15 February 2008 GST/HST Interpretation 88883 - Exempt financial services

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 letter XXXXX concerning the eligibility of XXXXX First Nation to file rebate applications for the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) that they paid on the acquisition of goods and services. We apologize for the delay in responding to your request.

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

Effective January 1, 2008, the rate of the GST has been reduced from 6% to 5% and the rate of HST from 14% to 13%. The new rates apply to supplies for which the GST/HST is paid on or after January 1, 2008, without having become payable before that date. Specific transitional rules apply to certain supplies, for example, real property. For more information on the transitional rules for the reduction of the GST/HST rate, please refer to GST/HST Notice 226, GST/HST Rate Reduction in 2008 on the CRA Web site at www.cra-arc.gc.ca/E/pub/gi/notice226/README.html.

Statement of Facts

The following information was provided in your letter to the Canada Revenue Agency (CRA):

•   XXXXX First Nation is a "band" as defined in subsection 2(1) of the Indian Act;

•   XXXXX First Nation paid GST on its acquisition of various goods and services to the supplier(s);

•   XXXXX First Nation filed various rebate claims to recover all or a portion of the GST it paid or was deemed to have paid, on its acquisitions of certain goods and services during the period of XXXXX, as follows:

a) For GST paid or deemed to have been paid on travel-related expenses, XXXXX First Nation claimed a rebate on form GST 189 as Code 8, "Indian Band, Tribal Council or band-empowered entity" to recover 100% of the GST paid (herein called the "Code 8" rebate),

b) For GST paid in error on its acquisition of tangible personal property delivered on or to the reserve and certain services, XXXXX First Nation claimed a rebate on form GST 189 as Code 1, "tax paid in error" to recover 100% of the GST paid (herein called the "Code 1" rebate);

•   The Code 8 and Code 1 rebate claims described above were paid in full by the Minister;

•   For GST paid or deemed to have been paid by XXXXX First Nation on all other expenses, including GST that was paid during the relevant period of XXXXX, (the "Relevant Period") on expenses referred to above, but not previously recovered by virtue of a Code 8 or a Code 1 rebate, XXXXX First Nation filed various public service body rebate claims using form GST 66 to recover 50% of the GST paid (herein called the "PSB" rebate);

•   XXXXX First Nation is a non-profit organization as the term is defined in subsection 123(1) of the ETA and receives at least 40% of its funding from government sources so as to be considered a "qualifying non-profit organization" under section 259 of the ETA;

•   XXXXX

•   XXXXX

Interpretation Requested

You requested a ruling on the following two questions. However, we are providing an interpretation that can be applied to all future transactions relating to the topic of Indian bands and their eligibility to file Code 8 and Code 1 rebates under section 259 and section 261.

Where the XXXXX First Nation failed to recover the GST by claiming a rebate on GST Form 189 as a Code 8, or the XXXXX First Nation failed to recover the GST by claiming a rebate on GST Form 189 as a Code 1 rebate:

1. Does the two-year limitation period provided for in subsection 261(3) of the ETA apply so as to limit or restrict an Indian or Indian band's right to recover from Her Majesty in right of Canada taxes which were collected by the Minister's statutory agents on supplies which are exempt from taxation pursuant to section 87 of the Indian Act?

2. Is the XXXXX First Nation entitled to claim, pursuant to section 259 of the ETA, public service body rebates to recover 50% of the GST that was paid during the applicable four year rebate claim period provided for in subsection 259(5) of the ETA?

Interpretation Given

As you are aware, an Indian or an Indian band may file a rebate claim under section 261 to recover an amount paid as tax in error (Code 1 rebate). As well, an Indian band may file a rebate claim under section 261 to recover tax paid on eligible travel expenses (Code 8 rebate). Both Code 8 and Code 1 rebate claims filed under section 261 must be filed within the two-year limitation period provided for in subsection 261(3).

In order to determine whether the right to file a rebate claim under section 261 prevents the claimant from filing a rebate claim under section 259, it is first necessary to determine whether the amount paid by the Indian or Indian band was "tax".

"Tax", as defined in subsection 123(1), means tax payable under Part IX of the ETA. (i.e. GST or HST)

An amount paid as tax in error is not "tax" as defined in subsection 123(1). For example, where an Indian band purchases goods from a vendor and those goods are delivered to a reserve by the vendor, the CRA views those goods as being tax relieved under section 87 of the Indian Act (IA). If the Indian band paid an amount as tax in error on the purchase of those goods, subsection 261(1) provides a legislative entitlement to a refund of the amount paid as tax in error. The Indian band may file a rebate under section 261 within the two-year time limit. In this example the amount paid as tax is not tax. Therefore, a rebate under section 259 is not available. The Indian band cannot claim a rebate under section 259 in this instance.

Section 259 of the ETA restricts rebates to "non-creditable tax charged". The definition of "non-creditable tax charged" does not include an amount paid as tax in error. Specifically, this term includes "tax" and certain amounts deemed as tax. Therefore, if an Indian or Indian band paid an amount as tax in error (e.g., on the off-reserve purchase of property delivered to a reserve), a claim for a rebate can only be claimed under section 261 of the ETA as noted above (Code 1 Rebate).

However, where the refund entitlement under section 261 is only administrative, the amount paid is "tax", and is included in the calculation of "non-creditable tax" charged. For example, a refund claim made under section 261 is administrative where an Indian band pays tax on eligible travel expenses (meals, entertainment, travel, short term accommodations) for which a Code 8 rebate is available. Relief of tax on eligible travel expense is not pursuant to section 87 of the IA or any relieving provisions under the ETA. This Code 8 rebate is based on an administrative policy found in Technical Information Bulletin B-039R3 – GST/HST Administrative Policy - Application of the GST/HST to Indians (B-039R3). As the amount paid in this case is "tax" as defined in subsection 123(1) of the ETA and is therefore included in "non-creditable tax" charged, the tax paid would be refundable to an eligible claimant who makes the claim within the four-year time limit. Therefore, an Indian band that did not file a Code 8 rebate claim within the two-year time limit under section 261 could include the amount on a rebate claim filed under section 259 within the four-year time limit where the Indian band is an eligible claimant and the remaining conditions of section 259 are met.

In summary, if a supply made to an Indian band is relieved of tax because of section 87 of the IA, and the Indian band paid an amount as tax on the supply, the amount paid in error as tax would not fall within the definition of "non-creditable tax charged" in section 259. The Indian band may file a rebate claim under section 261 using reason Code 1. However, GST/HST paid by an Indian band on a supply that is tax relieved administratively by virtue of B-039R3 and not section 87 of the IA would be part of the "non-creditable tax" charged calculation for rebate purposes under section 259.

An Indian band qualifying under section 259 to file a rebate application would be entitled to include tax paid on supplies of services, eligible travel expenses, and property acquired by the Indian band where relief of tax is not provided by section 87 of the IA or some other Act of Parliament, where the conditions of the definition of non-creditable tax charged under subsection 259(1) have been met.

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, Excise and GST/HST Rulings and Interpretations Service, 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 613-954-7954. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.

Yours truly,

K. Bennett
Aboriginal Affairs Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

2008/02/12 — RITS 92128 — Application of GST/HST to Sweetened Baked Goods and Paragraph 97 of GST/HST Memoranda Series 4.3, Basic Groceries