Section 228

General overview of old (pre-SLFI Reg. 48(10)) rule

Generally, a selected listed financial institution's interim net tax for a reporting period is calculated in the same way as its actual net tax for the period. In calculating the adjustment to net tax relating to the provincial component of the HST payable on its purchases, the selected listed financial institution uses an allocation percentage for each participating province equal to the lesser of its allocation percentage for the current taxation year and its allocation percentage for the immediately preceding taxation year.

Where the interim net tax for the reporting period is a positive amount, the selected listed financial institution must pay that amount on account of its net tax for the period. Where the interim net tax is negative, the selected listed financial institution may claim an interim net tax refund.

Example: A selected listed financial institution that is a monthly filer with a year=end of December 31 calculates its net tax for the month of January 1998. The provincial allocation percentage for January 1998 is equal to the lesser of the selected listed financial institution's percentage for the participating province for the 1997 year and its estimate for the 1998 taxation year. If the interim net tax is a positive amount, the financial institution must pay that amount on or before February 28, 1998. This amount is treated as an amount paid on account of net tax.

Reconciliation in annual return to amounts paid in monthly (or quarterly) interim returns

Final return (ss 228(2.3))

At the end of each reporting period, the selected listed financial institution must reconcile the interim net tax reported with its actual net tax. The return to reconcile the actual and interim amounts will include the institution's net tax liability for each reporting period, the amount of any interim net tax payments and any amount claimed as an interim net tax refund. This final return, form GST 494, Goods and Services Tax/Harmonized Sales Tax Final Return for Selected Listed Financial Institutions, must be filed within three months after the institution's fiscal year-end.

Where the final net tax exceeds the interim net tax payments for the period, the excess must be remitted by the due date of the final return. Further, where the selected listed financial institution claimed an interim net tax refund that exceeds the final net tax refund to which it is entitled for the period, the excess must be repaid to the Receiver General on or before the due date of the final return. A refund may be claimed where the interim net tax payments exceed the final net tax calculated for the period.

A GST-registered person purchases a real estate property and, when it files its return, neglects to report the tax payable under s. 228(4) and claim the offsetting ITC. Does CRA still provide administrative tolerance in this situation? CRA responded:

The tax payable [under s. 228(4)] is not part of the registrant’s net tax calculation. …

The CRA…will generally exercise administrative tolerance if this issue is … reported by the registrant or discovered … on audit. In assessing the tax payable in respect of the supply, the CRA will generally also assess the registrant’s net tax. Pursuant to subsection 296(2) … the Minister must take into account an ITC for a particular reporting period when assessing the net tax for that reporting period even though the time limit for claiming the ITC may have expired.

In the case of a full ITC being offset against the GST/HST payable, there would not be any interest assessed on the assessment.

Administrative tolerance will not be granted where the purchaser is not entitled to claim a full ITC or where the purchaser has already claimed the ITC in a GST/HST return … [nor] where the purchaser was previously assessed under similar circumstances.

The Corporation, which was registered, purchased a hotel through two unregistered nominees and was charged and paid GST, and claimed an ITC therefor. On audit, CRA adjusted the Corporation's return to add tax payable under s. 228(4) and told the Corporation to apply under s. 261 for tax paid in error.

After noting that the Corporation was required to self-assess under s. 228(4) and that the sellers were relieved under s. 221(2) of their obligation to collect GST, Headquarters found that the Corporation was eligible for the rebate as tax paid in error.

FinanceCo will offer a real estate financing product complying with the Islamic principle of declining Musharaka and with Sharia law. FinanceCo would purchase a percentage interest in the "Property" (with the "Purchaser" paying for the other interest) but with the Purchaser entitled to possession (and responsible for all Property expenses such as taxes, insurance, utilities and repairs) and concurrently providing an agreement, secured by a mortgage, to repurchase that interest in instalments, thereby resulting in an agreed upon profit to FinanceCo. On a default, the Purchaser is required to pay the full unpaid balance of FinanceCo's contribution plus the accrued Profit. CRA stated that provided this purchase agreement (the "APS") contained all the relevant terms:

and if the Purchaser is liable under the agreement to pay the consideration for the supply, then the Purchaser is required to pay the GST/HST payable on the supply. Further, if… [FinanceCo] not liable to pay consideration for the supply under that agreement, then [FinanceCo] is not liable to pay the GST/HST should the Purchaser fail to pay tax on the purchase of the Property.

