Information and Disclaimer
This interpretation letter was issued based on the specific circumstances or situation of a taxpayer or vendor and the law and tax policy in effect at the time the ruling was issued. Specific facts relevant to your situation may change the application of the tax. In accordance with the Freedom of Information and Protection of Privacy Act, all confidential and identifying information has been removed from this interpretation letter. Please be aware that any statute or policy referred to in this letter may have been superseded. Where a letter contains links to a publication, the link is to our current publication on that subject, regardless of the date that the ruling was originally issued, and the current publication may not be reflective of the information originally provided. In no event shall the Government of Ontario be liable for any damages whatsoever arising out of, or in connection with, the use of the information contained herein.
Interpretation Letter AG-0009, July 2001
Thank you for your letter dated April 30, 2001 regarding the application of Ontario retail sales tax (RST) to
the business activities of your client.
Your letter pertains to an unnamed client's situation. As the facts of each case may differ and what may
appear to be an unimportant difference could be a critical factor in determining the application of RST, it is
Branch policy not to provide interpretations regarding unidentified clients. However, we are providing you
with a general response based on the information provided. Our ruling does not pertain to any specific
taxpayer.
Understanding of Facts
It is our understanding that your client is a large farm operation where they raise cattle and chickens for
the production of eggs. They have a number of barns for the livestock and 9 barns for the chickens. The
eggs are brought by tracks to a large building where they are graded and/or further processed by being
cracked and separated for sale to bakeries. Your client also purchase eggs from outside farms for grading
and further processing but the bulk of the grading and processing is for their own eggs.
Your client also built a freezer that is 30 ft long by 30 ft wide by 20 ft high within the farm structure. This
freezer is used exclusively for the freezing of egg whites and yolks as part of the processing. Your enquire
as to whether the grading/processing building and the freezer qualify as farm equipment or real property.
As part of another division, being a separate legal entity, this operation also has a large egg grading station
in Someplace. It purchases eggs from a number of farms for washing, drying, quality checking, grading,
packaging and resale to major food chains across Canada. You also wish to clarify if this operation
qualifies as a manufacturing operation and if the equipment can be purchased exempt from RST as food
processing equipment.
Legislation and/or Administrative Policy
Under paragraph 7(1)13 of the Ontario Retail Sales Tax Act (Act), persons engaged in the business of
farming are entitled to an exemption from RST on the purchase of farm implements, farm machinery, farm
equipment, agricultural products and repair parts. Regulation 1013 s.1 defines a person engaged in the
business of farming to be a person who takes up farming with a reasonable expectation of profit.
Paragraph 14 of subsection 7(1) of the Act provides a conditional exemption for building materials
purchased to build or modernize a structure or building used exclusively for farm purposes and states:
Tangible personal property incorporated into buildings or structures that are used exclusively in the
business of farming by a person engaged in the business of farming. However, the exemption
conferred by this paragraph does not apply to tangible personal property incorporated into
residential premises, an office, a residential garage, a road, a sidewalk, a bridge or a building or
structure prescribed by the Minister as not entitled to the exemption conferred by this paragraph;
Paragraph 7(1)40 of the Act provides an exemption for machinery, equipment or processing materials used
primarily and directly by a manufacturer in the manufacture of tangible personal property or directly in and
exclusively for research or development purposes. The equipment must be prescribed in Regulation 1012
Subsection 14(1) and must not be excluded by Regulation 1012 Subsection 14(1.1).
A "manufacturer" is defined in section 1 of Regulation 1013 as "a person who manufactures, fabricates,
produces or assembles as applicable, tangible personal property for sale, where the fair value of such
tangible personal property sold to others exceeds $5,000, or where the fair value of such tangible personal
property manufactured for that person's own use, exceeds $50,000 in the fiscal year...".
The exemption is for machinery only and not building materials. Building materials are not equipment and
therefore are taxable under the Act. Therefore, RST applies to materials used by manufacturers or
contractors to build buildings and structures for the use of a manufacturer.
Analysis
Effective October 1, 2000, persons engaged in the business of farming may claim the RST exemption at
the time of sale by providing their supplier with a completed purchase exemption certificate (PEC) or a
farmer's declaration statement when purchasing building supplies used to build or modernize structures
used exclusively for farm purposes. Similarly, a contractor or other person purchasing building materials
for farm structures would provide a PEC to their supplier.
The RST exemption applies to building materials (i.e., wood, nails, paint, etc.) that are purchased to build or
modernize a structure or building used exclusively for farm purposes. The exemption can be claimed by
farmers or contractors purchasing materials for incorporation into qualifying structures. Hobby farmers do
not qualify for the exemption.
Conclusion
We consider your client to have both a farming operation and a manufacturing operation.
Barns used for the chickens are considered farm buildings. Consequently, building materials purchased to
build or modernize barns may be purchased exempt from RST under Paragraph 7(1)14 of the Act. In
order to be exempt from RST, a farmer must issue a properly completed PEC to its suppliers. Implements,
machinery and equipment designed for farm use can also be purchased by persons in the business of
farming without having to complete a PEC. Repairs to these items also qualify for exemption.
Egg grading stations (where the eggs are washed, dried, checked, graded and packaged) do not qualify as
manufacturing operations for the purpose of 7(1)40 of the Act. Consequently, the Someplace egg grading
station is not entitled to an exemption from RST on machinery and equipment used in the grading of eggs.
However, the grading and further processing of eggs (where the eggs are graded, cracked and processed)
are considered manufacturing operations. If your client sells eggs in excess of $5,000.00 in a fiscal year
from the processing building, it would meet the definition of a manufacturer. Consequently, your client
would be entitled to an exemption from RST on machinery and equipment and processing materials used
primarily and directly in the manufacturing process. The exemption does not apply to buildings or
structures. Parts and materials to build or repair a building or structure within which goods are
manufactured may not be purchased exempt from RST under paragraph 7(1)40 of the Act.
The freezing of eggs is part of the manufacturing operation. The supply and installation of the freezer is a
structure assembled from building materials, not pieces of equipment. For RST purposes, the contractor is
considered the consumer of the materials used to complete the contract. PEC's cannot be provided to the
supplier in supply and install contracts where the contractor is considered to be the consumer of the
materials used. However, the condensing units, defrost coils, compressor, blower and blower motor are
considered to be refrigeration equipment. This refrigeration equipment qualifies as exempt temperature
and humidity equipment under the provisions of paragraph 7(1)40 of the Act.
If RST was paid in error on materials or equipment that could have been purchased exempt from RST, a
refund may be claimed directly with the RST Branch. Refund claims must be received within four years
from the date tax was paid. To claim the refund, a "General Application of Refund of Ontario Retail Sales Tax" must be completed.
Enclosed for you information is Ontario Sales Tax Guides 204 - "Purchase Exemption Certificates",
400 - "Manufacturers", 807 - "Farmers" and Information Notice - "2000 Ontario Budget Announcement -
Rebate Program for Farm Building Materials to Point-of-Sale Exemption" and a "General Application of
Refund of Ontario Retail Sales Tax".
If you have any further questions, please contact our office.
