GST/HST Memorandum 13.5 Non-creditable Tax Charged January 2017

Relief re commercial importation applies to public service body

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Example 2 – Goods imported into Canada

In a claim period, a registrant PSB resident in New Brunswick purchases commercial goods in the United States and imports them into New Brunswick for use by the PSB exclusively (90% or more) in its commercial activities in that province. The goods are valued at $15,000 (including duties), on which the PSB pays $750 in GST ($15,000 × 5%) to the CBSA at the time of importation of the goods.

The GST of $750 paid in respect of the importation of the goods is included in subparagraph 259(1)(a)(i) when calculating the GST charged in respect of the imported goods for the claim period.

Subsection 220.07(2) relieves the PSB from the requirement to self-assess the provincial part of the HST as the goods are for consumption, use, or supply exclusively in the course of commercial activities of the registrant PSB.

Application to public service body re service imported into Ontario for exempt use

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Example 3 – Imported supply of a service

During a claim period, a non-registrant PSB resident in Ontario is the recipient of a taxable supply of consulting services made outside Canada by a non-registrant supplier resident in the United States for $10,000. The consideration for the services becomes payable during that period. The consulting services are supplied to the PSB for use by the PSB exclusively in exempt activities in Ontario.

The PSB is required to self-assess tax at the rate of 5% on the value of the consideration for the supply of the consulting services. The PSB self-assesses the amount of $500 ($10,000 × 5%) on Form GST59, GST/HST Return for Imported Taxable Supplies, Qualifying Consideration, and Internal and External Charges. This amount is included in subparagraph 259(1)(a)(i) when calculating the federal non-creditable HST charged in respect of the consulting services for the claim period.

The PSB is also required to self-assess tax at the rate of 8% on the value of the consideration for the consulting services (8% being the provincial part of the HST in Ontario). The PSB self-assesses the amount of $800 ($10,000 × 8%) on form GST59, GST/HST Return for Imported Taxable Supplies and Qualifying Consideration. This amount is included in subparagraph 259(1)(a)(i) when calculating the provincial non-creditable HST charged in respect of the consulting services for the claim period.

Goods brought into higher rate province

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Example 6 – Property brought into a participating province from another participating province

In a claim period, a non-registrant PSB purchases goods (other than a specified motor vehicle) in Ontario from an unrelated supplier. The value of the consideration for the supply is $22,000, on which the PSB pays $2,860 in HST ($22,000 × 13%).

The federal part of the HST paid in respect of the supply of the goods is $1,100 ($2,860 × 5/13). This amount is included in subparagraph 259(1)(a)(i) when calculating the federal non-creditable HST charged in respect of the goods for the claim period. The provincial part of the HST paid in respect of the supply of the goods is $1,760 ($2,860 × 8/13). This amount is included in subparagraph 259(1)(a)(i) when calculating the provincial non-creditable HST charged in respect of the goods for the claim period.

The goods are immediately removed from Ontario and are brought into Nova Scotia. The fair market value of the goods at the time they are brought into Nova Scotia is also $22,000. The PSB is required to self-assess tax at the rate of 2% on the value of the goods purchased in Ontario and brought into Nova Scotia (2% being the difference between the 10% rate of the provincial part of the HST in Nova Scotia and the 8% rate of the provincial part of the HST in Ontario). The PSB self-assesses the amount of $440 ($22,000 × 2%) on Form GST489. … This amount is included in subparagraph 259(1)(a)(i) when calculating the provincial non-creditable HST charged in respect of the goods for the claim period. ...

Programming services used in two provinces

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Example 7 – Service supplied in a participating province

In a claim period, a non-registrant PSB acquires software programming services from a supplier in Ontario for $35,000. The PSB will use the services 80% at its head office in Ontario and 20% at one of its offices in Prince Edward Island. The supplier has determined that the supply of the software programming services is made in Ontario and collects HST at a rate of 13% in respect of the supply. The PSB pays $4,550 in HST ($35,000 × 13%). …

The PSB is required to self-assess tax at the rate of 2% on the value of the consideration for the supply of the services purchased in Ontario (2% being the difference between the 10% rate of the provincial part of the HST in Prince Edward Island and the 8% rate of the provincial part of the HST in Ontario) to the extent (expressed as a percentage) that the services are used in Prince Edward Island. The PSB self-assesses tax of $140 ($35,000 × 2% × 20%) on Form GST489… .

...refer to NOTICE 266....

