Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5
[Client Address]
Case Number: 248372
Dear [Client]:
Subject: GST/HST INTERPRETATION - The simplified regime (Subdivision E of Division II of Part IX) and the special attribution method formula for selected listed financial institutions
Thank you for your correspondence of [mm/dd/yyyy] concerning the calculation of the special attribution method (SAM) formula when the HST is paid by a goods and services tax/harmonized sales tax (GST/HST) registrant who is a selected listed financial institution (SLFI) to a person registered under Subdivision E of Division II of Part IX of the Excise Tax Act (simplified regime).
The HST applies in the participating provinces at the following rates: 13% in Ontario; 14% in Nova Scotia; and 15% in New Brunswick, Newfoundland and Labrador, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
Based on the information you provided in your correspondence, we understand the following about the situation with respect to which you are requesting an interpretation:
1. The registrant who is an SLFI (the “SLFI recipient”) purchases intangible personal property (IPP) from a specified non-resident supplier registered under the simplified regime (the simplified registered supplier) as this term has been defined under subsection 211.1(1).
2. The SLFI recipient did not provide its GST/HST registration evidence to the simplified registered supplier and the usual place of residence of the SLFI recipient is situated in Canada. As a result, the SLFI recipient is considered a specified Canadian recipient as defined in subsection 211.1(1).
3. Subsection 211.14(1) provides that a specified supply (defined in subsection 211.1(1)) provided by a non-resident supplier (including platforms) registered under the simplified regime to a recipient who has not provided evidence of registration under the regular regime and has a usual place of residence that is situated in Canada (specified Canadian recipient) is deemed to be made in Canada.
4. The supply is deemed to be made in Canada, and the SLFI recipient has a usual place of residence in the participating province of Ontario, Canada. Subsection 165(1) applies to impose the 5% federal part of the HST and, as subsection 211.14(3) applied, the supply is also deemed to be made in the participating province of Ontario such that subsection 165(2) applies to impose the 8% provincial part of the HST. Consequently, the simplified registered supplier had to collect both the federal and provincial parts of the HST on the specified supply made to the SLFI recipient.
INTERPRETATION REQUESTED
As an SLFI, the SLFI recipient is required to make an adjustment to its net tax calculation using the SAM formula in subsection 225.2(2) to calculate its tax liability for the provincial part of the HST for each participating province. The SLFI recipient’s SAM formula calculation for a particular reporting period can result in either a positive or a negative amount which an SLFI must add or may deduct, respectively, in determining the SLFI recipient’s net tax for the reporting period.
Under section 211.17 a recipient is generally not allowed to claim an input tax credit, rebate, refund or remission in respect of any GST/HST that is required to be collected by a person that is registered under the simplified GST/HST regime. Given that there is a possibility of the SLFI recipient being entitled to reduction of its net tax as a result of its SAM formula calculation that will reduce its net tax to a negative amount and a refund of net tax, should the HST on the specified supply that is paid by the SLFI recipient be included in Element A, B or Element F of the SLFI recipient’s SAM calculation for the reporting period?
INTERPRETATION GIVEN
Simplified regime (Subdivision E of Division II)
Where a person is registered for GST/HST under Subdivision E of Division II (simplified regime), their “specified supplies” made to “specified Canadian recipients” are deemed to be made in Canada in accordance with subsection 211.14(1). As a result, simplified registered persons are required to charge, collect and remit GST/HST, under Division II, on such supplies made to such recipients in accordance with sections 165, 221 and 228. The rate of tax to be collected on the specified supplies is generally based on the usual place of residence of the recipient in Canada in accordance with subsection 211.14(3) and section 211.11.
A “specified supply” is defined in subsection 211.1(1) and means, in part, “a taxable supply of intangible personal property or a service other than:
(a) a supply of intangible personal property that
(i) may not be used in Canada,
(ii) relates to real property situated outside Canada, or
(iii) relates to tangible person property ordinarily situated outside Canada;
(b) a supply of a service …”
A “specified Canadian recipient” is defined under subsection 211.1(1) and means a recipient of a supply who:
* has not provided to the supplier or a distribution platform operator in respect of the supply, evidence satisfactory to the Minister that the recipient is registered under Subdivision D of Division V (registered under the regular GST/HST regime); and
* has a usual place of residence that is situated in Canada.
In the situation being considered, although the SLFI recipient is registered under the regular GST/HST regime when the transaction occurred, the SLFI recipient did not provide proof of its GST/HST registration. By not providing such evidence and given that the SLFI recipient’s usual place of residence is situated in Canada, the SLFI recipient is considered a specified Canadian recipient. Therefore, the non-resident simplified registrant supplier is required to charge and collect the tax from the SLFI recipient since that transaction would be a specified supply that is IPP made by a simplified registered supplier to a specified Canadian recipient. Also, the supply is deemed to be made in Canada pursuant to subsection 211.14(1). The SLFI recipient would be required to pay tax equal to 5% of the consideration for the supply under subsection 165(1). Despite section 144.1, if a specified supply (in this case, IPP) is deemed to be made in Canada under subsection 211.14(1), subsection 211.14(3) provides that if the usual place of residence of the specified Canadian recipient is located in a participating province, the supply is deemed to be made in the participating province; and in any other case, the supply is deemed to be made in a non-participating province. For purposes of determining the usual place of residence of a recipient in paragraph (b) of the definition of specified Canadian recipient and in paragraph 211.14(3)(a), section 211.11 provides a set of rules and indicators to establish if the usual place of residence of that SLFI recipient is in Canada and subsequently in a province.
Where the usual place of residence of the SLFI recipient is located in a participating province, the SLFI recipient is required to pay tax in respect of the supply calculated at the tax rate for that province on the value of the consideration for the supply pursuant to subsection 165(2) – the provincial part of the HST in addition to the tax imposed by subsection 165(1) - the federal part of the HST.
Interaction between the special attribution method formula and the simplified regime (Subdivision E of Division II)
As you are aware, when determining its net tax for a reporting period, an SLFI is required to make an adjustment to its net tax calculation related to its liability for the provincial part of the HST by using the SAM formula. If the SAM formula calculation for a reporting period results in a positive amount, the SLFI recipient must add the positive amount in determining its net tax for the reporting period, and if the SAM formula calculation for a reporting period results in a negative amount, the SLFI recipient may deduct the negative amount in determining its net tax for the reporting period.
The SAM formula in subsection 225.2(2) is:
[(A - B) x C x (D / E)] - F + G
The following information outlines how the amounts of tax payable under subsections 165(1) and (2) in the situation being considered would be reported for purposes of Elements A, B and F of the SLFI recipient’s SAM formula calculation.
Element A - GST and federal part of HST paid or payable
In accordance with paragraph (a) of Element A, the SLFI recipient would include the total amount of the federal part of the HST payable under subsection 165(1) by the SLFI recipient to the simplified registered supplier.
Element B - input tax credits
As a recipient is generally not allowed to claim an input tax credit in respect of any GST/HST that is required to be collected by a person that is registered under the simplified GST/HST regime pursuant to subsection 211.17(1), the SLFI recipient would not include any amount payable to the simplified registered supplier in Element B.
Element F - provincial part of HST for province paid or payable
In accordance with paragraph (a) of Element F, the SLFI recipient would include the total amount of the provincial part of the HST payable under subsection 165(2) by the SLFI recipient to the simplified registered supplier.
Elements C, D, E and G for the reporting period of the SLFI recipient would not change in the situation being considered. Element C is an SLFI’s provincial attribution percentage for each participating province for the taxation year. Element D is the tax rate for the particular participating province, which is the provincial part of the HST (for example, 8% in Ontario). Element E is the tax rate for the GST or the federal part of the HST (5%). Element G is total of all amounts, each of which is a positive or negative “prescribed amount” and provides for adjustments that take into account transitional and other special transactions.
As previously indicated, under subsection 211.17(1) no amount of an input tax credit, rebate, refund or remission under this or any other Act of Parliament will be credited, paid, granted or allowed to the extent that it can reasonably be regarded that the amount is determined, directly or indirectly, in relation to an amount that is collected as or on account of tax, or in relation to an amount of tax that is required to be collected, by a person that is registered or required to be registered under Subdivision E of Division II.
