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.
DATE, September 18, 2017
TO
[Addressee]
FROM
Doug Campbell
Senior Rulings Officer
General Operation and Border Issues
Ottawa ON
Case Number: 176502
[Dear Client],
SUBJECT : [GST/HST INTERPRETATION]
Bad Debts
This […][correspondence] is in response to […], regarding a bad debt that was not originally included in the amount of net tax reported.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
[FACTS]
The […] (company) is a registrant. A reassessment was issued […] to the company for GST/HST that was not charged for invoices issued […]. The company invoiced the recipients (their customers) for the GST/HST that was not charged. One particular customer, declared bankruptcy prior to the reassessment, and are unable to pay the invoices for the GST/HST on the supplies.
[INTERPRETATION REQUESTED]
Does a GST/HST amount assessed […], as per paragraph 296(1)(d), meet the criteria to claim it as a deductible bad debt under subsection 231(1) if the customer is now bankrupt, more specifically does it meet the reporting criteria under subsection 231(1.1)?
[INTERPRETATION GIVEN]
In our opinion the supplier would not be in a position to claim a deduction under subsection 231(1.1) if it only learned the amount of the tax after an audit, since it could not have already reported it on its return nor paid the amount of tax owed.
However, section 232 does appear to offer a solution where the consideration is reduced. Where the supplier issues a credit note to the customer (which is now bankrupt) to relieve it of that debt, the supplier would be entitled to claim a deduction if all conditions set out in paragraph 232(3)(b) are met.
[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.]
Should you have any further questions, please do not hesitate to contact me.
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