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Example 11 – Adjustment to net tax for rental property on becoming a small supplier division

In July, a registrant PSB resident in Ontario that has a monthly reporting period prepays the monthly rent of $1,500 plus HST for six months (July through to December) for the building in Ontario used by its division in commercial activities. The total amount of rent prepaid is $9,000 ($1,500 × 6 months) plus $1,170 in HST ($9,000 × 13%).

The PSB claims an input tax credit of $1,170 in its net tax for the July reporting period in respect of the HST paid on the rent expense.

The division became a small supplier division effective the first day of October. The PSB is required to make an adjustment to net tax for the amount previously claimed as an input tax credit for the HST paid on the rent for the three months of October, November, and December pursuant to paragraph 171(4)(b). The PSB is required to add to its net tax an amount of $585 ([$1,500 × 13%] × 3), which is accounted for by the PSB on line 104 (or on line 105 if filing electronically) of its October GST/HST return.

Application to public service body

58. Where, at any time in a claim period, a PSB ceases to be a GST/HST registrant, the PSB is deemed under subsection 171(3) to have made a supply of each property (other than capital property) that, immediately before that time, was held by the PSB for consumption, use, or supply in its commercial activities and to have collected GST/HST on the supply calculated on the fair market value of the property. The tax is accounted for on the PSB's final return as a registrant. The PSB is also deemed to have received at that time, a supply of the property by way of sale and to have paid an equal amount of tax. The tax deemed collected is included in subparagraph 259(1)(a)(ii) when calculating the non-creditable tax charged in respect of the property for the claim period. ...

Application to public service body

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Example 14 – Seized property used by creditor

A registrant PSB resident in Saskatchewan is not a charity to which subsection 225.1(2) (net tax calculation for charities) applies. The PSB granted a loan to a Saskatchewan company in 2010 to purchase office equipment with the equipment serving as security for the loan. The company defaulted on the loan payments, and the PSB repossessed the equipment in 2013. The PSB begins to use the repossessed office equipment for its own purposes. In the claim period that the PSB begins to use the equipment, the PSB is required to account for GST on the fair market value of the equipment at the time it was repossessed, which is determined to be $25,000. The PSB is also considered to have paid GST on the equipment's fair market value of $25,000.

The PSB is deemed to have collected GST of $1,250 ($25,000 × 5%) on the fair market value of the office equipment. The GST deemed collected is accounted for by the PSB on line 103 (or on line 105 if filing electronically) of its GST/HST return.

The GST of $1,250 deemed to have been collected will be included in subparagraph 259(1)(a)(ii.1) when calculating the non-creditable GST charged in respect of the equipment for the claim period.

Application to a charity

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Example 16 – Volunteer reimbursement

In a claim period, a volunteer of a charity rented a car in Ontario while attending two days of meetings as a representative of the charity. Since the volunteer was not returning home after the meetings, but was taking a three day vacation, the car rental agreement was for a five-day period. The volunteer paid $200 plus $26 in HST ($200 × 13%) for the car rental. The charity reimbursed the volunteer for the car rental, including the HST, in respect of the meetings. The percentage reimbursed was 40% (2/5 × 100%), which was the two days' use during the meetings of the five-day car rental.

Pursuant to section 175, the charity is deemed to have received a supply of the car rental, and the use of the car by the volunteer for the two days is considered to be use by the charity.

The tax the charity is deemed to have paid in respect of the supply is equal to

A × B

where

A is $26 – that is, the tax paid by the volunteer,

B is 40% which is the lesser of

• 40% – that is, the percentage of the cost to the volunteer that was reimbursed, and
• 40% – that is, the extent expressed as a percentage to which the rental of the car was acquired for use in relation to activities of the charity.

Therefore, the tax deemed paid by the charity for the car rental is equal to $10.40 ($26.00 × 40%). The federal part of the HST deemed paid is $4.00 ($10.40 × 5/13). This amount is included in subparagraph 259(1)(a)(iv) when calculating the federal non-creditable HST charged in respect of the supply for the claim period. The provincial part of the HST deemed paid is $6.40 ($10.40 × 8/13). This amount is included in subparagraph 259(1)(a)(iv) when calculating the provincial non-creditable HST charged in respect of the supply for the claim period.

