3 June 2005 GST/HST Interpretation 54863 - Volume rebates and price adjustments

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.

You have requested that we review a field letter XXXXX to clarify whether or not we concur with one of the interpretations provided in the letter. Specifically, you have drawn our attention to the last portion of the field letter, dealing with the limitation on ITCs and the application of subsection 225(3) of the ETA. That portion of the letter reads as follows: Subsection 225(3) refers to an "amount" that was claimed or included as an ITC. Changing the amount at a later time does not take away from the fact that an amount has already been claimed. In the case of the FI, an amount (expressed as the value in terms of money of the property or service) has previously been included and neither of paragraphs (a) or (b) apply.

ISSUE

At issue is whether or not subsection 225(3) of the Act would serve to deny a subsequent claim for a partial ITC (i.e., a claim calculated as the difference between the ITC claimed under a previous allocation methodology, and the ITC calculated using a new methodology) in circumstances where there has been a subsequent change in the allocation methodology used to calculate ITCs.

DECISION

It is our position that subsection 225(3) of the Act would not permit an additional claim for an ITC based upon a revision to the allocation method unless the change was intended either to correct an error, or to include amounts that could not previously be taken into account in arriving at the allocation rate because the registrant had not previously been able to meet the documentary requirements under subsection 169(4) of the ETA. With respect to XXXXX, we concur with the message conveyed within the final paragraph of the field letter.

DISCUSSION

A person's net tax for a particular reporting period is determined in accordance with the formula found under subsection 225(1) of the ETA. Element "B" of the formula allows for ITCs and deductions. Part (a) of element "B" specifically deals with ITCs and part (b) deals with deductions, such as the bad debt deduction.

Subsection 123(1) of the ETA does not define an ITC. ITCs are calculated using the formula A x B found in subsection 169(1) of the Act. In this formula element "A" is the tax paid or payable and element "B" is, generally speaking, the extent to which the property or service was consumed, used or supplied in the course of commercial activity.

Subsection 225(3) of the ETA restricts certain amounts from being included in the calculation of element "B" in the formula in subsection 225(1) of the ETA. An amount shall not be included in the total for element "B" for a particular reporting period of the person to the extent that the amount was claimed or included as an ITC or deduction in determining the net tax for a preceding reporting period of the person. The exceptions to this restriction would allow for an error to be corrected or to include amounts that could not previously be taken into account because the registrant had not previously been able to meet the documentary requirements of subsection 169(4) of the Act. As a result of the restrictions in subsection 225(3), an amount that has been previously used in the calculation of an ITC from a preceding period cannot be used to calculate an ITC using another allocation rate. The amount would not qualify as an exception to the restriction in subsection 225(3).

Thank you for consulting with us in regards to this matter. Should you have any further questions, please feel free to contact me at 952-0301.

2005/06/10 — RITS 55232 — [Application of the GST to Registered Charity's Housing Operations for Seniors]