2 June 2006 GST/HST Interpretation 80647 - PROPOSED LAW/REGULATION GST rate reduction and lease contracts

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 XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to interval meter charges invoiced by XXXXX.

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

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. 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 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.

We understand that XXXXX has customers on transmission voltage (69,000 volts and up) who have expensive meters that store data in 5-minute increments. These customers are limited in number but represent a significant amount of revenue.

XXXXX billing system for these customers is designed around the availability of interval data that is accumulated nominally in 5-minute increments. There is no monthly meter register read. The meter information is collected nightly (automated) and collated as if it were at billing time (monthly). These customers are normally billed monthly depending on their service period, on one of the following dates the 22nd, the 27th or the 1st of the following month.

June service month

For consumption in the month of June 2006, invoices will be created June 22 (May 23-June 22 service period), June 27 (May 28 to June 27 service period), and July 1st (June 1 to June 30 service period).

Without an adjustment to XXXXX current billing system for customers invoiced on June 22nd, June 27th and July 1st, the system will create invoices with a GST rate of 7%.

July service month

For the July service period XXXXX current system would apply two different GST rates on the July 22nd (June 23rd - July 22nd) and July 27th (June 28th - July 27th) invoices, the pre July 1st rate and the post July 1st rate. This would result in these invoices being prorated for GST purposes. For the August 1st (July 2nd - August 1st) invoice the billing system would apply the 6% rate to all charges.

Interpretation Requested

You would like to know if this is in compliance with the rules regarding the July 1, 2006 GST rate change? Or, would system changes such that GST at 6% is applied to the July 1st invoice? As well, would you be required to make system changes such that GST at 6% is applied to all charges on the July 22nd and July 27th invoices?

Interpretation Given

Based on the information provided, since the invoices for the interval meter charges (other than the June 22nd and June 27th invoices) will be issued on or after July 1, 2006 and as such, the GST would be considered payable on or after July 1, 2006, the rate of GST to be charged by XXXXX on the invoices would be 6%. The invoices issued on June 22nd and June 27th would be subject to GST at the rate of 7%.

Pursuant to subclause 3(1) and paragraph 3(2)(a) of Bill C-13, proposed amendments to subsection 165(1) of the ETA, GST at the rate of 6% will apply to supplies made on or after July 1, 2006. Subsection 165(1) under the proposed amendments will still be subject to subsections 168(1) and 152(1) of the ETA.

Subsection 168(1) is the provision that establishes when GST in respect of a taxable supply is payable by the recipient. The general rule is that tax is payable by the recipient on the earlier of the day that consideration for a taxable supply is paid or the day that consideration becomes due.

Subsection 152(1) deems consideration for a taxable supply to become due on the earliest of the following days:

(a) the day that the supplier first issues an invoice in respect of the supply;

(b) the day of the invoice;

(c) the day when, but for an undue delay, the supplier would have issued an invoice in respect of the supply; and

(d) the day that consideration is due pursuant to an agreement in writing.

As it is normal business practice in the utility industry to invoice for the interval meter charges at the end of the service period, GST at the rate of 6% is applicable regardless of the fact that the interval meter charges pertain to periods prior to July 1, 2006 when invoiced for on or after July 1, 2006.

The foregoing comments represent our general views with respect to the proposed amendment(s) to the Excise Tax Act as it (they) relate(s) to the subject matter of your request. Any change to the wording of these proposed amendments or any future proposed amendments to the ETA, if enacted, could have an effect on the interpretation provided herein. 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.

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

2006/05/23 — RITS 78908 — Meaning of Government