GST/HST Rulings and
Interpretations Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Road
Vanier, Ontario
XXXXX K1A 0L5
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XXXXX
1055 Dunsmuir Street
P.O. Box 49279
Four Bentall Centre
Vancouver, B.C.#
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Case: HQR0000654
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Subject:
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GST/HST INTERPRETATION
Subsection 177(1.1) of the Excise Tax Act
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Dear XXXXX
Thank you for your letter of April 11, 1997, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to bad debts within the context of agency relationships. I apologize for the delay in responding.
Facts
• An agent, who is a registrant and who is not an auctioneer, and a principal, who is required to collect tax in respect of a supply otherwise than as a consequence of paragraph 177(1)(d) of the Excise Tax Act (the "Act"), jointly elect under subsection 177(1.1) of the Act, to account for the tax collectible on a taxable supply as if the tax were collectible by the agent.
• The agent, in making the taxable supply in the course of its commercial activities on behalf of the principal, accounts for the tax collectible on the supply in its net tax and remits any positive amount of net tax.
• The supply is not a zero-rated supply.
• The agent records an accounts receivable in its books and records for the consideration and the tax payable by the recipient.
• At a future date, the accounts receivable is determined to be uncollectible; the agent writes off the bad debt in his/her books of account.
• The supply is made after April 23, 1996.
• The principal, the agent and the recipient are dealing at arm's length.
Interpretation Requested
Is the agent entitled to recover the GST portion of the bad debt which has been written off of the agent's books of account?
Interpretation Given
The agent-principal relationship must be established and will be based on fact and principles of law. The concept of agency is addressed in Policy Paper P-182 Determining the Meaning of Agent and Agency.
Amendments to sections 177 and 231 of the Act received Royal Assent on March 20, 1997.
Pursuant to section 231 of the Act, in order for a person to be eligible for a net tax deduction adjustment, certain conditions must be met. These conditions include: (1) the person must have made a taxable supply, other than a zero-rated supply, for consideration and (2) the recipient of the taxable supply must have dealt at arm's length.
Where the principal, who is required to collect tax on a supply otherwise than as a consequence of paragraph 177(1)(d) of the Act, and the agent, who is a registrant and who makes the supply on behalf of the principal in the course of its commercial activity (otherwise than by auction), have made an election under subsection 177(1.1) of the Act, the agent will account for the tax collectible on the supply. The election provision of subsection 177(1.1) of the Act applies only to the accounting of the tax, and provides that the principal and agent are jointly and severally liable for obligations relative to the tax becoming collectible.
The agent is not eligible for a net tax deduction adjustment in respect of the bad debt that is written off as the agent does not meet the conditions of section 231 of the Act. More specifically, the agent did not make the taxable supply for which the bad debt relates. The supply was, in fact, made by the principal.
The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST Memoranda Series, do not bind the Department with respect to a particular situation.
Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613 954-2560.
Yours truly,
KerriAnne Boyd
A/Rulings Officer
General Operations Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate
Legislative References: 177(1), 231
NCS Subject Code(s): I - 11610-4, 11725-1
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