Determining whether a particular farming item is tax-exempt is often a complex and confusing process. Recently in Ontario, the Ministry of Finance (the Ministry) has targeted greenhouse operators for audits of their compliance with the Ontario Retail Sales Tax (ORST).
We have all heard the saying there are two things that are certain in life – death and taxes. What a lot of farmers don’t realize is the number of different taxes there are to consider which affect their operations. This article highlights some of the significant sales tax issues (i.e., Goods and Services Tax/Harmonized Sales Tax (GST/HST) and provincial sales taxes) confronting greenhouse operators.
GST/HST AND THE QUEBEC SALES TAX
The GST/HST is a tax on the consumption of goods and services in Canada designed to be paid by the ultimate consumer or purchaser, but levied at each level of production. In turn those companies, including greenhouse operators, are entitled to an input tax credit of any GST/HST incurred in the course of their commercial activities. As such, there is no need for exemptions on the purchase of inputs into their activities. Having said that, there are certain goods that greenhouse operators could purchase, with tax applying at the rate of zero-per cent. Some of the prescribed goods, which can be purchased as zero-rated goods, include tractors with a certain minimum horsepower, farming implements, and seeders and planters, among other items.
Over the last few years, the QST has harmonized its provisions with those of the Excise Tax Act – GST Portions. Greenhouse operators would incur certain QST costs with respect to its operations and would be entitled to claim an input tax refund, subject to certain restrictions for large businesses with revenues over $10 million.
In conclusion, for both the GST/HST and the QST, greenhouse operators should not incur any incremental tax increase with respect to these taxes.
PROVINCIAL SALES TAXES (ONTARIO)
Recently in Ontario, the Ministry of Finance (the Ministry) has targeted greenhouse operators for audits of their compliance with the Ontario Retail Sales Tax (ORST). In some instances, auditors are finding significant non-compliance where greenhouse operators have incorrectly taken certain exemptions.
In Ontario, persons engaged in farming operations are entitled to certain exemptions from paying the ORST. Farming operations include growing plants within a hothouse, greenhouse or similar structure. Exemptions from ORST include:
• Building materials used to build or modernize structures used exclusively (generally 90 per cent or more) for farm purposes, including greenhouses.
• Implements, machinery and equipment designed for farm use.
• Water systems and pumps.
• Generators.
• All-terrain vehicles with an engine displacement of 200 cc or more and equipped with a carrying platform.
• Insurance premiums for agricultural property, such as tractors, buildings, etc.
In contrast, the following items used in farming operations are taxable:
• Insurance premiums for contracts of insurance on property not considered to be agricultural property, such as structures used for retail purposes or offices, lawn and garden tractors with no facilities for attachments to till soil, maintain crops or pull small trailers.
• Automobile parts.
• Computers used in the home or office of a farm operation.
• Furniture and equipment.
OTHER PROVINCIAL SALES TAXES
Similar to Ontario, each province with a provincial sales tax has its own laws and administrative policies in respect of what is taxable or exempt. Determining whether a particular farming item is exempt is often a complex and confusing process. Notwithstanding that the various government departments provide information and guides outlining the application of sales tax for greenhouse operators (please see references in accompanying sidebar story on this page), ultimately it is the responsibility of the taxpayer to understand their obligations with respect to the application of sales taxes for their operation. If you believe that a particular significant purchase of farming equipment is exempt you should consider contacting a professional sales tax practitioner.
Scott Merry is a senior manager within Deloitte’s Indirect Tax department in Kitchener. • 519-650-7737, smerry@deloitte.ca
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