15 February 1999 GST/HST Interpretation HQR 0001617 - Point-of-sale Rebate

Dear Mr. XXXXX

Thank you for your letter of February 9, 1999 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to different training products which are sold in one of the three participating provinces of Nova Scotia, New Brunswick or Newfoundland.

Interpretation Requested

XXXXX operates a business which sell different training products to their clients. Some of the clients are located in one of the three participating provinces.

You want to know which of the following listed items qualify for the rebate of the 8% provincial component of the HST.

1. Books, educational

2. Books, Entertainment

3. Books, Forms or Logbook type

4. Books on CD-ROM (for example: Logbook on CD-ROM to print out)

5. Book binders (3-rings) for drilled textbooks

6. Book binders (clamp-type) for loose text

7. Maps, folded paper

8. Maps, bound in book form

9. Map binder (3-hole drilled)

10. Map binders or holders (clamp-type)

11. Map folios (pocket or accordion type)

12. Plastic page protectors

13. Books with software (CD-ROM) included

14. Software (CD-ROM) with books included

15. Safety equipment: hearing protection alone

16. Safety equipment: hearing protectors as part of radio equipment

17. Navigation slide-rules

18. Navigation slide-rules with manual or text

19. Navigation rulers/plotters

20. Navigation calculator (electronic)

21. Navigation calculator (elect) with software (CD-ROM) included

22. Navigation calculator (elect) with textbook or manual included

23. Textbook or manual with navigation calculator included

24. Radio receiver headset for simulator training

25. Radio receiver headset for aircraft training

26. Flashlights

27. Survival equipment including survival manual in package

28. Video with manual or textbook included

29. Manual or textbook with video included

30. CD-ROM only manual (for example: textbook on CD-ROM)

31. CD-ROM only maps (for example: maps on CD-ROM)

32. Clocks

33. Watches

34. Fuel testers (to test fuel clarity or purity)

35. Sunglasses

36. Parts of sunglasses

37. Book bags and briefcases

38. Headset bags

39. Calendars in book form

Interpretation Given

HST implementation and point-of-sale rebate for qualifying printed books

On April 1, 1997, the harmonized sales tax (HST) replaced the goods and services tax (GST) and the provincial sales tax (PST) in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%. Goods that are delivered or made available in a participating province are subject to the HST[.] Example: Goods that are delivered or made available in a participating province are subject to the HST to the extent that they are taxable supplies (which are not zero-rated), tax must be collected at the harmonized rate. Attached is Technical [Information] Bulletin B-078 which sets out the place of supply rules for your information. You will find the rules relating to tangible personal property on pages 3 to 5.

Also effective April 1, 1997, the governments of Nova Scotia, New Brunswick, and Newfoundland, and Labrador implemented a full rebate of the provincial component of the HST at the time of acquisition on supplies of:

•   most printed books or updates such books;

•   audio recording all or substantially all of which are spoken reading of printed books, or

•   bound or unbound printed versions of scriptures of any religion.

Thus, all suppliers, including publishers, wholesalers, distributors, and retailers need to collect only the 7% federal component of the HST on sales of qualifying books when they are sold in, or are imported or otherwise brought into a participating province. In fact, the supplier is paying or crediting a rebate to the purchaser when qualifying goods are purchased. This rebate is known as a point-of-sale rebate.

You have asked whether a number of products which consist of training products qualify for the point-of-sale rebate. The determination as to whether a specific product is a printed book qualifying for the rebate should be based on all of the facts relevant to that specific product (i.e. will be made on a case-by-case basis).

Printed book, recording and CD-ROMs

A "book" is essentially a number of sheets fastened together in some way, whether by staple, hardcover, or binding. A "printed book" is a book which contains printed words, pictures, diagrams, symbols or other visual aids, including music and Braille. Based on this interpretation, a CD-ROM is not a printed book for the purposes of this point-of-sale rebate.

A "recording" is essentially a trace of information made on a medium. An "audio recording" is a recording of audible information (i.e. information perceived by the ear). Since CD-ROMs contain textual, auditory, and visual information, in our view, although they contain an auditory component, they are not merely audio recordings. CDs, on the other hand, contain nothing but auditory information, and therefore, all CDs are audio recordings. Thus, although all CDs are audio recordings for the purposes of the point-of-sale rebate, CD-ROMs are not.

