In Scenario 1, Corp A, a registrant, makes a taxable supply of tangible personal property to Corp B, also a registrant. On a subsequent refund of a portion of the consideration, Corp A also refunds an amount on account of GST but does not issue (or receive) a credit note (or debit note).
In Scenario 2, Corp A makes a taxable supply of the property to Corp B which, in turn, sells it to Corp C. Corp A then pays a rebate to Corp C and indicates in writing that its amount includes GST.
Respecting Scenario 1, CRA (after noting that a "credit note or debit note can be written in a memorandum, an invoice or in a letter"), stated that as there was no credit note or debit note, there was no adjustment made to the net tax of Corp A or Corp B for the refund. However, the recipient (Corp B) was required (presumably under s. 225(1) –A) to pay the refunded GST to the Receiver General.
Respecting Scenario 2, CRA stated, before finding that s. 181.1 applied:
[G]enerally, section 232 applies to refunds paid or credited by a supplier directly to a recipient in respect of a supply made by the supplier to that recipient, and section 181.1 applies to rebates paid by a supplier to third parties with whom the supplier was not dealing directly (e.g., rebates paid by a manufacturer to consumers in respect of property originally supplied by the manufacturer to a distributor or other intermediary). … [I]f subsection 232(3) applies, then section 181.1 cannot apply by virtue of paragraph 181.1(d).
