25 May 2006 GST/HST Ruling 80417 - 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.

Dear XXXXX:

Thank you for your XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to non-energy charges invoiced 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 charges to residential customers for the non-energy related items, such as alteration charges, connection charges, meter charges and right of way fees are billed in two different ways, a third party invoice or a non-energy charge function.

A third party bill is generally used when the person paying the bill is not the person paying for power (i.e. landlord/tenants) or when the customer is required to pay in advance for the field services. In this situation an invoice is created at the same time as the service is provided and results in the service date and the invoice date being the same. Therefore, a third party invoice created on June 30, 2006 will apply 7% GST to the charges and an invoice created on July 1, 2006 will apply 6% GST to the charges.

However, where a non-energy charge is used, the charge will sit on the customer's account until the next consumption charge invoice is created. This can be two months or longer in the case of new services. For example, where a connection service is provided today the billing system would create a charge in the customer's account including the current tax rate of 7%. For this same account, the meter will not be read for the first time until July 16, 2006, at which time the billing system will create a consumption charge in the customer's account with current tax rate at that time of 6%. This means the related invoice, which would be dated sometime after July 16, 2006 will be produced with a connection charge with GST at 7% and a consumption charge with GST at 6%.

Interpretation Requested

You would like to know if this is in compliance with the rules regarding the July 1, 2006 rate change, or will it be necessary to make a billing system change in order to produce an invoice, which calculates GST at 6% for both charges?

Interpretation Given

Based on the information provided, since the invoice for the non-energy charges will be issued along with the consumption charges after July 1, 2006 and as such, the GST would be considered payable after July 1, 2006, the rate of GST to be charged by XXXXX on the invoices would be 6%.

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 non-energy charges two months or later, we would not consider the invoicing for the non-energy charges as having been delayed unduly. Therefore, GST at the rate of 6% is applicable regardless of the fact that the non-energy charges pertain to a period prior to July 1, 2006 when invoiced for 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

2006/04/28 — RITS 49409 — Supply of Natural Gas