Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
TO
[Addressee]
FROM
Philippe Nault
Director, Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
SUBJECT: GST/HST Interpretation – […] [Municipal PSB Rebate claims]
This is further to the submission dated [mm/dd/yyyy], made to the Canada Revenue Agency (“CRA”) by […] ([…] [ACo]) on behalf of the […] ([…] [Municipality]).
According to the submission, [ACo] identified timing delays in the processing of invoices, resulting in input tax credits (“ITCs”) and public sector body rebates (“PSB rebates”) being recovered at a date later than when the [Municipality] was first entitled to claim such ITCs and PSB rebates. [ACo] has calculated that on average […]% of the [Municipality]’s ITCs and PSB rebates are claimed in an HST reporting period subsequent to when the entitlements arose.
[ACo] argues that contrary to the documentary evidence requirements for claiming input tax credits, there are no specific legislative or regulatory documentary information requirements to substantiate PSB claims. Therefore, as the [Municipality] is able to estimate and substantiate the amount of HST accrual in its books and records, it should be able to claim a one-time adjustment of tax of approximately $[…] in a GST/HST return.
[ACo] indicates that the delays in claiming PSB rebates may have numerous causes […].
[ACo] has calculated what it calls a “reasonable and conservative amount of refunds which the [Municipality] is entitled to, but has not claimed, due to the delay in processing invoices in the AP system”. It recommends a “one-time HST cash adjustment in a future GST/HST return in order to claim the appropriate amount of refunds in respect of invoices which have been obtained but have not been processed in the AP system.”
You have requested our views on [ACo]’s proposal. The answer in respect of the ITCs entitlement will be provided under separate cover by the General Operations and Border Issues Division.
Public Sector Body Rebate
Subsection 259(3) of the Excise Tax Act (the “ETA”)1 and the Public Service Body Rebate (GST/HST) Regulations provides that a municipality resident in […][Province A] is entitled to claim a PSB rebate at the rate of 100% for the federal part of the HST and […]% for the provincial part of the HST2. The rebate is calculated in respect of the non-creditable tax charged (NCTC). This expression is defined in subsection 259(1) and the first part of the definition reads as follows:
“"non-creditable tax charged", in respect of property or a service for a claim period of a person, means the amount, if any, by which
(a) the total (in this section referred to as "the total tax charged in respect of the property or service") of all amounts each of which is
(i) tax in respect of the supply, importation or bringing into a participating province of the property or service that became payable by the person during the period or that was paid by the person during the period without having become payable (other than tax deemed to have been paid by the person or in respect of which the person is, by reason only of section 226, not entitled to claim an input tax credit),
(…)”.
The expression “claim period” is also defined in subparagraph 259(1) as:
“"claim period" of a person at any time means
(a) where the person is at that time a registrant, the reporting period of the person that includes that time, and
(b) in any other case, the period that includes that time and consists of either
(i) the first and second fiscal quarters in a fiscal year of the person, or
(ii) the third and fourth fiscal quarters in a fiscal year of the person;”
As indicated in its definition, NCTC is calculated on a claim period basis and includes the tax that became payable during the period or that was paid during the period without having become payable.
Technically, to be in compliance with the ETA, whenever tax becomes payable (or is paid without becoming payable) in a claim period that amount of tax should be added to the NCTC for that period. Claiming a PSB rebate for tax that was paid or that became payable in a particular period in a subsequent period would not be allowable by application of these definitions.
The [Municipality] is a registrant with a […] reporting period. Therefore its claim period is each […] reporting period. In the claim period that comprises a given […], the legislation requires that tax payable or that was paid without having become payable during that […] be included in the NCTC for that claim period. However, […], the ETA does not permit tax payable in one claim period to be included in the NCTC for a subsequent claim period. The only time it would be allowed is in very specific circumstances in section 296.
Tax that became payable or tax paid without having become payable
[ACo] states that “(w)hereas for claiming ITCs a person must satisfy the conditions pursuant to subsection 169(4) and the Input Tax Credit Information (GST/HST) Regulations to substantiate a claim for ITCs there are no specific legislative or regulatory documentary and information requirements provisions to substantiate PSB claims”.
It is true that there is no section equivalent to subsection 169(4) that provides for the documentary evidence requirements for claiming PSB rebates. However, the definition of NCTC requires the inclusion of “tax that became payable or tax paid without having become payable” during the period.
Subsection 168(1) provides that “tax under this Division (Division II) 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”.
