5 April 2005 GST/HST Ruling 58722 - Personal Support Workers Supplied to a Hospital

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.

Our Comments:

Under the QM, the 1% rate reduction is a required part of a registrant's actual net tax calculation (see formula in subsection 17(1) of the Streamlined Accounting (GST/HST) Regulations) for a specific reporting period and not an amount that may be deducted. Unlike an ITC, it is not an amount that the registrant may claim if he/she chooses in any reporting period (subject to the ITC time limits). Where the net tax indicated on a return for a reporting period does not account for the 1% rate reduction, the net tax shown on the return is incorrect and should be corrected. There are no provisions under the Excise Tax Act (ETA) that would allow the rate reduction or the reporting of tax collected to be carried over to another reporting period.

The Canada Revenue Agency (CRA) has established an administrative policy for adjusting returns. The policy is built on the underlying fact that the CRA has the discretion to raise assessments for net tax and that the CRA is not required to assess all returns. The administrative policy provides flexibility to ensure that the correct amount of tax for a reporting period is posted to the registrant's account.

In the case under consideration, a small business using the QM (which is intended to reduce the compliance burden by simplifying the net tax calculation) has not benefited from the 1% rate reduction that is given to all registrants using the QM. The registrant may be advised to provide the local tax services office with detailed information in writing and request that the specific reporting periods identified in the registrant's letter (over the last four years) be adjusted in accordance with the administrative policy.

The adjustments should be limited to four years to be consistent with the underlying fact that, generally, the CRA only has the discretion to raise net tax assessments for a period of four years in accordance with paragraph 298(1)(a) of the ETA. It is not the intent of the administrative policy to adjust returns to provide registrants with avenues to obtain benefits that would not be available under the legislation or contrary to the spirit or intent of the legislation.

Accepting the registrant's request to adjust its returns for the last four years is consistent with the assessment provisions. Subsection 296(8) of the ETA defines "overpayment of net tax" specifically for purposes of section 296 of the ETA. Based on the net tax calculation for the QM, the amount actually remitted by the registrant on account of net tax exceeds the net tax of certain reporting periods. Subsection 296(3) of the ETA provides that where there is an overpayment of net tax, the overpayment shall be applied to certain outstanding liabilities of the registrant and any remaining amount that was not so applied should be refunded. Subsection 296(4) of the ETA provides limitations for applying and refunding the overpayment. Given that the overpayment is not attributable to an ITC or deduction but is, in fact, a true overpayment of net tax as a result of an error in calculating the net tax for a specific reporting period, the limitations do not restrict the payment of the refund to the registrant. As such, if the CRA were to audit the registrant's reporting periods for the last four years, the amount of the overpayments would be refunded to the registrant.

Should you have any further questions regarding this matter, please do not hesitate to contact me at (613) 954-7931.

2005/04/15 — RITS 59054 — Entitlement by the XXXXX to an 83% Public Service Body Rebate