26 August 2005 GST/HST Interpretation 62207 - Application of the GST to the Construction of a New Home

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 letter XXXXX addressed to the XXXXX Excise & GST/HST Rulings Centre, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to employee gifts.

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

Interpretation Requested

You would like to know whether an employer who is a registrant and who does not make any exempt supplies, is able to claim input tax credits (ITC) in respect of gifts/awards, which are tax-free for income tax purposes.

Interpretation Given

We are pleased to provide you with the following interpretation. It is the Canada Revenue Agency's (CRA) position that where a non-cash gift or award made to an employee by an employer who is a registrant does not result in a taxable benefit under section 6 of the Income Tax Act (ITA) to the employee, the employer would be entitled to claim an ITC in respect of the purchase or acquisition of such gift or award.

Where a registrant provides an employee with a non-cash gift (other than an exempt or zero-rated supply) that is not required to be included in the employee's income for income tax purposes, there is no benefit for GST/HST purposes under section 173 of the ETA. A registrant is entitled to claim an ITC under section 169 in respect of the CRA's administrative policy, however, the policy does not apply to "cash or near-cash" gifts and awards. In these cases, the value of such gifts and awards would therefore be considered taxable employment benefits notwithstanding the cost to the employer. CRA considers near-cash gifts and awards to mean any items that can readily be converted to cash, or are essentially equivalent to cash, such as securities, gold nuggets, or gift certificates.

GST/HST paid or payable in respect of the gift where no amount was payable by the individual receiving the benefit and where no amount is required to be included in the individual's income under section 6 of the ITA, would qualify for ITC purposes, subject to subparagraph 170(1)(b)(ii) of the ETA. For example, where a registrant pays the GST on the purchase of a $400 wedding present for the particular employee, the registrant is entitled to claim a full input tax credit for the GST provided that there is no section 6 benefit (i.e., a non-taxable employee benefit under the income tax gift policy).

In the case where a registrant provides an employee with a non-cash gift that is required to be included in the employee's income for income tax purposes by reason of paragraph 6(1)(a) of the ITA, the registrant is not entitled to claim an input tax credit because of paragraph 170(1)(b) of the ETA, and no amount in respect of the benefit is subject to the GST under section 173. However, if section 170 of the ETA does not apply and where the registrant claims an input tax credit for a gift, which gives rise to a benefit amount, this benefit amount is subject to the GST under section 173. Section 173 sets out the rules for determining the amount of tax to be remitted on a supply (other than a zero-rated or exempt supply) of property or a service by a registrant to an employee or shareholder of the registrant when that supply gives rise to a taxable benefit for income tax purposes.

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 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.

Yours truly,

Catherine Séguin-Ouimet
General Operations Unit
General Operations & Border Issues Division
Excise and GST/HST Rulings Directorate

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