22 August 2005 Excise Ruling 61650 - Application of Excise Tax on Gasoline Purchased For Use to Denature Ethyl Alcohol

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:

Relief from penalties & interest - Subsection 88(1) of the Excise Tax Act

This letter is in response to your letter XXXXX and our telephone conversations concerning the application of Part I of the Excise Tax Act (the "Act") to insurance endorsements.

All legislative references are to the Excise Tax Act and the regulations therein, unless otherwise specified.

You have provided the following example, and have requested our comments with respect to the application of Part I of the Act to the following scenario:

•   A client purchased a property/liability insurance policy with an effective date of November 30, 2004, with a premium value of $100,000.

•   The policy was reported by the insurance broker on form B241 by March 15, 2005.

•   The Canada Revenue Agency ("CRA") invoiced the client directly by March 31, 2005, at the rate of 10%, for a total amount payable of $10,000.

•   The client paid $10,000 in Part I tax under the Act by April 30, 2005.

•   In June 2005, the client acquired an additional property that needed to be insured.

•   An endorsement to the original policy (inception date, November 30, 2004) was written for an additional premium in the amount of $20,000, on June 1, 2005.

•   The $20,000 premium was reported to the CRA as soon as possible by the broker.

•   The CRA invoiced the client for the 10% tax payable in the amount of $2,000 plus interest (based upon the original policy inception date of November 30, 2004, which is reported to CRA by March 15 and must be paid by April 30, resulting in interest from May 1 to present).

Interpretation Requested

You would like to know whether or not the Minister would exercise his discretion under subsection 88(1) of the Act in the circumstances described above where the additional premiums with respect to an insurance endorsement are payable in a calendar year following the calendar year in which the initial premiums are paid or payable.

Interpretation Given

Since fairness requests are handled on a case-by-case basis by the local Tax Services Offices, we will not be providing you with a ruling on this matter. However, we are pleased to provide you with the following interpretation and comments.

During the course of our earlier telephone conversations, for purposes of your example, I had expressed the view that the taxpayer would be liable to pay the 10% tax with respect to the net premiums (including the additional premiums with respect to the endorsement) on or before April 30, 2005. I also presented the view that amended Excise returns should be filed by the parties to report the insurance endorsement for the 2004 calendar year on the basis that the endorsement formed part of the "net premiums" payable in respect of the insurance policy.

Upon further review, we concur with your earlier views that it would be appropriate to report and pay the 10% tax under Part I of the Act for the additional insurance policy endorsement in the Excise return due on or before April 30 of the year following the calendar year in which the premiums with respect to the additional endorsement were payable.

As such, for purposes of your example, where the additional insurance premiums with respect to the $20,000 endorsement became payable in June 2005, the broker should report this endorsement in its Excise tax return (Form B241) for the 2005 calendar year, which would be due on or before March 15, 2006. Furthermore, the endorsement should be reported by the taxpayer in their Excise tax return (Form B243) no later than April 30, 2006.

In circumstances where transactions are structured such that insurance endorsements are used for purposes of inappropriately delaying the payment of the 10% tax under Part I of the Act, the CRA reserves the right to (re)assess the taxpayer on the basis that the endorsement(s) form part of the "net premiums" with respect to the insurance policy, triggering a tax liability at an earlier point in time.

With respect to your inquiry regarding relief from penalties and interest, subsection 88(1) of the Act provides that the Minister may waive or cancel any amount otherwise payable to the Receiver General under the Act that is interest or a penalty.

If you would like more information regarding our position with respect to the waiver or cancellation of penalties and/or interest, please see the attached GST Memorandum 500-3-2-1 (the document should be read with such modifications as the circumstances require to make it applicable for purposes of Parts I & VII of the Act) which presents examples of situations where the CRA may consider waiving or cancelling penalties and/or interest.

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, Goods and Services Tax Rulings, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the Excise Tax Act, 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) 941-2348.

Yours truly,

Douglas Wood, CGA
Rulings Officer
Other Levies Unit
Excise Duties & Taxes Division
Excise and GST/HST Rulings Directorate

2005/06/22 F — RITS 61868 — Demande d'information concernant des titulaires de licence