TELEPHONE 954-8585
FACSIMILE 990-1233
11630-1, 11610-4, 11695-1, 11720-1(sn)
File: 11860-2
Dear Ms. XXXXX
Further to a telephone conversation of August 16, 1995 between XXXXX of your office, and Sara Nixon of my staff and to the subsequent submissions by XXXXX of supporting documentation, the following summarizes our comments with respect to the application of GST to certain transactions entered into between XXXXX and XXXXX as well as to certain transactions entered into between XXXXX and federal and provincial government bodies.
Background
With respect to the particular transactions between XXXXX the school division XXXXX the following information has been provided:
1. The school division requested tenders to be made with respect to the supply of XXXXX litres of unleaded gasoline.
2. XXXXX submitted and won, a tender of XXXXX cents per litre XXXXX cents below pump prices in the event of an industry price increase. In submitting the tender, XXXXX indicated that an independently owned XXXXX gasoline station known as XXXXX would be authorized by XXXXX to supply the XXXXX litres of unleaded gasoline.
3. XXXXX and its independent dealers have entered into XXXXX. These agreements specify that the independent dealer is required to make all of his required purchases of gasoline and other motor fuels from XXXXX and that certain minimum annual levels of sales will be maintained.
4. As gasoline is provided by XXXXX to the school division, XXXXX maintains a monthly log which indicates the number of litres of gasoline purchased, but no price per litre or total purchase price is indicated in the log. Each purchase is signed off by a school division driver. A copy of the log is forwarded at month-end by XXXXX. We have been advised that no physical documentation which could be construed to be an invoice, is issued by XXXXX to the school division. There is also no documentation issued by XXXXX which could be interpreted to be an invoice to XXXXX for the sale of the gas. The gas being provided to the school division by XXXXX is owned by XXXXX and as a result, XXXXX records a sale of the gas at the regular pump price, in its books and records. XXXXX has verbally advised that XXXXX is also recording GST payable on the regular pump price in respect of these sales and that XXXXX is remitting such tax on its periodic GST return, however this GST treatment has not been directly confirmed with XXXXX[.]
5. XXXXX receives a monthly invoice for all of its gasoline purchases from XXXXX. Against the total amount owing, XXXXX gives credit for all of the credit card sales made by XXXXX during the month. A credit is also given for the gasoline purchased by the school division. The credit is calculated as the total monthly volume of school division purchases of gas at the regular pump price.
6. The school division is invoiced monthly by XXXXX. Copies of the invoices prepared by XXXXX were submitted for our review. These invoices indicate by voucher, the total number of litres of gasoline purchased and the total tax-included pump price of the purchase. It is not apparent from the information provided as to how XXXXX is made aware of the pump price being charged by XXXXX[.] We are assuming that XXXXX provides the appropriate pump price to XXXXX so that XXXXX can prepare the monthly invoice, however the method that the pump price information is communicated by XXXXX (and any other XXXXX dealer, for that matter) to XXXXX should be confirmed before any final letter to XXXXX is sent out by TIS XXXXX[.] A discount per litre (in the particular case of the school XXXXX division, a discount of XXXXX per litre is taken from the regular per litre pump price) is then subtracted from the total invoice amount to arrive at the net tax-included amount to be paid. The amount of tax included is disclosed.
7. XXXXX also enters into agreements for the purchase of gasoline with provincial and federal government bodies. In such cases, a government credit card, issued in the name of the authorized individual, is used to make the initial purchase of the gasoline. At that time, a credit card receipt is completed by a XXXXX dealer, such as XXXXX to indicate the volume of gasoline purchased, the price of the purchase based on full pump price, and the appropriate taxes. The dealer will record a sale of gas at the regular pump price. XXXXX has verbally advised that XXXXX dealers such as XXXXX would be recording GST payable on the regular pump price in respect of these sales and that the dealers would be remitting such on tax on their periodic GST return, however this GST treatment has not been directly confirmed with any XXXXX dealer.
