10 January 2007 GST/HST Interpretation 85430 - Delivery - agent of the vendor

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 assessments of net tax made after April 1, 2006 in respect of reporting periods ending before April 1, 2006.

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

You provided two examples. Example 1 is where an assessment of net tax is raised on August 1, 2008 in respect of a reporting period from September 1, 2005 to September 30, 2005. Example 2 is where an amount is assessed in respect of an annual reporting period beginning on January 1, 2007 and ending on December 31, 2007.

Interpretation Requested

You would like to know how the penalty and interest provisions of the ETA apply to assessments of net tax in respect of the two examples provided and if the new late-filing penalty would apply if the registrant did not file the return for the reporting period ending September 30, 2005.

In a telephone conversation, we provided you with an interpretation with respect to a scenario similar to your example 1. We stated that for the period prior to April 1, 2007, interest and penalty would apply under the current rules in subsection 280(1) and that for the time period after March 31, 2007, penalty and interest would be applied based on the rules in new section 280.1 and amended subsection 280(1), respectively. You are concerned that the coming into force clause of subsection 280(1) does not specifically support this interpretation.

Interpretation Given

Currently, for the period prior to April 1, 2007, subsection 280(1) of the ETA provides that a penalty of 6% per year and interest at the prescribed rate (currently calculated by reference to the rate charged on 90-day Treasury Bills, adjusted quarterly, and rounded to the nearest one-tenth of a percentage point) applies to amounts of GST/HST that a person fails to remit or pay when required. The penalty and interest are calculated on the amount not remitted or paid starting on the day after the amount was required to be remitted or paid and ending on the day the amount was remitted or paid.

Subsection 146(1) of the Budget Implementation Act, 2006 amends subsection 280(1) of the ETA such that, if a person fails to remit or pay an amount when required, interest at the prescribed rate will apply on the amount not remitted or paid beginning on the day after the day the amount was required to be remitted or paid and ending on the day the amount is paid. The Interest Rate (Excise Tax Act) Regulations will be amended to define the term "basic rate" as the average rate charged on 90-day Treasury Bills, adjusted quarterly and rounded up to the nearest whole percentage point. The prescribed rate will be the "basic rate" plus 4 per cent. The 6% penalty will be removed.

The coming into force provision in subsection 146(11) of the Budget Implementation Act, 2006, provides that the amendments to subsection 280(1) of the ETA come into effect on April 1, 2007.

In addition, section 147(1) of the Budget Implementation Act, 2006 adds new section 280.1 to the ETA to provide for a new failure to file penalty that will be charged in respect of any return that is required to be filed on or after April 1, 2007, and any return that is required to be filed before that date if it is not filed on or before March 31, 2007 (in which case, the return is deemed to be required to be filed on March 31, 2007 for purposes of calculating this failure to file penalty). The penalty is 1% on the amount overdue on the return, plus a penalty of .25% on the overdue amount times the number of complete months the return was overdue to a maximum of 12 months.

With respect to your Example 1, under the provisions of section 280 of the ETA, the 6% penalty and interest at the prescribed rate will apply to the amount assessed for the September 2005 monthly reporting period beginning on the day after the amount should have been remitted for the reporting period (in this case, November 1, 2005) and ending on March 31, 2007. Effective April 1, 2007, the 6% penalty under subsection 280(1) will no longer apply. However, effective April 1, 2007, the September 2005 return will be subject to the new failure to file penalty.

From April 1, 2007, under the provisions of subsection 280(1), interest at the new prescribed rate (basic rate plus 4%) will apply to the amount not paid or remitted until all amounts of net tax, penalties and accrued interest are paid.

With respect to Example 2, where an amount is assessed in respect of an annual reporting period beginning on January 1, 2007 and ending on December 31, 2007, the net tax owing is generally not required to be remitted or paid until three months after the end of the fiscal year. In this example, any amount owing will not be required to be remitted or paid until March 31, 2008. Consequently, if the return is not filed by the due date, interest at the new prescribed rate (basic rate plus 4%) will apply to any assessments from April 1, 2008 until the overdue amount is remitted or paid. In addition, the return will also be subject to the new failure to file penalty.

The foregoing comments represent our general views with respect to the subject matter of your request. 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. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-7931.

Yours truly,

Anne Kratz
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2007/01/25 — RITS 85536 — [Application of the GST to Granola Bar That Are Not Sold Primarily as Breakfast Cereal]