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.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 134404
June 24, 2011
Dear [Client]:
Subject:
GST/HST RULING
Employee Rebate
Thank you for your emails of November 4, 2010 and April 13, 2011, concerning applications for Employee Rebates under section 253 of the Excise Tax Act (ETA) for the [yyyy] through [yyyy] tax years.
Our understanding is as follows.
1. In a letter dated [mm/dd/yyyy], and addressed to [...] of the [...] TSO, [...] [the representative], representing [...] [Individual A], requested Employee Rebates under section 253 of the ETA for the [yyyy] through [yyyy] tax years.
[The representative's] commentary and rationale to support the rebate claims follow in paragraphs 2 through 16.
2. [Individual A] and [...] [Individual B] are married.
3. [Individual A] worked as a commissioned [salesperson] for [...] [Company X].
4. During these years, [Individual B] provided services to [Individual A] to assist [Individual A] with [Individual A's] sales work. [Individual A] paid [Individual B] annually as an independent contractor for these services. [Individual A] paid [Individual B] and deducted the amount paid each year as an expense under paragraph 8(1)(f) of the Income Tax Act (ITA).
5. [Individual B] was not aware that since [Individual B's] fees earned from [Individual A] exceeded $30,000 per year, [Individual B] was required to register for GST, collect GST from [Individual A], and remit net tax each year.
6. The CRA noticed that [Individual B] was reporting business income sufficiently high that [Individual B] should register for GST. On [mm/dd/yyyy] the CRA assessed [Individual B] for unremitted GST for [yyyy] to [yyyy], requested at the same time that [Individual B] file [Individual B's] unfiled GST returns.
7. [Individual B] filed GST returns as requested and that were reassessed as filed on [mm/dd/yyyy]. The total assessment of GST plus interest and penalties was $[...].
8. [The representative] states in [the representative's] letter that in filing [Individual B's] GST return, [Individual B] treated the amounts billed to [Individual A] each year as GST-included amounts. [Individual A] agreed with this approach. The CRA accepted this treatment when reassessing [Individual B], consistent with CRA Policy P-116, Collection of GST, by a Supplier, Where the Invoice is Silent on the Tax Payable.
9. [Individual A] paid the following amounts of GST, included in the amounts charged by [Individual B] to [Individual A] for [Individual B's] services over the years. [...]
10. If [Individual B] had charged [Individual A] GST each year, [Individual A] would have been able to claim a GST Employee Rebate under section 253 of the ETA for the amount of the GST [Individual A] paid [Individual B]. [Individual A] did claim the Employee Rebate each year in respect of other expenses, on Form GST370 filed with [Individual A's] tax return, and the rebate was allowed to [Individual A] each year.
11. Subsection 253(4) of the ETA provides for a four-year deadline for claiming the rebate, unless CRA extends the deadline.
12. Subsection 253(6) of the ETA provides an unlimited period during which CRA has discretion to allow additional GST Employee Rebates.
13. Subsection 253(6) does not contain a 10-year limitation period for applications, as do other Taxpayer Relief provisions such as subsections 152(4.2) and 220(3.1) of the ITA and section 281.1 of the ETA.
14. The representative requested that CRA apply subsection 253(6) of the ETA to allow [Individual A] the additional amounts of GST paid by [Individual A] which would have been allowed if [Individual A] had claimed it each year, as per the table above.
15. The representative submits that it would be appropriate for CRA to exercise its discretion in this case for the following reasons:
• If [Individual A] had been an independent contractor, [Individual A] would have the right under subsection 225(4) of the ETA to claim such relief (and this would have been a wash transaction as contemplated by GST/HST Memorandum Series Chapter 16.3.1).
• From a tax policy point of view, the GST charged by [Individual B] to [Individual A] should be recoverable by [Individual A]. That is why section 253 of the ETA permits a full rebate for such GST.
• Subsection 253(6) of the ETA appears to have been designed for this kind of situation, where the taxpayer did not claim a rebate for an amount of GST that was inadvertently not charged to [Individual A].
