CRA finds that the HST/GST credit note mechanic was not available in a returned goods situation

The credit note rule in s. 232 provides a mechanism for reducing a Canadian registrant’s GST or HST remittance obligations when it reduces the consideration for a supply.  CRA found that this mechanism was not available when a U.S. affiliate to which the registrant shipped crude oil decided before receiving the crude in the U.S. that the crude was excess to its needs, so that the crude was effectively returned.  CRA construed this as instead being a sale of the crude back to the Canadian registrant, so that the U.S. affiliate (which also was registered) was required to charge GST to the Canadian registrant if the crude that was to be returned was still in Canada.

The distinction between this scenario and a conventional returned goods situation seems quite subtle, so that there may be uncertainty as to the availability of the s. 232 mechanism in the latter scenario.

Neal Armstrong.  Summaries of 5 February 2013 Ruling Case No. 141852 under ETA ss. 232(2) and 153(3), and Sched. VI – Part V – s. 15.2.