Note that the point-of-sale rebate does not apply to just any audio recording. It applies only to a recording in which all or substantially all (generally, 90% or more) of the recording is a spoken reading of a printed book.

Multiple supplies

Several items on your list consist of a printed book together with another product. In many circumstances an item which consists of a book and another product packaged together and sold for a single price will be considered a new product that does not fall within the definition of a printed book. For example, the Tariff Board of Canada decided that a combined product consisting of a book sold together with a record in an attached sleeve did not qualify for an exemption from Federal Sales Tax available for printed books because the combined product was not a printed book.

In the event that a printed book and another item packaged together are considered to be two separate supplies rather than a single supply of a new product, it is necessary to determine whether the supply of the other item is incidental to the printed book supply or whether the supply of the printed book is incidental to the other item supplied. If the supply of the other item is incidental to the supply of the printed book, then the entire product will be considered to be a printed book. Conversely, if the printed book supply is incidental to the supply of the other item, then no part of the supply will be considered to be that of a printed book. For example, when software is sold with a manual, the principal item sold is the software and the manual is incidental to the software.

In the event that a printed book and another item are considered to be two supplies, rather than a single supply of a new item, and neither supply is considered to be incidental to the other, then it will be necessary to allocate the consideration between the part attributable to the book and the part attributable to the other item. Only the part attributable to the printed book will be eligible for the rebate applicable to printed books.

Road and street maps, charts, patterns and blueprints

Road and street maps, charts, patterns and blueprints are excluded from the definition of printed books. However, books consisting principally of maps other than street or road maps, e.g., contemporary and historical atlases, are considered to be printed books.

Agendas, calendars, syllabuses or timetables

All types of agendas, calendars, syllabuses and timetables are excluded from the definition of printed books. University or college calendars fall within this exclusion.

Books for writing and drawing on are excluded from the definition of printed books. Examples of these include address books, diaries, journals and notebooks.

Goods to which the rebate applies are discussed in more detail in Technical Information Bulletin number B-085 "The point-of-sale rebate on books" (attached).

While we are unable to provide a definitive response to your question without having additional information on each product on the list of 39 items, that is a book, contains a book packaged with another item, or is an audio recording, it appears that only the educational and entertainment books might qualify for the point of sale rebate.

Items, such as safety equipment, navigation slide rules, navigation calculators, radio receiver headsets, flashlights, survival equipment, videos, clocks, watches, fuel testers, headset bags, would be taxable supplies. Thus, the full HST applies when these supplies are delivered or made available in a participating province.

Sunglasses and parts of sunglasses

With respect to sunglasses and parts for sunglasses, they are usually taxable supplies subject to 7% GST or 15% HST. Where they are supplied on the written order on a eye-care professional for the treatment or correction of a defect of vision of a consumer named in the order where the eye-care professional is entitled under the laws of the province in which the professional practices to prescribe eyeglasses or contact lenses for such purpose, the supply of the sunglasses would be zero-rated.

The supply of specially designed parts, accessories and attachments for zero-rated prescription eyewear is also zero-rated. Clip-ons, sun-clips and flip ups are considered specially designed accessories for zero-rated prescription eyewear. By their very nature, they are only for use with prescription eyewear and have no other purpose.

Many of the parts, accessories and attachments available for corrective eyewear can also be used as parts for non-corrective eyewear. They have no design features which make them specially designed for corrective eyewear. This applies in the case of fronts, bridges, temples, temple tips, nose pieces, nose pads, screws, hinges, spring hinges and joints. These parts are considered generic since they can also be incorporated into non-prescription eyewear. They are therefore taxable supplies subject to 7% GST or 15% HST. The supply of these parts may be zero-rated only when supplied in conjunction which a supply of a service of installing, maintaining, restoring, repairing or modifying corrective eyewear[.]

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Department with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-957-8253.

Yours truly,

Gisèle Prévost, CGA
Goods Unit
General Operation and Border Issues Division
GST/HST Rulings and Interpretations Directorate