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
Case Number: 119783
Attention: XXXXX
XXXXX
Business Number: XXXXX
March 23, 2010
Dear XXXXX:
Subject:
GST/HST INTERPRETATION
Application of the HST transitional rules in Ontario to inspection fees
Thank you for your letter of XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to HST transitional rules on inspection fees. Your request has been transferred from the Ontario GST/HST Rulings Centre to the Services and Intangibles Unit. We apologize for the delay in responding to your enquiry.
The Government of Canada and the Government of Ontario have signed a Comprehensive Integrated Tax Coordination Agreement for the implementation of HST in Ontario. The HST will come into effect in Ontario on July 1, 2010, at a rate of 13%, consisting of a 5% federal part (equivalent to the existing GST) and an 8% provincial part.
Legislation required to implement the HST in Ontario has received Royal Assent by the Parliament of Canada and the Legislative Assembly of Ontario. However, many of the rules which would apply to transactions will be contained in regulations made under the Excise Tax Act (ETA). Although the Government of Ontario has announced details of the rules which may eventually apply, the required regulations have not yet been made by the Government of Canada.
The following interpretation is based on the transitional rules as announced in Information Notice No. 3, released by the Government of Ontario on October 14, 2009. This interpretation should not be taken as a statement by the Canada Revenue Agency (CRA) that these transitional rules will be made in their current form.
XXXXX, we understand that:
• XXXXX provides inspection services through XXXXX (the Company) which is registered for GST/HST purposes.
• The Company supplies inspection services in Ontario to XXXXX contractors throughout different phases of the XXXXX project.
• The Company enters into a written agreement with its customers to supply inspection services throughout a XXXXX project. The duration of the agreement and the payments due throughout a XXXXX project are specified in the agreement.
• The Company may ask its customers to pay the entire inspection fee in advance, to make partial payments based on the percentage of completion of the XXXXX project, or to pay on an installment basis.
• You have provided us with four examples of agreements. However, since the inspections in these agreements are mostly completed, we will use the following examples:
Example 1:
• The Company has agreed to supply inspection services to Customer X for a XXXXX project which will take one year to complete.
• An advance billing was sent to the customer on January 1, 2010, for the total inspection fee of $10,000 which will be payable in 4 equal instalments on February 1, 2010, May 1, 2010, August 1, 2010, and November 1, 2010.
• Customer X paid and will pay its instalments on the due dates.
• The Company will perform 25% of its inspection services before July 1, 2010, and the remaining 75% of the services will be performed on or after July 1, 2010.
Example 2:
• The Company has signed an agreement on June 1, 2010, with a customer, Customer Y, to inspect its XXXXX project which will take 4 months to complete.
• An advance billing was sent to the customer on June 1, 2010, for the total inspection fee of $1,000 which will be payable in 2 equal instalments on June 1, 2010 and September 1, 2010.
• Customer Y will pay its instalments on the due dates.
• The Company will perform 100% of its inspection services on or after July 1, 2010.
Example 3:
• The Company has signed an agreement on May 15, 2010, with a customer, Customer Z, to inspect its XXXXX project which will take 2 months to complete.
• An advance billing was sent to the customer on May 15, 2010, for the total inspection fee of $1,000 which will be payable on June 1, 2010.
• Customer Z will pay the invoice on the due date.
• The Company will perform 25% of its inspection services before July 1, 2010, and the remaining 75% of the services will be performed on or after July 1, 2010.
Interpretation Requested
You would like to know:
• whether the transitional rules for progress payments or for general services will apply to the supply of inspections made by the Company; and
• how the GST/HST will apply to the three examples above.
Interpretation Given
Transitional Rules for Progress Payments:
In the Company's case, it is not receiving progress payments under contracts made with its customers for the construction, renovation, alteration or repair of real property. Therefore, the Company will use the HST general transitional rules for services when it accounts for its taxable supplies of inspections in Ontario that straddle the July 1, 2010 implementation date.
Transitional Rules for Services:
The HST would generally apply to any consideration that becomes due, or is paid without having become due, on or after May 1, 2010, for a supply of a service, to the extent that the consideration relates to the portion of the service performed on or after July 1, 2010. However, if 90% or more of the service is performed before July 2010, no HST would be payable on the consideration for the service.
An amount for a supply of a service becomes due on the earliest of the following days:
• the date of an invoice for that amount for the supply;
• the day the supplier first issues that invoice for the amount,
• if there is an undue delay in issuing that invoice, the day the supplier would have issued the invoice; and
• the day the client is required to pay that amount under a written agreement.
An amount is paid without having become due when a client pays an amount due for a supply:
• before the date of an invoice, or before a supplier issues, or would have issued, the invoice; or
• before the client is required to pay the amount under a written agreement and no invoice has been issued.
Accounting for the GST/HST charged on Services:
When an amount becomes due or is paid without having become due after October 14, 2009 and before May 2010, the supplier charges the purchaser the GST and accounts for the tax in its GST/HST return according to the normal rules.
When an amount becomes due or is paid without having become due on or after May 1, 2010 and before July 2010 for a service that begins on or after July 1, 2010, the supplier accounts for:
• the 5% federal part of the HST in its GST/HST return according to the normal rules; and
• the 8% provincial part of HST in its GST/HST return for the reporting period that includes July 1, 2010.
When an amount becomes due or is paid without having become due on or after July 1, 2010, the supplier accounts for the GST and/or the HST in its GST/HST return according to the normal rules.
More information is available in GST/HST Info Sheet GI-056, Ontario and British Columbia: Transition to the Harmonized Sales Tax - Services, on the CRA's Website at: http://www.cra-arc.gc.ca/formspubs/typ/menu-eng.html.
Example 1:
The tax is due on the earlier of the payment dates (i.e., February 1, 2010, May 1, 2010, August 1, 2010, and November 1, 2010) or the due date (i.e., January 1, 2010 which is the date of the invoice). Therefore, the tax is due on January 1, 2010 and the Company must account for the 5% GST (i.e., $500) in its net tax calculation in its GST/HST return for the reporting period that includes January 1, 2010.
Example 2:
The tax is due on the earlier of: the payment dates (i.e., June 1, 2010 and September 1, 2010) or the due date (i.e., June 1, 2010 which is the date of the invoice). Since 100% of the inspection services are performed on or after July 1, 2010, the entire $1,000 would be subject to HST. Therefore, the Company must account for the 5% federal part of the HST (i.e., $50) in its net tax calculation in its GST/HST return for the reporting period that includes June 1, 2010, and the 8% provincial part of the HST (i.e., $80) in its net tax calculation in its GST/HST return for the reporting period that includes July 1, 2010.
Example 3:
The tax is due on the earlier of: the payment date (i.e., June 1, 2010) or the due date (i.e., May 15, 2010, the date of the invoice). Since 75% of the inspection services are performed on or after July 1, 2010, 75% of the $1,000 would be subject to HST. Therefore, the Company must account for the 5% federal part of the HST (i.e., $1,000 * 100% * 5% = $50) in its net tax calculation in its GST/HST return for the reporting period that includes May 15, 2010, and the 8% provincial part of the HST (i.e., $1,000 * 75% * 8% = $60) in its net tax calculation in its GST/HST return for the reporting period that includes July 1, 2010.
The foregoing comments represent our general views with respect to the transitional rules as announced in Information Notice No. 3, released by the Government of Ontario on October 14, 2009, as they relate to the subject matter of your request. Any change to the wording of these transitional rules or any regulations regarding the HST in Ontario, if made, could have an effect on the interpretation provided herein. 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 CRA with respect to a particular situation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-9700. 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,
Michèle Routhier
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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