Bobby Solhi of TaxChambers LLP was quoted by Bloomberg BNA International Tax Monitor on the recent Tax Court of Canada decision in Jayco, Inc. v. The Queen that addressed GST/HST on Sale of Property into Canada, specially Recreational Vehicles (RVs) and parts.

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Below is a reproduction:

Canada Court Blocks Portion of Taxes on U.S. RV Maker's Exports

Canada's Tax Court ruled that American recreational vehicle manufacturer Jayco Inc. doesn't have to pay a portion of the C$14.7 million ($11.4 million) assessed in value-added taxes on its exports of RVs and parts.

The ruling confirms that suppliers who provide or arrange freight services for goods they ship to Canada risk being liable for federal goods and services tax or federal-provincial harmonized sales tax, Toronto tax lawyer Bobby B. Solhi told Bloomberg Tax.

Jayco's exports of vehicles to Canada weren't taxable under the Excise Tax Act because the supply of recreational vehicles was deemed to be made outside Canada under Section 142(2)(a) of the act, Justice Johanne D'Auray said in the ruling, dated Feb. 16 and released March 5.

The evidence showed agreement between Jayco and its Canadian dealers for delivery of RVs at the company's U.S. factory, and that Jayco arranged for transportation of the vehicles to Canada on the dealers' behalf, D'Auray said. The court rejected the Canada Revenue Agency's argument that Jayco was liable for tax on the RVs because it used a related entity, Jayco Enterprise Transportation Inc., to deliver them to Canada.

However, the contracts for purchases of RV parts were ''quite different,'' and while the goods were trans-ported by an independent third party, they were effectively delivered in Canada on Jayco's behalf and were subject to tax, the court said. The freight service hired by Jayco acted as its agent and Jayco was the importer of record, it said.

''Title did not pass, and the delivery did not occur at the business premises of Jayco,'' it said. ''The parts were delivered or made available in Canada.''

A Lesson for Suppliers The ruling serves as a lesson for suppliers, whether moving goods into or out of Canada, to ''step away'' from providing or arranging  services for the goods if they don't want to deal with Canada's value-added tax system, Solhi, a partner with TaxChambers LLP, said March 6.

''At a minimum, suppliers need to make it very clear in the commercial documentation that they do not act as an agent in providing or arranging logistical services and to clearly state the place of delivery of their goods,'' Solhi told Bloomberg Tax.

The Canada Revenue Agency assessed Middlebury, Ind.-based Jayco C$14.2 million ($11.0 million) in goods and services tax and harmonized sales tax on sales of RVs to Canadian dealers, and the freight transportation service and provincial sales tax portion of harmonized sales tax on parts sales.

The tax owing on shipments from Jan. 1, 2007, through Dec. 31, 2009, plus C$589,000 ($457,000) in interest, was based on the agency's finding that the goods were delivered or made available in Canada.

A Jayco spokesperson told Bloomberg Tax March 6 that the company won't comment on the ruling, whether it plans to appeal, or on how much of the C$14.7 million in disputed tax was divided between RV and parts sales.

The Canada Revenue Agency has until March 19, 2018, to decide whether to appeal the ruling to the Federal Court of Appeal, spokesman Etienne Biram said March 6. ''As this matter is before the court, and by virtue of the confidentiality provisions of the Excise Tax Act, the CRA cannot comment on the details of this case,'' Biram told Bloomberg Tax in an email.

The case is Jayco Inc. v. The Queen (No. 2015- 3545(GST)G).

By Peter Menyasz

*Reproduced with permission from Daily Tax Report. International, 45 TMIN (March 7, 2018). Copyright 2018 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com

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