GST/HST Questions for Revenue Canada 2013

March 07, 2013

Share
- Facebook
- Twitter
- Linked In
- Google+
- E-Mail

DISCLAIMER

These comments do not replace the law found in the Excise Tax Act (the Act) and its Regulations. The comments are provided for your reference. As they may not completely address your particular operation, you may wish to refer to the Act or appropriate regulation, or contact any CRA GST/HST Rulings Centre for additional information. These Centres are listed in GST/HST Memorandum 1.2, CRA GST/HST Rulings Centres. If you wish to make a technical enquiry on the GST/HST by telephone, please call the toll-free number 1-800-959-8287. A ruling should be requested for certainty in respect of any particular GST/HST matter.

If you are located in the province of Quebec and wish to make a technical enquiry or request a ruling related to the GST/HST, please contact Revenue Québec by calling the toll-free number 1-800-567-4692.

COPYRIGHT is reserved jointly to the CRA and the CBA Commodity Tax, Customs & Trade Section. Requests for permission to reproduce such text, in whole or in part, should be sent to the CBA National Office in writing at 500-865 Carling Ave., Ottawa, Ontario, K1S-5S8. Where the material is to be reproduced in and used solely for instruction in an educational institution, attribution must be given to the CRA and the CBA Commodity Tax, Customs & Trade Section.

For GST/HST Questions for Revenue Canada from 1999 - 2010 – please contact cbacommoditytax@cba.org.

ANNUAL MEETING – March 7, 2013 (Ottawa, Ontario)

CANADA REVENUE AGENCY ("CRA")
CANADIAN BAR ASSOCIATION (COMMODITY TAX, CUSTOMS AND TRADE SECTION)

GST/HST QUESTIONS & COMMENTS FOR CANADA REVENUE AGENCY

All statutory references are to the Excise Tax Act (the "ETA") Unless otherwise stated

FAILING TO COMPLY WITH A REQUIREMENT FOR INFORMATION
“REGISTER A FORMAL DISPUTE" ON MYACCOUNT / MYBUSINESSACCOUNT
FILING GST RETURNS FOR A DECEASED TAXPAYER UNDER S.238
FILING GST RETURNS FOR NEW CORPORATIONS UNDER S.238
TAXPAYER RELIEF CLAIMS
END OF COUNTER SERVICES
HST OBJECTIONS
PATRONAGE DIVIDENDS AND ISSUANCE OF CREDIT NOTES (S. 232(3))
FINANCIAL SERVICES AND EXCLUSION IN PARAGRAPH (q)
TIME TAX BECOMES PAYABLE WHEN CONSIDERATION IS COMPRISED OF A FORGIVABLE LOAN
ELECTIONS FOR SELECTED LISTED FINANCIAL INSTITUTIONS (“SLFI ”)
SPECIFIED DERIVATIVE SUPPLIES
A "LOADED QUESTION" (SECTION 218.01 AND SECTION 217 "LOADING")
VOLUNTARY REGISTRATION
CARRYING ON BUSINESS
CONSTRUCTIVE IMPORTER RULES – SECTION 178.8
SUPPLIER RELIANCE ON PURCHASER CERTIFICATES
PRO-RATING REMITTANCES OF GST/HST
WINDING UP AND GST ITC ENTITLEMENTS
REORGANIZATIONS - AMALGAMATIONS
INTERPRETATION OF “COMMERCIAL ACTIVITY”
ASSUMPTION OF “UNDER WATER” CONTRACT
PRE-INCORPORATION CONTRACTS
HST PLACE OF SUPPLY RULES – LEGAL SERVICES
HST PLACE OF SUPPLY RULES – SALES OF TANGIBLE PERSONAL PROPERTY
HST PLACE OF SUPPLY RULES AND “DEEMED TRUST” (SUBSECTION 222(1) OF THE ETA)
SCOPE OF USED RESIDENTIAL COMPLEX EXEMPTION
PROPERTY AND SERVICES OFFERED IN A SENIOR CITIZEN RESIDENCE
REAL PROPERTY INVESTMENT
CRA REVIEW OF JOINT VENTURES FOR GST/HST
GST/HST REGISTRANT FAILS TO SELF-ASSESS THE GST/HST ON THE ACQUISITION OF REAL PROPERTY AND DOES NOT CLAIM AN INPUT TAX CREDIT (“ITC”)
MEDICAL DIAGNOSTIC SERVICES
APPLICATION OF S. 10.1, SCH. VI, P. V – SERVICE RELATED TO INTANGIBLE PERSONAL PROPERTY
IMPORTED TAXABLE SUPPLY – CREDITABLE TAX
GIFT CERTIFICATES
ETA 169/225
LTA VI-V-1
UPDATE ON AUDIT ISSUES AND DISCUSSION
UPDATE ON COURT CASES/OBJECTION AND DISCUSSION

1. FAILING TO COMPLY WITH A REQUIREMENT FOR INFORMATION

Questions

If the CRA issues a Requirement for Information under section 289 demanding that a taxpayer provide information or documents, and the taxpayer does not provide the information or document:

Will the CRA ever prosecute a taxpayer for failing to comply with the Requirement for Information?

If the CRA will prosecute a taxpayer for failing to comply with the Requirement for Information, under what circumstances or criteria?

How often has the CRA prosecute a taxpayer for failing to comply with the Requirement for Information in recent years?

Will the Agency always seek a compliance order from a Court under section 289.1 before prosecuting?

CRA Comments

CRA’s general policy is to proceed with a compliance order under section 289.1 (civil court remedy) prior to seeking the prosecution provision under section 326.
The compliance order provision under section 289.1 (civil court remedy) operates notwithstanding the availability of the prosecution provision under section 326.

There could be circumstances where the CRA would seek prosecution against the taxpayer for failing to comply with subsection 289(1). There are no specific criteria; the circumstances of each case would have to be considered, e.g. the taxpayer clearly intends on not complying with a Requirement for information or where there are repeated occurrences.

The CRA does not have specifics numbers of cases where the taxpayers were prosecuted for failing to comply with a requirement under section 289. Generally, taxpayers will comply with an order of the court pursuant to section 289.1, i.e. the civil court remedy.
The compliance order provision under section 289.1 (civil court remedy) operates notwithstanding the availability of the prosecution provision under section 326.

However, as indicated in response to Part a, it is CRA’s general policy to proceed with the civil provision for a compliance order from a court under section 289.1 in circumstances where the taxpayer fails to comply with either (1) a request for information under section 288, or (2) a requirement for information under section 289, prior to seeking compliance under the prosecution provision.

2. “REGISTER A FORMAL DISPUTE" ON MY ACCOUNT / MY BUSINESS ACCOUNT

Question

Does the CRA now allow “Register a formal dispute” on myaccount/mybusinessaccount for GST/HST objections? If so, how does one ensure that this is a legally valid notice of objection, since it's not filed in accordance with ETA section 301?

CRA Comments

GST/HST objections are not presently accepted via submissions through “My account” or “My business account”. The Excise Tax Act (ETA) requires the objection to be filed in the prescribed form and manner and allows the Minister to accept an objection that is not filed in the prescribed manner.

Other acts that we administer (i.e. the Excise Act, 2001, the Air Travellers Security Charges Act and the Softwood Lumbers Products Export Charge Act, 2006) also require that objections be filed in the prescribed form and manner. However, these acts allow the Minister to accept objections even though they were not filed in the prescribed form and manner.

Objections under the Income Tax Act do not require a prescribed form

3. FILING GST RETURNS FOR A DECEASED TAXPAYER UNDER S.238

Questions

Paragraph 238(1)(a) doesn't appear technically to apply to an individual annual/calendar year filer who dies during the year before December 31 (since the reporting period is no longer a fiscal year, and no longer a calendar year for subpara. 238(1)(a)(ii)). As a result, it appears that para. 238(1)(b) applies and the return is due one month after death. We have heard informally that CRA policy is to extend the deadline to 3 months after death.

Can you confirm there is a policy to extend the deadline to file in the above circumstances to 3 months after death? Does this policy apply in all circumstances?

If the above policy exists, where is it documented?

If the executor requests an extension of time to the following year's June 15 (the usual filing deadline) under section 281, will that be granted, and if so, under what conditions?

CRA Comments

Under subsection 238(1) of the Excise Tax Act (ETA), every registrant is required to file a GST/HST return for each reporting period of the registrant. Section 267 provides rules for determining the reporting periods upon the death of an individual. The individual’s reporting period ends on the day the individual dies and the estate’s first reporting period begins the next day and ends on the day the individual’s reporting period would have ended had the individual not died.

Thus, where the new reporting period for the deceased individual that ends on the day of death is not a fiscal year then, under paragraph 238(1)(b) of the ETA, the personal representative would be required to file a GST/HST return for the deceased individual within one month after the end of the reporting period that ended on the day the individual died.

The Minister has the discretion under subsection 267.1(4) of the ETA to waive the requirement for a personal representative of a deceased individual to file a return for a reporting period of the individual ending on or before the day the individual died. Further, under subsection 281(1) of the ETA, the Minister may extend in writing the time for filing a GST/HST return, or for providing information. A personal representative may make a request in writing for a waiver or an extension of time to file a return for a deceased individual and send it to the attention of the nearest Tax Centre or Tax Services Office (TSO). The personal representative should provide a detailed explanation of the circumstances leading to such a request. Whether a waiver or an extension of time to file a return is granted will depend on the particular circumstances of each case.

There is no CRA policy to automatically extend the due date of a return to three months after the registrant’s death.

4. FILING GST RETURNS FOR NEW CORPORATIONS UNDER S.238

Question

Does the CRA consider that paragraph 238(1)(a) applies to the first fiscal year of a corporation that has a short taxation year (e.g., incorporated May 1, with a December 31 year-end), so that its filing deadline is 3 months after year-end even though it does not have a full fiscal year?

CRA Comments

Given the reference to 3 months in the question, we have assumed that your question refers to subparagraph 238(1)(a)(iii) of the Excise Tax Act (ETA) and as a result the corporation would not be a listed financial institution described in any of subparagraphs 149(1)(a)(i) to (x) of the ETA.

Under paragraph (c) of the definition of “fiscal year” in subsection 123(1) of the ETA, the corporation’s fiscal year is its taxation year where the corporation did not make an election under section 244 of the ETA. Under section 244 of the ETA, where the corporation’s taxation year is not a calendar year, then the corporation may elect to have a fiscal year that is a calendar year for GST/HST purposes, effective on the first day of a calendar year.

“Taxation year” is also defined in subsection 123(1) of the ETA and, in general, refers to the person’s taxation year or fiscal period for income tax purposes. Under section 249 of the Income Tax Act (ITA), a corporation’s taxation year is its “fiscal period” which is defined under section 249.1 of the ITA, in part, as the period for which the corporation’s accounts for its business or property are made up for purposes of assessment under the ITA.

Where the corporation did not file an election under section 244 of the ETA, then its fiscal year for GST/HST purposes will be its taxation year or fiscal period for income tax purposes. If the corporation’s first taxation year or fiscal period for income tax purposes is from May 1 to December 31, then that is also its first fiscal year for GST/HST purposes even though that fiscal year does not have 365 days. In general, if the corporation becomes a GST/HST registrant beginning on the first day of its first fiscal year and its reporting period as established under subsection 245(2) of the ETA is a fiscal year, then the corporation’s first annual GST/HST return is required to be filed within three months after the end of the corporation’s fiscal year according to subparagraph 238(1)(a)(iii) of the ETA.

5. TAXPAYER RELIEF CLAIMS

Questions

What is the process for dealing with a Request for Taxpayer Relief? i.e., what internal steps are taken by the CRA to handle such claims?

Are there standards for how long the process should take?

What kind of notice is given to the taxpayer along the way?

Who makes the decision?

What about the second review?

CRA Comments

First, it is important to explain the structure of the Taxpayer Relief program. On April 1, 2011, the CRA consolidated the taxpayer relief workload into one program delivered through four regional intake centres and centres of expertise to promote a more consistent approach in processing relief requests, improve efficiency, provide a single point of accountability, and facilitate trend analysis. The intake centres are where the majority of correspondence for relief requests are received and screened. They are located as follows with their corresponding regions attached:

Atlantic (Summerside Tax Centre) for ON, NB, NS, PEI, NL, NU;
Quebec (Shawinigan TC);
Prairie (Winnipeg TC) for AB, SK, MB, NT ;and
Pacific (Burnaby-Fraser TSO) for BC, YK

Once screened, the requests are forwarded to the centres of expertise for review and decisions. They are located in the same regions:

Atlantic (Summerside TC);
Quebec (Shawinigan TC);
Prairie (Winnipeg TC); and
Pacific (Victoria TSO)

Once received, the taxpayer request is screened, validated, and assigned. The officer reviews the facts, prepares a report, and makes a recommendation to the delegated authority, which makes decision and issues a letter which includes reasons for the decision. The decision letter also provides information on recourse rights, which could be a second administrative review by CRA, or a Judicial review.

Are there standards for how long the process should take?

The CRA has not yet published service standards for the process as it is yet too early, under the new delivery model, to determine service standards for processing. We are currently gathering data on processing times under the new delivery model and will use these to determine a viable standard.

What kind of notice is given to the taxpayer along the way?

