March 7, 1995
Dear XXXXX
Further to your telephone conversations with Sara Nixon of my staff and your letter to her of February 2, 1995 with respect to the application of GST to certain amounts received by bulk fuel dealers, we have now reviewed the material you have provided and our comments follow.
Background
1. A bulk fuel dealer ("the dealer") supplies various types of fuel to purchasers located in the province of XXXXX
2. The fuel sold is subject to a provincial fuel tax pursuant to the XXXXX Fuel Tax Act ("FTA"). Section 3 of the FTA states that the tax is to be paid by the "purchaser" of the fuel, purchaser being a defined term. Implicit in that definition is that a purchaser does not include a person purchasing the fuel solely for the purposes of resale. Given that definition, it would not appear that the dealer would be required to pay the tax on his fuel purchases, however, his supplier, XXXXX charges the tax at the time of sale. The fuel tax is included in the tax base on which XXXXX calculates GST to be paid by the dealer. The dealer claims an input tax credit to recover all of the tax paid.
3. Most of the dealer's purchasers are farmers. Under the FTA, farmers who present a prescribed purchase exemption certificate to their dealer, are exempt from the fuel tax. When the dealer sells fuel to a farmer, the dealer submits a Farm Fuels Credit Submission Form to XXXXX to recover the fuel tax previously paid. XXXXX credits the dealer's future purchases of fuel with an amount which is the fuel tax which the dealer would not have paid to XXXXX if he had known that his ultimate sale was to an exempt farmer.
4. In the early months of 1991, the dealer was also receiving credit for 2.1 cents per litre of federal sales tax in respect of the sale of diesel fuel used for heating purposes.
5. XXXXX is not collecting tax on the amount of the credit being given to the dealer.
6. XXXXX has given verbal assurance that no input tax credits have been claimed in respect of the credits given to the dealer.
Question
Is the "credit" received by the dealer in respect of the provincial fuel tax (and FST where applicable) a rebate pursuant to section 181.1 of the Act (prior to Jan 1, 1993), or is the "credit" in respect of an adjustment to the original consideration paid for the fuel pursuant to subsection 232(2) of the Act?
Discussion
To confirm your discussions with my staff, in the particular circumstances described, the provisions of subsection 232(2) will apply to allow XXXXX to pay an amount back to the dealer without adjusting for tax.
As you are aware, there is a concern that a certain level of confusion existed before January 1, 1993 with regard to when the provisions of then subsection 181(2) applied and when the provisions of subsection 232(2) applied to an amount paid by a supplier to a person. The Department is aware that some suppliers have claimed the input tax credit under subsection 181(2) even though the person who received the amount from the supplier, did not remit the tax that was deemed to be included in the amount by the same provision.
XXXXX has given verbal assurance that it has not used the provisions of subsection 181(2) to claim an input tax credit. XXXXX position is that the amount being credited to the dealer, is a reduction of consideration previously paid by the dealer for a taxable supply. Since the dealer was a GST registrant and was therefore able to recover all of the tax initially paid through input tax credit claims, XXXXX elected not to credit the tax which was paid.
As your letter discussed, the primary difference between the circumstances which require the use of subsection 232(2) and those which require the use of subsection 181(2), is whether the person receiving the amount in question, is doing so as a result of that person making a supply. The provisions of section 232 do not anticipate that the amount being paid is consideration for a supply. The current position of the Department with respect the payments which would qualify under section 232 is that the payment must not depend upon any action undertaken, or supply made, by the recipient. The credit in question is not being given to the dealer as a result of any action taken by the dealer or any supply made by the dealer. Although the term rebate is not defined at subsection 181(2) or anywhere else in the Excise Tax Act, the legal definition clearly contemplates a supply. In part, the definition states that a rebate is a refund of a portion of a purchase price made by a manufacturer to a consumer to induce purchase of product.
Although the provisions of the two subsections appear to be very similar, both are required within the scheme of the ETA to apply to very different transactions. The existence of a supply being made by the recipient under subsection 181(2) is one of differences between the two provisions, and in the circumstances of the credits being given by XXXXX the most immediately obvious justification for using the provisions of section 232 rather than section 181.
The same argument should be used to determine the application of tax to amounts credited to the dealer with respect to federal sales tax previously paid. The dealer is not undertaking any action or making any supply in order to receive the credit. Since no payment is actually being made by XXXXX to the dealer, there is again the question whether subsection 181(2) would be available in any event.
No discussion was conducted as to how the credit given by XXXXX to the dealer, was disclosed on subsequent invoices issued by XXXXX If XXXXX reduced the price to be charged to the dealer for fuel and showed the net price on the dealer invoice, there is the possibility that subsection 232(2) would not be necessary. Under subsection 165(1) tax is payable on the value of consideration for a taxable supply. If a supplier chooses to reduce the price charged to the recipient, in respect of a taxable supply, tax would be payable by the recipient on the consideration given, which would reflect the reduced price.
Should you require any further assistance in this matter, please contact one of the members of the Application Team in the Tax Provisions Unit. They are: Lalith Kottachchi (613) 952-9588, Ken Mathews (613) 952-9585, Suzanne Leclaire (613) 952-7931 and Sara Nixon (613) 952-8812.
Yours truly,
H.L. Jones
Director
General Tax Policy
Policy and Legislation
Excise/GST
XXXXX - Mitch Bloom XXXXX
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