31 July 2007 GST/HST Ruling 95599 - XXXXX XXXXX6 x XXXXX mL - 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:

XXXXX

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) and proposed amendments thereto announced on January 26, 2007, to your client, XXXXX.

All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, including the proposed amendments announced on January 26, 2007, unless otherwise specified.

We understand that XXXXX expects to be a qualifying institution as defined in proposed subsection 141.02(1), and has a XXXXX year-end.

Interpretation Requested

You have requested (1) a confirmation of whether XXXXX will be eligible to file the election under proposed subsection 141.02(7), provided they have filed a GST/HST return after XXXXX and (2) a formal review of XXXXX's GST/HST reporting practices and allocation methods, so that XXXXX can obtain approval to use these practices and allocation methods beginning XXXXX, pursuant to proposed subsection 141.02(18).

Interpretation Given

1. Election for Transitional Year Under Proposed Subsection 141.02(7)

Proposed subsection 141.02(7) provides a transitional year election to a qualifying institution for its first fiscal year that begins after March 2007 (the transitional year). It allows the qualifying institution to elect to use an allocation method that meets certain conditions to determine input tax credits (ITCs) in respect of its residual inputs, as defined in proposed subsection 141.02(1).

In order to be eligible to make the transitional year election, a qualifying institution must meet certain criteria, including the following:

1. the qualifying institution's net tax must have been assessed in at least one of the reporting periods in one of the four fiscal years that precede the transitional year (the chosen reporting period);

2. the Minister's notice of assessment, subsequent assessment or reassessment in respect of the chosen reporting period does not reflect any inappropriateness in respect of the methods used by the qualifying institution to determine ITCs in respect of all of its residual inputs; and

3. the methods used would be fair and reasonable if used in the same manner by the qualifying institution for the transitional year.

With the introduction of standardized accounting in April 2007, every GST/HST return remitting tax or claiming a refund, as well as all rebate applications, will be assessed, and a Notice of Assessment will be issued. The only exception is for nil returns, which will not be assessed. Accordingly, a return filed after the introduction of standardized accounting that is not a nil return would meet criterion one above, even though the qualifying institution was not audited, so that a Notice of Reassessment was not issued.

Nevertheless, it should be noted that in order to be eligible to file a transitional year election, a qualifying institution would also have to meet the other criteria set out above, as well as meeting the requirements set out in proposed subsection 141.02(23) for filing the election, including that the election be made in prescribed form and contain prescribed information. We are currently developing the required forms, which should be available this fall. The form will have to be filed with the Minister on or before the day on or before which the qualifying institution must file a return under Division V of Part IX for the first reporting period of the transitional year (except where late filing of the election is allowed by the Minister).

If your client's chosen reporting period for purposes of the transitional year election has not been assessed, or if you wish to request an audit for other reasons, you may do so by contacting XXXXX Assistant Director of Audit at XXXXX.

2. Pre-Approval of Allocation Methods Pursuant to Proposed Subsection 141.02(18)

Under proposed subsection 141.02(18), a qualifying institution may apply to the Minister to use particular methods in calculating ITCs for all inputs and determining net tax, for any reporting period included in a fiscal year of the person beginning after March 2008, provided certain conditions are met.

For XXXXX, this pre-approval process would be available for the XXXXX fiscal year. It is not available for XXXXX's XXXXX fiscal year.

The Canada Revenue Agency is currently developing a prescribed form for use when making a pre-approval application. The form will indicate what is prescribed information and what procedures are necessary for filing an application. This information will be communicated to registrants once the form has been completed. XXXXX will then have an opportunity to resubmit its application for pre-approval in the prescribed form, containing the prescribed information. In the interim, we have forwarded the information you provided to us to XXXXX.

The foregoing comments represent our general views with respect to the proposed amendments to the ETA as they relate 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, Excise and GST/HST Rulings and Interpretations Service, 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 Dawn Weisberg, Manager, directly at 613-952-9210.

Yours truly,

Ivan Bastasic
Director
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

2007/07/27 — RITS 95672 — "De Minimis" Financial Institution Rules