Once the taxpayer relief request is received at the intake centre it is entered into our registry, reviewed and an acknowledgement letter is sent to the taxpayer. Requests are treated on a First-In-First-Out basis therefore the review time can vary depending on volumes and complexity of requests. In an effort to provide more timely communication with requestors, we are proposing a standard to be implemented in the new fiscal year (by April 1, 2013) to acknowledge a request within 30 days of receipt at the Intake Centre.

Who makes the decision?

An officer reviews the facts, prepares a report, and makes a recommendation to the delegated authority. The delegated authority makes decision and issues a letter which includes reasons for the decision. The delegated authorities can be found in publications on the CRA website.

What about the second review?

A second administrative review is available when a taxpayer disagrees with a relief decision. It must include the reasons why the taxpayer disagrees e.g., not all facts were considered, and it should contain any new, relevant documents. The second administrative review is conducted by CRA officials not involved in the first review and decision. The next recourse is judicial review at the Federal Court

6. END OF COUNTER SERVICES

Question

It is understood that the CRA will be terminating counter services nationally in all its TSO’s later this fall. Please provide an explanation of exactly what is happening and why the services are being withdrawn.

In particular, will a taxpayer/professional still be able to get a date stamp for a filing at the TSO. If not, and an envelope is put in a CRA drop box at a TSO after hours, what date will be applied to the filing when the drop box is cleared the next day – will it be the previous day or the day the box is cleared?

CRA Comments

On October 1, 2013, payment and enquiry counters in the remaining 21 CRA Tax Services Offices and Tax Centres will be closed. The discontinued services include: cashier and greeter services, forms and publications displays, telephone kiosks, and self-stamping machines.

The decision to discontinue the payment and enquiry counter services was not made lightly.

The way Canadians do business is changing, and the CRA is changing to meet their expectations. An increased focus on online delivery of services means savings for government and improved self-service options for taxpayers. Many Canadians want modern, convenient, and time-saving ways to take care of their tax matters, and the CRA is striving to meet these demands. In addition, the cost of responding to each in- person enquiry is several times that of responding to a telephone enquiry.

Date stamping will no longer be available at the TSO. The purpose of the stamping machine was to provide taxpayers with a way of date stamping a copy of their documents for their records only. Drop boxes are typically emptied of their contents twice daily (more frequently during the personal tax filing season). The contents are stamped by the CRA’s mail operations the same day they are received. For the first clearance each morning, items are date stamped with the previous day’s date. It is the date stamped by the CRA’s mail operations that determines the official date received by the CRA.

7. HST OBJECTIONS

Recent correspondence from CRA Appeals states that the current waiting time for an Objection to be considered is between 9 months and 1 year. Is this the new standard for Objection review? Is there anything being done to shorten the timeframe?

It appears that at least some recent reassessments on HST objections do not bear any reference number, whereas they used to be numbered. This can be confusing where there are multiple objections being dealt with at the same time that they are being appealed to Tax Court. Is this the new standard – if so, why? Have there been any other administrative changes to the Objections and Appeals process over the last year?

CRA Comments

The length of time it takes to resolve an objection depends upon a number of factors such as - type of objection, information provided with the objection and issues involved. CRA Appeals is currently reviewing our service standards and business processes with the intention of providing a more timely response, across all lines of business. We continue to invest additional resources to mitigate the risks associated with the increasing inventory of objections. By modernizing business practices and optimizing our delivery structure, we expect to see productivity gains that will allow us to more efficiently process these files.

With respect to the reference number, prior to April 2007, Appeals offices prepared manual notices of re-assessment and a “Notice Number” was inserted on the notice.

Since the implementation of the redesigned GST/HST system in April 2007, all notices of assessment and reassessment are produced electronically. These notices share a “common look and feel”. Instead of a “notice number” at the notice level, post-April 2007 notice show a “Reference Number” for each assessment communicated in the notice.

A GST/HST notice of reassessment issued by Appeals is normally presented in the following manner: The first page of the Notice entitled “RESULTS” starts with the following verse: “This Notice is issued as a result of your Notice of Objection”. The following pages entitled “SUMMARY OF (RE)ASSESSMENT” detail the assessments for each reporting periods. All of the “SUMMARY” pages bear a Reference Number. In other words, if five reporting periods are reported in the notice of reassessment, the notice will contain five reference numbers; one for each period.

8. ACKNOWLEDGEMENT OF RECEIPT OF DOCUMENTS SENT TO CRA

Question

The patronage dividend rules in subsection 233(2) of the ETA provide that the person paying the patronage dividend is deemed to have (a) reduced the consideration for all supplies that are “specified supplies”; and (b) adjusted, refunded or credited an amount of tax under subsection 232(2) of the ETA. These deeming rules allow the person paying the patronage dividend to issue a credit note pursuant to subsection 232(3) and claim a corresponding net tax deduction equal to the GST/HST component of the credit note for the reporting period in which the credit note is issued.

Can the CRA confirm that a credit note will be considered to have been validly issued in the following situation:

The persons receiving the patronage dividends (e.g. members of a cooperative) have expressly authorized the person paying the patronage dividend (e.g. the cooperative) to act as their agent in retaining a third party (e.g. law firm or custodian) to receive physical possession of the credit notes as agent for the members; and
Physical possession of the credit notes are in fact delivered by the cooperative to the third party who is receiving and holding the credits notes as agent for the members of the cooperative.

CRA Comments

Can the CRA confirm that a credit note will be considered to have been validly issued in the following situation:

The persons receiving the patronage dividends (e.g. members of a cooperative) have expressly authorized the person paying the patronage dividend (e.g. the cooperative) to act as their agent in retaining a third party (e.g. law firm or custodian) to receive physical possession of the credit notes as agent for the members; and
Physical possession of the credit notes are in fact delivered by the cooperative to the third party who is receiving and holding the credits notes as agent for the members of the cooperative.

9. FINANCIAL SERVICES AND EXCLUSION IN PARAGRAPH (q)

Facts

Paragraph (q) of the definition of “financial service” provides that all services (other than prescribed services) that are provided to an investment plan are excluded from being a financial service in situations where the person providing the service is a person who provides management or administrative services to the investment plan. The purpose of this exclusion, as explained in the Department of Finance Explanatory Notes, was “to ensure that the application of tax to such services is not circumvented by an "unbundling" of services provided to the entity”. For example, this provision would result in disribution services that are rendered by a mutual fund manager to be a taxable service.

Example No. 4 from TIB 105 involves a situation where the CRA has concluded that a mutual fund salesperson is providing an exempt financial service to a mutual fund dealer when the salesperson does the following:

solicit persons to open accounts to hold units;
introduce persons to the dealer and affiliates of the dealer to encourage them to become clients;
assist investors in purchasing, redeeming and exchanging units held in accounts;
provide service with respect to accounts by:
- regularly meeting with or contacting the client to review the status of the account and the appropriateness of the units held in the account in light of the investor's financial needs and investment objectives;
- ensuring that the client fully understands the nature of the units held in the account and all of the implications of holding the units;
- answering any questions that the client may have regarding the account, or the units held in the account;
- recommending any appropriate change in the account or in respect of the units held in the account; and
- assisting a client in exercising any right or privilege in respect of the account or the units held in the account.
act as agent of the dealer for the purpose of marketing units; and
obtain and maintain any licences, registrations or certificates that are required by law to engage in the business carried on by the salesperson.

Questions

In situations where the recipient of the above-noted services is an investment plan (i.e., the investment plan is the person contractually liable to pay the commissions to the mutual fund salesperson), does paragraph (q) apply to exclude the service from qualifying as a “financial service”?

The Tax Court’s decision in Royal Bank (2005 TCC 802) would suggest that paragraph (q) would not apply in the above fact situation on the basis that distribution services should not be considered to be an “administrative service”.

Does the CRA interpret paragraph (q) and the reference to “the provision, to an investment plan” as requiring the service to be “made to” to the investment plan? (i.e., does the investment plan need to be the “recipient” of the particular service in order for paragraph (q) to apply?)

Focusing on the “recipient” (as opposed to the beneficiary of the service) is consistent with the General Motors decision (2008 TCC 117) and Example No. 4 from TIB 105.

CRA Comments

Question a:

In the circumstances outlined in the question, unlike Example 4 in Technical Information Bulletin B-105, Changes to the Definition of Financial Service, (TIB B-105), the services of the mutual fund salesperson are paid for by an investment plan (as defined in subsection 149(5)). Accordingly, paragraph (q) could apply to exclude the service from the definition of financial service depending, in part, on the nature of the supply and the activities of the supplier. If the salesperson is a person who provides management or administrative services to the investment plan, then its supplies to the investment plan, whether they are management or administrative services, or any other services, other than prescribed services, including the distribution of mutual fund units, would be excluded from the definition of financial service under paragraph (q).

In the Royal Bank decision, the Tax Court held that the Royal Bank was making a single supply to Royal Mutual Funds Inc. of distributing or arranging for the distribution of units, which was not an administrative service for purposes of paragraph (t) and the related Regulations. In this case, in order to determine whether the mutual fund salesperson is making a single supply or multiple supplies, the predominant element of each supply and whether paragraph (q) applies, it would be necessary to examine agreements and other documentation etc. (e.g., trust declaration, prospectus, agreement between the trustee and the manager, agreement between the trustee and the mutual fund salesperson). It would also be necessary to consider the meaning of the term “management or administrative services” in light of recent amendments which added a definition of this term to subsection 123(1) of the Excise Tax Act.

Question b:

To determine whether a mutual fund salesperson, in the circumstances outlined in the question, is providing services to an investment plan, or instead, to the investment plan manager, and whether the salesperson is making a taxable or exempt supply, it would be necessary to examine the agreements described in the answer to question (a) above.

10. TIME TAX BECOMES PAYABLE WHEN CONSIDERATION IS COMPRISED OF A FORGIVABLE LOAN

Pursuant to section 168, tax is generally payable on the day the consideration for the supply is paid and the day the consideration for the supply becomes due.

Question

In situations where the consideration that is payable for a taxable management service is comprised of a forgivable loan which has a 5 year term (20% of principal amount being forgiven each year), what is the CRA’s position on the date in which tax is collectible. Should the supplier collect tax on the date it receives the loan or at the times the loan is forgiven?

Analysis

Ruling No. 950712 dated July 12, 1995 would suggest that tax becomes payable on the date that the forgivable loan is received and not at the time the loan is forgiven.

CRA Comments

When an amount is payable as consideration for a taxable supply, tax is payable on the value of the consideration on the earlier of the day the consideration is paid and the day the consideration becomes due, pursuant to subsection 168(1) of the Excise Tax Act (ETA).

In the facts as outlined, the consideration for the supply of taxable management services is an amount of money that is advanced (loan advance) pursuant to an agreement between the parties. Consistent with subsection 152(1) of the ETA, this consideration would be considered to become due according to the relevant written agreement between the management service provider and the client and when any invoices are issued. In the absence of any particular conditions on the loan advance or forgiveness of amounts under the loan and assuming that the entire amount of the loan advance is required to be advanced at the outset under the agreement, the consideration would generally be considered to be paid and to become due, and the tax would therefore generally be payable, at the time the loan advance is made, not at the time the loan is forgiven.

11. ELECTIONS FOR SELECTED LISTED FINANCIAL INSTITUTIONS (“SLFI ”)

Facts

The CRA requires each SLFI investment plan (individually the “Fund” and collectively the “Funds”) within the same Consolidated Group to execute a separate form for each of the Reporting Entity Election (RC4601) and the Tax Adjustment Transfer Election (RC4603). The execution of multiple forms by the same representative of each Fund causes a significant (and seemingly unnecessary) additional compliance burden for the Funds particularly where there are multiple Funds (e.g., 100+) in the Consolidated Group.

When the election forms were first introduced, the CRA permitted Funds within a Consolidated Group to elect using one form, with reference to each individual Fund within the group in an attached schedule.

Question

Please explain the rationale for the requirement to have each Fund within the same Consolidated Group execute a separate form for each of the Reporting Entity Election and the Tax Adjustment Transfer Election. Presumably, a similar issue will arise for QST purposes resulting in an even further compliance burden for the Funds.

Analysis

The rationale for the current requirement is not clear and appears contrary to the government’s initiatives to eliminate “red tape”.

CRA Comments

When the election forms were first developed based on the draft Selected Listed Financial Institutions Attribution Method (GST/HST) Regulations issued on June 30, 2010 by the Department of Finance, original Form RC4601 could be used to make both the reporting entity and tax adjustment transfer election between an investment plan and its investment plan manager, original Form RC4603 was used to make only a tax adjustment transfer election between an investment plan and its investment plan manager, and original Form RC4604 could be used to make the reporting entity, tax adjustment transfer and consolidated filing election between an investment plan and its investment plan manager.

Subsequent to the release of these forms, modified procedures for filing Form RC4604 were developed where certain conditions were met. These modified procedures were described in GST/HST Notice 260 and addressed concerns raised by the financial industry. These modified procedures did not apply to Form RC4601 or Form RC4603.

When updating Form RC4601, Form RC4603, and Form RC4604 based on the draft Selected Listed Financial institutions Attribution Method (GST/HST) Regulations issued on January 28, 2011 by the Department of Finance, it was decided that it was preferable to limit a particular form to a single election which is CRA’s standard practice.

