File: 11610-4(gp)
Subsection 231(1)
Dear XXXXX
This letter is in response to your facsimile message dated September 15, 1995, requesting our comments on a ruling letter issued by the XXXXX District concerning the administration of third party payments by XXXXX[.]
Statement of Facts
1. XXXXX provides construction management services for the XXXXX[.] In performing these services for XXXXX enters into contracts with construction companies (contractors). Pursuant to the terms of these contracts, the contractor agrees to provide a supply and XXXXX agrees to pay for the supply and is therefore the recipient of the supply.
2. The contractor contracts part of the contract to another supplier (the sub-contractor). The sub-contractor bills the contractor for services rendered as part of the sub-contract.
3. When the contractor does not pay an invoice issued by the sub-contractor for services rendered, the amount invoiced is written off in the books of the sub-contractor as a bad debt. Once written off in the books of the sub-contractor, under the terms of the contract between XXXXX and the contractor, the sub-contractor may seek restitution from XXXXX[.]
4. XXXXX will pay claims submitted by the sub-contractor for unpaid invoices provided certain conditions are met.
Issue:
Does subsection 231(3) apply to the third party payment received by the sub-contractor from XXXXX[.]
The Department's Position
Subsection 231(3) requires a registrant who has received payment towards a debt previously written off to adjust for the GST portion of the amount received. In this case, the payment received from XXXXX would be considered to have been made on behalf of the contractor and subsection 231(3) would apply to the payment. The ruling letter issued by the XXXXX office appears to be consistent with this policy.
I trust this response has addressed your concerns. If you have any further questions on this matter, please contact Gwen Preston at (613) 952-8530.
H.L. Jones
Director
General Applications Division
GST Rulings and Interpretations
GAD: 1449 (REG)
c.c.: M. Matthews
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