27 October 2000 GST/HST Interpretation 31495 - PROPOSED LAW/REGULATION Section 5 of Schedule VII to the Excise Tax Act

Dear XXXXX:

Thank you for your letter of May 26, 2000 (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to goods imported under a warranty.

Interpretation Requested

XXXXX has requested clarification on the following points with respect to the proposed amendment to section 5 of Schedule VII to the Excise Tax Act ("the Act").

1. Will refund claims be honoured immediately under section 261 of the Act, as "GST paid in error" or will they be held in abeyance pending the necessary legislative and regulatory modifications?

2. Will the CCRA honour refund applications on Form GST 189, prepared and filed by Customs Brokers?

3. Why does section 5 of Schedule VII to the Act refer to goods imported by a "particular person"? Does this limit the scope of the tax relief to an individual (non-commercial importation), or does the word "person" retain the broader meaning of subsection 123(1) of the Act, in which case the only reason for the word "particular" would be to identify only those persons eligible under warranty?

Interpretation Given

A response is provided to each of the questions as follows.

1. Will refund claims be honoured immediately under section 261 of the Act, as "GST paid in error" or will they be held in abeyance pending the necessary legislative and regulatory modifications?

Until such time as the legislation is passed, the tax on replacement property cannot be considered "paid in error" because the current wording of the legislation does not consider replacement property to be a non-taxable importation under section 5 of Schedule VII to the Act. Therefore, any rebate claims will be held in abeyance pending the necessary change in legislation.

In any event, section 261 of the Act does not govern the rebate/refund of tax paid on importation in these circumstances. Paragraph 261(2)(c) [o]f the Act states that a rebate in respect of an amount shall not be paid under subsection (1) to a person to the extent that a rebate of the amount is payable under subsection 215.1(1) or (2) or 216(6) or a refund of the amount is payable under section 69, 73, 74 or 76 of the Customs Act because of subsection 215.1(3) or 216(7). In this case, since the rebate is payable under subsection 216(6) of the Act, section 261 of the Act is not applicable.

Subsection 216(6) of the Act applies to a claim for a rebate of tax paid in error on an importation, after December 10, 1998, of replacement property that qualifies for relief under amended section 5 of Schedule VII to the Act.

2. Will the Canada Customs and Revenue Agency (CCRA) honour refund applications on form GST 189, prepared and filed by Customs Brokers?

At the time the replacement property was accounted for at Customs, a GST rate of 7% was shown in field 35 of the B3, Canada Customs Coding Form. In order to amend the original B3 to indicate GST exemption code 55 in field 35, and obtain a rebate of the 7% GST, a B2 must be submitted to Customs.

A rebate of the tax paid in error may be claimed in these circumstances provided the importer is not otherwise entitled to recover the tax paid, e.g. as an input tax credit. Where the importer is a non-registrant, e.g. a small supplier who is not registered, the rebate may be claimed using Form B2, Canada Customs Adjustment Request.

Where the importer is a registrant, who is not entitled to recover the tax paid in error by way of an input tax credit, i.e., where the property is not for use in the course of the registrant's commercial activities, the registrant must first file Form B2 requesting a re-determination of the tax status of the goods. Once the registrant is advised of the disposition of the request for re-determination, a rebate may be claimed using Form GST 189.

Subsection 216(6) of the Act states that a rebate shall be paid to the person who paid the excess. Therefore, the broker may prepare and file the B2, but may not claim a rebate for amounts paid on behalf of a customer (person). The rebate cheque must be made payable to that person and not the broker.

Although the proposed amendment has not been passed, a rebate claim may be submitted as described in the preceding paragraphs.

3. Why does section 5 of Schedule VII refer to goods imported by a "particular" person? Does this limit the scope of the tax relief to an individual (non-commercial importation), or does the word "person" retain the broader meaning of subsection 123(1) of the Act, in which case the only reason for the word "particular" would be to identify only those persons eligible under the terms of the warranty?

Subsection 123(1) of the Act defines a person as an individual, a partnership, a corporation, the estate of a deceased individual, a trust, or a body that is a society, union, club, association, commission or organization of any kind. The same subsection defines an individual as a natural person. Therefore, particular person applies to both commercial and non-commercial importations.

The reference to "particular person" is to ensure that the person importing the goods is the same person to whom the replacement parts or property are supplied. In addition, "particular person" differentiates between the non-resident person and the person importing the goods and to whom the goods are supplied. "Particular person" has the same definition as "person" as outlined in the previous paragraph.

The foregoing comments represent our general views with respect to the proposed amendment(s) to the Excise Tax Act as it(they) relate(s) to the subject matter of your letter. Any change to the wording of these proposed amendments or any future 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 Customs and Revenue Agency with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6743.

Yours truly,

Cheryl R. Leyton
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate