18 December 1998 GST/HST Interpretation HQR0001483 - Refund of GST/HST

Dear Ms XXXXX

Thank you for your letter of March 17, 1998 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to amounts of GST/HST credited to the Revolving Advance Account (RAA).

Interpretation Requested

In your letter, you asked whether a supplier of taxable services to XXXXX has to refund the GST collected on the supply where the consideration for the supply has been reduced. If the GST is refunded, you have asked whether the RAA should be credited for this amount. The amount refunded would be that portion of the tax calculated on the amount by which the consideration for the supply was reduced.

Interpretation Given

Based on the information provided, I offer the following comments.

As you know, the Office of the Secretary of the Treasury Board and Comptroller General of Canada (OCG) has the responsibility to set GST/HST accounting policies and practices on the application of GST/HST to federal government departments. Treasury Board's "Policy on the Application of the GST and the HST in the Departments and Agencies of the Government of Canada" dated December 12, 1997 (attached), discusses the procedures departments are to follow with respect to refunds of GST/HST.

A review of this Policy confirms the procedure outlined in your letter with respect to the refund of GST on the purchase of goods. It states that departments which return goods to suppliers are required to match the refunds back to the GST/HST originally paid and make the necessary credit entry to the RAA.

As the Policy does not specifically refer to the refund of GST/HST where the consideration for a supply of a service has been subsequently reduced, the following is with respect to the rules set out in the Excise Tax Act (ETA) regarding refunds and adjustments of tax.

Under section 232 of the ETA, where there has been a reduction in the consideration on which GST/HST has been charged or collected, the registered supplier can adjust the amount of tax charged to reflect the reduced price. Where tax has been collected on the supply, the supplier has the option of refunding or crediting the excess tax to the recipient. When this is done, the supplier must issue a credit note containing prescribed information.

In instances where the recipient is a non-GST/HST registrant, it is expected that a refund, credit or adjustment of tax will be given by the supplier. However, where the recipient is a GST/HST registrant, the supplier may choose not to refund or adjust the GST/HST previously charged or collected. The supplier may prefer this option where the tax has already been accounted for and the recipient has already claimed or is entitled to claim a corresponding input tax credit.

Based upon the above, it would appear that where the supplier of a service refunds GST/HST to XXXXX as a result of a reduction in the consideration for the supply, XXXXX would account for this amount in the same way as it does for returned goods, as described in the Policy. That is, the GST/HST refunded to XXXXX in respect of a supply of a service would be matched back to the GST/HST originally paid on the supply. A credit entry would then be made to the RAA. Please note that XXXXX would not be required to make entries to the RAA where a supplier chooses not to refund the excess GST/HST collected. This is because XXXXX would have recorded, to the RAA, the tax paid on the supply of the service prior to the reduction in the consideration.

However, since the responsibility to establish government policy respecting GST/HST as it applies to federal departments rests with the OCG, the mechanism to be used by XXXXX to account for GST/HST refunded in the situation described should be confirmed with that office.

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/HST 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) 954-7952.

Yours truly,

Lynn F. Renner
Rulings Officer
Governments Unit
GST/HST Rulings and Interpretations Directorate

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