Commodity Clips, 2009 Issue 6

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.

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

The 2009 Ontario budget proposed harmonized sales tax (HST) that would come into effect July 1, 2010. In addition, on July 23, 2009, the British Columbia Ministry of Finance issued a News Release proposing an HST that would also come into effect on July 1, 2010. The HST in Ontario and British Columbia will be administered by the Canada Revenue Agency (CRA).

Transitional Rules for Real Property

The CRA has released two publications dealing with HST transitional rules for supplies of real property. These provide questions and answers concerning the proposed tax changes announced by the governments of Ontario and British Columbia.

Notice 244 – Harmonized Sales Tax for Ontario – Questions and Answers on Housing Rebates and Transitional Rules for Housing and Other Real Property Situated in Ontario was released in October 2009 and replaces the earlier September 2009 version entitled Harmonization of the Ontario Retail Sales Tax and the Goods and Services Tax – Questions and Answers on Housing Rebates.

Notice 246 – Harmonized Sales Tax for British Columbia – Questions and Answers on Transitional Rules for Non-Residential Real Property Situated in British Columbia was released in October 2009.

Transitional Rules for Personal Property and Services

Notice 247 – Harmonized Sales Tax for Ontario and British Columbia – Questions and Answers on General Transitional Rules for Personal Property and Services was issued by the CRA in October 2009. This publication addresses the proposed tax changes as announced in the respected publications by Ontario and British Columbia (see below). The information is provided to assist businesses and consumers understand how the transitional rules for the proposed HST would apply to transactions, made by GST/HST registrants, that straddle the July 1, 2010 implementation date.

General Transitional Rules for Ontario

On October 14, 2009, the Ontario government released Information Notice 3 – General Transitional Rules for Ontario HST. This publication outlines the transitional rules governing how HST and Provincial Sales Tax (PST) will apply to transactions occurring near the implementation date for the HST. The general transition rules are identical to those announced in British Columbia. Transitional rules are provided for supplies of goods, services, leases, licences and similar arrangements for property and intangibles. Special transitional rules are also provided for supplies of memberships and admissions, passenger transport and subscriptions.

More Point-of-Sale Rebates

On November 12, 2009, the Ontario government announced additional point-of-sale rebates of the 8% Ontario component of the HST that would apply to the following designated items:

• print newspapers that contain news, editorials, feature stories or other information of interest to the general public, and that are published at regular intervals, typically on a daily, weekly or monthly basis, but not flyers, inserts, magazines, periodicals and shoppers; and
• qualifying prepared food and beverages that are ready for immediate consumption and are sold for a total price (for all qualifying items purchased, excluding HST), of not more than $4.00.

These rebates are in addition to the following point-of-sale rebates, previously announced in the 2009 Ontario budget:

• books;
• children's clothing;
• children's footwear;
• children's diapers;
• children's car seats and car booster seats; and
• feminine hygiene products.

Input Tax Credit Restrictions

On November 16, 2009, Ontario Finance Minister Dwight Duncan issued a new publication, Ontario's Tax Plan for Jobs and Growth. The publication provides details on the special restriction on input tax credits (ITCs) for the 8% provincial portion of the HST paid by large businesses for selected purchases made during the first eight years after harmonization. Small and medium-sized businesses will not be affected by these special ITC restrictions.

The ITC restrictions generally will apply to the following:

• Electricity, gas, combustibles (other than fuels to power a propulsion engine) or steam (energy). However, energy used to produce goods for sale, or for the design or production of equipment used to produce goods for sale generally would not be subject to the restrictions. Energy for air conditioning, lighting, heating or ventilation generally will be restricted.
• Most telecommunication services, such as telephone services, voicemail, conference and long- distance calls. However, internet access, web hosting and toll-free numbers would not be subject to the restrictions.
• Road vehicles weighing less than 3,000 kilograms that are required to be registered for use on public highways. This would include most cars, minivans and pick-up trucks, but not trailers or semi-trailers.
• Fuel (other than diesel fuel) to power a vehicle described above and any parts and services acquired for such a vehicle within the first 12 months following the date of acquisition (other than parts and services acquired for routine maintenance during that time).
• Food, beverages and entertainment that are only 50% deductible under the Income Tax Act (which give rise to only a 50% ITC for the 5% federal GST).

Homebuyers and the Housing Industry

On November 19, 2009, the Ontario government released Information Notice 4 – Additional Information for Homebuyers and the Housing Industry under Ontario HST. This publication provides further information to help homebuyers and the housing industry prepare for the proposed HST. It explains the rebates applicable to new housing, including rentals, and transitional rules for residential real property.

General Transitional Rules

On October 14, 2009, the British Columbia government released HST Notice 1 – General Transitional Rules for British Columbia HST. This publication outlines the transitional rules governing how HST and PST will apply to transactions that straddle the implementation date for the HST. The general transition rules are identical to those announced in Ontario.