Both the reporting entity election and the tax adjustment transfer election are joint elections made between an investment plan and its investment plan manager that must be made in prescribed form containing prescribed information and filed with the Minister in prescribed manner. As you are aware Form RC4601 is now the prescribed form for the reporting entity election and Form RC4603 is now the prescribed form for the tax adjustment transfer election. As with other elections for GST/HST purposes a separate form should be filed for each election being made.

The consolidated filing election is different from the reporting entity and the tax adjustment transfer elections in that it is a joint election between two or more investment plans and their investment plan manager. Given this difference, the prescribed form, Form RC4604, GST/HST Consolidated Filing Election for a Selected Listed Financial Institution and Notice of Revocation may be used to make the election between an investment plan manager and multiple investment plans provided the specific conditions outlined on the form are met, including that all the investment plans have the same person authorized to sign on their behalf. Given the nature of election to be added to a consolidated filing election and the election to withdraw from a consolidated filing election and also to reduce administrative burden, the related prescribed forms (Form RC4604-1 and Form RC4604-2) also provide for multiple investment plans to make the particular election provided the specific conditions outlined on the form are met.

With respect to filing forma for a selected listsed financial institution for QST purposes, including election forms, to the extent possible combined forms will be developed so that if an election is made for the GST/HST purposes and an equivalent election is being made for QST purposes only one form will need to be completed by the selected listed financial institution.

12. SPECIFIED DERIVATIVE SUPPLIES

Question

In the context of the definition of "specified derivative supply" in section 217, will the CRA please:

describe its understanding of what constitutes a "derivative";
confirm that it considers typical swap transactions (e.g. credit default swaps, interest rate swaps, foreign exchange swaps) to be "derivatives"; and
provide some examples of "derivative" supplies that would not be "specified derivative supplies" (i.e. what types of derivative transactions are being carved out by virtue of paragraph (b) of the definition of "specified derivative supply"?)

CRA Comments

As you are aware the phrase a financial instrument that is a derivative is not defined in the ETA and derivatives can be an area of considerable complexity. If you have questions on specific case situations please provide us with the relevant documentation and we will consider them.

13. A "LOADED QUESTION" (SECTION 218.01 AND SECTION 217 "LOADING")

Question

Could the CRA please provide us with an update as to what, if any, further guidance will be provided regarding the requirement for qualifying taxpayer to self-assess GST pursuant to section 218.01 and in particular, with respect to the scope of the permitted deduction pursuant to paragraph (k) of the definition of "permitted deduction"?

It would be appreciated if the CRA could also provide an update with respect to audit activity with respect to this particular issue and what guidance has been provided to auditors for the purpose of determining the amount upon which GST/HST is to be self- assessed in respect of insurance policies and reinsurance policies between non-arm's length parties.

CRA Comments

Audit activity of insurers has not changed except that after the changes in the legislation were enacted, non-compliance risk in the area of re-insurance was identified. As a result, auditors are requesting additional information from registrants to verify compliance with the self-assessment provisions.

There has not been any additional guidance provided by HQ.

14. VOLUNTARY REGISTRATION

Question

Subparagraph 240(3)(b) provides that a non-resident that regularly solicits orders for the supply by the person of tangible personal property for export to, or delivery in, Canada may voluntarily register for GST/HST purposes. If a non-resident person purchases and sells tangible personal property in Canada, but does not “regularly solicit” orders in respect of such sales, will the CRA register such non-resident persons (provided any security required under subsection 240(6) is posted)?

CRA Comments

The CRA will register a non-resident person that purchases and sells taxable tangible personal property for delivery in Canada in the ordinary course of carrying on a business outside Canada, but does not regularly solicit orders in respect of such sales, if that person applies under subsection 240(3) of the Excise Tax Act to voluntarily register. The registration would be subject to the legislative conditions that normally apply including the posting of any security that is required pursuant to subsection 240(6) of the ETA.

15. GST/HST REGISTRATION FOR FINANCIAL INSTITUTIONS

Facts

Part A - An unregistered non-resident enters into a supply and install contract with a resident registered recipient. The contract represents a "taxable supply" for GST purposes under which the non-resident manufactures outside Canada and installs a power generation facility inside Canada. The place in which the facility is to be located is a non-HST province. The installation is likely to take about 8 months.

Part B - Now assume that the non-resident enters into the agreement, then decides to assign the "in Canada" services portion of the contract to its Canadian subsidiary. Therefore, as between the two related entities, the non-resident will supply the equipment only, and the resident will supply the installation services in Canada. At the time of the assignment, the non-resident has already received an initial part payment.

Part C - Now assume the parties enter into a "Restated" contract under which the recipient, the non-resident and the resident are all parties to the contract. The respective roles of each of the parties is set out clearly in the contract.

Questions

Part A - In terms of determining whether the non-resident "carries on business" in Canada, will the CRA consider this as of the time of signing of the contract, or as of the conclusion of the contract?

Part B - Does the assignment of part of the contract represent a separate supply by the Canadian resident subsidiary to the recipient? On the assumption this is the case, what is the GST status of the initial part payment which was made to the unregistered non-resident - subject to GST or not?

Part C - Does the restated agreement represent a "novation" for GST purposes and in this connection is the original supply cancelled in favour of two new supplies: (i) one by the resident; and (ii) the other by the non-resident? If so, and the initial payment is treated as being made solely to the non-resident, does it now become GST-free?

CRA Comments

Each of the questions requires a determination of whether the non-resident is carrying on business in Canada for GST/HST purposes. As indicated in GST/HST policy statement P-051R2 Carrying on business in Canada, whether a non-resident person is carrying on business in Canada for GST/HST purposes is a question of fact requiring consideration of all relevant facts. Additional facts would be required to provide conclusive responses to each of the questions.

With respect to the question regarding Part A, the determination of whether a non-resident is carrying on business in Canada is generally made based on a complete set of facts at the time the non-resident enters into an agreement to make taxabke supplies in Canada and those supplies are deemed to be made. Furthermore, a determination that the non-resident is carrying on business in Canada would generally result in the non-resident becoming registered at that time for GST/HST purposes. With respect to the questions regarding Part B and Part C, the determination of whether the non-resident is carrying on business in Canada, including the effect on that determination of what the question generally describes as an assignment of part of the contract or a restating of the contract, would require consideration of a complete set of facts on a case-by-case basis. Generally, if it were to be established based on a complete set of facts that a supply is made by a non-resident supplier when the non-resident is neither registered nor carrying on business in Canada, any payment for that supply would not be subject to GST/HST since the supply would be deemed to be made outside Canada under subsection 143(1) of the Excise Tax Act.

16. CONSTRUCTIVE IMPORTER RULES – SECTION 178.8

Facts

A resident registered corporation (Corporation A) enters into an agreement with a resident registered corporation (Supplier) for the purchase of a power facility the components of which are to be imported from abroad. Under the terms of the agreement, the facility is to be sold to Corporation A on the basis of Incoterm “DDU” Job Site (i.e., Delivered Duty Unpaid to a site located in Canada). The Supplier charges and collects GST/HST on the consideration for the supply. Pursuant to the agreement, title to the goods passes from the Supplier to Corporation at the time of delivery to the Job Site. Corporation A then arranges for its wholly-owned subsidiary, a resident registered corporation (Corporation B) to act as “importer of record” of the equipment for purposes of the Customs Act. Corporation A pays the GST under Division III and Corporation B (the “importer of record”) claims the GST input tax credit on Corporation B’s GST return.

Questions

Was it appropriate for Corporation B to claim a GST input tax credit on the basis it was the importer of the equipment?
Assuming Corporation B has no basis to claim a GST input tax credit, on the basis it is not importing the goods “for consumption, use or supply” by it in Canada, does subsection 178.8(2) apply to deem Corporation A to have imported the goods and to deem Corporation A to have paid any duties and GST on the importation?
If section 178.8 has no application, is the “de facto” importer Corporation A?
Would the CRA agree that Corporation B acted as agent for Corporation A in importing the goods, given the nature of the transaction and the fact that Corporation A actually paid the GST applicable on importation (there were no duties payable).

Analysis

It is arguable that Corporation B is not entitled to claim a GST input tax credit in respect of the imported equipment, notwithstanding that it acted as “importer of record”. This is consistent with CRA policy and also because Corporation B was not the purchaser of the equipment from the Supplier.
Subsection 178.8(2) does not appear to apply in this fact scenario. The agreement for the supply was entered into in Canada between two resident and registered corporations. While the goods which are the subject of the agreement had to be imported into Canada subsequent to the agreement having been entered into, the “place of supply” would appear to be “in Canada” since the goods were to be delivered or made available in Canada on the basis of the Incoterm “DDU Job Site”.
Corporation A should be considered the “de facto” importer because it is the purchaser of the equipment from the Supplier and is importing the goods for its own “consumption, use or supply” within Canada. This is notwithstanding that Corporation A is not the owner of the goods until such time as they are delivered to the Job Site.
It follows that Corporation B was acting as agent for Corporation A in acting as “importer of record” having regard to the circumstances and the fact that Corporation A and not Corporation B paid the GST under Division III upon importation of the goods into Canada.

CRA Comments

Based on the information provided, the nature of the supply that the Supplier is making to Corporation A is unclear. For purposes of providing answers to the questions, we will assume that the Supplier is making a taxable supply of a good to Corporation A.

With respect to question (1), based on the information provided, Corporation B would clearly not have been entitled to an ITC under subsection 169(1) of the Excise Tax Act for the Division III tax paid on the importation of the good merely as a result of having acted as the importer of record. Specifically, Corporation B, which is not a recipient of a supply of the good, could not be considered to be the person that imported the goods for consumption, use or supply in the course of its commercial. Therefore, Corporation B should not have claimed an ITC for the tax paid on the importation of the good.

With respect to question (2), based on the information provided, subsection 178.8(2) of the ETA would not apply to deem Corporation A to have imported the good for consumption, use or supply in the course of its commercial activities, or to have have paid the tax on the importation of the good. Specifically, Corporation A is not a recipient of a specified supply of the good made outside Canada and therefore is not the constructive importer of the good under subsection 178.8(2) of the ETA. Based on the information provided, legal delivery of the good to Corporation A would occur at the specified site in Canada. As a result, the supply of the good made by the Supplier to Corporation A would be deemed to be made in Canada under subsection 142(1) of the ETA.

With respect to questions (3) and (4), the information provided in the question is incomplete in that it does not provide any information with respect to the acquisition of the good by the Supplier. If the Supplier was a recipient of a specified supply of the good made outside Canada (under either subsection 142(2) or 143(1) of the ETA), then the Supplier would be considered to be the constructive importer of the good under subsection 178.8(2) of the ETA. The Supplier would consequently be deemed to have imported the good for consumption, use or supply in the course of its commercial activities, and any amount paid or payable as or on account of tax in respect of the importation of the good would be deemed to have been paid or payable, by or on behalf of the Supplier and not by or on behalf of any other person. In this case, the Supplier would therefore be the person who would be entitled to an ITC under subsection 169(1) of the ETA for the tax on the importation of the good. The Supplier would be required to obtain a copy of the import documentation to support the claiming of the ITC.

17. SUPPLIER RELIANCE ON PURCHASER CERTIFICATES

Question #21 of the 2000 CRA/CBA Q & As raised the following issue of a supplier using and maintaining certificates to confirm a recipient’s “registration”, “non-residence” and “carrying on business” status for various provisions of the Act.

Some zero-rating provisions turn on whether a supply made to a non-resident was in respect of a supply made outside Canada by the non-resident (e.g., section 5 of Part V of Schedule VI). The CCRA will normally accept a certificate from a non-resident as "satisfactory evidence" of its non-resident or non-registrant status (see, for example, Appendixes A and B to New Memorandum 4.5.1). Where a supply is deemed to be made outside Canada pursuant to section 143, will a certificate from the non-resident that it does not carry on business in Canada be accepted on a similar basis?

The CRA’s answer was as follows:

Part V of Schedule VI to the Excise Tax Act (the Act), provides for zero-rating of certain supplies of property or services supplied by Canadian GST/HST registrants to non- resident persons. One of the primary conditions, that a GST/HST registrant must take into account for the supply to be zero-rated, is whether the recipient of the supply is in fact a non-resident of Canada. Another is whether the non-resident is registered for GST/HST purposes.

The onus of obtaining and maintaining "satisfactory evidence" that the person is not registered and a non-resident is on the supplier. To this end, the supplier may, in certain circumstances, accept a certificate from the person, as described in the GST/HST Memorandum Series, Chapter 4.5.1, Appendices A and B.

As for subsection 143(1) of the Act, the question asked is whether a certificate from the non-resident supplier - that the supplier is not carrying on business in Canada - will be accepted on the same basis.

While there is currently no administrative or legislative provision for such a certificate, a registrant when zero-rating a supply to a non-resident under section 5 of Part V of Schedule VI to the Act, for example, would be required to maintain satisfactory evidence that all of the conditions of the above zero-rating provision are met. Consequently, while there is no requirement for a certificate or declaration as to the status of the non-resident, in respect of carrying on business in Canada, it may be prudent for the registrant to obtain such a declaration in the contract or other documentation relating to the supply.

