Interpretation Letter AG-0011, October 2001

Thank you for your facsimile dated September 5, 2001 and our telephone conversation of September 14, 2001 regarding the application of Ontario retail sales tax (RST) to equestrian riding arenas and stables.

Understanding of Facts

It is our understanding that Company A is a distributor of equestrian riding arenas and stables. These buildings are prefabricated and sold in parts ready to be assembled. Company A does not provide installation of these buildings. Company A's customers will arrange for their own installation. You also indicated that these buildings are not barns.

You enquire as to whether the sale of building materials used to build the following buildings may be purchased exempt from RST by Company A's customers:

1. Riding Arenas
   • used for personal use
   • used as a business to train riders
2. Stables
   • used for personal use
   • used as a business to board horses
   • used to breed horses

You also stated that these buildings are purchased by owners of agricultural lands.

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;

The term "agricultural products" is defined in section 1 of Regulation 1012 of the Act and states in part:

"agricultural products" means,

1. tobacco products, livestock, food for livestock, trees, shrubs, bushes, growing plants and flowers,
2. "Livestock" is defined under section 1 of Regulation 1013 of the Act as follows:

"livestock" means cattle, sheep, goats, hogs, poultry, horses, mules, ponies, donkeys and bees, but does not include pets such as cats, dogs and other small animals, live fish and birds;

For the purposes of the Act, farming includes raising livestock such as cattle and horses.

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

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 that are purchased to build or modernize a structure or building used exclusively for farm purposes. Hobby farmers do not qualify for the exemption.

Persons engaged in the business of raising and/or breeding horses are considered to be farmers and qualify for the exemption available to farmers for farm equipment. Persons who do not raise horses on farms or are merely operating boarding stables, training establishments or racing and riding stables are not considered farmers and are, therefore, not entitled to the exemptions at paragraphs 7(1)13 and 7(1)14 of the Act.

The horse raising operation usually ceases when the foal becomes a yearling and is ready to be trained. There are no exemptions available to a horse breeder for equipment and supplies used in boarding, training and racing of horses. Where equipment and supplies will be dually used for horse-raising and horse training/racing/boarding or personal use, RST applies to these items.

Conclusion

Based on the above information, in order to qualify for an exemption from RST under section 7(1)14 on the purchase of building materials, a purchaser must be engaged exclusively in the business of raising and/or breeding horses. Where a building will be dually used for horse-raising/breeding and horse training/boarding or personal use, RST will apply to the building. We will now respond to your questions:

• Riding arenas used for personal use or as a business to train riders are subject to RST as these buildings are not used exclusively in the business of farming.
• Stables used for personal use or used as a business to board horses are also subject to RST as they are not used exclusively in the business of farming.
• Stables used to raise and/or breed horses may be purchased exempt from RST by a qualifying farmer. In order to be exempt from RST, farmers must provide Company A with a properly completed PEC.

Company A must charge, collect and remit RST on riding arenas and stables unless its customers are entitled to claim a conditional exemption and provide you with a properly completed PEC.

Please note that it is not Company A's responsibility to police the Ontario RST Act. You are not required to determine whether a customer is entitled to an exemption. As long as the purchaser provides a properly completed PEC, you may accept it and exempt the transaction.

If customers are unable to make a determination as to whether a particular building is subject to RST, we recommend that they contact this office for a ruling prior to claiming an exemption and provide us with specific details regarding the building.

We are enclosing Ontario Sales Tax Guides # 204 - "Purchase Exemption Certificates", # 807 - "Farmers" and the "2000 Ontario Budget Announcement Rebate Program for Farm Building Materials to Point-of-Sale Exemption" for your information.

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

ISBN 0-7794-2507-3

© Queen's Printer for Ontario, 2002