Point-of-Sale Rebates

On November 16, 2009, the British Columbia government released HST Notice 2 – Point-of-Sale Rebates for British Columbia HST. This publication outlines details of the proposed point-of-sale rebates of the 7% B.C. component of the HST that would apply to the following designated items:

• motor fuels;
• books;
• children's clothing;
• children's footwear;
• children's diapers;
• children's car seats and car booster seats; and
• feminine hygiene products.

New Housing Rebates

On November 16, 2009, the British Columbia government released HST Notice 3 – Residential Housing – New Housing Rebates and Transitional Rules for British Columbia HST. This publication provides measures to help those buying or constructing new homes switch from the current PST to the proposed HST. It explains the new rebates applicable to new housing, including rentals, enhanced new rental housing rebates, general application of HST to sales and rentals of new homes, and transitional rules for residential real property.

Rulings and Interpretations

On September 29, 2009, the CRA released GST/HST Memoranda Series 1.4 – Excise and GST/HST Rulings and Interpretations Service. Among other things, this memorandum explains:

• the rulings and interpretations service offered by the CRA in respect of:
  • GST/HST;
  • excise taxes;
  • excise duties, the air travellers security charge;
  • the tax on insurance premiums;
  • First Nations taxes; and
  • the softwood lumber products export charge
• what rulings are;
• the limitations of rulings;
• when rulings are revoked; and
• the circumstances in which a ruling will not be issued.

Rebate for Tax Paid in Error by Customs Broker

GST/HST Notice 245 – Supreme Court of Canada decision in United Parcel Service Canada Ltd. v. Her Majesty the Queen (2009) was issued in September 2009.

This notice explains the implications of the Supreme Court of Canada decision for GST/HST purposes. The case dealt with the recovery of amounts paid as tax in error on imported goods. The Court concluded that UPS was entitled to a rebate for tax paid in error. In this notice, the CRA explains that the decision is not restricted to recovery of amounts paid as tax in error in respect of imported goods, but also extends to amounts paid as tax in error in respect of certain supplies. The notice also sets out the conditions that must be satisfied in order to recover an amount of tax paid in error.

Fertilizer and/or Pesticide Supplied Together with an Application Service

GST/HST Policy Statement P-254 – Fertilizer and/or Pesticide Supplied Together with an Application Service was issued on October 9, 2009. The policy statement explains that when fertilizer and/or pesticide is supplied together with an application service, there is either:

• a single supply of a taxable application service; or
• multiple supplies consisting of a zero-rated supply of fertilizer/pesticide and a taxable supply of an application service.

In any given transaction this is a question of fact.

Registered Pension Plans

GST/HST Technical Information Bulletin B-032R – Registered Pension Plans was revised in November 2009. The revised bulletin explains that, as a result of the draft legislation with respect to pension plan expenses incurred by employers and pension plan trusts or pension corporations announced by the Department of Finance on September 23, 2009, the administrative policy outlined in GST/HST Technical Information Bulletin B-032R will cease to apply effective the first day of an employer's fiscal year that begins on or after September 23, 2009.

Social Service Tax

Boat Vendors and Boat Owners

The British Columbia Ministry of Small Business and Revenue recently amended two bulletins with respect to the boating industry.

• Bulletin SST 008 – Boat Vendors (formerly titled Application of Tax to Boat Leases and Charters) was completely rewritten in October 2009, and replaces the previous version, dated February 2007. The bulletin provides information specific to boat vendors including when to charge PST on sales and leases of new or used boats. The bulletin also explains the PST implications of boats converted from tax exempt to taxable use.
• Bulletin SST 114 – Boat Owners (formerly titled Boats) was completely rewritten in October 2009 and replaces the previous version, dated June 2008. The bulletin provides information specific to purchasers of boats including when PST applies on purchases of new or used boats. It explains that PST is not payable on purchases of boats where the purchaser is a commercial fisher or aquaculturist. The bulletin also explains that PST is not payable on boats purchased solely for leasing but is payable on boats purchased solely for chartering.

Dentists

Bulletin SST 059 – Dentists, was completely rewritten in November 2009, and replaces the previous version, dated February 2008. The bulletin provides information for dentists including when to charge and when not to charge PST on sales and when to pay and when not to pay PST on purchases.

Harmonized Sales Tax (HST)

HST to be Removed from Home Electricity

On September 10, 2009, 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 provincial portion of HST.

Quebec Sales Tax

Flea Markets

In September 2009, Revenu Quebec issued Interpretation Bulletin TVQ. 350.43-1/R2 – Measures Concerning Flea Markets. The bulletin has been revised to reflect the repeal, in 2002, of the penalty for failure to furnish the operator of a flea market with certain information.

