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: 163521
Dear [Client]
Subject: GST/HST INTERPRETATION
[…] [ITC Eligibility of a band council]
Thank you for your letter of [mm/dd/yyyy], concerning the eligibility of […] (“your client”) to claim input tax credits (“ITCs”).
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 and 15% in Nova Scotia. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
Based on your letter and our telephone conversations of […], we understand that:
1) Your client is registered for the GST/HST;
2) Your client owns and operates a gas bar with annual taxable sales of more than $50,000;
3) Your client’s business/gas bar is located on a reserve in [a participating province];
4) Your client collects HST on the sales of fuel made to non-Indian clients and claims ITCs on its GST/HST returns;
5) In [mm/yyyy], your client began using a new supplier of fuel;
6) Your client had not provided the supplier with a certificate indicating that it was a band council and that purchases of fuel delivered to a reserve would be relieved of the HST;
7) The new supplier charged HST on its sales of fuel made to your client even though the fuel was delivered to a reserve;
8) […] your client realized that it had been paying the HST on purchases of fuel that should have been relieved of the HST;
9) Your client then provided the supplier with a certificate and asked the supplier for a credit of the amount paid as HST;
10) The supplier provided the dollar value of the amount paid as HST but suggested that your client claim an ITC as your client is in a commercial activity and is registered for GST/HST purposes;
11) Your client claimed the amount it paid as HST as ITCs on its GST/HST return(s);
12) The ITCs were disallowed by the Canada Revenue Agency (CRA) and your client was advised to file a rebate claim;
13) […];
14) […] [About the band council’s filing activities];
15) […];
16) Your client states that it was advised that Indian bands are not eligible to claim ITCs;
17) Your client then filed a GST/HST rebate claim using reason code 1, amount paid as tax in error; and
18) […] [More about the band council’s filing activities].
INTERPRETATION REQUESTED
You have requested an interpretation as to the eligibility of your client to claim ITCs to recover HST paid to suppliers for purchases made by your client for resale in their gas bar.
INTERPRETATION GIVEN
Subsection 169(1) provides, in part, that a GST/HST registrant is entitled to claim an ITC for the tax payable or paid without having become payable on the acquisition or importation of property or a service to the extent, expressed as a percentage, that the property or service was acquired or imported by the registrant for consumption, use or supply in the course of the registrant's commercial activities.
“Tax” is defined in subsection 123(1) to mean tax payable under Part IX (i.e., GST/HST).
Section 87 of the Indian Act (IA) exempts personal property of an Indian or a band situated on a reserve. That is, the property must be situated on a reserve in order for tax relief to apply. The administrative policy of the CRA concerning the application of the GST/HST to Indians, bands (including band councils) and band-empowered entities is explained in GST/HST Technical Information Bulletin B-039, GST/HST Administrative Policy – Application of the GST/HST to Indians (B-039). The guidelines in B-039 are consistent with the relieving provisions in section 87 of the IA affecting the personal property of an Indian or a band situated on a reserve. B-039 can be found on the CRA's website at http://www.cra-arc.ca/E/pub/gm/b-039/b-039-e.html.
Where an Indian or a band (including a band council) acquires property (e.g., goods) from a vendor and that property is delivered to a reserve by the vendor, the CRA views that property as being tax relieved under section 87 of the IA. Therefore, an amount paid as tax on the acquisition of that property, is not “tax” as defined in subsection 123(1) because no tax is payable on that property under Part IX. That is, where property is purchased by an Indian or a band on a reserve, or off a reserve where the property is delivered to a reserve, the property is relieved of the tax under section 87 of the IA. Tax is not payable under Part IX so an amount paid as GST/HST is not tax, but is an amount paid as tax in error. Subsection 261(1) provides a legislative entitlement to a refund of an amount paid as tax in error. Where the conditions of section 261 are met, the person may file a rebate claim to recover the amount paid as tax in error within the two-year limitation period provided for in subsection 261(3).
ITCs are only available to registrants for tax paid or payable under Part IX. Although your client is a registrant, ITCs are not available to the registrant in this case as the amount charged as GST/HST is not tax paid or payable under Part IX. Where such an amount was included as an ITC in the registrant's net tax calculation, during an audit the ITC would be disallowed, and an amount could be allowed as a rebate for tax paid in error, if applicable, under subsection 296(2.1).
However, where relief of tax is not available under section 87 of the IA, and the amount paid or payable as tax is “tax” as defined in subsection 123(1), ITCs are available to the extent all of the requirements for claiming ITCs under section 169 (and any other applicable ETA provisions) are met.
An example would be where a band council registered for GST/HST purposes pays the GST/HST on taxable goods acquired off a reserve that are not delivered to a reserve. As section 87 of the IA would not apply to provide relief of tax on goods that are not situated on a reserve (or delivered to the reserve by the vendor or the vendor’s agent), the vendor would be required to charge tax to the band council as tax would be payable under Part IX. As a registrant, the band council would be entitled to claim ITCs for the tax paid or payable on taxable goods to the extent that the goods were acquired, imported or brought into a participating province by the registrant for consumption, use or supply in the course of the registrant's commercial activities.
If the goods were not acquired, imported or brought into a participating province for consumption, use or supply in the course of the registrant's commercial activities, a rebate under section 261 would not be available as the tax would not have been paid in error. The goods were purchased off a reserve and there is no administrative relief of tax provided for in Technical Information Bulletin B-039, GST/HST Administrative Policy – Application of the GST/HST to Indians (B-039) for goods purchased off a reserve.
A second example of this would be where a band council registered for GST/HST purposes is charged an amount as tax on a taxable service that is performed on a reserve. Section 87 of the IA does not provide tax relief to services, only to property (goods). As a registrant, the band council would be entitled to claim ITCs of the tax paid or payable on the taxable service to the extent that the service was acquired, imported or brought into a participating province by the registrant for consumption, use or supply in the course of the registrant's commercial activities. ITCs would be available in this case because the amount charged as tax is tax payable under Part IX because relief of tax would not be available under section 87 of the Indian Act. If the service was not acquired, imported or brought into a participating province for consumption, use or supply in the course of the registrant's commercial activities but was acquired for band management activities, the band council may be entitled to file a rebate claim under section 261 based on administrative relief provided for in B-039 where all of the conditions of B-039 have been met.
In summary, if a supply made to a band council that is a GST/HST registrant is relieved of tax because of section 87 of the IA, and the band council paid an amount as tax on the supply, the amount paid as tax in error would not fall within the definition of “tax” in subsection 123(1). The band council would not be entitled to ITCs of the amount paid as tax. The band council may instead file a rebate claim under section 261 using reason code 1 to recover the amount paid as tax in error within the two-year time limit. However, an amount paid as GST/HST by a band council on a supply that should have been relieved of tax administratively under B-039 and not pursuant to section 87 of the IA would be “tax”. The band council would be entitled to claim an ITC to the extent all of the requirements under section 169 for claiming ITCs 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 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.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-7954. 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,
K. Bennett
Aboriginal Affairs and Educational Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
Email this Content