Question

What is the CRA's assessment policy where a recipient provides the supplier with a certificaet of non-registration or non-residence, but it turns out on audit that the recipient was in fact registered or was resident in Canada? If there is no indication that the supplier knew or should be reasonably have known that the certificate was incorrect (residence and carrying on business in particular often require difficult judgment calls), will the supplier be assessed fo rnot charging HST when it turns out that they should have? The question goes to common business practices of suppliers, most of which routinely obtain certificates, but do nothing more, on the understanding that they will not be assessed in such cases if the certificates turn out to be false.

Is the answer any different for a certificate regarding carrying on business, which is not mentioned in New Memorandum 4.5.1? The CRA response in 2000 explained that there is no administrative acknowledgement of a certificate in this case, but that it would be “prudent” to get one.

CRA Comments

With respect to the question regarding the residence and registration status of the recipient, as indicated in GST/HST Memorandum 4.5.1 Exports - Determining Residence Status, the CRA will generally accept, and a supplier can generally rely on, the documentation that is set out in that publication as proof that the recipient is both a non-resident and is not registered for purposes of zero-rating a supply under provisions of Part V of Schedule VI to the Excise Tax Act. This would be subject to the supplier having subsequently been advised by the recipient that its residence or registration status has changed as contemplated by the acceptable written documentation set out in GST/HST Memorandum 4.5.1 or, as referred to in the question, any clear evidence that the supplier otherwise knew or could reasonably be expected to have known that the recipient was in fact a resident or registered.

With respect to the question regarding the document that the question refers to as a certificate regarding carrying on business, as acknowledged in the question, the CRA has not indicated in GST/HST Memorandum 4.5.1, nor in any other publication, that such a document would be accepted by the CRA as proof that a non-resident is not carrying on business in Canada for purposes of zero-rating a supply under Part V of Schedule VI to the ETA. A supplier may not rely on such documentation as acceptable proof that a non-resident person is not carrying on business in Canada for purposes of zero-rating a supply under Part V of Schedule VI to the ETA.

With respect to Question #21 from our 2000 meeting, which stated as a fact that the supply made by the non-resident recipient was deemed to be made outside Canada pursuant to section 143 of the ETA (on the basis that the non-resident was not considered to be carrying on business in Canada), the supply made to the non-resident would qualify for zero-rating under section 5 of Part V of Schedule VI to the ETA assuming that the other conditions of that provision are satisfied. The supply would be zero-rated based on the fact that the supply by the non-resident was made outside Canada pursuant to section 143 of the ETA, regardless of whether the supplier of the service may have also obtained written confirmation from the non-resident that it was not carrying on business in Canada.

18. PRO-RATING REMITTANCES OF GST/HST

Facts

Situation 1: Company A (“Aco”) leases a property to commercial tenants. The tenants are required to pay rent, plus GST/HST, on the first of every month. The tenants do not make early payments. On the fifteenth of a particular month, Aco sells the property to Company B (“Bco”).

Situation 2: Company C (“Cco”) provides taxable investment management services to businesses. The businesses are required to pay a management fee, plus GST/HST, on the first of every month. The businesses do not make early payments. On the fifteenth of a particular month, Cco sells its entire business to Bco.

Assume in both Situations 1 and 2 that the payment is a prepayment for the entire month.

Question

Please confirm that Bco is not required to collect a pro-rated amount of GST/HST from Aco and Cco to remit under its own account for the period beginning on the fifteenth of the month and ending on the last day of the month (the “Half-Month Period”). Please confirm that there is no difference in the answer for Situation 1 and Situation 2.

Analysis

Although leasing real property does not involve any daily activity, whereas providing investment management services does involve the daily performance of services, there is no conceptual difference between the supply of real property and the supply of services in this context. In both cases, Bco is the supplier of the real property and the services for the duration of the Half-Month Period.

However, Bco does not collect any payments from tenants or businesses (“Recipients”) during the Half-Month Period. Bco is only obligated to collect GST/HST from Recipients under subsection 221(1) where that tax is payable by a recipient under section 165. The timing for payments of GST/HST under section 165 in these situations is governed by subsection 168(1), namely: “on the earlier of the day the consideration for the supply is paid and the day the consideration for the supply becomes due”. Since consideration for the supplies by Bco is not paid or payable until the first of the next month, Bco is not required to remit any GST/HST in respect of the supplies to Recipients during the Half-Month Period.

Alternatively, if Bco is required to account for some pro-rated amount of GST/HST collected by Aco and Cco from the Recipients, Aco and Cco have already collected payments, plus GST/HST, on the first of the month, and hold those amounts in trust for Her Majesty. Under Policy P-131R, the CRA has confirmed that it does not intend to collect tax twice on the same supply, and where the supplier and another person are both required to account for the amount as or on account of tax, the accounting of the amount and the remittance of any resulting positive amount of net tax by one of the parties will discharge the liability of both parties. Please confirm that Policy P-131R would apply in the above situations as well, such that Aco and Cco may discharge the liability of Bco.

CRA Comments

Without knowing the terms of the agreements between Aco and Bco for the sale of the real property and Cco and Bco for the sale of the business, we cannot provide a definitive response regarding Bco’s liability to account for GST/HST in respect of the half-month period. However, we offer the following general information.

In general, under subsection 221(1) of the Excise Tax Act (ETA), every person who makes a taxable supply shall, as agent of the Crown, collect the tax payable by the recipient in respect of the supply. Subsection 168(1) of the ETA sets out that tax in respect of a taxable supply is payable by the recipient on the earlier of the day the consideration for the supply is paid and the day the consideration for the supply becomes due. When a taxable supply of property is made by way of lease, licence or similar arrangement (lease) under an agreement in writing, subsection 152(2) of the ETA provides that the consideration, or any part thereof, becomes due on the day the recipient is required to pay the consideration, or a part, pursuant to the agreement.

Further, in part, under subsection 136.1(1) of the ETA, where a supply of property is made by way of lease to a person for consideration that includes a payment attributable to a period (referred to as the “lease interval”) that is the whole or a part of the period during which possession or use of the property is provided, then the supplier is deemed to have made, and the person is deemed to have received, a separate supply of the property for the lease interval. The supply of the property for the lease interval is deemed to be made on the earliest of the first day of the lease interval, the day on which the payment for that interval becomes due, and the day on which the payment attributable to the lease interval is paid.

Also, in part, under subsection 136.1(2) of the ETA, where a supply of a service is made to a person for consideration that includes a payment attributable to a period (referred to as a “billing period”) that is the whole or a part of the period during which the service is or is to be rendered, then the supplier is deemed to have made, and the person is deemed to have received, a separate supply of the service for the billing period. The supply of the service for the billing period is deemed to be made on the earlier of the first day of the billing period, the day the payment for that billing period becomes due, and the day the payment attributable to the billing period is made.

Therefore, where the consideration (lease payment) for a taxable supply of commercial property made by way of lease by Aco for a lease interval or part is due and paid on the first day of the month, Aco is required under subsection 225(1) of the ETA to include the amount of the GST/HST payable on that consideration in determining its net tax for its reporting period that includes that day. Similarly, where the consideration for a taxable supply of investment management services made by Cco for a billing period or part is due and paid on the first day of the month, then Cco is required under subsection 225(1) of the ETA to include the amount of the GST/HST payable on that consideration in determining its net tax for its reporting period that includes that day.

In general, when Bco starts making taxable supplies of commercial property by way of lease and investment management services on its own account, then it will be required, under subsection 225(1) of the ETA, to account for the GST/HST on the consideration for those taxable supplies in its net tax calculation for its reporting periods in which the tax becomes collectible or collected.

As indicated earlier, the facts of a particular case and the terms of the agreements between Aco and Bco for the sale of the real property and Cco and Bco for the sale of the business would need to be reviewed to determine any liability that Bco may have to collect GST/HST in respect of the supplies made by Bco to the lessees and the recipients of the investment management services in the half-month period. For example, it must be determined whether Aco or Cco has paid any consideration to Bco in respect of the supplies made by Bco in the half-month period. In addition, it must be determined whether Aco and Cco have made any subsequent adjustments in the consideration payable by the lessees or recipients. For example, Cco may have reduced the consideration payable by the recipients and the recipients may be required to pay consideration to Bco for the supplies made during the half-month period.

If in fact Bco is making supplies in the half-month period for no consideration payable by the lessee or the recipient, then Bco is not required to collect GST/HST from the lessee or recipient unless the non-arm’s length rules under subsection 155(1) of the ETA applies. Under that provision, tax will apply on the fair market value of a supply of property or a service made by a supplier for no consideration or for consideration less than fair market value in a non-arm's length transaction to a person who is a not a registrant who is acquiring the property or service for consumption, use or supply exclusively in the course of commercial activities of the recipient.

19. WINDING UP AND GST ITC ENTITLEMENTS

Facts

A subsidiary is going to be wound up into its parent corporation. The subsidiary is an importer and has GST ITC entitlements.

Question

If the winding up occurs prior to the time that the subsidiary claims the GST ITCs, will the parent be entitled to claim the ITCs or are they lost?

CRA Comments

As there was limited information provided, we are basing these comments on the assumption that both the parent and its subsidiary are registrant corporations¹.

Where a particular corporation is wound up and not less than 90% of the issued shares of each class of the capital stock of the particular corporation were, immediately before that time, owned by another corporation, paragraph 272(a) states, in part, that for the purposes of applying the provisions of Part IX of the ETA in respect of property or a service acquired or imported by the other corporation as a consequence of the winding-up, the other corporation is deemed to be the same corporation as, and a continuation of, the particular corporation. Wether property or services were acquired for use in a commercial activity by a particular corporation is a question of fact. However, where the subsidiary corporation was eligible to claim ITCs as determined under section 169 and related provisions with respect to property or services it acquired, but did not claim those ITCs prior to winding-up into its parent corporation, paragraph 272(a) would permit the parent corporation to claim those ITCs.

¹ If winding-up into a financial institution, rules applicable to registrants that become financial institutions (e.g., capital property rules under ss. 205(2)) apply to the property of the non-financial institution subsidiary as if it became a financial institution at the time of the winding-up.

20. REORGANIZATIONS - AMALGAMATIONS

Facts

In the context of a sale of the assets of a business, two types of corporate reorganizations are very common:

(1) A corporation (“Newco”) is incorporated solely for the purposes of purchasing all of the business assets from a supplier. Shares of Newco are subsequently sold to a third party purchaser and Newco is immediately amalgamated with the purchaser after the asset transfer (“Amalco 1”).

(2) An operating company (“Opco”) is amalgamated with another corporation immediately before the asset transfer, and the amalgamated corporation (“Amalco 2”) sells all of the assets to a purchaser.

The CRA has previously indicated that the section 167 election is not available in these situations. Regarding situation 1), the CRA commented (2000 CRA/CBA Roundtable, Question 9) that Newco will not be engaged in commercial activity and is not eligible to register for GST/HST purposes. The section 167 election is therefore not available.

Regarding situation 2), the CRA has commented (2003 CRA/CBA Roundtable, Question 11) that Amalco did not establish or carry on the business of Opco, and that it therefore does not satisfy the requirements of subsection 167(1).

Question

Will the CRA reconsider its administrative positions and permit the section 167 election to be used in the situations outlined above? The current practice is to require Newco (in situation 1) and Amalco 2 (in situation 2) to carry on the business for some duration in order to satisfy the CRA’s positions stated above and justify the use of the section 167 election. This practice is inefficient from a commercial standpoint.

Analysis

Regarding situation 1), Newco may register under paragraph 240(3)(a) if it is engaged in a commercial activity. Subsection 271(b) states that “for the purposes of applying the provisions of this Part in respect of property or a service acquired, imported or brought into a participating province by a predecessor…the new corporation shall be deemed to be the same corporation as, and a continuation of, each predecessor”. Newco is therefore deemed to be the same corporation as Amalco 1 in respect of property acquired by Newco. Subsection 141.1(3) deems anything done by a person in connection with the acquisition or establishment of a commercial activity of the person to be done in the course of the commercial activities of the person. Since Newco is deemed to be the same corporation as Amalco 1 in respect of the property acquired by Newco, and the property was acquired in connection with the acquisition of a commercial activity by Amalco 1, Newco is deemed by subsection 141.1(3) to have acquired the property in the course of commercial activities. Therefore, Newco is deemed to engage in a commercial activity and should be entitled to register for GST/HST purposes.

Regarding situation 2), subsection 167(1) permits the election to be used where the business was established or carried on by the supplier, or was established or carried on by another person and acquired by the supplier. Amalco 2 (i.e., the supplier) acquired the business from its predecessor (i.e., Opco) through the process of an amalgamation, so the section 167 election should be available.

CRA Comments

Situation 1

One of the conditions for making a section 167 election is that if the supplier is a registrant, the recipient must be a registrant. It is a question of fact whether or not the recipient (in this case, Newco) intends to carry on the business and be engaged in commercial activity, which would allow it to register. If Newco does not carry on the business and is not engaged in commercial activity before the amalgamation, it would not be eligible to register for GST/HST purposes.

Under section 271, an Amalco is deemed for GST/HST purposes to be a separate person from each of its predecessors, except as otherwise provided under the ETA. Paragraph 271(b) sets out the specific purposes for which the Amalco is deemed to be a continuation of its predecessors.

There is no provision deeming a predecessor (in this case, Newco) to acquire the characteristics of its successor Amalco. In other words, Newco’s ability to register cannot be based on the proposed actions of a corporation, i.e., Amalco, that does not exist at the time Newco needs to be a registrant so it can make the section 167 election.