• The assessment of $[...] resulting from [Individual B's] failure to remit GST is onerous, and a reassessment under subsection 253(6) of the ETA would provide significant relief of $[...].
16. The CRA accepted taxpayer's claims for rebates for the [yyyy] to [yyyy] tax years. The earlier years were not allowed as CRA stated that a reassessment of T1 returns can only be issued according to the ITA and that there is 10-year limitation on the reassessment period in that Act. CRA processed the rebates for [yyyy] to [yyyy] as additional employment expenses.
17. In a subsequent letter dated [mm/dd/yyyy], and addressed to [...] of the [...] TSO, [the representative] provided further comments in support of the rebate claim. These comments follow in paragraphs 18 and 19.
18. The representative advised that [the representative's] client's rebate requests were not processed correctly. Instead of the amounts requested for GST Employee Rebates, amounts were processed as additional employment expenses, with a small adjustment to the GST Employee Rebate in each year.
19. The adjustments were processed only for taxation years [yyyy] through [yyyy]. As explained in [the representative's] previous letter, the representative stated there is no 10 year limitation on the discretionary allowance of a late-filed GST employee rebate under subsection 253 of the ETA. Since CRA has agreed to exercise its discretion to allow these late claims, [the representative] submits that the adjustments should apply for [yyyy] to [yyyy], not only [yyyy] to [yyyy].
20. In a letter dated [mm/dd/yyyy], CRA advised the representative that the 10 year limit was applicable to subsection 253 of the ETA and that no adjustments to the [yyyy] to [yyyy] tax years would be made.
21. In a letter dated October 5, 2010, addressed to [...] of the [...] TSO, [the representative] again attempted to present a favourable case in support of the rebate claims. [The representative's] comments follow in paragraphs 22 through 28.
22. Subsection 253(5) of the ETA specifically lists certain provisions of the ITA that apply to an employee rebate:
• Subsections 160.1(1), 164(3), (3.1) and (4), for purposes of calculating interest;
• Sections 165 to 167 (objections and extensions of time); and
• Division J of Part I (sections 169-180 - appeals)
23. Notably absent from the list in subsection 253(5) of the ETA is any reference to subsection 152(4.2), or to section 152 of the ITA as a whole.
24. Subsection 152(4.2) is in Division I of Part I of the ITA. It would have been very easy for subsection 253(5) of the ETA to provide simply that "Divisions I and J of Part I" of the ITA apply.
25. It is quite evident that when subsection 253(5) of the ETA specifies that Division J of Part I of the ITA applies but does not specify that Division I of Part I of the ITA applies, Division I is not intended to apply.
26. Further, subsection 152(4.2) of the ITA is not needed, and relief was not requested under it, but rather under subsection 253(6) of the ETA.
27. Subsection 253(6) of the ETA stands on its own. It does not need subsection 152(4.2) of the ITA to function. Subsection 253(6) of the ETA specifically permits the Minister "at any time" to reassess or make an additional assessment of the rebate, provided the taxpayer has made application for such relief. The words "at any time" are clear. They do not contain a requirement that the application must be made within 10 years, as subsection 152(4.2) of the ITA does.
28. Subsection 253(7) of the ETA specifically refers to subsection 152(4.2) of the ITA, but only for the limited purpose of determining the way in which subsection 164(3.2) of the ITA applies. If subsection 152(4.2) of the ITA had been intended to apply to employee rebates, subsection 253(7) of the ETA would have been written to that effect.
Interpretation Requested
You have asked that we respond to the following questions and statements.
1. You would like to know if CRA can reassess [Individual A's] [yyyy] to [yyyy] returns under the provisions of the ETA.
2. A review of [Individual A's] T1 Returns contradicts the above statement (referring to paragraph 10). [Individual A] did not file the GST370 rebate application form in [tax years] [...]. [Individual A] filed and received rebates in [tax years] [...] only.
3. The small rebates did not meet subsection 253(6) as the individual had not filed in prescribed form nor had the Minister assessed the amount of a rebate under subsection 253(1).
4. Is the intent of subsection 253(3) not there to permit the CRA to allow the late filed rebates (after the 4 year limitation) in cases where the taxpayer late files his/her T1 return with the application in prescribed form?
