controlled environment and equipment used by farming co-operative
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 Please be aware that any statute or policy referred to in this letter may have been superseded.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 retail sales tax 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 AG-0014, February 2004
Thank you for your facsimile dated September 5, 2003 regarding the application of Ontario Retail Sales Tax (RST) to farming operations.
Your request pertains to an unnamed client's situation. As the facts of each case may differ and what may appear to be an unimportant difference could be a critical factor in determining the application of RST, it is Branch policy not to provide interpretations regarding unidentified clients. We are however providing a general response to your inquiry. Our ruling does not pertain to any specific taxpayer.
Understanding of Facts
You are inquiring if farmers who form a co-operative to pack and store fruits or vegetables, are required to pay RST on the controlled environment and packing equipment.
In a telephone conversation of January 28, you indicated that the co-operative washes and packs the produce before wholesaling it to supermarkets. Proceeds of the sales are distributed to the farmers.
You also inquire about the application of RST to the purchase of equipment by a company that provides custom spreading, spraying and mixing services.
Legislation and/or Administrative Policy
Section 1 of Regulation 1013 under the Ontario Retail Sales Tax Act (Act) provides the following definitions:
A "person engaged in the business of farming" means a person who undertakes farming with a reasonable expectation of profit.
"farming" includes,
- tillage of the soil for the purpose of growing sod, trees, shrubs, bushes, seeds and seedlings, flowers, flowers for use as cut flowers, plants and bulbs from which plants or flowers may be grown,
- breeding of fur-bearing animals for the purpose of selling their pelts, and
- propagation and cultivation of plants within a hothouse, greenhouse or other enclosed structure designed for the protection of plants.
Paragraph 7(1)13 of the Act provides an exemption from paying RST on the purchase of farm implements, farm machinery, farm equipment, farm supplies, agricultural products and repair parts, as defined by the Minister, that in his or her opinion are to be used exclusively in the business of farming by a person engaged in the business of farming.
Section 1 of Regulation 1013 under the Act defines a manufacturer or producer to mean 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.
Under paragraph 7(1)40 of the Act, manufacturers are eligible for an exemption on the purchase of machinery or equipment that is used directly in the manufacture or production of tangible personal property. In order to claim this exemption a properly completed Purchase Exemption Certificate (PEC) must be provided to the supplier.
Analysis
Co-operatives, including those which do not consist exclusively of farmers or growers, qualify for exemption as "custom farmers" when performing farming operations.
Custom farmers are persons who contract with farmers to perform farming operations such as planting, harvesting, crop spraying and the installation of irrigation equipment. Contractors who perform farming contracts similar to these, exclusively for farmers, are also eligible for the exemptions available to farmers under paragraphs 7(1)13 of the Act.
Preparing fruits and vegetables for storage and subsequent packing and storage does not constitute a farming operation. However, operations where fruits and vegetables are washed, sorted, by colour and size, sprayed with wax, and then packaged in various sized containers, may constitute a manufacturing operation.
Conclusion
A co-operative that packs and stores fruits or vegetables for distribution is not engaged in the business of farming. As a result, the co-operative is not entitled to any exemptions that are available to farmers.
However, the co-operative may qualify as a manufacturer based on its operations at the packing plant and its sales volume. If sales exceed $5,000 in the fiscal year, the co-operative may claim the manufacturing exemptions for processing materials and production equipment used to wash, sort, spray with wax, and package the produce in various sized containers. A properly completed PEC must be provided to the supplier when claiming the exemption. This exemption does not apply to buildings or structures used by the co-operative.
A company that provides custom farming services such as, spreading, spraying or mixing fertilizer or insecticide, is entitled to purchase any equipment used to provide such services exempt from RST. In order to qualify for this exemption the equipment must be used exclusively (90% or more) in farming operations. A properly completed PEC must be provided to the supplier to claim the exemption.
We enclosed RST Guides #204 - Purchase Exemption Certificate (PEC), #400 - Manufacturers, and #807 - Farmers for your information.
If you have any further questions, please contact our office.
ISBN 0-7794-2507-3
© Queen's Printer for Ontario, 2005