Situation 2

As noted under situation 1, where one corporation is amalgamated with another corporation, the provisions of paragraph 271(a) deem the corporation resulting from the amalgamation, i.e., the Amalco, to be a separate person from its predecessors, except as otherwise provided under the ETA. One of the conditions for making an election under subsection 167(1) is for the supplier to be supplying a business or part of a business that was established or carried on by the supplier or that was established or carried on by another person and acquired by the supplier. Since a predecessor corporation (in this case, Opco) is the entity that established or carried on the business, the Amalco cannot be considered to have done so, since it is deemed to be a separate person for GST/HST purposes. Moreover, the Amalco did not acquire the business from its predecessor (Opco) since paragraph 271(c) deems the transfer of property from Opco to Amalco not to be a supply for GST/HST purposes. Thus, it does not appear that an election under subsection 167(1) is available in this situation.

21. INTERPRETATION OF “COMMERCIAL ACTIVITY”

Facts

It is not uncommon for a deal involving a sale of assets from an original owner to an ultimate purchaser to be structured to include one or more intermediate transaction steps that involve a purchase and immediate sale by an intermediary (often a party related to either the original owner or the ultimate purchaser) where there is no mark-up on the sale of the assets by the intermediaries and no use by them of the assets. Such intermediate transactions are often undertaken to achieve the most income-tax efficient results overall. The Aviva decision in 2006 called into question whether such an intermediate transaction qualifies as one made in the course of a commercial activity. In response to that decision, a question was posed at the March 9, 2006 Roundtable, to which the CRA responded that the matter was still under review at that time, given the then recency of the Aviva decision.

Question

Could the CRA provide an update as to how it applies to Aviva decision? In particular, in the above-described circumstances, assuming the assets in quesion have only ever been used, and are for use by the ultimate purchaser, exclusively in commercial activities, and all parties are duly registered for the GST/HST purposes, would the intermediaries be eligible to claim imput tax credits on their purchase of the assets, and would they be entitled to treat their sales of the assets as taxable, on the basis of such purchase and sale being made in the course of a commercial activity?

CRA Comments

The ability of an intermediary to claim input tax credits on its purchase of assets, and the requirement for it to charge GST/HST on its subsequent sale of those assets depends the specific facts of the transaction. We assume that your question is regarding how the GST/HST applies to an intermediary that is a corporation, as the question is in the context of the decision in Aviva Canada Inc. v. R., [2006] TCC 57 (Aviva).

The definition of “commercial activity” in subsection 123(1) of the ETA indicates that a corporation that carries on a business or engages in an adventure or concern in the nature of trade is engaged in a commercial activity, regardless of whether it has a reasonable expectation of profit, unless it is making exempt supplies. Commercial activity also includes the making of a supply (other than an exempt supply) of real property by a corporation.

Generally where a corporation makes a sale of property that is not exempt from GST/HST, it is engaged in a commercial activity for GST/HST purposes, and the sale of the property is taxable, regardless of whether there is a reasonable expectation of profit from the sale, or whether the transaction is part of a business the corporation regularly carries on. Therefore, the corporation would be entitled to claim input tax credits on its acquisition of the property where the corporation is a registrant during the reporting period in which the GST/HST on the property is paid or payable, and the other conditions of claiming input tax credits are met. Furthermore, it would generally be required to charge GST/HST on the subsequent resale.

It is the Canada Revenue Agency’s position that the decision in Aviva applies to a specific fact situation and we will apply the Court’s decision in fact situations that are the same as those in the Aviva case.

22. ASSUMPTION OF “UNDER WATER”CONTRACT

Facts

Assume a GST-registered Vendor sells certain resource properties (i.e., rights to explore and exploit a mineral deposit, within the meaning of section 162) (“Properties”) to a GST-registered Purchaser, and as part of the governing agreement in respect of the sale, the Purchaser agrees to assume long-term contracts (“Assumed Contracts”) pursuant to which the production from the Properties is to be processed or refined. Further assume that the Assumed Contracts are “out of the market” or “under water” such that the consideration payable under the Assumed Contracts for the processing or refining of production from the Properties is greater than the current market rates for such services (in other word, the contracts have a negative value as new contracts could be entered into at a lower rate). Further assume that the Vendor is prepared to pay the Purchaser an amount (“Assumption Amount”) to assume the Assumed Contracts, but that rather than make a cash payment to the Purchaser, the Assumption Amount is netted against the purchase price payable by Purchaser for the Properties. Both Vendor and Purchaser are engaged exclusively in commercial activities.

Question

In such circumstances, does the CRA consider that the Purchaser has supplied a service to the Vendor for consideration equal to the Assumption Amount, and that GST on such amount should be collected by the Purchaser?

CRA Comments

The question states that the Purchaser agrees to assume long-term contracts pursuant to which the production from the Properties is to be processed or refined. We understand this to mean that the Purchaser has assumed the obligations of the Vendor under the Assumed Contracts. The Assumed Contracts were for the processing and refinement of production from the Properties. We understand this to mean that the Vendor had entered into agreements with third parties whereby the third parties would provide services to the Vendor of processing and refining the production from the Properties in return for fees to be paid by the Vendor. It is the payment of these fees (and presumably the right to receive the third party services) that is being assumed by the Purchaser.

The definition of “service” in subsection 123(1) of the Excise Tax Act is broad, and in our view, encompasses the assumption of the obligations of another party in return for consideration from the other party. Where the assumption is done in the course of a commercial activity, and is not an exempt or zero-rated supply, the supply is subject to tax at the applicable rate. In this case, the Purchaser has supplied a service to the vendor and GST/HST is collectible on the consideration payable for the supply of the service.

23. PRE-INCORPORATION CONTRACTS

Facts

Income Tax Bulleting IT-454 sets out the CRA's income tax policy where pre-incorporation contracts are adopted by a newly formed corporation.

Questions

What is the CRA's GST/GST policy in this situation? Can the newly formed corporation claim input tax credits for the tax paid prior to its incorporation and registration once the pre-incorporation contract has been adopted given that as indicated in paragraph 2 of IT-454 "Upon such adoption, the corporation is bound by the contract and is entitled to the benefits thereof as if it has been in existence at the date of the contract and had been a party thereto." Please advise as to the application of paragraph 141.1(3)(a) in this situation.
In terms of input tax credit entitlement, would it matter whether the newly formed corporation was GST registered before or after the pre-incorporation contracts were adopted?

Analysis

The act of "adopting" a pre-incorporation contract by the newly formed corporation would seem to come within the wording of paragraph 141.1(3)(a) --"a person does anything (other than make a supply) in connection with the...acquisition, establishment...of a commercial activity of the person" and, therefore, be deemed to have been done in the course of those commercial activities.

CRA Comments

Where the Canada Business Corporations Act provides that a corporation may, within a reasonable time after its existence, adopt a written contract that was made in its name or on its behalf before it came into existence, and where such a contract is adopted by a corporation subject to that legislation, the corporation should generally account for the GST/HST on the transactions under that contract from the time the corporation becomes a GST/HST registrant. The specific application of GST/HST depends on the facts of the particular situation.

In respect of jurisdictions which have not enacted similar legislation, the CRA may accept the accounting for pre-incorporation transactions by a newly formed corporation which has adopted a written contract made in its name or on its behalf before it came into existence based on the intention and actions of the parties, and on a case-by-case basis.

To the extent that the adoption of a pre-incorporation contract is in connection with acquiring or establishing the commercial activities of a newly formed corporation, paragraph 141.1(3)(a) of the ETA will deem the adoption of that contract to be done in the course of the corporation’s commercial activities.

Where property and services are acquired by a corporation prior to it becoming a GST/HST registrant, the corporation is precluded from claiming ITCs on those property or services, except as provided for under section 171 of the ETA. Furthermore, the provisions of section 171 will not apply to allow the corporation to claim ITCs on becoming a registrant where the corporation was not a small supplier prior to registration.

Please note that each situation will have to be looked at on a case-by-case basis and registrants should not assume that the CRA will automatically accept pre-incorporation transactions as being transactions of the newly formed corporation.

24. HST PLACE OF SUPPLY RULES – LEGAL SERVICES

Facts

A GST/HST-registered Canadian law firm performs legal services on behalf of a Canadian lender in a secured financing transaction, where the security for the loan is registered under the Personal Property Security Acts in five Canadian provinces against the borrower's tangible personal property, including inventory. There is no real property security for the loan. For the purposes of this analysis, assume that there is a single, bundled supply of legal services to the lender in respect of all tangible personal property.

Practical issues arise in relation to whether to apply provincial place of supply rules in section 15 or 16 of the New Harmonized Value-added Tax System Regulations to the law firm's services. The first set of rules in section 15 applies where the goods do not move from a province during the time when the services are performed. The second set in section 16 applies where the goods do move out of a province during the time when the services are performed.

How is the lender's legal counsel supposed to know the location of the secured inventory throughout the time that the services are performed? Even if the borrower's assistance could be obtained in regard to this inquiry (which might be difficult if no one raises the issue before the completion of the transaction), the borrower might not know or track this information precisely.

Question

If the lender's legal counsel cannot ascertain whether any secured inventory moved between provinces, should legal counsel default to the rules in section 15 of the New Harmonized Value-added Tax System Regulations?

CRA Comments

Suppliers are expected to comply with the legislative requirements of the place of supply rules, including the place of supply rules in the New Harmonized Value-added Tax System Regulations.

Based on the limited information provided, including the assumption that the legal services relate to tangible personal property, we can confirm that a supplier would be expected to comply with the rule in section 16 of the Regulations in cases where it applies, rather than defaulting to the rule in section 15 of the Regulations. Specifically, where it is possible based on the facts for the supplier to obtain information that is available with respect to where the tangible personal property is situated and its movement (which appears to be the case in the scenario provided), the supplier would be expected to obtain that information for purposes of applying the rule. Furthermore, the supplier would be expected to be familiar with the legislative requirements of the rule and to anticipate the need to take into account any available information from the outset of the making of the supply as opposed to after the completion of the supply.

Concerns relating to practical difficulties in complying with the legislative requirements of the place of supply rules in a particular situation are a tax policy matter that you may wish to pursue with the Department of Finance.

25. HST PLACE OF SUPPLY RULES – SALES OF TANGIBLE PERSONAL PROPERTY

Legislation

Section 1 of Part II of Schedule IX to the Excise Tax Act (“ETA”) provides that a supply by way of sale of tangible personal property is made in a province if the supplier delivers the property or makes it available in the province to the recipient of the supply.

Paragraph 3(a) of Part II of Schedule IX deems property to be delivered in a particular province by a supplier and not in any other province where the supplier either ships the property to a destination in particular province that is specified in the contract for carriage of the property or transfers possession of the property to a common carrier or consignee that the supplier has retained on behalf of the recipient to ship the property to such a destination.”

Facts

A supplier located in Québec (“Québec Co.”) manufactures widgets for its customer in Ontario (“Ontario Co.”).
Ontario Co. issues an electronic (“EDI”) purchase order to Québec Co. which states that the F.O.B. title transfer point is Québec Co.’s plant at the time when the widgets are loaded on the carrier.
The purchase order requires Québec Co. to prepare and transmit an EDI advance shipping notice when the widgets leave seller’s dock.
Ontario Co. contracts with the carriers who will pick up the widgets at Québec Co.’s facility and deliver them to a destination in Ontario. Ontario Co. pays all freight charges.
When the widgets are ready for shipment, Québec Co. contacts the carrier and prepares a bill of lading under its own name. The bill of lading states that the widgets are to be shipped to a destination in Ontario and the terms are F.O.B. Collect.
The bill of lading is provided to the carrier when the widgets are picked up and is subsequently provided by the carrier to Ontario Co. upon delivery.

Question

Is the place of supply deemed by paragraph 3(a) of Part II of Schedule IX to be in Ontario?

Analysis

Paragraph 3(a) deems a supply of tangible personal property to be delivered in a particular HST province and in no other province when either: (i) the supplier ships the property to a destination in a particular HST province specified in a “contract for carriage” of the property; or (ii) transfers possession of the property to a common carrier that the supplier has retained on behalf of the recipient of the supply.

In the facts above, Québec Co. has not retained the carrier on behalf of Ontario Co. so the second deeming provision in paragraph 3(a) would be inapplicable.

Although Québec Co. has not retained the carrier, it would appear that delivery is nevertheless deemed to be in Ontario under the first part of paragraph 3(a). In such instance, Québec Co. would therefore be obligated to collect and remit Ontario HST. Specifically, the supplier is actively engaged in shipping the widgets to a destination in Ontario that is specified in the bill of lading. In the common law provinces, a bill of lading would be considered a “contract for carriage”. Similarly, article 2041 of the Québec Civil Code states that “a bill of lading is a writing which evidences a contract for the carriage of property.” In these circumstances, it would appear to be irrelevant for purposes of the first part of paragraph 3(a) that the carrier has been engaged by the recipient of the supply.

CRA Comments

Based on the information provided, the supply of the widgets is deemed to be made in Quebec pursuant to section 1 of Part II of Schedule IX to the Excise Tax Act and section 3 of Part II of Schedule IX to the ETA does not apply.