Canada

U.S. Mandatory Country-of-Origin Labeling

On November 19, 2009, Foreign Affairs and International Trade Canada highlighted that the World Trade Organization (WTO) has established a dispute settlement panel to hear Canada's challenge to the U.S. mandatory country-of-origin labeling (COOL). The WTO dispute settlement panel will be asked to determine whether the COOL measures are consistent with the United States WTO trade obligations, and is expected to issue its report next summer or early fall. Canada alleges that COOL is a mandatory U.S. labeling measure that imposes unfair and unnecessary costs on integrated North American supply chains, reducing competitiveness in both Canada and the United States.

Draft Memorandum D14-1-5: Duty Payable under the Special Import Measures Act – Security Deposit to Guarantee the Payment of Provisional Duty

This draft memorandum replaces Memorandum D14-1-5, Procedures, for release from customs of goods subject to provisional duty under the Special Import Measures Act (SIMA), dated January 1, 1994. This draft memorandum is intended to outline the specific policies and procedures under which security may be posted to guarantee the payment of provisional duty, and in certain cases, of anti-dumping or countervailing duty, payable under the SIMA. It also clarifies application requirements, levels of security, bond format, and specific completion instructions for the bond created for SIMA purposes.

CBSA intends to begin accepting new forms of security to guarantee the payment of provisional duty under SIMA. CBSA has also proposed a revision to the format for SIMA bonds issued by financial institutions or bonding companies. The new bond will be an easy-to-fill form that can be used to secure provisional duty, or, in some cases, final anti-dumping and countervailing duty. Those who have SIMA bonds that were prepared using the current format do not need to have these bonds replaced. Only new surety or financial institution bonds posted after the revised format is publicized require the new version.

In specific circumstances, in lieu of anti-dumping or countervailing duty payment, CBSA will accept security. As well as cash, certified cheque or money order, a bond issued by a financial institution or acceptable bonding company, approved by the Government of Canada, is acceptable. Details on security and bonds are found in D1-7-1. Any new bonds for final anti-dumping and countervailing duty, posted after the revised format is publicized, must be in the new format.

Memorandum D17-1-1: Documentation Requirements for Commercial Shipments

This memorandum, issued November 19, 2009, replaces the original April 7, 2000 version. It outlines and explains the policies and procedures for presenting the import documents required for obtaining release and accounting for commercial shipments, removes references to obsolete forms, publications and systems and reflects the organizational changes resulting from the creation of the Canada Border Services Agency (CBSA).

Memorandum D17-1-11: Private Printing Policy and Procedures

This memorandum was released on November 19, 2009, and supersedes the original December 7, 2001 version. It outlines the conditions under which the private printing of accounting, adjustment, and export documents is authorized and explains the procedures to obtain approval for private printing. This memorandum was revised as a result of the Paper Burden Reduction Initiative and the revisions are aimed at eliminating obsolete and duplicated requirements.

Notice of Re-investigation of Certain Copper Pipe Fittings

The Canada Border Services Agency (CBSA) has initiated a re-investigation of the normal values and export prices of certain copper pipe fittings originating in or exported from the United States of America, the Republic of Korea and the People's Republic of China. The CBSA is not initiating a re-investigation of the amount of subsidy respecting certain copper pipe fittings from the People's Republic of China at this time. The subject goods are described as solder joint pressure pipe fittings and solder joint drainage, waste and vent pipe fittings, made of cast copper alloy, wrought copper alloy or wrought copper, for use in heating, plumbing, air conditioning and refrigeration applications, originating in or exported from the United States, the Republic of Korea and the People's Republic of China. The re-investigation is part of the CBSA's ongoing enforcement of the Canadian International Trade Tribunal's finding of material injury issued on February 19, 2007. It is anticipated that this re-investigation will be concluded on or before April 1, 2010.

Directive D-02-12: Import Requirements for Non-Processed Wood and Other Non-Propagative Wood Products, Except Solid Wood Packaging Material, from all Areas Other than the Continental United States

Directive D-02-12 was revised and became effective September 18, 2009. It clarifies the treatment requirement for non-tropical lumber and the import requirements for lumber products and decorative wood items and dry cones.

This directive has been revised to clarify the treatment requirement for non-tropical lumber and the import requirements for (a) lumber products and (b) decorative wood items and dry cones. This revision also included the CITES - Identification Guide for Tropical Woods.

European Union

EU Requests WTO Panel on Chinese Export Restrictions on Raw Materials

The European Union has requested the establishment of a World Trade Organization (WTO) panel on Chinese export restrictions on a number of key raw materials, which it considers are in clear breach of international trade rules. The EU has raised the issue with China repeatedly, including through formal WTO consultations, but without success. The EU has now turned to the WTO dispute settlement process to ensure China's compliance with its international obligations. The United States and Mexico have also requested a panel on the same issue.