29 July 1998 GST/HST Ruling HQR0000576 - Ambient Temperature Allowance and the Calculation of GST

                                                                        GST/HST Rulings and Interpretations
  Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Avenue
Vanier, ON K1A 0L5

Dear XXXXX

Thank you for your letter of January 22, 1997 (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below.

Statement of Facts

Our understanding of the facts, the transactions, and the purpose of the transactions is as follows:

1. Those at the top of the motor fuel distribution chain in XXXXX ("collectors") are required to collect XXXXX when they sell to retailers and to wholesalers that are not designated collectors ("wholesalers"). These taxes are based on volume of product (as opposed to value). The collectors remit the fuel taxes to XXXXX[.]

2. Retailers reimburse themselves for the fuel taxes they have paid to the collectors or wholesalers when they in turn sell the motor fuel to consumers, charging the same fuel taxes. Ideally, the amount recovered by the retailer from consumers will be equal to the amount paid to the collector or wholesaler.

3. Because the volume of motor fuels can fluctuate considerably with temperature, a volume corrected method of measurement has been introduced which establishes a baseline temperature of 15 degrees Celsius. However, many retailers still use equipment that measures fuel on an ambient temperature basis only (i.e. is not temperature compensated).

4. Problems arise, where retailers or wholesalers sell fuel based on ambient temperature measurement, having purchased the fuel from a collector in a volume determined by the temperature compensated method. In those circumstances, the retailer or wholesaler will, over the course of a year, consistently experience a shortfall in the fuel taxes collected from consumers in comparison with the fuel taxes paid to the collector.

5. When a collector or wholesaler sells to a retailer with ambient temperature equipment, XXXXX has granted the collector or wholesaler the authority to include an "ambient temperature allowance" in the amount of fuel taxes that they collect from the retailer and subsequently remit. The "allowance" is intended to ensure that the amount recovered by the retailer from the consumers is equal to the amount paid to the collector.

XXXXX

Transactions

The ambient temperature allowance is applied in circumstances where sales are made to retailers who use only ambient temperature measuring equipment. There are four possible scenarios:

1. The first scenario is found where the collectors (supplying fuel to a wholesaler or retailer) or wholesalers (supplying to a retailer) are authorized in advance to reduce the amount of tax to be remitted by the amount of the allowance granted by the collector or wholesaler to the retailer or wholesaler. The allowance must be shown on the invoice to the retailer or wholesaler.

2. In the second scenario, a retailer requests the ambient temperature allowance from a collector or wholesaler retroactively, after having already been invoiced.

3. In the third scenario, where the retailer has not claimed or has not received the ambient temperature allowance from the collector or wholesaler, the retailer submits a refund claim form directly to XXXXX[.]

4. The final scenario occurs when a wholesaler has applied the ambient temperature allowance in its sales of fuel to retailers. However, the fuel taxes that the wholesalers have paid to their own suppliers exceeds the amount collected from the retailers. In these circumstances, the wholesaler applies directly to XXXXX for a refund of the difference.

Ruling Requested

1.  XXXXX seeks a ruling as to whether the GST is to be calculated on the basis of:

a) XXXXX as usually calculated without regard to the ambient temperature allowance,

b) XXXXX as usually calculated, then applying the ambient temperature allowance and allowing a GST credit to be claimed with respect to the allowance, or

c) XXXXX (incorporating the ambient temperature allowance) so that no credits or adjustments are necessary with respect to the allowance

Ruling Given

Based on the facts set out above, we rule that

1. In the circumstances described above in the third and fourth transactions, where wholesalers or retailers apply directly to the XXXXX for the ambient temperature allowance retroactively, the GST is to be calculated on the amount payable for the supply of the fuel without regard to the ambient temperature allowance.

2. In the circumstances described above in the second transaction, where a retailer requests the ambient temperature allowance from a collector or wholesaler retroactively, after having already been invoiced, the GST is to be based upon the amount payable for the fuel without regard to the ambient temperature allowance. A GST credit may be claimed with respect to the allowance in accordance with section 232 of the Excise Tax Act. Under subsection 232(1), a supplier who has erroneously collected an amount as GST is authorized to refund the amount to the customer or provide the customer with a credit. If the erroneous amount has been charged, but not collected, the supplier may adjust the amount of tax charged. Under subsection 232(2), a supplier may adjust GST charged on a supply to reflect a reduction in consideration. Where the GST has not been collected, the registrant may adjust the amount of tax charged. Where the tax has been collected, the registrant is allowed to refund or credit the excess tax to the recipient. Subsection 232(3) requires the supplier to issue a credit note to the customer where that supplier makes an adjustment, refund or credit of GST in respect of a supply to the customer. It should be noted, however, that where the retailer is a registrant, the collector or wholesaler making the GST adjustment may choose not to refund or adjust the GST previously charged or collected. This may be desirable where the collector or wholesaler making the adjustment, refund or credit has already accounted for the GST and the retailer has already claimed or is entitled to claim a corresponding input tax credit.

3. In the circumstances described above in the first transaction, where the supplier, at the point of sale, reduces the amount payable for the supply of fuel by applying the ambient temperature allowance, the GST will be calculated based on that reduced amount.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and transactions for which you requested a ruling.

Explanation

1. Section 165(1) of the Excise Tax Act (ETA) states that: "Subject to this Part, every recipient of a taxable supply made in Canada shall pay to her Majesty in right of Canada tax in respect of the supply calculated at a rate of 7% on the value of the consideration for the supply."

2. Section 154 of the Excise Tax Act clarifies that: "For the purposes of this Part, the consideration for a supply of property or a service includes any tax, duty or fee (other than a prescribed tax, duty or fee, or tax under this Part, payable by the recipient in respect of the supply) imposed under an Act of Parliament or the legislature of a province in respect of the supply, production, importation, consumption or use of the property or service that is payable by the recipient or is payable or collectible by the supplier."

3.  XXXXX are not prescribed taxes for the purposes of section 154 of the Excise Tax Act and thus form part of the consideration upon which the GST is to be calculated.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9580.

Yours truly,

Oscar Jacobs
Governments Unit
Public Service Bodies Division
GST/HST Rulings and Interpretations Directorate

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