Section 1 of Part II of Schedule IX to the Excise Tax Act provides that a supply by way of sale of tangible personal property is made in a province if the supplier delivers the property or makes it available in the province to the recipient of the supply. This rule is generally based on the province in which legal delivery of the goods to the recipient occurs, which can generally be determined by reference to the terms of the agreement for the sale of the goods and the applicable sale of goods law. Based on the information provided, legal delivery of the widgets to Ontario Co. occurs in Quebec.

In certain circumstances, section 3 of Part II of Schedule IX to the ETA deems tangible personal property to be delivered in a particular province and not to be delivered in any other province. As indicated in the question, paragraph 3(a) applies where the supplier either ships the property to a destination in the particular province that is specified in the contract for carriage of the property, or transfers possession of the property to a common carrier or consignee that the supplier has retained on behalf of the recipient to ship the property to such a destination. The supplier must hire the carrier on its own account to ship the property in order to be considered to have shipped the property for purposes of paragraph 3(a).

Based on the information provided, it is Ontario Co. that has hired the carriers. For this reason, not only would Quebec Co. not be considered to have retained the carrier on behalf of Ontario Co. as acknowledged in the question, but it would also not be considered to have shipped the widgets. The supply of the widgets is therefore made in Quebec pursuant to section 1 of Part II of Schedule IX to the ETA since legal delivery of the widgets occurs in that province and section 3 of Part II of Schedule IX does not apply to deem the widgets to be delivered in another province.

26. HST PLACE OF SUPPLY RULES AND “DEEMED TRUST” (SUBSECTION 222(1) OF THE ETA)

Facts

Same facts as above.
Ontario Co. has directed all of its suppliers, including Québec Co., to cease sending paper invoices.
Rather than submitting invoices, suppliers have been directed to transmit electronically advance shipping notices which give details of the quantities that have been shipped. These notices make no mention of applicable sales taxes, which are subsequently calculated by Ontario Co. for purposes of its preparation of EDI invoices and payments.
The determination of whether GST, HST or other provincial sales taxes are applicable is made by Ontario Co. These taxes are identified on the EDI invoices and payment details that are accessible by its suppliers.
With respect to Québec Co.’s supply of widgets (as described in the preceding question), the EDI invoices and payment details prepared by Ontario Co. indicate that HST was payable. This determination was made based on the Ontario ship to destination in the bill of lading.
Ontario Co. claimed input tax credits for the full amount of the HST paid to Québec Co. whose GST/HST registration number was provided and validated.
Québec Co. did not remit the provincial component of the HST because it considered that Québec was the place of supply and no HST was therefore payable.
Québec Co. retained the overpayments and is now in financial difficulty.

Questions

Must Québec Co. remit the Ontario HST?
Is Ontario Co. entitled to claim input tax credits?

Analysis

It would appear that even if Québec Co. is correct that the place of supply is in Québec and not Ontario, Québec Co. would nevertheless have an obligation under the deemed trust rules in subsection 222(1) of the ETA to remit the HST because the HST is clearly identified in the EDI invoices and payment details. In other situations, the CRA has accepted that the recipient of a supply may prepare invoices rather than the supplier. Moreover, the courts have held that where a taxpayer has collected GST, such taxes must be remitted even if the supply was exempt and no taxes were payable. (E.g., 800537 Ontario Inc. [Acura West] v. R., 2005 FCA 333; Gastown Actors Studio Ltd. v. R., [2000] G.S.T.C. 108 (Fed. C. A.))

Similarly, in circumstances where the supporting documentation confirms that HST was payable and paid to a GST/HST registrant, it would appear that Ontario Co.’s claims for input tax credits are justified. A subsequent determination that the taxes were paid in error or that the recipient did not subsequently remit the HST would not alter this entitlement.

CRA Comments

1. Must Québec Co. remit the Ontario HST?

Yes. Pursuant to subsection 222(1) of the Excise Tax Act (ETA), Québec Co. is deemed to hold any amount, except for certain amounts in the case of bankruptcy, collected as or on account of GST/HST (including tax collected in error), in trust for the Crown until the amount is remitted to the Receiver General or withdrawn under subsection 222(2) of the ETA.

Under subsection 225(1) of the ETA, all amounts that became collectible and all other amounts collected by Québec Co. in a particular reporting period as or on account of GST/HST, are required to be included in determining its net tax for the particular reporting period. Thus, where an amount of HST at 13% was collected by Québec Co. on the supply of widgets to Ontario Co. in a particular reporting period, then Québec Co. must include the full amount of that tax in determining its net tax for that reporting period.

2. Is Ontario Co. entitled to claim input tax credits?

Subsection 169(1) of the ETA provides, in part, that a registrant may claim an input tax credit (ITC) for the tax payable or paid on property or a service based on the extent to which the registrant acquired or imported the property or service or brought it into a participating province for consumption, use or supply in the course of the registrant’s commercial activities. Subsection 123(1) of the ETA defines “tax” as being tax payable under Part IX of the ETA. As a result, Ontario Co. is not entitled to claim an ITC for any amount paid in error as or on account of GST/HST, as such an amount is not tax payable under Part IX of the ETA. Ontario Co. is entitled to claim ITCs in respect of the GST that is payable provided that all of the conditions for claiming an ITC are met.

27. SCOPE OF USED RESIDENTIAL COMPLEX EXEMPTION

Question

Could the CRA comment on whether the exemption in section 2 of Part 1 of Schedule V would apply with respect to the sale of an apartment building that is operated as a retirement home which contains residential condominium units that are being leased to individuals as a place of residence. In particular, could the CRA confirm that the exemption applies to the portion of the building that is being used by the landlord in:

operating a rental office on the ground floor;
operating a cafeteria that is used solely to provide tenants of the building with meals that are exempt pursuant to section 6.2 of Part I of Schedule V;
operating a recreational centre that is used exclusively by residents of the building; and
providing storage lockers (cages) that are situated in the basement of the building to the tenants at no charge.

Analysis

The above noted premises would not form part of the building where residential condominium units are located and may not be freely used by the tenants so as to form part of the building’s “common area” (e.g. a tenant cannot use the rental office or storage lockers that are assigned to other tenants). This portion of the building could be considered “other appurtenances to the building … that is attributable to the unit and that is reasonably necessary for its use and enjoyment as a place of residence for individuals”.

CRA Comments

Section 2 of Part I of Schedule V to the Excise Tax Act (ETA) exempts the sale of a residential complex made by person who is not a builder of the complex unless one of the exceptions in paragraph 2(a) or 2(b) applies. For the purposes of this response, we assume that the sale is not being made by a builder of the complex and that neither paragraph 2(a) nor 2(b) applies. We also assume that the building is a condominium complex in which all the units are residential condominium units that, prior to the sale, are being leased on an exempt basis for use as a place of residence in accordance with paragraph 6(a) of Part I of Schedule V to the ETA.

Pursuant to paragraph (b) of the definition in subsection 123(1), a residential complex means,

(b) that part of a building that is

the whole or part of a … residential condominium unit … that is … a separate parcel or other division of real property owned … apart from any other unit in the building, and

a residential unit,

together with that proportion of any common areas and other appurtenances to the building and the land … that is attributable to the unit and that is reasonable necessary for its use and enjoyment as a place of residence for individuals.

Furthermore pursuant to their definitions in subsection 123(1),

a “residential condominium unit” means a residential complex that is … a bounded space in a building … described as a separate unit on a registered condominium or strata plan …and includes any interest in land pertaining to ownership of the unit.
and

a “condominium complex” means a residential complex that contains more than one residential condominium unit.

It is a question of fact whether the areas in question form part of the common areas of the condominium complex. Where a cafeteria, a recreational centre or a basement area for storage lockers are included in the common area of a condominium or strata plan, and are for the exclusive use of the residents, it is our view these areas would form part of the residential complex. It is also our view that office space included in the common area of the condominium or strata plan, which is for the exclusive use of the landlord to rent units in the building, would form part of the residential complex.

If the property were a multiple unit residential complex rather than a condominium complex, the areas described in the question would generally still be considered to form part of the residential complex.

28. PROPERTY AND SERVICES OFFERED IN A SENIOR CITIZEN RESIDENCE

Facts

On May 2, 2012, Revenu Quebec issued a Tax News item entitled "Property and Services Offered in a Senior Citizens' Residence" in which they seem to say they will treat as exempt property and services in Columns 1 and 2 (subject to certain preconditions). Revenue Quebec indicates that it considers the following property and services together with the dwelling as constituting a single supply of the dwelling:

meals and snacks\group activities or religious activities offered to all residents, front desk and telephone reception, monitoring services, housekeeping in common areas, snow removal, cable television, weekly housekeeping in rooms and apartments (including laundry service for bedding and towels), group transportation for activities offered to all residents, assistance with certain activities of daily life, weekly laundry service for clothing, transportation and escort services for residents when they are obliged to leave the premises for medical reasons.

Question

Will the CRA apply the same policy to property and services offered in a senior citizen residence for GST/HST purposes? If not, how does the CRA’s policy differ?

CRA Comments

Where, in addition to a supply of a residential unit, additional services are offered in a seniors’ residence, it is a question of fact as to whether the landlord is making a single supply of a residential unit (with the additional services being part of that supply) or whether the landlord is making multiple supplies. GST/HST Notice 224, The GST/HST Real Property Implications of Constructing, or Purchasing, and Operating a Residential Care Facility, provides further information on this topic.

As stated in Revenu Québec’s Tax News of May 2, 2012, the Act respecting the Régie du logement requires the operator of a seniors’ residence to list in the schedule to the lease other services supplied to residents.

The mandatory lease form of the Régie du logement and the mandatory schedule to the lease must be used where additional services are provided to a lessee who is an elderly or a handicapped person. In the mandatory schedule to the lease, the services in columns 1 and 2 are referred to as services that the landlord undertakes to provide and maintain and for which the lessee undertakes to pay rent. Column 3 lists options for other services, or for the frequency with which the services listed in column 2 will be provided, for which a fee is generally payable each time the service is provided.

In the case of a seniors’ residence that is not a healthcare establishment (the mandatory form does not apply in the case of a health care establishment), services listed in column 2 of the schedule to the lease are part of a single supply of a residential unit provided:

the services are of the kind usually provided in a senior’s residence;
the amount payable for the services are included in the total consideration payable for the supply of the residential unit and are payable at the same frequency as the rent; and
the lessee indicates at the time of entering the lease that they wish to receive the services.

The CRA will take the same position as that set out in Revenu Québec’s Tax News of May 2, 2012, provided such services form part of a single supply the predominant element of which is that of a residential unit made by way of lease, licence or similar arrangement. The types of additional services that may be included are discussed in the aforementioned GST/HST Notice 224 under “Ancillary property and services”.

29. REAL PROPERTY INVESTMENT

Question

A limited partnership (“LP”) is engaged in the acquisition and investment of commercial real property. The LP incurs expenses in identifying and acquiring the properties. For example, the LP engages a manager to investigate, source and to advise the LP of as to potential properties to acquire. Only once a potential property is identified, does the LP then determine the manner/structure in which the real property will be held. For example, the LP may acquire the property directly, through a nominee or through another entity, including another partnership.

Once a decision is made to acquire real property, if the property is acquired by a second tier partnership (i.e., a partnership that the LP is a partner of), please confirm that the LP will be entitled to claim ITCs for the expenses incurred in investigating and sourcing the potential real property acquisition and investment.

CRA Comments

It is a question of fact whether the expenses incurred in a particular situation meets the requirements of subsection 272.1(2), section 169 and related provisions. It is not clear when the second tier partnership (“P2”) was formed or whether the LP was a member of the P2 at the time that the LP incurred the expenses in question. Based on the limited information provided, we are pleased to provide the following general response.

Where property or a service is acquired or imported by a member of a partnership (that is not an individual) for consumption, use or supply in the course of activities of the partnership but not on the account of the partnership, unless the partnership reimburses the partner, subsection 272.1(2) of the Excise Tax Act (“ETA”) deems the partnership not to have acquired the property or service, and for the purpose of determining input tax credits (“ITCs”) of the partner, the partner is deemed to be engaged in the activities of the partnership. Subsection 272.1(2) does not apply to expenses incurred with regard to the partner’s own activities. Further, there is no entitlement to ITCs for tax paid or payable on expenses used in the course of a partner’s non-commercial activities.

On the basis of the facts provided, it would appear that the LP incurred the expenses relating to investigating and identifying potential properties on its own account but other than for consumption, use or supply in the course of the activities of the P2.

30. CRA REVIEW OF JOINT VENTURES FOR GST/HST

Facts

It is understood that the CRA is reviewing its policy on joint ventures for purposes of the election in section 273 with a view to drafting a new or amended P-106 “Administrative definition of a “participant” in a joint venture” (“P-106”).

Question

Would CRA confirm that nominee corporations and bare trusts (individually referred to as a “Nominee Corporation” and collectively as “Nominee Corporations”) by virtue of their activities as trustees in relation to the real property used in otherwise eligible real property joint ventures: (i) fall within the definition of the terms “participant” and “operator”; and (ii) are entitled to register for GST/HST such that they may enter into an election to account for GST/HST under section 273.

