File #: 11755-22(km)
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Subject:
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GST Interpretation
Section 232 of the Excise Tax Act
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Dear Mr. XXXXX
On February 1, 1996 you sent a facsimile transmission to Ms. Pamela Parkin of the Client Assistance Directorate requesting confirmation of how GST is treated when a dealer refunds all or a portion of the purchase price of a vehicle. At that time Ms. Parkin informed you that she had forwarded your request to us for our direct reply. In that regard, we provide the following GST interpretation in respect of your question.
Pursuant to subsection 232(2) of the Excise Tax Act (ETA), where a dealer has charged to, or collected from a particular customer GST calculated on the purchase price for a vehicle and for any reason, that purchase price is subsequently reduced, the dealer may, within specified time limits, adjust, refund or credit a portion to GST in the following manner. Where the GST was charged to the customer but not collected (e.g. the customer has been invoiced, but has not yet paid the invoice), the dealer may adjust the amount of GST charged by subtracting the portion of the GST that was calculated on the amount by which the purchase price was reduced (i.e. the invoiced amount can be reduced). Where the GST was collected, the dealer may refund or credit to the customer the portion of the GST that was calculated on the amount by which the purchase price was reduced. Any adjustment, refund or credit of GST pursuant to subsection 232(2) of the ETA must be done within four years after the end of the reporting period of the dealer in which the purchase price was so reduced.
Where the vehicle is returned to the dealer, the original sales agreement is rescinded and the entire purchase price is returned to the customer, the Department will apply the rules in subsection 232(1) of the ETA instead of those noted above. The only difference in these rules is that under subsection 232(1) of the ETA any adjustment, refund or credit of GST must be done within four years after the end of the reporting period of the dealer in which the original sale took place.
It is important to note that when dealers use the above rules to adjust, refund or credit an amount of GST to a customer, they must, pursuant to paragraph 232(3)(a) of the ETA, issue a credit note for that amount to the customer (unless the customer issues a debit note to the dealer). Such a credit or debit note must contain the following information,
• a statement or other indication that the document in question is a credit or debit note;
• the dealer's name and GST registration number;
• the customer's name (or the name of the customer's duly authorized agent or representative[)];
• the date on which the credit or debit note is issued;
• a statement specifying whether the credit or debit note relates to an adjustment, a credit or a refund;
• the date on the sales agreement or invoice issued to the customer when the vehicle was sold;
• description of the vehicle (e.g. make, model, year, VIN #), and
• the amount of the reduction and the amount of GST in respect of that reduction (if the sales agreement or invoice did not show the purchase price and GST separately, then the credit or debit note should show a GST included amount along with a statement that the amount includes GST)
Where a particular dealer has adjusted, refunded or credited an amount of GST to a customer according to the above rules, the dealer may, pursuant to paragraph 232(3)(b) of the ETA, deduct that amount of GST in determining their net tax for the reporting period in which the credit note is issued or the debit note is received. It is important to note that if the customer claimed an input tax credit in respect of the vehicle purchase, then they must adjust their net tax by adding the amount of GST adjusted, refunded or credited.
In your submission you give two examples. In both examples a dealer sells a vehicle for $10,000 but it is later determined that the odometer reading on the vehicle is incorrect. As a result, in example 1 the dealer agrees to a refund the entire purchase price whereas in example 2 the dealer agrees to refund a portion (i.e. $5000) of the purchase price. In both examples the dealer can reduce his net tax (i.e. his GST remittance) by an amount equal to the tax calculated on the reduction (i.e. $700 and $350 respectively), provided that he refunds that amount of GST to the customer within the above noted time limits and a credit or debit note containing the required information has been issued.
The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed or future amendments to the legislation may result in changes to our interpretation. These comments are not rulings and, in accordance with the guidelines set out in GST Memoranda Series Section 1.4, do not bind the Department with respect to a particular situation.
If you have any questions regarding this interpretation letter, please contact Ken Mathews of my staff at 613-952-9585 or alternately, Sara Nixon of my staff at 613-954-4397. Any additional questions concerning the GST should be referred to your local Tax Services Office.
Yours truly,
H.L. Jones
Director
General Applications Division
GST Rulings and Interpretations
GAD#: 2417(GEN)
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