CRA will generally waive any applicable penalty and interest when a person registered for GST/HST: (A) acquires real property by way of sale for consumption, use, or supply (100%) in its commercial activities; (B) fails to self-assess the GST/HST in its return (either because it failed to file one, or filed and did not report the tax); and (C) never claims an ITC in respect of the GST/HST payable. Will CRA generally apply the same administrative tolerance if the reporting period at issue is beyond the (normal) four-year statutory limitation period for claiming an ITC? CRA responded:

Generally CRA will look to the same application of administrative tolerance where the ITC is now statute barred; however, the instances would be looked at on a case by case basis to determine the application since the period for claiming the ITC has expired and the reason for which the self-assessment was not made.

After noting that registrants who are using or supplying the required real estate primarily in the course of commercial activities should report the acquisition on the regular (GST 34) return rather than GST 60, CRA states (at para. 90):

Note that if the recipient pays the tax to the supplier in error, the obligation to self-assess the tax under subsection 228(4) is not relieved.

Example – For example, Developer A, a registrant, takes over a construction project from Developer B, also a registrant, by purchasing the land and the units already under construction. The recipient, Developer A, pays an amount as consideration for the project and another amount that is clearly stated in the sale documents to be the GST/HST paid by the recipient and collected by the supplier, Developer B, in respect of this taxable supply of real property. In this situation, Developer A is till assessable under the provisions of section 296 for tax in respect of the acquisition of the taxable supply of real property, even though an amount was paid as tax to the supplier. In this case, it would be the responsibility of the recipient to recover the tax paid in error to the supplier.

What is the policy on the late filing of GST Form 60 where a real property transaction occurred a number of months earlier and the party omitted to deal with the GST? If a policy of allowing the late filing of the GST Form 60 was followed and a wash transaction penalty was assessed, Revenue Canada would have complete information about the transaction and derive some revenue from the wash transaction penalty. Revenue Canada stated:

Where a registered recipient acquired real property (to which the registrant is entitled to claim full ITCs at the time of acquisition), did not file the GST60—Tax Return for Acquisition of Real Property and did not claim ITCs at that time, Revenue Canada, Excise/GST will consider the transaction to be revenue neutral, or with nil revenue implication. As a consequence, an assessment for GST, penalty, or interest may not be made. Our auditors will, however, advise registrants who do not file these returns that future non-compliance with the filing of the returns will not be tolerated and may result in a technical assessment for penalty and interest.

A public service body person that is a GST/HST-registrant which acquires real property not primarily in the course of commercial activities is required to report the GST/HST on the GST60 return (for purchase of real property). Is it possible to report the GST/HST in the registrant’s GST/HST Return GST34 for the reporting period that includes the closing date – just like other taxpayers who use the property more than primarily in commercial activities - and offset the self-assessed GST by claiming appropriate ITCs on line 108 or PSB rebates on line 111 of the same Return?

CRA responded:

Pursuant to subsection 228(6), the registrant may offset any tax remittable by the amount of any net tax refund or rebate claimed by that person in another return or application (such as the GST/HST Rebate Application for Public Service Bodies). To apply the offset, the two forms must be filed together. …

Therefore, if a registrant public service body’s PSB rebate claim and GST60 return are due to be filed at the same time, the registrant may offset any tax remittable when the forms are filed together.

With respect to the claiming of ITCs and filing GST60, pursuant to paragraph 169(4)(b), an ITC relating to the purchase of the real property may not be claimed until the GST60 has been filed. As such, subsection 228(6) would generally not be applicable. Any eligible ITCs must be claimed on the registrant’s GST34.

Where there is a self-supply by a developer under s. 191 which entitles it to the new residential rental property rebates under ss. 256.2 and 256.21, the rebate claim will generally be filed with the developer’s regular GST/HST return for the reporting period that includes the self-supply. Although s. 228(6) deems the developer’s net tax remittance for the reporting period of the self-supply to have been paid to the extent of the rebate amount claimed, separate CRA offices assess the net tax amount (under s. 296) and the rebate amount (under s. 297), leading to problematic outcomes, e.g., if the rebate assessment is delayed, the developer’s account will show an underpayment of net tax, resulting in potential demands from CRA collection officers. Does CRA intend to modify these practices?

CRA responded:

In cases where a registrant that is required to self-assess under section 191 of the ETA files their new residential rental property rebate (NRRPR) claim with their regular GST/HST return, as noted above, subsection 228(6) of the ETA will apply and offset, on the day the return is filed, any tax remittable by the NRRPR claimed by the registrant. …

Current audit procedures require the auditor to verify the validity of the NRRPR and, if the NRRPR is valid, to send the rebate claim to be keyed into our system and processed with an effective date that is the same as the due date of the registrant’s return. As a result, interest should only apply to the difference between the amount of tax on the self-assessment and the valid NRRPR amount. Furthermore, the NRRPR should not be delayed as it would have been verified by the initial auditor and would not require a second review by our refund integrity or rebate processing programs. However, we are aware of some unintended results that may arise with our existing audit procedures and we will be reviewing these procedures to determine where improvements can be made.