Analysis

We believe that Nominee Corporations should fall within the definition of the terms “participant” and “operator” and should be entitled to register for GST/HST and make the election under section 273. In addition to the technical reasons set out below, from a policy perspective, there are many reasons why a Nominee Corporation should be considered to be a “participant” and an “operator” in the joint venture and should be allowed to make an election under section 273. Use of Nominee Corporations is prevalent in real property joint ventures. By allowing them to make the section 273 election, this would significantly simplify the GST/HST compliance for the beneficial owners of the real property. In addition, enforcement of the GST/HST compliance for the CRA would also be easier as the CRA would be able to audit a single set of returns rather than a separate return for each joint venture participant.

The courts have recognized that a bare trustee can be considered a “participant” in a joint venture for the purposes of section 273 (see for example, Lau v. The Queen, [2007] G.S.T.C. 171). In Lau, notwithstanding the Tax Court concluded that the bare trustee/nominee was a “participant”, section 273 was held not to apply only because the court determined that, based on the facts and the evidence, no election was actually made or deemed to be made as between the Nominee Corporation and the beneficial owners (the facts before the court were that no election had ever been made).

Notwithstanding the Lau case, it appears that some Nominee Corporations are now being challenged on their status as a “participant” and their entitlement to make a joint venture election. This is surprising as where the Nominee Corporation and beneficial owners acknowledge an election as having been made, the CRA’s interest in making sure that the correct amount has been paid by all of the parties is protected pursuant to the joint and several liability provision in subsection 273(5), i.e., the other “participants” would continue to be jointly and severally liable for the GST/HST obligations in connection with the activities of the joint venture. This would not be the case where an election had not been made and the CRA was pursuing a claim against a Nominee Corporation (which would not have any assets and would not normally have the ability to pay any such assessment).

It is understood that the CRA has on occasion raised concerns that a Nominee Corporation is not engaged in a commercial activity and therefore is not required or permitted to register for GST/HST. The Nominee Corporation is in fact, and in law, engaged in a commercial activity. The reasons are summarized below:

Pursuant to subsection 240(1), “Every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to be registered for the purposes of this Part, except where…the person is a small supplier…”.

Under the agreement with the beneficial owner(s), the Nominee Corporation is generally mandated to act on behalf of and under the direction of the beneficial owner(s) to enter into for example:

lease agreements to lease the real property to third parties;
borrowing arrangements with lenders; and
supply agreements with suppliers of goods and services relating to the operations of the real property.

The Nominee Corporation is the identified party in contracts (e.g., sales agreements, lending arrangements, and agreements with suppliers).

The Nominee Corporation is also charged with being the registered owner of the real property, albeit in trust.

With respect to residential condominium developments in Ontario, the Nominee Corporation is often the Declarant under the Condominium Act and as such assumes obligations in respect of the real property in that capacity that cannot be contracted out of;

By engaging in the foregoing, the Nominee Corporation makes a supply of a service to the beneficial owner(s).

The service is a taxable supply (i.e., a supply made in the course of a commercial activity) because the Nominee Corporation (A) is carrying on a business and (B) does not make an exempt supply.

Given the broad nature of the definition of business and the fact that the Nominee Corporation does what it does on a regular and continuous basis, it is carrying on a business for GST/HST purposes. Note that there is no need for an expectation of profit in the case of a corporation.

Moreover, as it can reasonably be regarded that among the purposes for which the Nominee Corporation provides its services to the beneficial owners is to facilitate or further the endeavor of the beneficial owners, by virtue of subsection 141.01(4), any inputs acquired by the Nominee Corporation are deemed to be for use in the beneficial owners endeavor and therefore, for use in commercial activity.

Further, the supply is not an exempt supply as it is not enumerated in Schedule V.

As such, the Nominee Corporation is (A) required to register for GST/HST (if it is associated for income tax purposes with other registered entities) or (B) permitted to register GST/HST on a voluntary basis.

Aside from the legal and factual bases upon which a Nominee Corporation is entitled to be registered and enter in a section 273 election, because all contracts are in the name of the Nominee Corporation, it is much easier from the CRA’s perspective to audit a single Nominee Corporation with all documentation in its name rather than multiple beneficial owners with varying proportional interests with documentation in the name of another entity.

CRA Comments

The CRA is not reviewing the policy regarding the administrative definition of “participant” as expressed in GST/HST Policy Statement P-106, Administrative Definition of a Participant in a Joint Venture.

The CRA considers the Judge’s comments in the Lau decision regarding the interpretation of the term “participant” as that term is used in section 273 of the Excise Tax Act (the ETA) to be obiter. The decision was not based on those comments.

The judgment was based on the fact that an election was not made (see paragraph 30 of the judgment).

The CRA is maintaining its interpretation of the term “participant” as explained in the policy statement. For purposes of the election under section 273 of the ETA, a person who does not invest in a joint venture may be considered to be a participant in the joint venture if that person is designated as the operator of the joint venture under an agreement in writing and has the managerial or operational control of the joint venture. Whether a person, such as a nominee corporation or a bare trust, has managerial or operational control is a question of fact which is determined via a full examination of the person’s duties.

Generally, a nominee corporation essentially provides the use of its name to participants in a particular joint venture. Where the only function of a nominee corporation is to have its name used instead of the names of the participants in the joint venture’s dealings with third parties, the nominee corporation does not qualify as a participant for purposes of the joint venture election because it does not have managerial or operational control of the joint venture.

A common scenario is one where an entity, which is referred to as a nominee corporation by the participants, holds title to the assets of the joint venture on behalf of the participants, manages the collection and remittance of the GST/HST, maintains the bank accounts in the nominee's name, and receives all payments and pays all operational expenses on behalf of the joint venture. These responsibilities alone do not convey the nominee corporation the managerial or operational control of a joint venture. As a result, such a corporation would not be considered as a participant and thus, an operator, of the joint venture for purposes of the election under section 273 of the ETA.

CRA policy regarding bare trusts is set out in GST/HST Policy Statement P-015, Treatment of Bare Trusts under the Excise Tax Act, and GST/HST Technical Information Bulletin B-068, Bare Trusts.

A trust is a “person” for GST/HST purposes. Where a person is a trustee of a trust, anything done by the person in its capacity as trustee of the trust will generally be deemed to have been done by the trust and not by the person.

Since the trustee of a bare trust is subject to the control and direction of the beneficial owners of the trust property in all matters relating to the trust property, the CRA considers any activities engaged in by the trustee in relation to the trust property, including commercial activities, to have been engaged in by the beneficial owners and not the trustee or the bare trust.

The trustee of a bare trust may engage in activities otherwise than in its capacity as trustee of the bare trust. To the extent that these activities constitute commercial activities, the trustee may be eligible to register for the GST/HST.

Each case will be looked at on a case by case basis to determine whether the duties vested in a particular nominee corporation or a trust referred to as a bare trust are sufficient to be considered managerial or operational control.

30. GST/HST REGISTRANT FAILS TO SELF-ASSESS THE GST/HST ON THE ACQUISITION OF REAL PROPERTY AND DOES NOT CLAIM AN INPUT TAX CREDIT (“ITC”)

Facts

It is understood that the CRA, upon audit for a reporting period within the normal 4 year statutory limitation period for assessment and claiming ITCs, will generally waive any applicable penalty and interest when a person registered for GST/HST: (A) acquires real property by way of sale for consumption, use, or supply (100%) in its commercial activities; (B) fails to self-assess the GST/HST in its return as required pursuant to subsection 228(4); and (C) never claims an ITC in respect of the GST/HST payable. It is understood that the CRA considers the transaction to be “revenue neutral”. There is no monetary gain as the GST/HST registrant has not claimed an ITC.

The GST/HST registrant may have failed to file the return for the reporting period in which the real property was acquired or filed a return for that reporting period but did not self-assess the tax.

Question

Please confirm that the CRA will generally apply the same administrative tolerance (i.e. it will waive any applicable penalty and interest) in the circumstances described above if the reporting period at issue is beyond the (normal) 4 year statutory limitation period for claiming an ITC.

CRA Comments

Generally CRA will look to the same application of administrative tolerance where the ITC is now statute barred however, the instances would be looked at on a case by case basis to determine the application since the period for claiming the ITC has expired and the reason for which the self-assessment was not made.

32. MEDICAL DIAGNOSTIC SERVICES

Facts

Persons with an actual or potential insurance claim are sent to a clinic for diagnosis. The clinic contracts out the diagnostic service to medical doctors who perform their service either at the clinic or in their own offices or in the patient's home. The doctor bills the clinic for the service. The clinic marks up the service and bills the insurer.

Question

What is the GST status of the supply by the clinic to the insurer?

CRA Comments

Our understanding of the facts is that a clinic contracts out the diagnostic service to a medical practitioner i.e., a person who is entitled under the laws of a province to practice the profession of medicine. The medical practitioner performs a diagnostic service on an individual. The service is performed at the clinic, the medical practitioner’s office or the patient’s home. The clinic is billed by the medical practitioner and the clinic bills the patient’s insurer. It is also our understanding that the reference to a person with a potential insurance claim means an individual who may be entitled to insurance benefits because of injury or illness.

33. APPLICATION OF S. 10.1, SCH. VI, P. V – SERVICE RELATED TO INTANGIBLE PERSONAL PROPERTY

Facts

Assume a Canadian GST-registered supplier sells custom software that it has been using to perform a service electronically. Before the sale, supplies of that service were being made in Canada by the supplier. The purchaser of the software is a non-resident person who does not carry on any business in Canada. (Assume also that there is no person in Canada through whom the non-resident makes supplies and the supplier is not otherwise deemed to have a permanent establishment in Canada.) The purchaser will use the software to supply the same service to customers in Canada. However, the purchaser’s supplies will be deemed to be made outside Canada pursuant to section 143.

Section 10.1 of Part V of Schedule VI to the Act zero-rates certain sales of intangible personal property to non-resident persons. However, the zero-rating under this section does not apply where the following criteria are met, namely: (1) the intangible personal property “relates to” a service; and (2) the supply of the service to which the property relates is “made in Canada” and is not a zero-rated supply.

It is not clear how broadly the CRA interprets the phrase “relates to” in this provision. The only example given in the related commentary refers to a membership in a club that entitles the member to receive recreational services. With respect to the second criterion noted above, it is not clear whether it is to be applied from the perspective of the supplier (i.e., the supplier’s last supplies of the service in question) or from the perspective of the recipient (i.e., the recipient’s intended supplies of the service in question). In the above example, the supplier’s last supplies of services using the software are made in Canada and are not zero-rated supplies. However, the recipient’s supplies of the service will be deemed to be made outside Canada, and so would appear not to be caught by the second criterion above. It would seem logical that the second criterion be applied from the perspective of the non-resident recipient of the intangible personal property, such that if the non-resident’s supplies of services to which the intangible property relates will not be subject to tax, then the supply of the related intangible property should not be caught by the second criterion.

Questions

In this case, would the CRA consider the software to “relate to” a service for purposes of the said section 10.1? If so, would the supply of the software to the non-resident nevertheless be zero-rated under this provision because the second criterion noted above does not apply?

CRA Comments

Based on the information provided and assuming that the non-resident in the example is also not registered for GST/HST, the supply of the software that is made to the non-resident would be zero-rated under section 10, rather than section 10.1, of Part V of Schedule VI to the Excise Tax Act. Section 10 of Part V of Schedule VI to the ETA zero-rates a supply of intangible personal property that is intellectual property or any right, licence or privilege to use any such property, where the recipient is a non-resident person who is not registered at the time the supply is made.

The exclusion in subparagraph 10.1(b)(iii) of Part V of Schedule VI to the ETA refers to a supply of intangible personal property that relates to a service the supply of which is made in Canada and is not a zero-rated supply described by any section of Parts V, VII or IX of Schedule VI to the ETA. Generally, based on the information provided, if the intangible personal property supplied to the non-resident in the scenario were the type of intangible personal property that can be zero-rated under section 10.1 of Part V of Schedule VI to the ETA, and again assuming that the non-resident was not registered, the supply would not be excluded from zero-rating under that provision on the basis of the exclusion in subparagraph 10.1(b)(iii).

34. IMPORTED TAXABLE SUPPLY – CREDITABLE TAX

Facts

Assume a Recipient, a Canadian GST-registered corporation, acquires Services from a non-resident corporation. The Services are performed wholly outside Canada. The Recipient acquires the Services for consumption in relation to shares of its wholly-owned subsidiary, the property of which was (at the time that tax becomes payable in respect of the Recipient’s acquisition of the Services) last acquired by the subsidiary for consumption exclusively in the course of its commercial activities.

In these circumstances, pursuant to subsection 186(1), the Recipient may, for the purpose of determining its input tax credits, be deemed to have acquired the Services for use in the course of its commercial activities.

Questions

Would the CRA consider subsection 186(1) to cause the Services not to be characterized as an “imported taxable supply” under section 218?

If not, with the result that the provision of the Services is considered to constitute an “imported taxable supply”, in the event that the Recipient fails to report on its GST return the GST payable (and input tax credits claimed) in respect of its acquisition of the Services, would the CRA waive any penalty or interest that may be potentially applicable, consistent with its approach in respect of self-assessment on a purchase of real property (as discussed in Question 21 of the 2010 Roundtable)?

CRA Comments

It is a question of fact whether a taxable supply of a service made outside Canada to a person who is resident in Canada is an “imported taxable supply” as defined in section 217. Subsection 186(1) applies only for purposes of determining an ITC of a corporation that satisfies the requirements of that subsection. Therefore, the deeming under subsection 186(1) does not affect the determination under section 217.

