Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
XXXXX
Case Number: 106135
July 4, 2008
Subject:
GST/HST INTERPRETATION
Tax paid in error
Dear XXXXX:
Thank you for XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to tax paid by a recipient to a supplier on a zero-rated supply.
All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.
We understand that X made a zero-rated supply to Y. Y is registered for purposes of the GST/HST. X mistakenly charged GST and remitted the tax on its GST/HST return for the applicable reporting period. X's GST/HST return was assessed by the CRA.
The supply made by X to Y is an input into an exempt supply that Y is making. Consequently when it files its GST/HST return, Y is not eligible to claim an ITC in respect of the GST paid to X on the zero-rated supply.
Interpretation Requested
As of April 1, 2007, the CRA assesses all GST/HST returns (other than nil returns) when they are filed. In view of this, you wish to confirm that the CRA will not interpret paragraph 261(2)(b) of the ETA such that Y is restricted from claiming a rebate of tax paid in error because the CRA assessed X's GST/HST return for the applicable reporting period.
Interpretation Given
Subsection 261(1) of the ETA provides that where a person has paid an amount
(a) as or on account of, or
(b) that was taken into account as,
tax, net tax, penalty, interest or other obligation under this Part in circumstances where the amount was not payable or remittable by the person, whether the amount was paid by mistake or otherwise, the Minister shall, subject to subsections (2) and (3), pay a rebate of that amount to the person.
Paragraph 261(2)(b) of the ETA provides that a rebate of an amount shall not be paid under the provisions of subsection 261(1) to a person to the extent that the amount paid was tax, net tax, penalty, interest or any other amount assessed under section 296.
The CRA interprets this provision to mean that the restriction in paragraph 261(2)(b) applies to the same person who paid the amount in error. Based on the information provided, our view is that Y is eligible to claim a rebate for the tax paid it in error regardless of the fact that X's return was assessed.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-7931. 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,
Anne Kratz
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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