Subsection 152(1) indicates when consideration is due. It provides that “(…) the consideration, or a part thereof, for a taxable supply shall be deemed to become due on the earliest of
a) the earlier of the day the supplier first issues an invoice in respect of the supply for that consideration or part and the date of that invoice,
b) the day the supplier would have, but for an undue delay, issued an invoice in respect of the supply for that consideration or part, and
c) the day the recipient is required to pay that consideration or part to the supplier pursuant to an agreement in writing.”
When the [Municipality] calculates its NCTC it needs to demonstrate that there is tax payable or tax that was paid without having become payable. Therefore, even though there is no equivalent to subsection 169(4) or to the Regulations previously mentioned, there is a reference to tax paid or payable and by inference, to the moment the consideration is due. To have “tax payable” would require documentary evidence as subsection 152(1) refers to an invoice or an agreement in writing.
Although the documentary evidence requirements are not specifically detailed in the ETA or its Regulations, we are of the view that section 286 requires that adequate evidence be maintained to support a PSB rebate claim. We can see no reason why the documentary evidence requirements for claiming a PSB rebate should differ from those for claiming ITCs.
The interaction between the definition of NCTC, section 168 and subsections 152(1) and 286(1) allows us to conclude that the [Municipality]’s NCTC cannot be an estimate. A claim period’s NCTC only includes tax that became payable during that claim period or that was paid during that claim period without having become due. We are of the view that actual invoices or agreements should support such claims.
Section 296 does not provide support to [ACo]’s position as the right to the rebate remains tied to the calculation of the rebate itself. As explained above, section 259 requires tax paid or payable to be included in the claim period’s NCTC.
Our views
[…] [ACo] identified timing delays in the processing of invoices which results in delays in claiming PSB rebates. Given that there is no indication that the [Municipality] will be updating its accounts payable system to correct these timing delays, we can only conclude that the problem will continue to exist on an ongoing basis. It is difficult to understand how a “one-time cash injection” […] will do anything to alleviate the ongoing timing delays. In fact, the payment of such an amount, even if it is a conservative estimate, puts the CRA at risk of overpaying PSB rebate claims to the [Municipality]. It is likely that actual PSB rebates will be claimed once the actual invoices have been posted in the [Municipality]’s accounts payable system. There is no indication that there is a control mechanism in place to prevent the claiming of PSB rebates once actual invoices are posted. To clarify, the CRA could end up paying a PSB rebate based on a “conservative estimate” and again on the actual amount entered in the accounts payable system.
The problem for the [Municipality] is not that they are underclaiming PSB rebate, but rather, they are delayed in claiming PSB rebates due to problems they have with their own accounts payable processing system. This is strictly a timing issue. Further, this is an administrative matter that is within the control of the [Municipality], to a great extent.
The approach proposed by [ACo] is not in compliance with the ETA. In addition, there is no suggestion that the accounting systems will be changed to avoid a repeat of the situation, therefore the “one-time adjustment” suggested by [ACo] may, in fact, need to be repeated. We would therefore recommend it be refused.
Unlike the [Municipality]’s GST/HST returns, its PSB rebate claims are not due right after the end of a claim period. According to paragraph 259(5)(a),
“a rebate under this section in respect of a claim period in a fiscal year of a person shall not be paid to the person unless the person files an application for the rebate after the first day in that year that the person is a selected public service body, charity or qualifying non-profit organization and within four years after the day that is
(a) where the person is a registrant, the day on or before which the person is required to file the return under Division V for the period; (…).”
Therefore, if the [Municipality] is not able to determine its NCTC for a claim period because invoices are not yet included in its accounts payable, it should delay the filing of its PSB rebate claims until it can accurately determine its NCTC. As permitted under the 259(5), a PSB rebate claim may be filed anytime up to four years from the due date of the GST/HST return for the claim period in which the tax became payable.
[…]. One of the problems with the proposed solution is that it will make it harder for the CRA to establish a correlation between the amounts of tax included in this “one-time adjustment” and the tax payable related to the invoices. It would also set a precedent for other PSB rebates claimants.
The timing issues raised are not extraordinary but rather the natural result of business operations. There is always the ordinary solution of requesting an adjustment to previously filed PSB rebates claimed, where necessary.
[…].
We are of the view that Part IX of the ETA provides reasons to refuse the approach proposed by [ACo]. […].
If you require clarification with respect to any of the issues discussed in this memorandum, you can contact Chantal Desrosiers, Manager of Health Care Sectors Unit at 613-941-3268.
FOOTNOTES
1. All references are to the ETA unless otherwise noted.
2. […].
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