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 Please be aware that any statute or policy referred to in this letter may have been superseded.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 0014, June 19, 2002
Thank you for your facsimile dated March 22, 2002 and our telephone conversation of
June 17, 2002 regarding the application of Ontario retail sales tax (RST) to Mr. X's business activities.
Understanding of Facts
It is our understanding that Mr. X is building cabinets for clients. Clients will provide him with their own
materials and the client will be invoiced for labour only. You believe Mr. X's clients are resellers. You
enquire as to whether Mr. X is required to charge, collect and remit RST on labour charges to build
cabinets for the clients. Also, you enquire as to what would be the application of RST if Mr. X would be
asked to provide labour to build a cabinet and also install the cabinet as a fixture to real property. You
indicated in our telephone conversation that Mr. X does not supply materials, he invoices for labour only.
Legislation and/or Administrative Policy
A "manufacturer" is defined in section 1 of Regulation 1013 of the Ontario Retail Sales Tax Act (Act) 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...".
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).
Section 1 of the Act defines a "taxable service" to mean:
- labour provided to install, assemble, dismantle, adjust, repair or maintain
tangible personal property,
- any contract for the service, maintenance or warranty of tangible personal property, ...
There are two types of property for RST purposes, tangible personal property (TPP) and real property.
TPP refers to free standing items. Real property means land and any item permanently attached to land.
Fixtures are items which upon installation are permanently attached to real property. Permanently attached
means bolted, nailed, screwed, lagged, or in some other fashion permanently affixed. In some cases items
are considered to be fixtures if they are affixed to land by virtue of their size, weight, and cannot be moved
without disassembly.
Where a real property contractor supplies and installs items as fixtures to real property, the contractor is
considered to be the end user or purchaser of the items and is liable for RST on their cost of the items that
become real property or fixtures when installed. If the contractor also manufactures the items supplied and
installed as fixtures to real property, the contractor is required to account for RST on their manufactured
cost if the total manufactured cost of all items supplied and installed exceeds $50,000 in the fiscal year.
The RST paid on items for these contracts forms part of the cost used by the contractor to determine the
contract price. No RST should be charged or shown on the invoice to the customer. The installation labour
is not taxable.
Where a person supplies and installs items that remain free-standing TPP, the person must charge, collect
and remit RST on the total selling price of the item. This would include charges for delivery and installation.
Analysis
A vendor is considered to be manufacturer or producer when it manufactures or produces TPP in excess
of $50,000 for own use or if it manufactures or produces TPP in excess of $5,000 for resale. If sales of
TPP produced by the manufacturer exceed $5,000 in the fiscal year or the produced cost of TPP for use in
supply and install contracts exceeds $50,000 in the fiscal year, the manufacturer may purchase production
equipment exempt from RST. If neither threshold is met, RST must be paid on the cost of all materials and
equipment.
Conclusion
When Mr. X provides labour to build a cabinet without installing the cabinet to real property, Mr. X is
required to charge RST on the labour charges unless the client is entitled to claim a conditional exemption
(i.e., purchased for resale) and provides Mr. X with a properly completed purchase exemption certificate
(PEC).
When Mr. X builds a cabinet and installs it as a fixture to real property, he is considered a real property
contractor. If Mr. X supplies materials, he is considered to be the end user or purchaser of the items and
is liable for RST on the cost of the items that become real property or fixtures when installed. The RST paid
on items for these contracts forms part of the cost used by him to determine the contract price to the
clients. No RST should be charged or shown on the invoice to the client. The installation labour is not
taxable.
When Mr. X assembles and builds cabinets for sale (without installation) to clients where his sales exceed
$5,000.00 in a fiscal year, Mr. X would qualify as a manufacturer and be entitled to an exemption from RST
on the purchase of machinery and equipment used primarily and directly in the assembling of the cabinets.
To claim an exemption from RST, Mr. X would provide a properly completed PEC to suppliers.
Please note that we are unable to provide answers concerning GST. Please contact your local Canada
Customs and Revenue Agency office for GST enquiries.
We are enclosing Ontario Sales Tax Guides 204 - Purchase Exemption Certificates,
206 - Real Property and Fixtures, 400 - Manufacturers and 401 - Manufacturing Contractors for
your information.
If you have any further questions, please contact our office.