8. XXXXX receives a monthly credit for sales of gasoline to provincial and federal government bodies in the same manner that it receives a credit for sales of gasoline to the school division.
9. XXXXX issues a monthly invoice to the provincial or federal government authority which discloses the full tax-included pump price charged, less the discount allowed, to arrive at the net tax-included price to be paid pursuant to the written agreement. The amount of GST included in the price is disclosed.
Questions
As summarized from your incoming letter received from XXXXX[.]
1. What is the tax status of the subsequent billing of a federal or provincial government authority (or the school authority) by XXXXX[.]
2. If the subsequent billing is a taxable supply, "does XXXXX need to remit GST shown in the billings ... even though really they are merely collecting an outstanding debt at a reduced rate"?
3. If XXXXX must charge tax on the subsequent billing (the subsequent billing being the invoice issued by XXXXX to either the school division or a government authority), can XXXXX claim an input tax credit to recover the tax on the amount credited to the dealer, if that credit is determined to be a taxable supply? (As clarification, would the credit be determined to be consideration paid in respect of a taxable supply since the credit itself, is not a supply.)
4. Can XXXXX claim an input tax credit if the subsequent billing is to a provincial government authority which does not pay GST?
5. In some cases, the subsequent billings have not been collected by XXXXX because the businesses have gone out of business. Can XXXXX claim a bad debt expense?
6. What is the tax status of the credit given by XXXXX to the dealer upon presentation of a credit card receipt which documents a supply of gasoline to a federal or provincial government authority?
Discussion
Regardless of whether the gas is being provided to the school district or to a federal or provincial government body, the gas being provided is the property of the XXXXX dealer, be that XXXXX or any other XXXXX dealer who may become involved in these types of transactions. More importantly however, for purposes of the Excise Tax Act ("the Act"), it is also the XXXXX dealer who is making the supply. Therefore, it is the XXXXX dealer who is by definition, the supplier of the gas and as a consequence, pursuant to the provisions of subsection 221(1), it is the XXXXX dealer who is responsible to collect tax payable by the recipient of the gas. Although it is the usual business practice that a supplier take the responsibility to render and collect his own billings, it is not necessary. There is nothing in either commercial practice or more specifically, the Act, to prevent the supplier from delegating his billing and collection responsibilities to some third party. Effectively that is what is occurring when XXXXX is subsequently billing either the school district of a federal or provincial government body. Despite the fact that XXXXX is issuing the billing, the billing is the invoice for consideration to be paid in respect of a taxable supply made by the XXXXX dealer.
Pursuant to subsection 168(1) of the Act, tax in respect of a taxable supply is payable by the recipient on the earlier of the day the consideration for the supply is paid and the day the consideration for the supply becomes due. The provisions of subsection 152(1) set out when consideration for a supply becomes due.
It would appear from the information provided by XXXXX that consideration for the supply made by the XXXXX dealer becomes due on the day the invoice is raised and issued by XXXXX[.] However, you should, confirm that no other documentation is issued at any earlier date by the XXXXX dealer, which might act to change the timing of the application of tax. Specifically, clarification should be obtained as to the status of the documentation called a credit card slip which is issued by a XXXXX dealer to a representative of a federal or provincial government body at the time the XXXXX dealer provides the gas. This does not appear to be an issue with the transactions entered into with the school division as there does not appear to be any documentation issued by the XXXXX dealer at the time the gas is provided, however, this fact should be confirmed before a final letter is issued to XXXXX[.] You have advised that the XXXXX dealers are recording the provision of gas to the school divisions and federal and provincial government bodies as sales in their books and records and as a result of that recording, are accounting for applicable GST and remitting such tax. This should be confirmed. The remittance of the tax which is shown on the billings issued by XXXXX is the responsibility of the XXXXX dealer, however the Department does allow a third party to remit tax to the credit of another GST registrant. If a third party is remitting GST to the credit of another GST registrant, the amount of that tax and the GST registration number of the other GST registrant must be disclosed on documentation being filed by the third party such that the third party GST registrant and the other GST registrant are each receiving the correct credit for tax effectively remitted by the third party registrant.
