PSTSST paid on medical equipment and removal of the requirement to collect and pay PST on items of nominal value given out as promotional items in exchange for a donation.
• Bicycles: the exemption for two-wheeled bicycles is expanded to adult-sized three-wheeled tricycles. Bulletin SST 001 has been updated to reflect this change.
• Electric scooters: a new exemption for electric scooters has been introduced, which also covers kits to convert non-motorized bikes to electric power assist. Two-wheeled vehicles that are manufactured to operate exclusively on electricity are eligible for the alternative fuel vehicle tax reduction of 50% to a maximum of $1,000, if the eligibility criteria are met
• Vehicles brought into B.C.: the trade-in rules are improved for vehicles brought into B.C. from another jurisdiction, effective February 20, 2008.
• Passenger vehicle rental tax: the tax ($1.50/day) no longer applies to rentals of 8 hours or less, effective April 1, 2008. Notice to Lessors of Passenger Vehicles: Passenger Vehicle Rental Tax (PVRT), was updated to reflect this change.
• Emission control devices: A new exemption for emission control devices used on diesel vehicles has been introduced, effective February 20, 2008
• Aerodynamic devices for commercial tractor trailers: A new exemption for the purchase of aerodynamic devices for commercial tractor-trailers has been introduced, effective February 20, 2008.
• Sample dental and optical appliances: A new exemption for samples of prescription dental and optical appliances has been introduced, effective February 20, 2008.
• Telecommunication services: A simplified formula for calculating the B.C. portion of a dedicated telecommunication service has been introduced effective February 20, 2008, eliminating the need to calculate the distance to/from a satelite.
• Catalysts and direct agents: The catalyst and direct agents exemption is expanded and improved to include chemical substances, catalysts and direct agents used to produce or modify a reaction that is essential for the processing or manufacture of a product for sale or lease, effective February 20, 2008. The Catalyst, Direct Agents and Chemical Substances Notice was updated to reflect this change.
• Production machinery and equipment: An exemption for municipalities who generate electricity at a manufacturing site or cogeneration site has been introduced, effective February 20, 2008.

The following Social Service Tax Bulletins and Guides were amended as a result of the 2008 Budget:

• SST 001 — Bicycles and Tricycles
• SST 002 — Safety Equipment and Protective Clothing
• SST 004 — Refunds on Charity-Funded Purchases of Medical Equipment
• SST 006 — Medical Supplies and Equipment
• SST 010 — Special Registration Number
• SST 011 — Exemption for Material and Equipment Used to Conserve Energy
• SST 014 — Manufactured Homes for Residential Use
• SST 018 — Taxable Services
• SST 023 — Bona Fide Farmers
• SST 025 — Bona Fide Commercial Fishers
• SST 026 — Grocery and Drug Stores
• SST 042 — Motor Vehicle Dealers
• SST 047 — Clubs, Thrift Stores, Societies and Charities
• SST 050 — Bona Fide Aquaculturists
• SST 054 — Manufacturers
• SST 055 — Oil and Gas Industry — Producers and Processors
• SST 057 — Building and Home Improvement Stores
• SST 059 — Dentists
• SST 072 — Real Property Contractors
• SST 073 — Multi-Jurisdictional Vehicles
• SST 081 — Mining Industry
• SST 085 — Alternative Fuel Vehicles and Alternative Motor Fuel Tax Concessions
• SST 087 — Alternative Fuel Vehicles: Calculating the Tax Reductions
• SST 092 — Transfer of Business Assets Between Closely Related Parties
• SST 093 — Trusts
• SST 096 — Partnerships
• SST 103 — Lessors of Motor Vehicles and Trailers
• SST 107 — Telecommunications Industry
• SST 110 — Warranties, Service Contracts and Maintenance Agreements
• SST 111 — Propane
• SST 112 — Logging Industry
• SST 120 — Shellfish Growers
• SST 121 — Security Systems
• SST 122 — Automotive Services and Parts
• SST 125 — Optical Retailers
• SST 126 — Oil and Gas Industry — Service Providers and Contractors
• SST 127 — Oil and Gas Industry — Exploration, Discovery and Development
• SST 133 — Home-Based Businesses

The following Social Services FAQs were issued as a result of the 2008 Budget:

• Farmers
• Nurseries and Garden Stores

Rentals and Leases of Tangible Personal Property
Bulletin 082 — Rentals and Leases of Tangible Personal Property, originally issued in March 1987, was reissued in March 2008 to include details regarding the PST treatment of repair fees paid by a lessee for the damage of rental property. It explains that if these fees are paid under a contractual obligation to reimburse the lessor, the lessor does not charge PST on either the repair fee or any associated administration fees levied by the lessor. The amended Bulletin also includes details regarding the requirement for a lessor to pay PST on lease equipment that was originally purchased exempt and convertedto taxable use.

