4 June 2004 GST/HST Interpretation 51864 - XXXXX

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:

Thank you for your facsimile XXXXX concerning the claiming of an input tax credit (ITC) where the issuer of a rebate did not provide written notification that a portion of the rebate includes an amount on account of the Goods and Services Tax/Harmonized Sales Tax (GST/HST).

The Canada Revenue Agency (CRA) is unable to issue a GST/HST ruling in regards to the matters raised in your submission. The CRA's policy with respect to the issuance of GST/HST rulings is outlined in the enclosed document entitled GST Memorandum 1.4 Goods and Services Tax Rulings. You will note that for GST/HST purposes, an application ruling provides the CRA's position on specific provisions of Part IX of the Excise Tax Act (ETA) as these relate to a clearly defined fact situation of a specific person. However, we are pleased to issue a GST/HST interpretation based on our understanding of the information presented in your request.

Background

As we understand it:

•   SupplierCo meets all the conditions to claim an ITC in respect of a rebate paid to its customers pursuant to section 181.1, with the exception that SupplierCo has not met the written notification requirement in subsection 181.1(c).

•   SupplierCo's customers are all or substantially all non-registrant individuals.

Interpretation Requested

Confirmation that SupplierCo can claim an ITC in respect of rebates provided in section 181.1 since its customers are all or substantially all non-registrant individuals.

Interpretation Given

Section 181.1 applies to certain rebates paid in respect of property or services. This section generally provides that where a registrant makes a taxable supply in Canada of property or a service (other than a zero-rated supply) and the registrant pays, at any time, a rebate in respect of the property or service to another person who acquired the property or service from that registrant or another person, the registrant may claim an ITC for the reporting period that includes the time when the rebate was paid equal to: the tax fraction in respect of the rebate (7/107 for GST or 15/115 for HST) x the rebate amount. However, such an ITC can only be claimed where subsection 232(3) does not apply to the rebate and the registrant has provided written notification with the rebate that the rebate includes an amount on account of tax.

Where written notification is given that the rebate includes an amount on account of tax, the rebate recipient (if a registrant who was entitled to claim an ITC or Division VI rebate in respect of the acquisition of property or service to which the rebate relates) is deemed to have made a taxable supply to the supplier of the property or service (i.e. the issuer of the rebate) and to have collected tax in respect of the deemed supply pursuant to paragraph 181.1(f). The rebate recipient is required to account for the amount of the rebate that is on account of tax, to the extent that they claimed an ITC or a Division VI rebate in respect of that amount. However, where no written indication is provided with the rebate, the rebate may be ignored for GST/HST purposes (i.e. the issuer of the rebate is not be entitled to claim an ITC and the rebate recipient is not be required to account for tax included in the rebate amount).

Given that paragraph 181.1(c) requires written notification to be provided with the rebate at the time that the rebate is paid, a registrant will not be able to pay rebates and subsequently issue separate written notifications in order to claim an ITC pursuant to paragraph 181.1(e).

It is a question of fact whether the requirements of section 181.1 are met. However, in the example cited, since written notification stating the rebate includes an amount on account of GST/HST was not provided with the rebate (at the time the rebate was provided) the requirement of paragraph 181.1(c) would not be met. Accordingly, it is our view that SupplierCo would not be entitled to an ITC in respect of the rebate since all the requirements of section 181.1 are not met. There are no other provisions in the ETA that would allow an ITC where the requirements of section 181.1 have not been fulfilled.

As you are aware, the CRA is responsible for administering the GST/HST legislation as enacted by Parliament. Any legislative amendment that may lessen the requirements of section 181.1 is a matter of tax policy, which falls within the scope of the Department of Finance.

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 613-954-7945.

Yours truly,

Susan Mills
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2004/05/26 — RITS 52348 — Application of GST/HST to Supplies by Medical Practitioners Who are Licensed to Practice the Profession of Dentistry