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 Please be aware that any statute or policy referred to in this letter may have been superseded.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 MF-0011, March 2001
Thank you for your facsimile message of February 28, 2001 requesting information about the application of
Ontario retail sales tax (RST) on machinery and equipment, as well as other items, used in the production
of printed materials i.e. magazines.
Understanding of Facts
It is our understanding that your company, Company A, is the publisher of seven different magazines. The
magazines are published four or six times annually and are issued under a controlled distribution.
Company A's publishing process for these magazines includes: advertising sales, accounting, editorial
content, art production and design, circulation lists, formatting the magazine and other services. Company
A also purchases exempt of RST, freelance editorial, and freelance art production for incorporation into
the magazine. However, the film, printing and binding processes are contracted out.
Company A would like to know if the following items would be considered exempt processing materials
when used in their production process: computers, monitors, scanners, printer cartridges, paper, CDs,
software, etc., including postage.
Legislation and/or Administrative Policy
Magazines
Paragraph 7(1)47 of the Ontario Retail Sales Tax Act (Act) provides an exemption for magazines, as
defined by the Minister, but only where purchased by subscription. Regulation 1012 s.1 provides the
following definition:
"Magazines" means bound printed publications that are issued annually or more frequently and that
contain articles or contributions by various writers and may contain advertising and pictures, but
does not include newspapers as defined in Regulation 1013 of the Revised Regulations of Ontario,
1990, newsletters and bulletins or any publications specifically excluded from the definition of
books."
Magazines distributed by controlled distribution also qualify for the exemption from RST.
Uncancelled Postage Stamps
Subsection 7(1)51 of the Act provides an unconditional exemption for uncancelled postage and specifically
states:
Uncancelled postage stamps and uncancelled revenue stamps valid for the transportation of mail or
for revenue purposes in the jurisdiction issuing such stamps, if the consideration for the sale
thereof does not exceed the equivalent face value thereof in Canadian funds;
Manufacturing
Under paragraph 7(1)40 of the Act, a business that is considered to be a manufacturer may purchase
production machinery, equipment and processing materials, used primarily and directly in manufacturing,
exempt from RST.
As defined in section 1 of Regulation 1013 under the Act, a manufacturer is a person who manufacturers,
fabricates, produces or assembles goods:
- for sale to others (without installation) and total sales are more than $5,000 in a fiscal year; or
- for their own use and the "manufactured cost" of those goods is more than $50,000 in a fiscal
year.
Regulation 1012 s14(1)18 under the Act grants an exemption from RST for manufacturers under
paragraph 7(1)40 of the Act, for typesetting and composition, metal plates, cylinders, film, artwork, designs,
photographs, rubber materials, plastic material and paper material, when impressed with or displaying or
carrying an image for reproduction by printing and used exclusively in the manufacture or production of
printed material.
Paragraph 7(1)39.1 of the Act provides an exemption for artwork used in the manufacture or production of
printed matter as follows:
Typesetting and composition, metal plates, cylinders, matrices, film, artwork, designs, photographs,
rubber material, plastic material and paper material, when impressed with or displaying an image
for reproduction by printing which, in the opinion of the Minister, is to be used in the manufacture
or production of printed matter which may be purchased exempt from tax under this Act.
Analysis
Publishing companies qualify as manufacturers provided the sales value of the goods they produce
exceeds $ 5,000 in a fiscal year, or the manufactured cost of goods produced for own use exceeds
$50,000 in a fiscal year. A business that is considered a manufacturer may purchase all production
equipment, used primarily and directly in manufacturing (e.g., more than 50% of the time), exempt from
RST. Such equipment would include computers, printer, graphic design software, and ink cartridges.
Items such as tables for the printer and computers would not qualify as exempt production equipment
because they are not used directly in the production process.
Where the same equipment is used to provide a non-taxable service, as well as in the production of TPP,
the manufacturer would be entitled to an exemption/refund only on machinery and equipment used primarily
(e.g. more than 50%) in the production of TPP. In addition, to qualify for the exemption/refund, the
machinery and equipment must be purchased in the year in which you qualified as a manufacturer. For
example, if you qualified as a manufacturer in the current year, but not in the prior year, you would not be
entitled to a refund of RST paid on equipment purchased in the prior year when you did not exceed the
threshold. Alternatively, if you do not qualify as a manufacturer in the current fiscal year, but qualified as a
manufacturer in a prior year, we would not require RST to be paid on the fair value of the equipment.
Under paragraph 39.1 of subsection 7(1) of the Act, artwork may be purchased exempt from tax by a
non-printer. The exemption is limited to artwork bought for use in the production of exempt printed items
such as qualifying magazines.
Conclusion
Company A may qualify as a manufacturer provided: the sales value of the goods it produces
exceeds $5,000 in a fiscal year, or the manufactured cost of goods produced for own use exceeds
$50,000 in a fiscal year. If Company A meets the qualifications of a manufacturer it may purchase all
production equipment, used primarily and directly in manufacturing (e.g., more than 50% of the time),
exempt from RST. Such equipment would include computers, printer, graphic design software, and ink
cartridges. Items such as tables for the printer and computers would not qualify as exempt production
equipment because they are not used directly in the production process. Further, Company A must pay
RST on the purchase price of all equipment and supplies (e.g. computer hardware & software) that
is used primarily in non-manufacturing functions such as soliciting and recording advertising sales,
accounting, circulation lists and other administrative functions.
Where the same equipment is used to provide a non-taxable service, as well as in the production of TPP,
Company A would be entitled to an exemption/refund only on machinery and equipment used primarily
(e.g. more than 50%) in the production of TPP. In addition, to qualify for the exemption/refund, the
machinery and equipment must be purchased in the year in which Company A qualified as a
manufacturer. For example, if Company A qualified as a manufacturer in the current year, but not in the
prior year, Company A would not be entitled to a refund of RST paid on equipment purchased in the prior
year when it did not exceed the threshold. Alternatively, if Company A does not qualify as a manufacturer
in the current fiscal year, but qualified as a manufacturer in a prior year, we would not require RST to be
paid on the fair value of the equipment.
If Company A meets the qualifications of manufacturer and, it has paid RST on their computers, monitors,
scanners, paper, graphic design software that are used in the production process, it may apply for a
refund of RST paid on that equipment. An application form for a refund of RST paid is enclosed, and must
be completed within four years from the date the RST paid.
If Company A does not meet the criteria to be eligible for the exemptions as a manufacturer, paragraph
7(1)39.1 of the Act grants an exemption for the following items when they are used in the manufacture or
production of exempt printed matter (i.e. a qualifying magazine): typesetting and composition, metal
plates, cylinders, matrices, film, artwork, designs, photographs, rubber material, plastic material and paper
material, when impressed with or displaying an image for reproduction by printing.
Postage is unconditionally exempt from RST if the price paid does not exceed the face value on the front of
the postage, i.e., RST is not applicable on postage purchased for mailing purposes. Company A would not
have paid RST on postage for mailing purposes.
If you have any further questions, please contact our office.