Lessors of Motor Vehicles and Trailers
Bulletin 103 — Lessors of Motor Vehicles and Trailers, originally issued in September 1993 and revised March 2008. The Bulletin has been revised to clarify the operation of the PST reduction for leases qualifying fuel efficient vehicles, which became effective February 20, 2008.

Insurance Premium Tax

Insurance Premium Tax for Taxable Insurers
Bulletin IPT 001 — Insurance Premium Tax for Taxable Insurers, originally issued in February 2004, was revised in February 2008 to clarify the definition of a taxable insurer. The definition of a taxable insurer now includes an insurer who has a business authorization under the Financial Institutions Act to carry on insurance business.

Hotel Room Tax

Increase Transfer to Tourism British Columbia
Legislation was introduced in 1997 to transfer a portion of the hotel room tax to Tourism British Columbia, to provide funding for tourism in the province. As part of the 2008 budget, the Ministry of Small Business and Revenue announced that, effective April 1, 2008, this portion of the Hotel Room Tax is increased from 1.65% to 3%. The overall rate of Hotel Room Tax does not change. The following Bulletins are changed as a result of this announcement:

• Accommodation — Registered Operators of Hotels, Motels or Other Lodgings
• Bed and Breakfast Operators

Retail Sales Tax

Information for Vendors
Information Bulletin 004, Information for Vendors , originally issued in April 2000 and last revised in July 2004, was revised by Manitoba Finance in February 2008. Manitoba Finance explains in the revised Bulletin that effective February 1, 2008, if the due date for Retail Sales Tax returns falls on a weekend or statutory holiday, the due date is the next working day. The revised Bulletin also provides information regarding the ability to use Manitoba Finance online services, TAXcess, to apply for registration as a vendor and to complete and pay tax returns.

Provincial Sales Tax

Changes to Fine Collection Process — GST Rebates Withheld
On February 12, 2008, the Saskatchewan Ministry of Justice and Attorney General announced that people with unpaid fines in the province may soon have their income tax refunds and GST rebates withheld. The Fine Collection branch of the Ministry of Justice and Attorney General will partner with CRA to commence withholding federal government income tax and GST payments from people who have not paid their fines. It applies to all fines laid under provincial statutes that are payable to the province.

Retail Sales Tax

2008 Budget Highlights
On March 25, 2008, the Ontario Minister of Finance presented the 2008 Ontario budget. The following retail sales (RST) changes were proposed:

• Destination marketing fees: temporary exemption extended to fees billed before;
• Admissions to live theaters of not more than 3,200 seats: temporary exemption was made permanent, effective April 1, 2008;
• ENERGY STAR® household appliance and light bulbs: temporary exemption was extended to appliances purchased, rented or leased before September 1, 2009 that are delivered before October 1, 2009 and light bulbs purchased before September 1, 2009;
• Bicycles and related safety equipment: temporary exemption extended to purchases made before January 1, 2011;
• Nicotine replacement therapies: temporary exemption was made permanent, and for purchases made after March 25, 2008, the qualifying therapies are broadened;
• Newspapers: publications with smaller circulation or less frequent publishing schedules will qualify for the RST exemption for newspapers. This change is retroactive to January 1, 2000;
• Containers: amendments will confirm that RST is exigible on purchases of containers and other packaging, storing and shipping items intended to be returned for reuse in the packaging, storing and shipping of goods, and containers and other items provided as a promotions distribution;

Effect of GST/HST Rate Reduction on Retail Sales Tax
In January 2008, the Ontario Ministry of Revenue issued Retail Sales Tax (RST) Information Notice 62 How the GST Rate Reduction Affects Retail Sales Tax. The Notice explains the formulas used to calculate RST that are affected by the GST rate reduction, namely tax-included pricing, taxable goods, commercial parking, prepared foods, alcoholic beverages, admission charges, capital improvement rebates, sales made prior to July 1, 2006 and sales made between July 1, 2006, and December 31, 2007.

