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: 137200
September 2, 2011
Dear [Client]:
Subject:
GST/HST INTERPRETATION
Application of paragraph 261(2)(a) of the Excise Tax Act to a supplier where tax is remitted in error
Thank you for your email of July 17, 2011, concerning the application of paragraph 261(2)(a) of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a supplier who wishes to apply for a rebate of tax remitted in error.
HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We understand that, in 2008, you had previously requested that we confirm that a recipient of a supply would not be prevented from claiming a rebate for tax paid in error under paragraph 261(2)(b), only because the CRA has assessed the supplier for the reporting period in which the tax was paid. The response confirming your view was provided to you in the interpretation letter that was issued on July 4, 2008, and referenced as Case Number 106135.
Interpretation Requested
You would like to know how the Canada Revenue Agency (CRA) interprets paragraph 261(2)(a) to a supplier who has remitted GST/HST in error.
Interpretation Given
Based on the information provided, we confirm that, as provided by paragraph 261(2)(a), a supplier is not allowed to file a rebate application for an amount of GST/HST remitted in error if the Minister has assessed the person, under section 296, for the period in which the amount was remitted.
Explanation
The conditions under which a rebate for an amount of GST/HST paid in error may be made are described in section 261. Subsection 261(1) provides that if 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.
Subsection 261(1) applies to the person who has paid the tax, which is usually the recipient of the supply. It does not authorize a supplier who has charged or collected the GST/HST in error to claim a rebate for the tax that the supplier mistakenly charged or collected. The supplier is required to include this tax amount in the net tax calculation in a GST/HST return for the reporting period in which the tax was charged or collected. Section 232 provides the mechanism by which the supplier may refund, adjust or credit the excess amount of tax that was charged to or collected from a purchaser. The supplier is allowed to deduct the excess amount refunded or credited in determining the supplier's net tax for the reporting period in which a credit or debit note is issued, to the extent that the amount has been included in determining the supplier's net tax for the reporting period or a preceding reporting period.
However, subsection 261(1) would allow a supplier to apply for a rebate of tax remitted in error in specific situations, such as:
• where the supplier has not collected GST/HST from a recipient in respect of an exempt or zero-rated supply but has, erroneously, remitted from its funds an amount as GST/HST on that supply; or
• where the supplier has collected an amount of GST/HST from a recipient but has mistakenly remitted more GST/HST than was collected.
Paragraph 261(2)(a) restricts the payment of a rebate to a person to the extent that the amount was taken into account as tax or net tax for a reporting period of the person and the Minister has assessed the person for the period under section 296.
You have noted in your email that, since April 2007, the CRA issues a Notice of Assessment once a GST/HST return is filed by a registrant. Your concern, in that case, is that paragraph 261(2)(a) provides a fundamental problem, in most cases, for a claim made by a supplier for a rebate of tax remitted in error. You believe that under these circumstances, the supplier is precluded from filing a rebate for tax remitted in error, as the supplier is left with the only option of filing a Notice of Objection to the assessment, with only a 90 day period to file an objection. You feel that the supplier is given less than the normal two-year period that is normally allowed to other claimants to file an application for rebate of tax paid in error.
In the event that an assessment was raised for the reporting period in question, you are correct that paragraph 261(2)(a) precludes the supplier from filing the rebate under subsection 261(1) for the tax remitted in error. In this case, the supplier may file a Notice of Objection under subsection 301(1.1), within 90 days of the assessment. If the supplier has not filed the Notice of Objection within that time frame, under section 303, the supplier may file an application for an extension of time to file the Notice of Objection if there is a valid reason for failing to file the objection on time. The application must be made within one year after the expiration date for filing the Notice of Objection.
The supplier may also request a reassessment pursuant to subsection 296(1). The request should be made in writing to the local tax services office and provide the details of any requested adjustments to the previously filed GST/HST return. Subsection 298(1) requires that a reassessment be made within four years after the later of the day the return was required to be filed and the date the return was filed.
Please note that since April 2011, a GST/HST return for a reporting period in which the net tax owing is equal to the payment made with the return will generally no longer be assessed upon filing. Consequently, a Notice of Assessment would not be issued for that period. If a GST/HST return is not assessed, the supplier who has remitted the tax in error in that return may use subsection 261(1) to claim a rebate for tax remitted in error. If the restrictions under subsection 261(2) do not apply, the rebate may be taken into consideration if submitted within two years after the day the amount was paid or remitted by the person, as provided in subsection 261(3).
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 613-952-0419. 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,
Joseph Mathieu
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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