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 Please be aware that any statute or policy referred to in this letter may have been superseded.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 LR-0006, February 2001
Thank you for your letter of January 25, 2001 inquiring about the application of Ontario retail sales tax
(RST) on some of the items rented and/or sold by your company, Company A.
Understanding of Facts
It is our understanding that Company A is rental company, which rents numerous items and, as well, sells
items such as cotton candy, snow cone supplies and penny toys.
Company A charges RST on all items they rent and/or sell and would like verification in writing if any of the
items are exempt from RST.
Company A also rents to churches, schools and charities and would like to know if they should be
charging these clients RST on their rentals.
As well, Company A also rents items to other rental companies, charging these companies RST on the
rental items.
Legislation and/or Administrative Policy
An item that is taxable when sold to the end user is also taxable when rented or leased. RST is 8% of the
total rental amount. The authority to tax a lease or rental is provided under subsections 2(7)&(8) of the
Ontario Retail Sales Tax Act (Act) which states:
(7) Despite subsection (6) and section 12, where a purchaser,
- rents or leases from any person any taxable service at a sale in Ontario; or
- acquires tangible personal property at a sale that is the lease or rental to the
purchaser of such tangible personal property without provision for the transfer to the purchaser of title thereto, or with the provision of such transfer only upon the exercise of an option or similar right to acquire such tangible personal property,
the tax imposed by this section shall be computed, paid and collected on the due date of,
and on the fair value of, each rental payment by or on behalf of the purchaser in respect
of the lease or rental of such taxable service or tangible personal property, and tax shall,
in addition, be computed, paid and collected at the time of, and on the fair value for, each
of the obtaining of any option or similar right to purchase the tangible personal property
leased or rented or the exercising of any such option or similar right.
(8) For the purposes of subsection (7), tax at the rate of 8 per cent shall be computed, paid
and collected on the due date of any payment to be made on or after the 2nd day of May,
1988.
Under subsection 11(2) of Regulation 1013 of the Act, sets out the procedures for taxing a lease or rental
of tangible personal property (TPP) as follows:
Where tangible personal property is rented or leased and there is no commitment under the agreement on the part of the lessee to purchase the tangible personal property, the tax shall be calculated on the full rental payment.
The charge for equipment with operators, whether the charge for the operator is segregated or not, is
considered to be the provision of a non-taxable service and not a rental.
RST does not apply to non-returnable paper napkins, cups, straws, and other disposable articles used in
the sale or serving of prepared food products, snack foods or beverages.
Analysis and Conclusion
Company A has provided the following list of rental items and we have indicated the tax status of each
item:
- Tent - Taxable
- Tables - Taxable
- Chairs - Taxable
- Linen - Taxable
- Lights - Taxable if the customer rents and sets up.
However, if Company A sets up lights as service, then the rental charge is exempt to the customer and Company A would account for the RST as this is considered to be a non-taxable service.
- Coolers - Taxable
- Games - Taxable
- Children's Fun - Taxable
The rental of the inflatables are taxable to your customers since these
Inflatables are being rented without the necessity of an operator. Any set up or
dismantling charges included in the rental are part of the fair value of the rental of
the TPP and as such, are subject to RST whether segregated on the invoice or
not. In order to be considered the provision of a non-taxable service (equipment
with an operator), the service must be labour intensive, i.e., the operator
should be continuously involved with the operation of a piece of the inflatable (e.g. check for overheating, blocked air intake vents, oil and fuel levels, wind direct, user heights, etc.).
- Portable Mini Golf- Taxable
- Snow Cone Machine - Taxable
However, if rented with an operator this is the provision of a non-taxable
service and RST should not be charged to Company A's clients. However, Company A must pay RST on the purchase of the machines since they are considered to be the consumer or user of the machines in providing this service.
- Snow Cone Cups - Exempt
RST does not apply to non-returnable paper napkins, cups, straws, and other disposable articles used in the sale or serving of prepared food products, snack foods or beverages.
- Snow Cone Straws - Exempt
RST does not apply to non-returnable paper napkins, cups, straws, and other disposable articles used in the sale or serving of prepared food products, snack foods or beverages.
- Snow Cone Syrup - Exempt
The syrup is considered to be an exempt food product. However, once prepared, and if sold, the snow cones would be taxable as a snack or a prepared food product.
- Candy Floss Machine - Taxable
However, if rented with an operator this is the provision of a non-taxable
service and RST should not be charged to Company A's clients. However, Company A must pay RST on the purchase of the machines since they are considered to be the consumer or user of the machines in providing this service.
- Candy Floss Cones - Exempt
RST does not apply to non-returnable paper napkins, cups, straws, and other disposable articles used in the sale or serving of prepared food products, snack foods or beverages.
- Candy Floss Bags - Exempt
RST does not apply to non-returnable paper napkins, cups, straws, and other disposable articles used in the sale or serving of prepared food products, snack foods or beverages.
- Candy Floss Sugar - Exempt
The sugar is considered to be an exempt food product. However, once prepared, and if sold, the candy floss would be taxable as a snack or a prepared food product.
- Penny Toys - Taxable
- Dunk Tank - Taxable
- Air Brush for Face
- Painting - Taxable
- Generators - Taxable
- Delivery Charges on Rental - Taxable
Company A is not required to charge RST on the rental of items to other rental companies, provided that
those rental companies present Company A with properly completed PECs indicating they are renting the
items for resale/rental.
There are no specific exemptions available to charitable, benevolent or religious organizations that will
exclude them from paying RST on rentals. Therefore, Company A must charge, collect and remit RST on
those items as indicated above.
Enclosed for your information are Retail Sales Tax Guides 204 - Purchase Exemption Certificates, 300 - Prepared Foods, 500 - Food Products, 501 - Snack Food, Beverages and Candies and 502 - Rentals.