5. If we look at the facts of this case, clearly [Individual A] did not pay the GST in the years under the review as [Individual A's] spouse was a non-registrant until [yyyy]. Furthermore, when [Individual B] filed [Individual B's] GST returns [Individual B] reported the full fees [Individual A] deducted in the year as [Individual B's] sales for the year. How can we then deem that the GST was paid in the year and deducted on [Individual A's] income tax return? If this was an arms length transaction would we treat it the same (GST deemed paid)? Are we to ignore the fact that GST has to be paid before claiming a rebate?
6. If we deem the GST charged on [Individual B's] earnings (when [Individual B] was made aware that [Individual B] was required to collect and remit the GST on [Individual B's] subcontractor fees in [yyyy]) and deem them paid by [Individual B] (by virtue of their non-arms length relationship) we could allow the full amount of GST charged as an additional deduction in [yyyy] pursuant to paragraph 8(1)(f) of the ITA but not sure on how we could allow a rebate for the full amount of GST paid as the rebate is based on expenses that you deducted on your tax return in the year and the subcontractor fees related to that GST payment was deducted in a previous year.
7. Can we accept a late filed stand alone GST370 form for each of [tax years] [...] should they be submitted by the individual?
Interpretation Given
We have responded to your questions and statements in the order presented.
1. Subsection 253(3) of the ETA gives the Minister the discretion to accept an application for the rebate on any date the Minister may decide. Subsection 298(2) allows an assessment of an amount of a rebate under subsection 297(1) at any time. Subsection 253(6) gives the Minister the discretion to reassess or make an additional assessment at any time. [...]. As such, [Individual A] is eligible for the Employee and Partner Rebates. (iFootnote 1)
2. We agree that the records show this to be true but this does not affect [Individual A's] eligibility for the rebates. As mentioned above, subsection 253(3) of the ETA gives the Minister the discretion to accept an application for the rebate on any date the Minister may decide.
3. Section 32 of the Interpretation Act states, "Where a form is prescribed, deviations from that form, not affecting the substance or calculated to mislead, do not invalidate the form used." Also, CRA has in the past accepted election forms not in prescribed form where the Act required them. However, the information contained in an alternative document must be similar to the information that is required on the prescribed form in order that any deviations do not affect the substance of the form and are not [calculated] to mislead.
4. As noted above, subsection 253(3) of the ETA gives the Minister the discretion to accept an application for rebate on any date the Minister may decide. Given that the rebate is administered under the income tax system, subsection 253(3) was amended in 2000 to permit the Minister to accept an application for the rebate that is filed later than the due date set out in that subsection. This is consistent with the Minister's ability to accept late-filed returns and other documents under the ITA in extraordinary circumstances that have prevented the filer from filing on time.
On page 24 of the PDF version of the Guide, T4044 Employment Expenses it states, "If you do not file your rebate application with your tax return, send it along with a letter to your tax centre." and "If you do not file your rebate application when you file your tax return, you have up to four years from the end of the year to which the expenses relate to file an application." Therefore, it appears that the CRA has made an administrative decision to accept rebate applications that do not accompany a T1 return.
The prescribed form issue is addressed in the answer to 3 above.
5. [Individual B] was a GST/HST registrant by definition, since under subsection 123(1), a registrant is a person who is registered, or who is required to be registered, under Subdivision d of Division V of the Act. The facts of the case (refer to facts 6-9) suggest that [Individual B] was a registrant in [yyyy] and that the amounts [Individual A] paid to [Individual B] were GST-included. In the facts of this case, [Individual A] paid GST on these expenses.
6. The facts show the GST-included expenses were deducted from [Individual A's] income in the years in question. The rebate application can be allowed, subject to the Minister's discretion, as discussed in the answer to 2, above.
7. See the answer to 4 above.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-954-2488.
Yours truly,
Doug Campbell
A/Senior Rulings Officer
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
i 1 [...]
---------------
------------------------------------------------------------
---------------
------------------------------------------------------------
UNCLASSIFIED
Email this Content