25 June 2004 GST/HST Interpretation 50842 - Application of the Goods and Services Tax (GST) to the supply of tangible personal property by an auctioneer on behalf of a Court

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.

Dear XXXXX:

This letter is in response to your e-mail message XXXXX to the Income Tax Rulings Directorate, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to your operations. Since your inquiry relates to a GST matter, rather than an income tax matter, your inquiry has been forwarded to us for a response.

Background Information

Your company reports for the GST/HST each calendar month, but has a general ledger cut-off a week earlier. To properly report for accounting purposes, your company accrues sales based upon an open orders report. This report represents the sales orders that have not been closed, and therefore, not invoiced.

In XXXXX your company converted to a new accounting system and the open orders balance from the new system appears to be XXXXX times higher than the average monthly balance from the old system.

Under the new system, open orders are reported at about $XXXXX per month, while the old system reported about $XXXXX per month. Part of the explanation for this increase is due to busier operating conditions, and part of it is reduced business process efficiency due to the newly adopted accounting system. Your operational managers have advised you that they expect that open orders will be around $XXXXX - $XXXXX per month under normal operating conditions.

It is our understanding that an open orders report is used to review orders that have been submitted but not yet delivered. An open orders report may be a listing of all orders or items that have not been shipped and are still open. Such a report may list information such as the customer's name and number, the customer's purchase order number, the requested shipping date, the date the customer needs the goods by, the vendor's promised shipping date, the form number and name, the order status, and the follow-up date. It is our understanding that this report can be used to help manage purchase orders that have been placed.

You do not know whether or not your customers claim input tax credits before your invoices are issued to them. Prior to invoicing your customers, you may provide packing slips, if requested, to your customers. However, normally, the packing slips are mailed with the invoices.

Interpretation Requested

Is XXXXX required to remit the GST/HST on the accrued sales based upon its open orders?

Interpretation Given

Where a customer has ordered goods, has not been issued an invoice, there has been no undue delay in the issuance of an invoice, and the customer is not yet required to make a payment pursuant to an agreement between the parties, it is our view that the supplier's obligation to account for tax would not be triggered until some later point in time. The issuance of a packing slip will not normally trigger any GST/HST obligations for XXXXX or its customers.

With respect to the issue of XXXXX customers and their input tax credit entitlements, the issuance of a packing slip will not trigger an obligation to pay the GST/HST at that point in time. However, when XXXXX charges its customers the GST/HST on its invoices, an obligation to pay the tax would be established at that point in time, and its customers who are registrants would be entitled to claim input tax credits in accordance with section 169 of the ETA.

Explanation

Tax is generally collectible by a supplier at the same time that it is payable by the recipient. The general timing of liability rule, under subsection 168(1) of the Excise Tax Act (ETA), is that tax is payable by the recipient of a taxable supply on the earlier of the day the consideration for the supply is paid and the day that consideration for the supply becomes due.

Registrants are required to account for any tax collectible on the return for the reporting period during which the tax became collectible, whether or not it is actually collected. When consideration for a taxable supply is paid or becomes due on more than one day, subsection 168(2) of the ETA provides that the tax will be payable by the recipient on the earlier of the day a partial payment is made and the day a partial payment becomes due. The tax payable will be calculated only on the value of the partial payment.

Under subsection 152(1) of the ETA, consideration, or a part thereof, for a taxable supply, is deemed to become due on the earliest of the following days:

•   the day the supplier first issues an invoice in respect of the supply for that consideration or part;

•   the date of that invoice;

•   the day the supplier would have, but for an undue delay, issued an invoice in respect of the supply for that consideration or part; and

•   the day the recipient is required to pay that consideration or part to the supplier pursuant to an agreement in writing.

When a taxable supply of property is made by way of lease, licence or similar arrangement under an agreement in writing, subsection 152(2) of the ETA provides that, notwithstanding subsection 152(1) of the ETA, consideration, or any part thereof, becomes due on the day the recipient is required to pay the consideration, or a part, pursuant to the agreement. The issuance of an invoice in these situations will not cause consideration to become due. For example, if payments are required on specific dates under a written agreement and invoices are issued in advance of those dates, the written agreement will determine the time of liability for tax. However, if payment is made before the date required under the agreement, tax will be payable on that earlier date.

An invoice is a document which either notifies a recipient of the obligation to pay or records payment. An invoice may give the terms of payment. The invoice may itemize or describe the goods or services being supplied and state the consideration due or paid for the supply.

Tax will be calculated on the face value of the invoice in accordance with subsection 152(1) of the ETA. Generally, an invoice is issued after, or as a record of, an agreement to make a supply or when the supply is made.

When a written agreement (other than a supply by way of lease, licence or similar arrangement) to provide a property or service states that the recipient is required to pay consideration, or any part, on specified dates and an invoice is also issued, subsection 152(1) of the ETA determines when the tax is payable.

If an invoice is issued or dated prior to the date payment is required, pursuant to subsection 152(1) of the ETA, the consideration is deemed to become due on the earliest of the invoice date and the day the invoice was issued. If an invoice is issued or dated subsequent to the payment date stipulated in the agreement, under subsection 152(1) of the ETA, the consideration is deemed to become due on the date specified in the agreement which, in turn, is the date tax is payable based on subsection 168(1) of the ETA.

You mentioned that sometimes you issue packing slips to your customers, if requested, before you issue them their invoice. A packing slip accompanying items shipped usually lists the quantity of goods shipped, but not the consideration payable for these goods. Presumably, there is an underlying agreement between the supplier and the recipient that the recipient will pay for the goods shipped. Such a packing slip, in and of itself, does not require the recipient to pay. In general, packing slips will not be considered invoices for GST/HST purposes.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Revenue Agency with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-9699.

Yours truly,

Douglas Wood, CGA
Rulings Officer
General Operations Unit
General Operations & Border Issues Division
Excise & GST/HST Rulings Directorate

2004/06/21 — RITS 50848 — Grandfathered Funeral Arrangements