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.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 147847
January 15, 2014
Dear [Client]:
Subject: GST/HST RULING
Recapture of Input Tax Credits with respect to […][the Supplies]
Thank you for your letter of [mm/dd/yyyy], concerning the recapture of input tax credits (ITCs) with respect to the purchase of […][the Supplies]. We apologize for the delay in providing you with a response.
The HST applies in the participating provinces at the following rates: 13% in Ontario,New Brunswick and Newfoundland and Labrador, 14% in Prince Edward Island (effective April 1, 2013) and 15% in Nova Scotia. The GST applies in the rest of Canada at the rate of 5%.
Effective April 1, 2013, the 12% HST in British Columbia has been replaced by the 5% GST and a provincial sales tax.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
Based on your letter of [mm/dd/yyyy], and the additional information you provided on […], we understand that:
1. […] (Canco) is a corporation incorporated under the Canada Business Corporations Act and its head office is in […][Participating Province A].
2. Canco's business includes assembling, selling, […] […][the Products] across Canada, including the specified provinces which impose ITC restrictions on large businesses acquiring, among other things, […] [a specified property or service].
3. Canco is a “large business” pursuant to section 236.01 and section 27 of the New Harmonized Value-Added Tax System Regulations No. 2 (the “Regulations”).
4. […]
5. […][The Parts] are purchased by Canco from third party suppliers and […][incorporated] by Canco in [the Products] that are assembled in Canada. Where [the Products] are assembled outside Canada and then imported, [the Parts] are [incorporated] […] prior to importation, and the charges for [the Parts] form part of the cost of [the Products] to Canco.
6. [The Products] supplied by Canco include […][the Supplies]. […]. Canco prepares electronic invoices on behalf of […][the Supplier] [of] [the Supplies] when [the Products] are shipped and calculates and pays GST/HST thereon. […].
7. […] [Outlines Canco administrative practices].
8. […] [Outlines Canco administrative practices].
9. Charges for [the Parts] and [the Supplies] are included in the purchase price of [the Products] […]
10. […] [Outlines Canco administrative practices]
11. Canco has claimed ITCs in respect of the GST/HST paid to [the Supplier] on [the Supplies] except for the provincial component of the HST in respect of [the Products] sold […] in the specified provinces.
12. Canco has not claimed ITCs in respect of the provincial component of the HST paid to [the Supplier] in respect of [the Supplies] for [the Products] sold […] in the specified provinces and has not recaptured the ITCs.
RULING REQUESTED
You would like to know whether Canco has an obligation under subsection 236.01(2) to recapture ITCs with respect to the provincial component of the HST that Canco has paid to [the Supplier] on its acquisitions of [the Supplies] for [the Products].
RULING GIVEN
Based on the facts set out above, we rule that Canco does not have an obligation under subsection 236.01(2) to recapture ITCs with respect to the provincial component of the HST that Canco has paid to [the Supplier] on its acquisitions of [the Supplies] for [the Products].
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
EXPLANATION
As you know, subsection 236.01(2) provides that if a sales tax harmonization agreement with the government of a participating province relating to the new harmonized value-added tax system allows for the recapture of ITCs, in determining the net tax for the reporting period of a large business that includes a prescribed time, the large business shall add all or part, as determined in prescribed manner, of a specified provincial ITC of the large business.
Subsection 236.01(1) defines a specified provincial ITC in part to mean the portion of an ITC of a large business in respect of a specified property or service that is attributable to tax under subsection 165(2), section 212.1 or 218.1 or Division IV.1 in respect of the acquisition, importation or bringing into a participating province of the specified property or service. “Specified property or service” is defined under subsection 236.01(1) to mean a prescribed property or service, or property or a service of a prescribed class.
Subsection 28(1) of the Regulations prescribes various types of property and services, […], for the purposes of the definition of "specified property or service" in subsection 236.01(1). Section 26 of the Regulations defines a “specified province” to mean Ontario, British Columbia or Prince Edward Island.
Despite subsection 28(1) of the Regulations, for the purposes of the definition of “specified property or service” in subsection 236.01(1), subsection 28(2) of the Regulations excludes certain property and services referred to in subsection 28(1) of the Regulations, […].
Based on the facts, [the Supplies] acquired by Canco from [the Supplier] are supplies of […] that are not considered to be a "specified property or service" under subsection 236.01(1).
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-8220. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Kevin W. Smith
Border Issues Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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