7 October 1997 GST/HST Interpretation HQR0000504 - Ruling Request on Behalf of , Relating to Volume Rebates

Dear XXXXX

Thank you for your fax of January 10, 1997, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transaction described below. I apologize for the delay in providing a response to your letter.

Our understanding of the facts, the transaction, and the purpose of the transaction is as follows.

Statement of Facts

 XXXXX is a registrant that pays an annual volume rebate to XXXXX

The volume rebate is based on a rate determined by the total dollar volume of taxable purchases made by XXXXX in each calendar year. XXXXX does not undertake any action, or make any supply in order to receive the rebate.

The volume rebate is paid XXXXX GST has been added to the amount of the volume rebate and is clearly indicated on the cheque stub.

 XXXXX has not issued credit notes in accordance with subsection 232(3) of the Excise Tax Act (ETA) to XXXXX for the volume rebates.

 XXXXX has claimed an input tax credit for the tax it has refunded to XXXXX are not in respect of zero-rated supplies.

Ruling Requested

You have requested that the Department confirm that XXXXX is entitled by virtue of section 181.1 of the ETA to an input tax credit in the amount of 7/107 of the amount rebated to XXXXX by XXXXX for the years 1992, 1993, 1994 and 1995.

Ruling Given

Based on the facts set out above, we rule that section 181.1 of the ETA does not apply to the annual volume rebate paid by XXXXX to XXXXX

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to departmental interpretative policy; and that you have fully described all necessary facts and the transaction for which you requested a ruling.

Explanation

Where an amount is refunded, adjusted, or credited, to a purchaser, after the tax has been charged or collected, such as a volume rebate for simply surpassing a certain volume of purchases, it is the Department's position that the amount would be considered to be a reduction of consideration, to which subsection 232(2) of the ETA would apply. [See Technical Information Bulletin (TIB) B-042 and the Explanatory Notes to the ETA].

The current position of the Department with respect to payments which would qualify under subsection 232(2) of the ETA is that the payment must relate to the original supply and must not depend upon any action undertaken, or supply made by the recipient. The situation between XXXXX and XXXXX is not one where XXXXX is required to take any action, or make any supply to XXXXX to obtain the volume rebate. The agreement between XXXXX and XXXXX indicates that the payment of the rebate is to be based solely upon a discount percentage rate determined by total dollar volume of purchases made by XXXXX to XXXXX you indicated that subsection 232(3) of the ETA did not apply to the rebate. It is the Department's position that subsection 232(3) of the ETA is applicable to the above noted volume rebate, and that XXXXX has not complied with the provisions of subsection 232(3).

Subsection 232(3) of the ETA, states in part, where an amount is refunded, credited, or adjusted under subsection 232(2), a credit note or a debit note shall be issued between the supplier and purchaser, containing prescribed information. You have advised that XXXXX has never issued a credit note to XXXXX It is not the issuance of a credit note or debit note that results in the applicability of subsection 232(2), or subsection 232(3) of the ETA. Rather, when subsection 232(2) is applicable (i.e., when the supplier adjusts, refunds, or credits the tax), a debit or credit note shall be issued as stipulated under subsection 232(3). In addition, the supplier and the recipient are required to make the necessary adjustments to their net tax calculation for the reporting period during which the credit note or debit note is issued or received, as the case may be. Where the supplier does not refund, adjust, or credit the tax under subsection 232(2) of the ETA, subsection 232(3) does not apply and, therefore, there is no requirement under the ETA to issue a credit or debit note.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-9699.

Yours truly,

Douglas Wood
A/Rulings Officer
General Operations Unit
General Operations & Border Issues Division
GST/HST Rulings and Interpretations Directorate

v:         Marcel Boivin
Patrick McKinnon

Encl.:

Legislative References: Section 181.1 ETA, Section 232(2) ETA and Explanatory