Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 248887
Business Number: […]
Dear [Client]:
Subject: GST/HST ruling
[…][Product Name] […][modular furniture] and accessories
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to [Product Name] [modular furniture] and accessories during the eligible period.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The Government of Nova Scotia has proposed to decrease the rate of the HST from 15% to 14% effective April 1, 2025. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
We understand the following:
1. […] (the Company) is the manufacturer and retailer of [modular furniture] called, the [Product Name].
2. The [Product Name] includes sets of modular pieces that can be formed into furniture, […][description of additional functionality of the product and product options] and are only sold on the Company’s website, […][Company website].
3. The sofa sets are called […][Set 1], […][Set 2], and […][Set 3], and have the following attributes:
[Set 1]
Described on the website product description as: […]
[Set 2]
Described on the website product description as: […]
[Set 3]
Described on the website product description as: […]
4. All of the individual pieces included in the above [furniture] sets are also separately available as part of accessory sets. Other pieces which may be described as […][description of accessory pieces] are available in various accessory sets.
5. The accessories and accessory sets under consideration for this ruling request are called […][Accessory Set 1], […][Accessory Set 2], […][Accessory Set 3], and […][Accessory Set 4], and have the following attributes:
[Accessory Set 1]
Described on the website product description as: […]
[Accessory Set 2]
Described on the website product description as: […]
[Accessory Set 3]
Described on the website product description as: […]
[Accessory Set 4]
Described on the website product description as: […]
6. You have stated that [Set 1], [Set 2], [Set 3], [Accessory Set 1], [Accessory Set 2], [Accessory Set 3], and [Accessory Set 4] (hereafter collectively referred to as, the “Products”) are imported into Canada under Customs Tariff heading 94.01.
7. None of the Products indicate a minimum or maximum recommended age for use.
RULING REQUESTED
You would like to know whether supplies of the Products are zero-rated supplies during the eligible period from December 14, 2024 to February 15, 2025.
RULING GIVEN
Based on the facts set out above, we rule that supplies of the Products are not zero-rated supplies and are taxable at the applicable rate of the GST/HST.
EXPLANATION
Generally, in accordance with section 165 of the ETA, every recipient of a taxable supply made in Canada is required to pay GST/HST on the value of the consideration for the supply, unless the supply is zero-rated (listed in Schedule VI to the ETA and subject to the GST/HST at the rate of 0%) or exempt (listed in Schedule V to the ETA and not subject to the GST/HST).
On December 12, 2024, a temporary measure to zero-rate supplies of selected children’s toys during the eligible period became law with the addition of Part XI of Schedule VI to the ETA.
Paragraph 10(a) of Part XI of Schedule VI, in part, zero-rates a supply that is an eligible supply of tangible personal property that is
(a) a product designed for use by a child under 14 years of age in learning or play that is
(iii) a toy, toy set or toy system that imitates a person or thing, whether real or imaginary, including an animal, building, clothing, food, household item, imaginary or fantastical creature, jewellery, machine, musical instrument, personal care item, plant, real or fictional character, tool, vehicle or workplace item,
(iv) a doll, plush toy or soft toy or its accessories, or
(v) a toy, toy set or toy system that involves
(A) building, creating or assembling structures, objects or models by using pieces, parts, materials or modelling compound, or
(B) sorting, stacking or organizing pieces, parts or materials.
Among the requirements for zero-rating under subparagraphs 10(a)(iii) and (v) of Part XI of Schedule VI, the common requirement is that the product must be that of a toy, toy set, or toy system. The requirement for zero-rating under subparagraph 10(a)(iv) of Part XI of Schedule VI is that the product must be a doll, plush toy or soft toy. If these conditions are not satisfied, the supply will not be zero-rated under these provisions.
The terms, toy, toy set, and toy system are not defined in the ETA. Guidance on these terms is provided in GST/HST Notice 340, Questions and Answers about the GST/HST tax break for all Canadians (Notice 340).
As stated in question 15 of Notice 340, in the general sense, a toy is a plaything used by an infant or a child and often used as an instrument in a game. A toy set is two or more toys put together and sold in a bundled package. A toy system is a kit of individual toy pieces that interact together to serve a common purpose such as a construction set.
To determine if something is a toy, toy set, or toy system, direction is provided in the Canadian Customs Tariff classification that governs how certain products should be categorized for global importation purposes. Classification in heading 95.03 is generally used for categorizing toys for children. Products that are not considered to be included in Customs Tariff heading 95.03, generally do not meet the definition of a toy, toy set, or toy system for GST/HST purposes. These items are not zero-rated during the eligible period.
As the Products are not imported under Customs Tariff heading 95.03, but rather, under heading 94.01, they do not qualify as toys, toy sets, or toy systems for purposes of the GST/HST. As a consequence, supplies of the Products are not zero-rated during the eligible period and are subject to the GST/HST at the applicable rate.
For further information on the GST/HST break, please refer to Notice 340.
DISCLAIMER
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 778-952-5178.
Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Sincerely,
Ben Lui
Industry Sector Specialist
Strategic and Emerging Issues Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate
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