If a Canadian GST/HST registered corporation acquired imported taxable supplies (the services), it would account for the GST/HST when completing its regular GST/HST return. Where the registrant did not account for the GST/HST that was to have been self-assessed for the services on its regular GST/HST return and had not claimed an ITC in respect of these self-assessed amounts, administrative tolerance would generally be exercised so that interest would not be assessed provided there are no revenue implications (i.e., the registrant would have been entitled to a full ITC). However, each situation would be reviewed on a case-by-case basis.

If the extent of use of the service in relation to the shares or indebtedness of the related corporation is such that a full ITC would not be available, then GST/HST that was not reported would be owing and interest calculated under the provisions of section 280 would apply.

35. GIFT CERTIFICATES

Under section 181.2 of the ETA, the issuance or sale of a gift certificate for consideration is deemed not to be a supply and, therefore, does not attract GST/HST; rather, when the gift certificate is subsequently redeemed, it is treated as consideration, or a part thereof, for the supply of the property or services.

The CRA released revised Policy Statement P-202 Gift Certificates in April, with an effective date of January 1, 1991 (the “Revised Policy”). Under the Revised Policy, the CRA now views devices or vouchers that entitle the bearer to receive a property or service, but that do not have a stated monetary value, as qualifying as gift certificates, subject to section 181.2. Accordingly, no GST/HST is payable on the issuance of the voucher and, upon redemption, any GST/HST applicable to the supply should be accounted for by the merchant on the consideration paid for the voucher (which may have been sold by a third party).

This is a reversal of the CRA’s long-standing policy as set out in previous GST/HST Policy Statement P-202 dated February 20, 1996 (Final November 1996) which was also effective as of January 1, 1991 (the “Previous Policy”). The Previous Policy set out the CRA’s views regarding the meaning of “gift certificate”, for purposes of section 181.2 of the ETA since that term is not legislatively defined. Under the Previous Policy, in order for a gift certificate to fall under section 181.2, the CRA required the certificate to have a “stated monetary value.” If the gift certificate did not have a “stated monetary value”, “the provisions of section 181.2 will not apply to defer tax at the time of sale of the property.”

The Revised Policy was issued in final form without any consultation with industry and applies on a retroactive basis.

We understand that the CRA received several submissions from interested parties raising concerns regarding the application of the Revised Policy; however, the CRA has maintained its position to change its administrative practice regarding the GST/HST treatment of vouchers or devices that entitle the bearer to a supply of a property or service that do not have a stated monetary value – as of January 1, 1991.

Where suppliers have acted in accordance with the CRA’s Previous Policy with respect to devices that are for the supply of a particular property or service and that do not have a stated monetary value, GST/HST was collected from the purchaser at the time of sale of the voucher (and not on redemption). If the Revised Policy is applied on a retroactive basis, suppliers who followed the CRA’s Previous Policy may be assessed for failure to collect GST/HST at the time of redemption, which would result in double taxation if GST/HST was charged at the time the device or voucher was acquired. Moreover, because the Revised Policy was not initially issued in draft form for discussion purposes, many suppliers that had been following the Previous Policy were taken off-guard and had to adjust their systems.

Will the CRA please confirm that where registrants previously complied with the Previous Policy, Audit will not issue assessments for the failure to collect GST/HST upon redemption of vouchers that entitle the bearer to a supply of a property or service (that do not have a stated monetary value)?

CRA Comments

Audit will exercise discretion if it encounters situations in which a registrant has been acting in accordance with Policy Statement P-202: Gift Certificates as it read before the revised policy statement was released in April 2012. In exercising its discretion, Audit will consider the particular circumstances of the registrant and the steps taken by the registrant to comply with the revised policy statement.

Where a registrant is uncertain whether a particular device is a gift certificate according to the revised policy statement, we encourage the registrant to request a ruling. If the ruling is contrary to the registrant’s expectations and the registrant subsequently changes its business practices to conform to the ruling, then, in the event of an audit, the matter would have to be discussed with the tax services office responsible for the audit.

36. ETA 169/225

Facts

Please consider the following examples and advise if the supplier has an obligation to remit the tax and if an ITC is available to the recipient

A supplier invoices its customer for an exempt supply, but bills and collects GST by error. The recipient pays the GST to the supplier.
A supplier invoices its customer for an exempt supply, but bills and collects GST by error. The recipient refuses to pay the GST to the supplier and pays the invoice net of tax.
Same examples as 1 and 2 but instead of an exempt supply, there was no supply. The supplier simply issued a bill in error.
In a situation where the customer is self-billing (for example, distribution of magazines), the customer is by error adding GST

Analysis

Section 169 of the ETA allows an ITC where “tax in respect of the supply…. becomes payable by the person or is paid by the person”. Under section 225, one must include in the calculation of its tax remittance “amounts that became collectible and all other amounts collected… as or on account of tax”.

Example 1

As an amount has been collected on account of tax, the supplier must include it in its net tax (ETA 225)
As there is no “tax” payable, the amount paid by the recipient is a payment made in error. The recipient is entitled to a rebate under ETA 261. We understand that it is CRA’s administrative policy to allow the ITC (i.e., no assessment upon audit if taxpayer claimed an ITC).

Example 2

As no amount has been collected on account of tax, the supplier has no obligation to include an amount in its net tax (ETA 225). The fact that the supplier invoiced an amount by error does not make it an amount collectible.
As there is no “tax” payable, and no amount paid, there is no ITC.

Example 3

Same result as in examples 1 and 2

Example 4

Same result as in example 1

CRA Comments

Section 225 of the Excise Tax Act (ETA) sets out the general rules for determining a person's net tax for a reporting period, including rules related to the claiming of input tax credits (ITCs). Subsection 225(1) requires every person to include in its net tax calculation all amounts that became collectible and all other amounts collected as or on account of tax under Division II of Part IX of the ETA.

“Tax” is defined in subsection 123(1) of the ETA to mean payable under Part IX.

Subsection 169(1) of the ETA provides, in part, that a GST/HST registrant is entitled to claim an ITC for the tax payable or paid without having become payable on the acquisition or importation of property or a service to the extent, expressed as a percentage, that the property or service was acquired or imported by the registrant for consumption, use or supply in the course of the registrant’s commercial activities.

Example 1

A supplier invoices its customer for an exempt supply, but bills and collects GST by error. The recipient pays the GST to the supplier.

Response

A supplier, who has collected an amount as or on account of tax in respect of an exempt supply, is required under subsection 225(1) of the ETA to include that amount in determining its net tax. The recipient who has paid an amount as or on account of tax, where the amount was not payable, may be entitled to claim a rebate for tax paid in error pursuant to section 261 of the ETA. Conversely, the supplier may refund or credit the amount as or on account of tax to the recipient.

No ITC would be available to the recipient since the amount charged was not tax payable under Part IX of the ETA. Where the amount was included as an ITC in the recipient’s net tax and the recipient is subject to audit, as part of the assessment, the ITC would be disallowed, and an amount would be allowed as a rebate for tax paid in error, if applicable, under subsection 296(2.1) of the ETA.

Example 2

A supplier invoices its customer for an exempt supply, but bills GST by error. The recipient refuses to pay the GST to the supplier and pays the invoice net of tax.

Response

Subsection 225(1) requires every person to include in its net tax calculation all amounts that became collectible and all other amounts collected as or on account of tax under Division II of Part IX of the ETA. Although the recipient did not pay the amount charged as or on account of tax to the supplier, the supplier is responsible for including the amount when determining its net tax.

Example 3

Same examples as 1 and 2 but instead of an exempt supply, there was no supply. The supplier simply issued a bill in error.

Response

The result for examples 1 and 2 does not change where there is no supply as opposed to an exempt supply.

Example 4

In a situation where the customer is self-billing (for example, distribution of magazines), the customer is by error adding GST.

Response

The result is the same as in example 1.

37. LTA VI-V-1

(Available in French only) Un fournisseur est autorisé à vendre des produits détaxés au Canada s’il respecte les conditions prévues à l’article 1, Partie V de l’Annexe VI de la LTA. Une de ces conditions est que le fournisseur « possède des preuves, que le ministre estime acceptables, de l’exportation du bien par l’acquéreur ».

Question

Est-ce qu’il y a une exigence quant au moment où le fournisseur doit obtenir la preuve de l’exportation du bien? Par exemple, un fournisseur peut-il obtenir cette preuve 3 ans après le jour de la fourniture, alors qu’il est sous vérification par l’ARC ou RQ?

CRA Comments

Generally, for purposes of section 1 of Part V of Schedule VI to the Excise Tax Act, the supplier is expected to obtain satisfactory evidence of the exportation of the goods by the time tax in respect of the supply would otherwise become payable. This provides certainty for the parties with respect to whether tax applies to the supply when a potential obligation to collect and pay tax in respect of the supply first arises. If based on the facts, it is not possible for the supplier to obtain the evidence by this time, but it is reasonable for the supplier to expect that the evidence will be obtained, the supplier would generally be expected to obtain the evidence as soon as possible after that time having regard to the particular circumstances surrounding the exportation. Therefore, with respect to the example that is referred to in the question, it would not be acceptable if the supplier were only to initially obtain the evidence at the time of an audit three years after the day on which the supply was made. In this case, the supply would not qualify for zero-rating under section 1 of Part V of Schedule VI to the ETA.

Commentaires de l'ARC

Généralement, aux fins de l’article 1 de la partie V de l’annexe VI de la Loi sur la taxe d’accise, on s'attend à ce que le fournisseur obtienne une preuve satisfaisante de l'exportation des biens lorsque la taxe sur la fourniture deviendrait autrement exigible. Cela fournit la certitude aux partis que la taxe s'applique à la fourniture quand l’obligation potentielle de percevoir ou de payer la taxe survient. Si, basé sur les faits, il n'est pas possible pour le fournisseur d'obtenir la preuve à ce moment-là, mais il est raisonnable pour le fournisseur de s'attendre à ce que la preuve soit obtenue, on s'attendrait généralement à ce que le fournisseur l’obtienne aussitôt que possible après ce temps compte tenu des circonstances particulières entourant l'exportation. Donc, en ce qui concerne l'exemple mentionné dans la question, il ne serait pas acceptable que le fournisseur obtienne initialement la preuve au moment d'une vérification trois ans après le jour où la fourniture a été effectuée. Dans ce cas, la fourniture ne sera pas détaxée en vertu de l’article 1 de la partie V de l’annexe VI de la LTA.

38. UPDATE ON AUDIT ISSUES AND DISCUSSION

Question

Please provide an update regarding any new or developing issues in the audit area.

CRA Comments

An update was provided at the meeting.

39. UPDATE ON COURT CASES/OBJECTION AND DISCUSSION

Question

Please provide an update regarding any new or developing issues in the Court Cases/Objection Area.

CRA Comments

Handout was provided at the meeting.

Tracking Preferences

ANNUAL MEETING – March 7, 2013 (Ottawa, Ontario)

1. FAILING TO COMPLY WITH A REQUIREMENT FOR INFORMATION

Questions

CRA Comments

2. “REGISTER A FORMAL DISPUTE" ON MY ACCOUNT / MY BUSINESS ACCOUNT

Question

CRA Comments

3. FILING GST RETURNS FOR A DECEASED TAXPAYER UNDER S.238

Questions

CRA Comments

4. FILING GST RETURNS FOR NEW CORPORATIONS UNDER S.238

Question

CRA Comments

5. TAXPAYER RELIEF CLAIMS

Questions

CRA Comments

6. END OF COUNTER SERVICES

Question

CRA Comments

7. HST OBJECTIONS

CRA Comments

8. ACKNOWLEDGEMENT OF RECEIPT OF DOCUMENTS SENT TO CRA

Question

CRA Comments

9. FINANCIAL SERVICES AND EXCLUSION IN PARAGRAPH (q)

Facts

Questions

CRA Comments

Question a:

Question b:

10. TIME TAX BECOMES PAYABLE WHEN CONSIDERATION IS COMPRISED OF A FORGIVABLE LOAN

Question

Analysis

CRA Comments

11. ELECTIONS FOR SELECTED LISTED FINANCIAL INSTITUTIONS (“SLFI ”)

Facts

Question

Analysis

CRA Comments

12. SPECIFIED DERIVATIVE SUPPLIES

Question

CRA Comments

13. A "LOADED QUESTION" (SECTION 218.01 AND SECTION 217 "LOADING")

Question

CRA Comments

14. VOLUNTARY REGISTRATION

Question

CRA Comments

15. GST/HST REGISTRATION FOR FINANCIAL INSTITUTIONS

Facts

Questions

CRA Comments

16. CONSTRUCTIVE IMPORTER RULES – SECTION 178.8

Facts

Questions

Analysis

CRA Comments

17. SUPPLIER RELIANCE ON PURCHASER CERTIFICATES

Question

CRA Comments

18. PRO-RATING REMITTANCES OF GST/HST

Facts

Question

Analysis

CRA Comments

19. WINDING UP AND GST ITC ENTITLEMENTS

Facts

Question

CRA Comments

20. REORGANIZATIONS - AMALGAMATIONS

Facts

Question

Analysis

CRA Comments

Situation 1

Situation 2

21. INTERPRETATION OF “COMMERCIAL ACTIVITY”

Facts

Question