8 March 2018 CBA Commodity Tax Roundtable, Q.10

A Canadian financial institution makes a taxable supply of services (Services) to an unrelated Canadian selected listed financial institution (SLFI), for cash consideration but erroneously fails to invoice and collect any GST/HST in respect thereof. The SLFI is required to make the computation of net tax under the “SAM” formula in s. 225.2(2) based on the tax payable by it. S. 228(2.3) requires the remittance of that net tax. In contrast, s. 278(2) provides an exception from a remittance obligation where “the amount is required under section 221 to be collected by another person.”

Would s. 278(2) still prevent the SLFI from having to remit any tax in respect of the Services, on the basis that the supplier should have collected and remitted such tax under s. 221?

CRA responded:

…[T]he supplier of the Services is required [under s. 278(2)] to collect the HST payable by the SLFI under subsection 221(1) and include the HST in the supplier’s net tax calculation. If the supplier’s net tax is a positive amount, the supplier will remit that amount to the Receiver General. However, this does not have an impact on the SLFI’s net tax calculation or its SAM formula calculation.

In a particular reporting period, an SLFI includes an amount of tax payable, or paid without having become payable, by the SLFI during the reporting period in its SAM formula calculation in order to determine its tax liability for the provincial part of the HST for the participating provinces which could result in the net tax or interim net tax for a reporting period being a positive amount that is required to be remitted to the Receiver General. [A]ny amount of tax payable by the SLFI in a particular reporting period with respect to the Services will be included in the SLFI’s SAM formula calculation for that reporting period and consequently, its net tax or interim net tax calculation. If the SLFI’s net tax or interim net tax amount is a positive amount, the SLFI will remit that amount to the Receiver General in accordance with subsection 278(2).

A Canadian financial institution makes a taxable supply of services (Services) to an unrelated Canadian selected listed financial institution (SLFI), for cash consideration but erroneously fails to invoice and collect any GST/HST in respect thereof. The SLFI is required to make the computation of net tax under the “SAM” formula in s. 225.2(2) based on the tax payable by it. S. 228(2.3) requires the remittance of that net tax. In contrast, s. 278(2) provides an exception from a remittance obligation where “the amount is required under section 221 to be collected by another person.”

Do these provisions require the SLFI to include the tax payable respecting the Services when calculating its net tax under the SAM formula for its final return, notwithstanding that the tax was not invoiced by, or paid to, the supplier? CRA stated:

[T]he SLFI would generally be required to include the tax payable in respect of the Services in its net tax calculation and interim net tax calculation, where applicable, for the particular reporting period during which the tax became payable. Specifically … the amount of tax payable in respect of the Services by the SLFI in that reporting period would be included in its SAM formula calculation which is used to determine the SLFI’s tax liability for the provincial part of the HST for the participating provinces and which is an adjustment to the SLFI’s net tax calculation and interim net tax calculation where applicable.

The questioner suggested that, in light of s. 278(2), the SLFI was not required to remit the related component of its s. 225.2(2) tax (based on the tax payable to the supplier) because of the obligation of its supplier to have collected and remitted that tax. CRA, considered this suggestion to be quite at odds with the scheme of the SAM formula rules, which required the SLFI to compute and remit an amount which was quite distinct from the tax paid to its suppliers. Essentially, the SAM formula computes a normative amount of provincial HST based on the deemed residence of its stakeholders, and compares this with the actual provincial HST paid to its suppliers – and then requires that the difference be reported and claimed as refunds or remitted as tax in interim and final returns. Thus, the SAM tax is essentially by definition distinct from the tax that was remittable by the SLFI supplier.