A non-registered corporation did not self-assess under ETA s. 191(3) on completing the construction of a triplex nor did it claim input tax credits. If it simply lay in the grass and did nothing until CRA discovered this situation on audit. S. 296(2.1), by virtue of requiring CRA, at the time of reassessing the corporation for undeclared GST, to retroactively allow any available but unclaimed rebates, would protect the corporation against any charges for interest (or late-filed return penalty under s. 280.1), provided that the rebate claims for unclaimed ITCs and the s. 256.2 new rental residential property rebate put it in a net refund position. Would the answer change if the corporation did not wait for any audit and sent to CRA, in the same envelope, an s. 191(3) self-assessment filing and documentary support showing the availability of the offsetting rebate claims.

CRA indicated that this would be treated as the equivalent of a late-filed return and late rebate claims under s. 228(6), rather than engaging the s. 296(2.1) audit-to-net-tax rules, so that interest and penalties would apply. The correct procedure for accessing interest penalty and interest relief was to follow and comply with the voluntary disclosure program rules.

Does CRA agree that s. 228(6) permits a registrant to net its rebate claim against its net tax remittance obligation, so that there is no deficit in the registrant's remittance of net tax? If so, what can a registrant do when a collections officer demands collection of the deficit? CRA responded:

The amount(s) reported on line 111 of the GST/HST return are protected in the CRA accounting system for a period of time to allow for rebate processing and offset, and avoid collection calls or actions. If a rebate application is not received or processed in that time period, then the protection is removed, a debit balance may result, and the account may end up in collections. In most cases, this would be the result of the rebate being reviewed further in Audit. There should be very few instances where the initial review and assessment is not completed based on current processing standards.

…The CRA will undertake to develop a policy to advise collections officers to suspend collection of these assessments until the CRA confirms or denies the rebate. When contacted by a collections officer, the registrant should make the collections officer aware of the situation as these accounts are not flagged by the CRA’s systems.

Set-off of rebate at time of filing

When a person files a return reporting net tax remittable or tax payable (the "remittance amount"), and the person claims a refund or rebate payable to that person at that time in the particular return and/or in an application filed with the particular return, and/or in another return, subsection 228(6) of the Excise Tax Act (the Act) provides that the credit amount used to offset the remittance amount is deemed at that time to have been remitted by the person and paid by the Minister to the person. …

Time of filing

A return or rebate application sent by first class mail or its equivalent is deemed by subsection 334(1) of the Act to have been received, and therefore filed, on the day it was mailed. As a result, the net tax remittance that is offset by an amount of the refund or rebate under subsection 228(6) or subsection 228(7) of the Act is considered to have been remitted to the Receiver General on that day. (Note: Generally, in the absence of any other evidence, the day a return or rebate application is postmarked by the post office will be considered as the day the return or rebate application was mailed.)

However, in the case of electronic filing, it is deemed to be a return in the prescribed form, in accordance with subsection 278.1(3) of the Act, filed only on the day in which the Minister acknowledges acceptance of it. ...

Effect of late filing ("Decision")

... A return due after March 31, 2007 filed after its due date

Where the return showing an outstanding remittance amount is due after March 31, 2007, and the return is filed after its due date, the return will be subject to the failure to file penalty, even where the return is accompanied by a rebate application or credit return. The newly prescribed interest will also apply on the remittance amount beginning the day after the remittance amount became due and ending the day it is deemed to be remitted to the Receiver General by applying the amount of the rebate and/or refund against that remittance amount (i.e., the day the return and accompanying application and/or return are mailed). The newly prescribed interest will continue to apply on any amount remaining outstanding after the rebate and/or refund is applied and end the day this amount is remitted. As well, this interest will accrue on the failure to file penalty until the day the penalty is paid.

A return due after March 31, 2007 filed before its due date

Where the return showing an outstanding remittance amount is accompanied with a rebate application or credit return and is mailed (i.e., filed) prior to the due date but received by the Receiver General after the due date, the newly prescribed interest will not apply on the remittance amount if it is completely offset by the amount of the rebate and/or refund. This interest will apply, however, on any amount remaining outstanding after the offset has been made beginning the day after the amount became due and ending the day on which the outstanding remittance is actually received. Since the return is mailed prior to its due date, it is not subject to the failure to file penalty.