30 June 2005 GST/HST Interpretation 61582 - GST status of movie packages

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a company's ability to claim an input tax credit (ITC) for tax payable on an unpaid invoice.

You presented a scenario in which a company claimed an ITC for tax payable on an invoice that has not yet been paid. The company is taking all reasonable steps to ensure that the invoice on which the ITC was claimed will be paid.

ADVANCE RULING REQUESTED

What is the status of the ITC as long as there is a possibility that the invoice may be paid?

Interpretation Given

A GST/HST advance ruling is a written statement the Canada Revenue Agency (CRA) gives to a registrant or other person, stating how the CRA will interpret specific provisions of the Excise Tax Act (ETA) with respect to supplies, actions, transactions or series of transactions, which the person is contemplating. An advance ruling refers to specific persons, specific transactions and specific time periods within which the transactions must be completed. As your request does not refer to any specific person or transaction, we are unable to provide an advance ruling. We are pleased to provide you instead with the following interpretation.

A person is eligible to claim an ITC where the following conditions have been met:

•   The person acquired or imported property or a service or brought it into a participating province during a reporting period during which the person was a registrant;

•   Tax in respect of the supply, importation or bringing in to a participating province became payable by the person or was paid by the person without having become payable;

•   The person acquired or imported the property or service or brought it into a participating province for consumption, use or supply in the course of the person's commercial activities; and

•   The registrant has obtained sufficient evidence in such form containing such information as will enable the amount of the ITC to be determined, including any such information as may be prescribed.

Where these conditions have been met, the registrant purchaser is eligible to claim an ITC in relation to the tax that was payable in the reporting period, but that was not yet paid. Subsection 169(1) of the ETA allows registrants to claim ITCs for tax paid or payable.

Under section 165 of the ETA, every recipient of a taxable supply made in Canada is required to pay to Her Majesty the GST/HST payable in respect of the supply. In general, the ETA places an obligation on the supplier, as agent of Her Majesty, to collect the tax payable by the recipient, account for the tax in its net tax calculation and remit any positive amount of net tax.

Although the CRA will generally not intervene to assess any tax payable by a person, paragraph 296(1)(b) of the ETA permits the Minister to assess a person (i.e., a purchaser) for tax payable by the person under Divisions II, IV and IV.1 of the ETA. GST/HST Policy Statement P-112R, a copy of which is enclosed for your reference, addresses one such scenario where the Minister may make an assessment of tax payable where a purchaser is insolvent.

The purchaser may or may not be insolvent in the scenario you have presented as the registrant continues to make all reasonable efforts to ensure that the invoice will be paid. Please note, however, that the application of paragraph 296(1)(b) of the ETA is not restricted to the scenario presented in Policy Statement P-112R. The scenario in the policy statement is just one where we have identified potential revenue loss.

Once the Minister has assessed a person under the provisions of section 296 of the ETA, the tax debt may be offset against amounts such as net tax refunds or GST/HST rebates payable to the person by the Crown.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-7931.

Yours truly,

Anne Kratz
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2005/06/28 F — RITS 61763 — CTI demandés par un assureur