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, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 191075
Dear [Client]:
Subject: GST/HST INTERPRETATION
Input Tax Credit recapture requirements related to Ontario’s Debt Retirement Charge and Global Adjustment Fee
Thank you for your letter of [mm/dd/yyyy] requesting our confirmation that the Debt Retirement Charge (DRC) and the Global Adjustment (GA) fee are not specified property or services and therefore their related values should not be included when calculating the value of input tax credits to be recaptured in respect of the supply of electricity in the province of Ontario. We apologize for our delay in responding.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. 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.
We understand the following:
1. In Ontario, a person’s electricity bill can include two additional charges; the DRC and the GA fee.
2. The DRC is provided for under the Electricity Act (Ontario), 1998, and is payable to the Ontario Electricity Financial Corporation (OEFC) on electricity consumed in Ontario. The DRC helps pay off the remaining debt from the former Ontario Hydro.
3. The DRC is applied at a rate of [#] cents per kilowatt hour (kWh) of electricity consumed in Ontario with the exception of the reduced rate service areas. All distributors and retailers required to be licensed by the Ontario Energy Board (OEB) are required to register as DRC collectors before selling or supplying electricity.
4. The GA, like the DRC, is a credit/charge legislated by the Ontario government in 2005. It was established to cover the cost of providing adequate generating capacity and conservation programs in Ontario, essentially created to supplement the development of infrastructure. All Ontario electricity customers pay the GA; it may be shown as a separate line item or is otherwise embedded within the time-of-use prices.
5. The monthly GA rate is set by the Independent Electricity System Operator (“IESO”) and is collected by the energy provider and remitted to the IESO. The GA is calculated by the IESO based on the difference between the Hourly Ontario Energy Price compared to the contract prices and varies from month to month.
6. “Large businesses” subject to the recapture rules in Ontario with respect to “specified property or services” are required to recapture the provincial component of the HST on “specified energy”.
[…]
7. Pursuant to section 165 and 154 of the Act, HST is applicable to the DRC and GA on the basis that certain taxes, duties and fees imposed by the government are generally included in the consideration to which GST/HST is applied.
8. Pursuant to section 169, a registrant involved exclusively in commercial activity would be entitled to claim a full ITC in respect of the tax paid on the acquisition of electricity, inclusive of the amount of tax paid which can be attributed to the value of the DRC and the GA.
INTERPRETATION REQUESTED
You would like to know whether the value of the DRC and the GA are to be considered when calculating the recapture amount in respect of the acquisition of specified energy (electricity) in Ontario.
INTERPRETATION GIVEN
From July 1, 2010 until June 30, 2018, with the introduction of the HST in Ontario, large businesses, as defined in section 27 of the New Harmonized Value-Added Tax System Regulations No. 2 (the Regulations), were required to “recapture” the portion of any available input tax credit (ITC) that is attributable to the provincial part of the HST that became payable, or was paid without having become payable, in respect of a specified property or service that was acquired, or brought into one of these provinces, by a large business for consumption or use by that business in those provinces.
Subsection 236.01(2), the recapture of specified provincial input tax credits, provides that,
“if a sales tax harmonization agreement with the government of a participating province relating to the new harmonized value-added tax system allows for the recapture of input tax credits, in determining the net tax for the reporting period of a large business that includes a prescribed time, the large business shall add all or part, as determined in prescribed manner, of a specified provincial input tax credit of the large business.”
Subsection 236.01(1) defines, in part, “specified provincial input tax credit” to mean,
“the portion of an input tax credit of a large business in respect of a specified property or service that is attributable to tax under subsection 165(2), section 212.1 or 218.1 or Division IV.1 in respect of the acquisition, importation or bringing into a participating province of the specified property or service.”
For the purposes of the definition “specified property or service” in subsection 236.01(1), paragraph 28(1)(e) of the Regulations prescribes “specified energy that is acquired in, or brought into, a specified province” as specified property. “Specified energy” is defined in section 26 of the Regulations to include electricity and gas.
In determining the net tax for a particular reporting period, subsection 236.01(2) requires a large business to add all or part, as determined in a prescribed manner, of a specified provincial input tax credit of the large business. In defining a “specified provincial input tax credit”, the wording in subsection 236.01(1) makes reference to a corresponding ITC. In determining whether the RITC provisions apply to all or a portion of the amounts charged for the supply of electricity, the wording used in the general ITC provision, section 169, must be considered. Section 169 reads, in part, as follows:
“Subject to this Part, where a person acquires or imports property or a service or brings it into a participating province and, during a reporting period of the person during which the person is a registrant, tax in respect of the supply, importation or bringing in becomes payable by the person or is paid by the person without having become payable, the amount determined by the following formula is an input tax credit of the person in respect of the property or service for the period…”
As section 169 makes specific reference to “tax in respect of the supply”, it is evident that, in calculating an ITC, all of the amounts billed in respect of the supply must be included. In considering an RITC, a large business is required to “add all or part, as determined in a prescribed manner, of the specified input tax credit”, with the specified input tax credit being the provincial portion of the ITC that is attributable to the acquisition, importation or bringing into the province of specified property or services.
In summary, in discussion of ITCs, section 169 specifically references “tax in respect of the supply”. This specific reference is not needed in section 236.01 as the recapture is the recapture of the specified input tax credit, which is the full provincial portion of tax payable under subsection 165(2). Any apportioning of the provincial portion of the ITC, for purposes of recapture, can only be done under a prescribed manner (i.e. 75%, 50%, 25%, 0%).
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 Canada Revenue Agency (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 289-356-2627. 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,
Zubair Patel, CPA, CGA
Senior Rulings Officer
Basic Groceries and Recapture of Input Tax Credits Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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