3 June 2005 GST/HST Ruling 55989 - 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.

I refer to your XXXXX in which you request confirmation of the date on which interest and penalties should start being applied against suppliers who overpaid various rebates to claimants.

YOUR ISSUE

You request confirmation of the date to be used for purposes of calculating interest and penalties with respect to the following three types of rebates:

•   General rebate - reason code 10 - Non-Resident Recipient of a Taxable Supply of an Installation Service

•   General rebate - reason code 14 - Specified Services Supplied to Financial Institutions

•   General rebate - reason code 17 - Specially Equipped Motor Vehicle

You have presented the view that the Canada Revenue Agency ("CRA") should use a similar date for interest purposes, for the rebates claimed using the reason codes 10, 14 and 17. In your view, this would be the date that the sale took place (e.g., the date of the invoice).

OUR COMMENTS

Section 252.41 of the ETA - Rebate paid or credited by a supplier of installation services - Reason Code 10

Section 252.41 of the Excise Tax Act (the "ETA") provides for a rebate to be paid in certain specified circumstances to a non-resident person who is not registered for GST/HST purposes and is a supplier of tangible personal property supplied on an installed basis. The rebate is in respect of tax paid by the non-resident on the service of installing tangible personal property in real property located in Canada.

Subsection 252.41(2) provides that the unregistered non-resident recipient of the installation service may submit an application for a rebate to the registered supplier of installation services (supplier), rather than to the Minister of National Revenue. In these circumstances, the supplier may pay to or credit in favour of the non-resident the amount of the GST rebate. The supplier may deduct the amount of the GST paid or credited to the non-resident in determining the net tax of the supplier for the reporting period in which the amount is paid or credited provided the supplier transmits the rebate application with the return filed for that reporting period.

Section 264 of the ETA provides, in part, that where an amount is paid/applied to a liability of a person as a rebate under certain sections of the ETA, and the person is not entitled to the rebate, or the amount paid/applied exceeds the rebate to which the person is entitled, the person shall pay to the Receiver General an amount equal to the rebate or excess, on the day the amount is paid/applied to a liability of the person.

Subsection 252.41(3) provides that, where a supplier pays or credits the rebate to the non-resident recipient of the service and the supplier knew or ought to have known that the non-resident was not entitled to the amount paid or credited as a rebate, the supplier and the non-resident are jointly and severally liable to repay the amount paid or credited in error to the non-resident. It is important to note that the supplier is not automatically liable in all cases in respect of a rebate overpayment, and that the CRA may have no choice but to only assess the non-resident. The CRA may assess under subsection 297(2.1) of the ETA.

Subsection 280(1) of the ETA provides that penalty & interest are payable whenever a person fails to pay an amount to the Receiver General. If the supplier were to be assessed with respect to the overpayment of the rebate, penalty and interest would be applied under subsection 280(1) of the ETA starting the day after the supplier paid the rebate to the claimant.

In the case of a service installation agreement, the payment of a rebate or crediting of a rebate against the non-resident's liability by the supplier would be determined by the terms of the agreement. Where a supplier has been assessed for a rebate overpayment, penalty and interest is to be applied against the debt of the supplier starting the day after the supplier paid or credited an amount in favour of the claimant on account of the rebate. If an amount was paid/credited on account of the rebate on the invoice date, then penalty and interest would begin to accrue starting the day after the invoice date.

Section 261.31 of the ETA - Segregated Fund receives specified services from insurer, rebate paid or credited by insurer - Reason Code 14

This particular rebate allows an insurer's segregated fund to claim a rebate of the provincial part of the HST payable, on specified services to the extent that the fund holds or invests funds for persons who are resident outside the participating provinces. The rebate does not apply to selected listed financial institutions. For the purposes of this rebate, specified services include any management or administrative services supplied to a segregated fund by the insurer, as well as any other services provided to the fund by the insurer.

Pursuant to subsection 261.31(7) of the ETA, where an insurer, in determining its net tax for a reporting period, deducts an amount equal to a rebate it paid or credited to a segregated fund and the insurer knows or ought to know that the segregated fund is not entitled to all or part of the rebate, the insurer and the segregated fund are both liable to repay the amount to the Receiver General.

Section 264 of the ETA provides, in part, that where an amount is paid/applied to a liability of a person as a rebate under certain sections of the ETA, and the person is not entitled to the rebate, or the amount paid/applied exceeds the rebate to which the person is entitled, the person shall pay an amount equal to the rebate or excess, on the day the amount is paid/applied to a liability of the person.

Subsection 280(1) of the ETA provides that penalty & interest are payable whenever a person fails to pay an amount to the Receiver General. If the supplier were to be assessed with respect to the overpayment of the rebate, penalty and interest would be applied under subsection 280(1) of the ETA starting the day after the supplier paid the rebate to the claimant.

In the case of service agreements, payments may be made to the insurer (the supplier) at different points in time. As such, the date on which the insurer actually pays or credits an amount to the segregated fund on account of the rebate could vary depending upon the agreement between the parties. There should be some documentation between the parties that would indicate the date on which this occurs.

Where the insurer is assessed in respect of the rebate overpayment, penalty and interest will be applied against the debt of the insurer starting the day after the insurer paid or credited an amount to the segregated fund on account of the rebate. If the rebate were paid/credited on the invoice date, then penalty and interest would begin to accrue starting the day after the invoice date.

Section 258.1 of the ETA - Rebate paid or credited by a supplier of a qualifying motor vehicle - Reason Code 17

Section 258.1 of the ETA provides for a rebate of tax in respect of certain new motor vehicles specially equipped for use by individuals with disabilities. As an observation, with respect to the rebate that you have identified as being "General Type 17 - Specially Equipped Motor Vehicle", the general rebate form is no longer used for purposes of claiming this particular rebate. Form GST518 is used for purposes of claiming this particular rebate.

In this case, the rebate is payable directly to the recipient of the vehicle. However, where the supplier meets the condition specified under subsection 258.1(3) of the ETA, the supplier may pay or credit in favour of the recipient the amount of the rebate. Under subsection 258.1(5) where the supplier has paid or credited the recipient in the amount of the rebate and the supplier knows or ought to have known that the recipient was not entitled to a rebate or that the rebate amount exceeds the amount allowable, both parties are jointly and severally or solidarily liable for the overpayment. If both parties are liable, the CRA may assess either party under subsection 297(2.1) of the ETA.

Section 264 of the ETA, in part, provides that where an amount is paid/applied to a liability of a person as a rebate under certain sections of the ETA, and the person is not entitled to the rebate, or the amount paid/applied exceeds the rebate to which the person is entitled, the person shall pay an amount equal to the rebate or excess, on the day the amount is paid/applied to a liability of the person.

Subsection 280(1) of the ETA provides that penalty & interest are payable whenever a person fails to pay an amount to the Receiver General. If the supplier were to be assessed with respect to the overpayment of the rebate, penalty and interest would be applied under subsection 280(1) of the ETA starting the day after the supplier paid the rebate to the claimant. If the supplier paid or credited an amount in favour of the recipient on account of the rebate on the invoice date, then penalties and interest would begin to accrue commencing the day after the date the invoice was issued.

Should you have any further questions please feel free to contact me at (613) 954-7931.

2005/06/07 — RITS 57924 — XXXXX Parking