17 January 2007 GST/HST Ruling 83892 - Eligibility for a GST/HST Transitional Rebate

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.

This is to confirm your discussion XXXXX with Ken Syer, Manager, Specialty Tax Unit, regarding the acceptance of a generally available published foreign currency exchange rate (FX rate) other than an FX rate included in GST/HST Policy Statement P-222, Acceptable exchange rate sources for converting the value of consideration expressed in foreign currency to a Canadian currency for purposes of section 159 of the Excise Tax Act (the "ETA").

Statement of Facts

1. XXXXX, a GST/HST registrant XXXXX, is in the automotive sector assembling vehicles from parts it acquires from various suppliers in Canada and outside Canada.

2. Contracts between XXXXX and its suppliers provide that the parts are to be delivered on a "just-in-time" basis and payment for these parts are payable in US funds generally in the beginning of the second month following the month's receipts. Details such as part supplied, contracted price, part number, technical specifications, expected volumes required, penalties for failure to supply and the time period are outlined in the contracts.

3. XXXXX produces receipts for supplies of parts it receives from the suppliers for incorporation into vehicles of its manufacture.

4. The receipts are issued electronically on the day the parts are delivered to the plant.

5. A receipt includes the amount due to the supplier for the part at the contracted price.

6. The suppliers at issue are located in Canada, but the consideration due is in US dollars.

7. Suppliers of auto parts and other suppliers do not produce any purchase invoices to XXXXX.

8. The US dollar receipts are recorded daily in favour of the suppliers in the books and records of XXXXX, but converted into Canadian dollars using the XXXXX FX rate in effect on the date the receipts are generated.

9. On the date of payments to suppliers, XXXXX must pay in US dollars and uses the XXXXX FX rate in effect on the date the payments are made to reflect the Canadian amount paid in the books and records of XXXXX.

Issue

XXXXX has asked for our opinion regarding whether XXXXX used an acceptable FX rate.

Opinion

Based on the facts above, it is our opinion that the XXXXX FX rate should be treated as an acceptable FX rate for two reasons:

1. the XXXXX FX rate has been used consistently by XXXXX for several years for purchases from suppliers to XXXXX and supplies made by XXXXX; and

2. the XXXXX FX rate is a readily available FX rate.

Analysis

The XXXXX FX rate has been applied consistently for several years for purchases and supplies by XXXXX. XXXXX applies the day's XXXXX FX rate to each purchase receipt recorded on the particular day. P-222 requires that when a FX rate "source other than the source used for an actual transaction is selected, that source must be used consistently and for a reasonable period of time (such as one year)."

The receipts produced by XXXXX are recorded daily in its XXXXX system. This system has links to XXXXX suppliers. The XXXXX system automatically uses the XXXXX FX rate applicable the date the receipts are generated. In accordance with the contracts, the date of payment is generally the beginning of the second month following the month the receipts are recorded in XXXXX. Payment is made in US dollars to the supplier and recorded in Canadian dollars by XXXXX using the XXXXX FX rate on the date of payment.

XXXXX proposes that the XXXXX FX rate is not acceptable to the Canada Revenue Agency (CRA). In addition, XXXXX, following a recalculation of tax payable by XXXXX to suppliers, should be allowed to claim an amount increasing the ITCs for past periods. Furthermore, XXXXX proposes that XXXXX would continue to claim additional ITC amounts due to FX rate recalculations using an acceptable FX rate compared to the XXXXX FX rate since the FX rate used by XXXXX system cannot be changed.

A statistical analysis of rates between the Bank of Canada and the XXXXX Bank as reported by XXXXX in another case shows there is a negligible difference between these FX rates when used consistently for both consideration received for supplies made and payments made for supplies received. Accordingly, the XXXXX FX rate used by XXXXX is an acceptable FX rate for GST/HST purposes since the XXXXX FX rate has been used consistently for tax payable and ITC purposes.

The attempt to use an alternative FX rate for ITC purposes only (i.e. without reporting tax payable using the alternative FX rate for the affected reporting periods) would provide an incongruity that must be avoided.

Lastly, we will be reviewing our current position of P-222 to be inclusive of generally available FX rates in due course.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact Ken Syer at (613) 952-9219.

2007/02/14 — RITS 85553 — Application of GST/HST to XXXXX