9 March 1999 GST/HST Interpretation HQR0001645 - Proposed Law/Regulation

Dear XXXXX

Thank you for your letter of February 8, 1999, with attachments, concerning the collection of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST).

Based on the information provided in your letter, XXXXX is having difficulty in collecting the GST/HST from one of its clients in respect of a lease of equipment.

Pursuant to subsections 165(1) and 165(2) of the Excise Tax Act (the ETA), every recipient of a taxable supply made in Canada shall pay tax in respect of the supply to Her Majesty in right of Canada. As a supplier, the Company is required to collect the tax in respect of the supply as agent of Her Majesty in right of Canada. Although there are some exceptions to the payment and collection of tax, there is no information in the documentation that you have submitted that would indicate that the supply is not a taxable supply and that the recipient is not liable to pay tax or that the Company is not required to collect tax.

Where a recipient refuses to pay tax, section 224 of the ETA provides that a supplier may initiate legal action against the recipient for the recovery of unpaid tax in respect of a taxable supply as though the amount were a debt due by the recipient to the supplier provided that the supplier has:

i) accounted for the tax payable by the recipient in its net tax calculation and remitted any positive amount of net tax, and

ii) complied with the disclosure requirements of subsection 223(1) of the ETA.

For your information, a copy of the current version of subsection 223(1) of the ETA is attached. In addition, there is a proposed amendment to this subsection with an effective date of April 7, 1997. A copy of the proposed amendment is also attached to assist in determining whether the disclosure requirements have been met.

The lease agreement, which is signed by the client, indicates an amount of $XXXXX as the net lease payment with a stipulation that taxes are extra where applicable. Furthermore, the automatic funds transfer form completed by the client to provide for automatic withdrawals from the client's financial institution stipulates that the total periodic payment is $XXXXX per quarter plus QST, PST, GST if applicable. However, it appears that the client is refusing to pay the tax on the basis that the amount quoted verbally by a representative of the Company (i.e., $XXXXX was "the exact figure"[)]. The client's position seems to be that the amount quoted was the total payment required and that any taxes payable by the recipient would be included in that amount. As such, there is a dispute with respect to the total amount payable for the supply and the client maintains that a misrepresentation was made by the representative.

In these situations, the Department will only confirm that tax is payable in respect of the supply. Any question with respect to the total amount payable by the recipient and whether that amount includes the tax is a matter to be resolved between the parties. Initiating legal action pursuant to section 224 of the ETA is a means to resolve any such dispute. The Department may take action in cases where a person is consistently refusing to pay tax to a number of suppliers where there are no disagreements regarding pricing matters. In these cases, the name of the recipient should be provided to the nearest Revenue Canada Tax Services Office.

The foregoing comments represent our general views with respect to the subject matter of your letter and the proposed amendments to the Excise Tax Act. Any change to the wording of these proposed amendments or any future 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 Department with respect to a particular situation.

For information purposes, a copy of your letter and our response has been forwarded to the XXXXX[.] Should you have any further questions or require clarification on the above matter, you may contact me at (613) 952-0301.

Yours truly,

Dave Caron
Manager
General Operations Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate

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