XXXXX is generally billing at a lower rate per litre of gas than the regular pump price, however the XXXXX dealer is recording a sale at the regular pump price. Even though the customer is in fact actually paying the lower price, the XXXXX dealer does ultimately receive total revenue which equals the regular pump price. Total revenue which equals the regular pump price, is recognized by the XXXXX dealer as a result of the dealer making two supplies. The first supply occurs when the XXXXX dealer makes a taxable supply of gas to the customer, the consideration for which is the negotiated lower price per litre. Subsequent to the provision of gas to the customer, the XXXXX dealer makes a taxable supply of a service, to XXXXX and receives as consideration for that supply, a credit from XXXXX calculated as the difference between the negotiated price and the regular pump price. It is XXXXX stated position that its dealers will not suffer any revenue loss if XXXXX unilaterally enters into gas supply contracts at lower prices than the dealer would otherwise sell the gas, and then requires the dealer to fill any orders for gas made pursuant to those contracts. As a consequence, the credit being given by XXXXX dealer could be described as consideration for the taxable supply by the XXXXX, of agreeing to provide fuel pursuant to the provisions of agreements to which the XXXXX dealer was not a party.
As a consequence of the taxable supply of a service being made by the XXXXX dealer to XXXXX on the assumption that XXXXX otherwise qualifies to claim an input tax credit in respect of the tax paid, XXXXX can claim an input tax credit to recover the tax paid on the portion of the amount credited to the dealer that relates to the service provided by the latter (ie. the difference between the full pump price and the amount actually billed by XXXXX to the school division or government authorities).
At Question 4, XXXXX has asked whether it can claim an input tax credit if a subsequent billing is to a provincial government authority which does not pay GST. Since XXXXX has entered into preferred price contracts with specific provincial government authorities, it is not immediately obvious why XXXXX would not know the tax status of every provincial government authority it has contracted with. However, in the event that XXXXX prepares a billing and inadvertently charges GST to a provincial government authority which is exempted from the payment of GST, XXXXX cannot claim an input tax credit to adjust for the tax charged in error. As a technical matter, when tax is charged in error, an input tax credit claim is not the appropriate method to adjust the tax. The correct method to adjust tax under such circumstances, is to use the provisions of section 232 of the Act. Also, as previously discussed, the supply of the gas is being made by the XXXXX dealer and it is the XXXXX dealer who is responsible for the collection and remittance of taxable payable in respect of that taxable supply. Therefore, if tax is charged to a person who is otherwise exempt from the payment of such tax, the provisions of section 232 of the Act would be available to the XXXXX dealer, but not to XXXXX[.]
For the same reason (that is, the account receivable belongs to the XXXXX dealer), XXXXX cannot claim a bad debt expense in respect of a particular account receivable. Only the XXXXX dealer is entitled to claim a bad debt.
XXXXX has not been able to provide complete information as to how the various XXXXX dealers are applying GST and accounting for GST payable and remittable in respect of gas provided to customers who have negotiated special purchase contracts directly with XXXXX[.] From the information provided, it appears that ultimately the Department is receiving the correct amount of tax. However, the timing that such tax becomes payable and the correct procedures to be followed with respect to the credit for the remittance of such tax, may require clarification to be given to both XXXXX and its dealers.
Should you require any further assistance in this matter, contact one of the members of the Application Team in the Tax Provisions Unit. They are: Ken Mathews (613) 952-9585 and Sara Nixon (613) 954-4397.
Yours truly,
H.L. Jones
Director
General Applications Division
GST Rulings & Interpretations 1409(REG)
Mitch Bloom (signoff)
Email this Content