21 September 2006 GST/HST Interpretation 79906 - Tax status on fees charged by livestock auctioneers

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 (with attachments) to our XXXXX office in which you asked for a review of its ruling XXXXX to your client, XXXXX (the Supplier), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to early payment discounts offered by your client to XXXXX (the Recipient). All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified. You have included with your letter the following additional documents in support of your representation of the facts:

Attachment A: "Request for Credit" Working Paper XXXXX, including many computer printouts, listing invoice details, GST amounts charged and all early payment discounts taken by the Recipient during the month XXXXX on sales by the Supplier to the Recipient.

Attachment B: "Partnership Agreement" Partnership Agreement between the Recipient and the Supplier, effective XXXXX, on the Recipient's pre-printed form, signed by the Supplier XXXXX.

Attachment C: "Credit Note": credit note on the Supplier's form, crediting the Recipient with $XXXXX, as early payment discounts taken by the Recipient XXXXX, prepared based on Attachment A documents.

Statement of Facts

We understand your representation of the facts as follows:

1. The Supplier is a GST/HST registrant - XXXXX who makes taxable supplies to the Recipient.

2. The Supplier has extended terms of XXXXX as an early payment discount to the Recipient in the above-noted Partnership Agreement.

3. The Recipient took early payment discounts for the month XXXXX, of $XXXXX, according to the Supplier's credit note to the Recipient dated XXXXX.

4. The Partnership Agreement is valid for one year XXXXX, and it is automatically renewed at the end of each year on the same terms and conditions, unless terminated in writing by either party. The agreement includes the information XXXXX plus other details on a XXXXX in a box in the top right hand corner of the document. Another box entitled XXXXX in the body of the letter lists XXXXX different types of rebates, namely XXXXX. The list does not include the aforementioned early payment discount or the trade discount.

5. GST is mentioned in the Partnership Agreement as follows: XXXXX.

6. Each month, the Supplier calculates the total early payment discounts taken by the Recipient and issues a credit note to the Recipient.

7. The Supplier has not been claiming an input tax credit ("ITC") in respect of any presumed GST content of the early payment discounts taken by the Recipient.

8. Our XXXXX office has provided to you a ruling XXXXX, which indicates, in part, that section 161 applies to the early payment discount offered by the Supplier to the Recipient and these discounts would be considered rebates for purposes of section 181.1. However, no ITC could be claimed in respect of these early payment discounts pursuant to section 181.1 as the Supplier did not provide written notification to the Recipient, at the time the early payment discounts were provided, that the rebate included an amount on account of the tax.

Ruling Requested

You would like to know the following:

In light of the additional evidence submitted by you, you are asking us to confirm that the above mentioned Partnership Agreement XXXXX constitutes evidence that the Supplier provided written notification to the Recipient that early payment discounts offered to the Recipient included GST.

If we agree with your request, you are asking us to confirm your view that the Supplier would be entitled to an ITC in respect of the GST allegedly included in the early payment discounts at issue, pursuant to section 181.1.

Ruling Given

In this case, the documentation is prepared by the Recipient. A requirement of paragraph 181.1(c) is that the registrant supplier pays a rebate and therewith provides written indication that the rebate includes an amount of GST. No written documentation from the Supplier satisfies this provision hence the requirements of the provision are not met and the amounts are not considered to include GST and consequently the Supplier is not entitled to an ITC under section 181.1.

Nevertheless, had the Partnership Agreement XXXXX been a Supplier-generated document instead of a Recipient-generated document, it would not have constituted written notification that early payment discounts offered by your client to the Recipient include GST.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

The first part of our response, about the written notification being required to be from the Supplier is a clear legislative requirement. Other documentation from other parties does not satisfy this requirement.

The structure of the Partnership Agreement precludes the early payment discounts from being considered to constitute written notification that early payment discounts offered by your client to the Recipient include GST. As structured, the title in the document XXXXX precedes the discussion on rebates and can only be read as referring to the rebates that are listed below that title. The early payment discount is noted in a separate box without any reference to it being considered a rebate by either party. The Supplier is therefore not entitled to claim an ITC in respect of any presumed GST content in any early payment discounts claimed.

The Minister of Finance announced in the Federal Budget of May 2, 2006, a proposal to reduce the rate of the GST and the federal portion of the HST by 1%, effective July 1, 2006. Bill C-13 was tabled in Parliament on May 2, 2006, and received royal assent on June 22, 2006. The general rule is that the rate of GST will be reduced from 7% to 6% and the rate of the HST from 15% to 14% on supplies for which the GST/HST is paid on or after July 1, 2006, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to Reduction in the Rate of the GST/HST - Questions and Answers (http://www.cra-arc.gc.ca/agency/budget/2006/gstrateqa-e.html) on the CRA Web site.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-1433.

Yours truly,

Bao Tran
Specialty Tax Unit
FIRP Division
Excise and GST/HST Rulings Directorate

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