In other words, subsection 211.17(1) generally restricts the recipient from claiming an input tax credit or refund, or from filing a rebate application in respect of tax charged or paid under Subdivision E of Division II. However, for greater clarity, it is important to note that in cases where, in determining its net tax for a reporting period, an SLFI has included the total amount of the GST/HST it paid to a simplified registered supplier in its SAM formula calculation (in Element A and Element F as discussed above) for a reporting period and the result of the SAM formula calculation is a negative amount that will reduce its net tax to a negative amount, subsection 211.17(1) would have no application to restrict the SLFI from claiming a net tax refund for that period. Generally speaking, if the SAM formula calculation for the reporting period results in a positive amount, the SLFI recipient must add the positive amount in determining its net tax for the reporting period, and if the SAM formula calculation for the reporting period results in a negative amount, the SLFI recipient may deduct the negative amount in determining its net tax for the reporting period.
ADDITIONAL INFORMATION
Refund, adjustment or credit of the GST/HST charged or collected by a person registered under the simplified regime
There are limited circumstances where subsection 211.17(1) will not apply. Subsection 211.17(2) provides for these exceptions to subsection 211.17(1). One of these exceptions is described in paragraph 211.17(2)(b) which permits adjustments to tax charged or collected by a person registered under the simplified regime for purposes of subsection 232(1).
Subsection 232(1) states:
"Where a particular person has charged to, or collected from, another person an amount as or on account of tax under Division II in excess of the tax under that Division that was collectible by the particular person from the other person, the particular person may, within two years after the day the amount was so charged or collected,
(a) where the excess amount was charged but not collected, adjust the amount of tax charged; and
(b) where the excess amount was collected, refund or credit the excess amount to that other person."
In circumstances in which GST/HST registration evidence is provided by the Canadian resident recipient to the supplier after the supply has been made, the Canada Revenue Agency (CRA) will permit the use of subsection 232(1) despite the fact that such evidence is provided after the supply has been made provided that the recipient's registration under Subdivision D of Division V was valid at the time the supply was made. However, there is no requirement for the supplier to refund, adjust, or credit the GST/HST charged or collected under either circumstance noted in subsection 232(1); it is at the discretion of the supplier.
Where a supplier refunds, adjusts, or credits an amount as provided for under subsection 232(1), the supplier is required to issue a credit note, including prescribed information, within a reasonable time to the recipient, unless the recipient first issues a debit note including prescribed information, to the supplier.
For more information, refer to GST/HST Memorandum 12-2, Refund, Adjustments or Credit of the GST/HST under Section 232 of the Excise Tax Act.
Element G - total of all amounts, each of which is a positive or negative prescribed amount
Element G of the SAM formula is the total of all amounts, each of which is a positive or negative "prescribed amount". A prescribed amount is an amount described in paragraphs 46(a) to (j) and amounts determined in paragraphs 55(2)(b) and (c), 60(b) and 63(b) and subparagraphs 59(d)(iii) and 62(d)(iii) of the Selected Listed Financial Institutions Attribution Method (GST/HST) Regulations (SLFI Regulations).
Element G2 and G1 in the formula in paragraph 46(a) of the SLFI Regulations includes amounts related to adjustments, refunds and credits, such as an amount paid or payable as or on account of tax under subsections 165(1) and (2) of the ETA that was adjusted, refunded or credited under section 232 of the ETA to the extent that the amount was included in the total for Element A or Element F, respectively, of the SAM formula.
Therefore, if evidence of its GST/HST registration were subsequently provided by a recipient that is an SLFI to a simplified registered supplier after the supply has been made, and the supplier refunded or credited to the SLFI the GST/HST under section 232 that it collected from the SLFI, then the SLFI would include the amount of the GST or the federal part of the HST refunded or credited in Element G2 to the extent that the amount was included in the total for Element A and include the amount of the provincial part of the HST refunded or credited in Element G1 to the extent that the amount was included in the total for Element F of the SAM formula calculation.
DISCLAIMER
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA's interpretative policy could affect the interpretation(s) or the additional information provided herein.
CONTACT
If you require clarification with respect to any of the issues discussed in this letter, please contact me directly at 902-943-9381 or my manager, Dawn Weisberg at 343-571-0206.
Sincerely,
Shaun Mutua
Industry Sector Specialist
Listed Financial Institutions Unit
Financial Institutions and Real Property Division
GST/HST Rulings Directorate
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