Québec Sales Tax

Rebate for Hybrid Vehicles
In February 2008, the Québec Ministry of Revenue issued a news release in relation to the QST rebate for hybrid vehicles. The rebate for QST paid may be available for taxpayers that purchase, lease for a long term or bring into Québec a prescribed new hybrid vehicle. The latest news release updates the list of the vehicles for which the rebate may be claimed to include the 2008 model of the previously prescribed vehicles.

Canada

Customs Notice N-08-014: NAFTA Rules of Origin — Disassembly as a Mode of Production That May Confer Origin was published March 20, 2008 to advise all parties involved in importing commercial shipments into Canada, that effective immediately, the Canada Border Services Agency (CBSA) will consider processes listed under the NAFTA definition of "production" to include disassembly. According to the Notice, "[t]he term 'production' as defined in Part I, section 2 of the NAFTA Rules of Origin Regulations [SOR/94-14] means 'growing, mining, harvesting, fishing, trapping, hunting, manufacturing, processing or assembling a good.' CBSA considers this definition of 'production' to be 'illustrative and not exhaustive' and to include the process of disassembling a good to recover materials or articles."

Proposed Free Trade Agreement Negotiations between Canada and Jordan
The first round of Free Trade Agreement negotiations between Canada and Jordan is planned for April 2008 in Amman, Jordan. Negotiations will cover a wide range of issues, including trade in goods, rules of origin, customs procedures, trade facilitation, monopolies and state enterprises, dispute settlement and institutional provisions.

Jordan's rapidly expanding economy provides opportunities for Canadian exporters in sectors such as manufacturing, agriculture and agri-food and forest products. A Free Trade Agreement with Jordan would improve Canadian trade and economic ties and better position Canadian business vis-à-vis competitors such as the United States and the European Union, which already have trade agreements with Jordan.

Canada Proposes Amendments to the Customs Act to Strengthen Border Security
In February 2008, the Honourable Stockwell Day, Minister of Public Safety, announced proposed amendments to the Customs Act to strengthen Border Security. The amendments will give Canada Border Services Agency (CBSA) officers the information, tools and flexibility they need to detect threats and tackle crime, while ensuring that legitimate trade and travellers can cross the border efficiently.

Examples of the proposed amendments include:

• mandatory requirements for all businesses involved in the import trade chain to provide CBSA with electronic data on their shipments before the shipments reach Canada; and
• enabling the CBSA to fully implement "customs controlled areas," which will give border services officers the flexibility to examine goods and question and search people anywhere within those areas, as opposed to only at exit points, as in the current Act

Customs Notice N-08-004 — Memoranda D9-1-1, D9-1-15 and D9-1-17
This notice announces amendments to the memoranda on the importation of obscenity and hate propaganda and of the publication of a new procedural memorandum on the determination of obscenity and hate propaganda. Effective February 14, 2008, Memorandum D9-1-1 has been amended to remove descriptions that now constitute child pornography and Memorandum D9-1-15 has been updated to reflect the addition of sexual orientations as identifiable group. Other minor administrative amendments have also been made to the texts of both memoranda.

Memorandum D-9-1-17; Canada Border Services Agency's Determination Procedures for Obscenity and Hate Propaganda outlines current procedures for the determination of obscenity and hate propaganda. It comes into effect on February 14, 2008, replacing the Interim Guidelines, dated September 29, 2003.

European Union

EU and Ukraine Launch Free Trade Agreement Negotiations
Following the finalization of Ukraine's WTO accession process on February 5, 2008, negotiations have been launched for a free trade agreement between Ukraine and the European Union (EU). An EU-Ukraine free-trade agreement is part of the EU's wider policy of creating a stable and prosperous European neighbourhood through closer economic ties. The EU is not only Ukraine's largest trading partner, but one of the largest and richest markets in the world. Closer economic ties with the EU offer significant benefits for Ukraine.