Overview of application to public service body (PSB)

75. ... [U]nder subsection 141.01(2), the PSB is deemed to have acquired property or a service for consumption or use in commercial activities only to the extent that the property or service is acquired for the purpose of making taxable supplies for consideration in the course of an endeavour of the PSB. To the extent that the property or service is acquired for the purpose of making supplies in the course of an endeavour that are not taxable supplies made for consideration or for a purpose other than making supplies, the PSB is deemed to have acquired the property or service for consumption or use otherwise than in commercial activities.

Sale includes giving away

83. This rebate is available to specified persons if the specified property is acquired, imported, or brought into a participating province for purposes other than supply by way of sale. If a specified person acquires the specified property to resell, including giving away for free, then there is generally no rebate under subsection 259.1(2) of the GST/HST payable on the acquisition of the specified property.

84. However, pursuant to paragraph 259.1(2)(a), prescribed charities and prescribed qualifying non-profit organizations whose primary purpose is the promotion of literacy can claim a rebate under subsection 259.1(2) if the specified property was acquired, imported, or brought into a participating province to be given away for free.

refer to GST/HST Memorandum 13.4,

Application to public service body

Example 22 – Goods acquired in a participating province and removed to another participating province

In a claim period, a non-registrant PSB purchases goods in New Brunswick for $19,000, on which it pays $2,850 in HST ($19,000 × 15%). The goods are removed from New Brunswick within 30 days after delivery and brought into Ontario for exclusive use by the PSB in that province. No provincial sales tax is applicable when the goods are brought into Ontario, because Ontario is a participating province.

The federal part of the HST paid in respect of the purchase is $950 ($2,850 × 5/15). This amount is included in subparagraph 259(1)(a)(i) when calculating the federal non-creditable HST charged in respect of the goods for the claim period. The provincial part of the HST paid in respect of the purchase is $1,900 ($2,850 × 10/15). This amount is included in subparagraph 259(1)(a)(i) when calculating the provincial non-creditable HST charged in respect of the goods for the claim period.

The PSB is eligible to claim a rebate based on the 2% difference between the 8% rate of the provincial part of the HST in Ontario and the 10% rate of the provincial part of the HST in New Brunswick. …

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Example 24 – Services acquired in participating province for partial use in another participating province

In a claim period, a non-registrant PSB resident in Nova Scotia purchases advertising services in Nova Scotia for $5,000, on which it pays $750 in HST ($5,000 × 15%). The advertising services will be used 60% in Nova Scotia and 40% in Ontario.

The federal part of the HST paid in respect of the advertising services is $250 ($750 × 5/15). This amount is included in subparagraph 259(1)(a)(i) when calculating the federal non-creditable HST charged in respect of the service for the claim period. The provincial part of the HST paid in respect of the advertising services is $500 ($750 × 10/15). This amount is included in subparagraph 259(1)(a)(i) when calculating the provincial non-creditable HST charged in respect of the service for the claim period.

Under section 261.3, the PSB is eligible to claim a rebate of a portion of the provincial part of the HST paid in Nova Scotia based on the 2% difference between the 10% rate of the provincial part of the HST in Nova Scotia and the 8% rate of the provincial part of the HST in Ontario to the extent that the advertising services are acquired for consumption, use, or supply in Ontario. …

No s. 259 rebate for amounts paid in error

113. Under subsection 261(1), a PSB may receive a rebate if,

• it paid or remitted an amount as or on account of, or that was taken into account as, tax or net tax that it should not have paid or remitted, or that was more than it had to pay or remit; or
• it paid an amount as penalty, interest, or any other similar obligation that was not payable or remittable.

114. GST/HST paid in error is not "tax", which is defined in subsection 123(1) as tax payable under Part IX. Therefore, GST/HST paid in error cannot be included in the calculation of non-creditable tax charged. As such, there is no non-creditable tax charged in respect of property or services where GST/HST was paid in error in respect of the supply, importation, or bringing into a participating province of the property or service. If a PSB has paid or remitted an amount as or on account of tax in error, it cannot claim a PSB rebate to recover this amount, rather it must claim a rebate under section 261.

Public service body acquiring software programming services for use in two provinces

Example 7 references a PSB that is charged at the Ontario rate of 13% on software programming services acquired by it for “use” 80% at its Ontario head office and 20% at one of its offices in PEI – and goes on to note that the PSB would be required to self-assess itself for the 2% higher PEI HST rate on the 20% portion for use in PEI, before then calculating its s. 259 rebate.

Rebate calculated individually

14. Non-creditable tax charged is calculated on a property by property, service by service basis.