26 April 1996 GST/HST Interpretation 11650-10[2] - Credit Card Expenses and the Registrant's Use of the 6/106ths Factor for Claiming Input Tax Credits

                                                                        Fax: (613) 990-1233

                                                                        11650-10 (pl)

                                                                        Section 169 & 175

Dear Mr. XXXXX

Thank you for your letter dated March 6, 1996 in which you request a GST interpretation of section 175 of the Excise Tax Act (the "ETA") related to the use of the factor approach by a registrant for calculating their input tax credit entitlement ("ITC") on company credit card expenses.

In your letter you provide the following fact situation. An employee of a GST registered company incurs business related expenses which are paid for with cash obtained by company credit card cash advances. More specifically, the employee obtains cash advances from the company credit card and purchases business related items (such as a business lunch at an establishment where the company credit card is not accepted) with the cash advances. These expenses are then itemized on the employee's monthly expense report.

Your question is whether the company is permitted to use the 6/106ths factor approach for calculating its ITC entitlement for the business related expenses listed on the employee's expense report. A further question you ask is whether the company is only permitted to use the 6/106ths factor approach in circumstances where the employer advises their employee beforehand not to obtain their credit card cash advance until after the business related expense is incurred by them.

Department's Position:

We have recently revised draft Policy Statement P-184: "Credit card expenses and the registrant's use of the 6/106ths factor for claiming input tax credits" which discusses in general terms the conditions that must be satisfied by a registrant when claiming an ITC using the 6/106ths factor on business related expenses incurred by an individual on a company credit card. For your information, please find enclosed a copy of the said draft Policy Statement.

As for your concerns described above, where a cash advance is obtained by the employee with a company credit card, and that cash advance is to acquire property or service for consumption or use in relation to the commercial activities of the GST registered company, the company will be entitled to use the 6/106ths factor to claim an ITC on the GST paid on these acquisitions provided that all the other conditions outlined in the attached draft Policy Statement are satisfied. More specifically, the Department will consider a cash advance obtained (either prior to, or after the acquisitions are made with the cash advance) by the employee with the company credit card to be a reimbursement made by the company to the employee.

Please note, however, that the company must calculate its ITC entitlement based on the amounts indicated on the supporting documentation (e.g., sales invoices, receipts) and not based on the amounts the employee received as cash advances from the company credit card. Having said this, for the company to satisfy the documentary requirements described in the draft Policy Statement, the employee will be required to provide to the registrant a credit card receipt for each cash advance obtained (as proof that the cash advance was received by the employee using the company credit card) as well as another component of supporting documentation (such as the restaurant bill or receipt in your example) for each property or service acquired by the employee on behalf of the company which was paid for with the cash advance.

Lastly, the recapture rules under subsection 236(1) of the Excise Tax Act with respect to the GST paid on food, beverages and entertainment will apply when using the 6/106ths factor when calculating the company's ITC entitlement.

This interpretation is based upon our current understanding of the ETA and Regulations thereunder in their present form and does not take into account the effects of any future amendments thereto or future changes in interpretation.

Further, while we trust that our comments are of assistance to you, we would advise that they do not constitute a GST ruling and are, therefore, not binding upon the Department in respect of any particular fact situation.

If you require further information, please contact Michael Matthews, Manager, ITC and Co-ordination Unit at (613) 952-8806, or Paul Lafond, Policy Officer at (613) 954-9700.

Yours truly,

H.L. Jones
Director
General Applications Division
GST Rulings and Interpretations

Attachment

GAD #: 2807 (GEN)