Interpretation Letter AG-0008, November 2000

Thank you for letter of November 7, 2000 inquiring about the application of Ontario retail sales tax (RST) on farm building materials and farm supplies.

Understanding of Facts

It is our understanding that your company, Company A, would like:

1. written confirmation as to what products are considered to be farm building materials;
2. confirmation that certain products (antifreeze, oil and lubricants, generators, etc.) are considered to be farm supplies and, therefore, exempt from RST when purchased by a farmer;
3. confirmation as to what information they are required to obtain from a farmer in order to not charge, collect and remit RST on their sales to farmers.

Legislation and/or Administrative Policy

Paragraph 7(1)13 of the Ontario Retail Sales Tax Act (Act) provides an exemption from RST to persons engaged in the business of farming on their purchases of farm implements, farm machinery, farm equipment, farm supplies, agricultural products and repair parts that are to be used exclusively in the business of farming. These items are described in section 1(1) of Regulation 1012 of the Act as follows:

"farm implements", "farm machinery" and "farm equipment" include all implements, machinery and equipment designed for farm use and vehicles that are manufactured or designed as, or have within thirty days of the date of purchase, been converted into an unlicensed self-propelled vehicle for a specific use in farming and do not include,

1. barns, greenhouses, silos or similar structures, and
2. any of the following:
   1. all-terrain vehicles with an engine displacement of less than 200 cc. or those sold without a carrying rack or a carrying platform,
   2. ammunition,
   3. automobiles and parts,
   4. automotive trailers,
   5. building hardware and materials,
   6. REVOKED,
   7. domestic refrigerators,
   8. household equipment,
   9. lawn mowers,
   10. light bulbs,
   11. lighting plants,
   12. REVOKED,
   13. lumber,
   14. paint,
   15. pipes for home use,
   16. snowmobiles,
   17. trucks and parts.

   "farm supplies" means antifreeze, calcium chloride, lubricating oil, lubricating grease and printed forms for recording weight and other data relating to farm animals;

However, paragraph 14 of subsection 7(1) of the Act provides a conditional exemption for building materials (e.g. paint, nails, lumber, etc.) 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;

Subsection 3(2) of Regulation 1013 of Act states:

"If a person purchases tangible personal property or a taxable service and does not submit a valid purchase exemption certificate to the vendor, the vendor shall collect tax from the person calculated on the price charged for the tangible personal property sold or the taxable service rendered."

Analysis

Implements, machinery, and equipment designed for farm use, such as tractors, milking machines, farm wagons, feed grinders, threshing machines, etc., can be bought by persons in the business of farming without having to complete a Purchase Exemption Certificate. Repairs to these items also qualify for exemption.

However, in order to claim exemptions on items that are not generally made for use exclusively in farming, the purchaser (farmer) must provide the vendor/supplier with a properly completed Purchase Exemption Certificate.

These items include:

• antifreeze
• calcium chloride
• electric motors
• fertilizers
• forms for recording animal weight and other data
• generators
• hand tools
• lubricating oil and grease
• pesticides
• watering systems and pumps.

The May 2, 2000 Ontario Budget announced that the existing farmer's rebate program would be replaced with a point-of-sale exemption. The legislation has received proclamation making the point-of-sale exemption effective October 1, 2000. Eligible purchasers may claim the RST exemption at the time of sale by providing their supplier with a properly 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 in order to claim the exemption.

If a person (farmer or contractor) alleges that they are purchasing taxable goods for incorporation into a building used exclusively for farming, he or she must issue a properly completed PEC to the vendor/supplier of the taxable goods. If a properly completed PEC is not issued to the vendor/supplier of the taxable goods, the vendor/supplier is responsible for charging, collecting and remitting RST on their sales of the taxable goods.

It is the responsibility of the purchaser when they make declarations on the PEC to ensure that they meet the qualifications for the exemption. False statements and incorrect use of a PEC can be determined through audit of vendors and the purchaser may be held responsible for the RST and any penalties incurred by their actions. The vendor is not required to verify whether the goods purchased will ultimately be incorporated into a farm building. A copy of the PEC is to be kept with the vendor's permanent records.

Conclusion

In order for Company A to sell their merchandise to farmers or contractors without charging RST, the farmer or contractor must issue Company A a properly completed PEC. If the farmer or contractor does not issue a PEC, then Company A must charge, collect and remit RST on their sales.

The enclosed Retail Sales Tax Guide # 204 - "Purchase Exemption Certificates" provides further information. Also enclosed is, Information Notice - 2000 Ontario Budget Announcement - Rebate Program for Farm Building Materials to Point-of-Sale Exemption.

If you have any further questions, please contact our office.

ISBN 0-7794-2507-3

© Queen's Printer for Ontario, 2002