25 November 1998 GST/HST Interpretation HQR0001352 - Sale by Auction of Motor Vehicles to Non-Residents

GST/HST Rulings and Interpretations  Directorate Place Vanier, Tower C, 10th Floor 25 McArthur Road Vanier, Ontario K1A 0L5XXXXXXXXXXXXXXX

HQR0001352November 25, 1998

Subject:

GST/HST INTERPRETATION Sale by Auction of Motor Vehicles to Non-Residents

Dear XXXXX

Thank you for your letter of September 28, 1998, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to sales by auction of motor vehicles to non-residents.

Interpretation Requested

You are requesting our comments on a proposed procedure for tax treatment of sales by auction to non-resident motor vehicle dealers. We understand the proposed procedures and the circumstances where they would be adopted as follows.

Circumstances of transactions

1. An auctioneer, who is a registrant, sells motor vehicles to non-resident wholesale motor vehicles dealers.

2. The motor vehicles supplied to the non-resident dealers are delivered or made available in Canada.

3. The motor vehicles are acquired by the non-resident dealers for the purpose of export.

4. The possession of the vehicles may also be transferred by the auctioneer to a common carrier for the purpose of export.

5. The auctioneer and the principal may or may not have made an election under subsection 177(1.3) of the Excise Tax Act (the Act).

Proposed procedure

The auctioneer collects GST or HST on taxable supplies of motor vehicles to the non-residents. When the non-resident provides the auctioneer with documentation establishing that no tax is payable on the supply (because acquired for export for example), the auctioneer refunds the amount paid as tax by the non-resident. The refunding of the amount to the non-residents made in these circumstances would be reported in the GST/HST return for the reporting period in which the refund is made.

On the Bill of Sale the auctioneer would stamp the following: "XXXXX WILL REFUND GST UPON PRESENTATION OF ORIGINAL EXPORT DOCUMENTS". Once having obtained the export documents establishing that no tax is payable in respect of the supply, the auctioneer would stamp on the export documents the following: "XXXXX HAS REFUNDED THE GST".

Interpretation Given

1. Introduction

The requested interpretation is about the refunding and the recovering of amounts charged as tax on supplies made in the above-noted circumstances. To address such an interpretation request it is necessary:

•   to establish that the supply is zero-rated (i.e., that there is indeed an excess of tax collected);

•   to determine whether the auctioneer or the principal would be accounting for the eventual excess of tax collected on the zero-rated supply (i.e., who may recover the excess tax collected); and

•   to indicate the manner for recovering the excess tax collected.

The interpretation given will address these issues in that order.

2. Whether Tax is Payable

2(a) Supply Made in Canada for Export

The supply of tangible personal property (other than an excisable good, such as sp[i]rits, beer and cigarettes, for example) made by a person to a recipient (other than a consumer) who intends to export the property is zero-rated under specific conditions provided for in section 1 of Part V of Schedule VI to the Act.

Generally, these conditions can be outlined as follows:

•   the purchaser exports the property and does not consume, use or supply it in Canada before exportation;

•   the property is not further processed, transformed or altered in Canada except to the extent reasonably necessary or incidental to its exportation (This might include, for example, refrigeration, export packing, etc.);

•   the supplier maintains evidence of export satisfactory to the Minister of National Revenue.

For more details on conditions to be met and the documents required to be maintained by the supplier for a supply to be zero-rated under section 1 of Part V of Schedule VI we refer you to the attached Memorandum Series GST/HST Memoranda Series 4.5.2 Exports - Tangible Personal Property. The relevant paragraphs are paragraphs 1 to 20 and the related Appendixes A and B.

In summary, for a taxable supply to be zero-rated under section 1 of Part V of Schedule VI the supplier must have met certain documentary requirements. Where these documentary requirements are not met by the supplier, the supply is taxable at 7% or 15% where made in Canada.

Where an amount of tax has been paid and collected on account of tax for a supply later meeting the conditions for being zero-rated, the excess amount may be refunded or credited and the corresponding net tax adjusted.

Under the next subtitle, we will indicate the parameters for determining who, between the auctioneer and the principal, has the obligation to account for tax on the supplies at issue and consequently, is eligible to make the net tax deduction for an excess tax collected and refunded or credited.

2(b) Supply in Canada to a Common Carrier for Export

Under section 12 of Part V of Schedule VI to the Act, a supply of tangible personal property made by a person to a recipient is zero-rated if the person delivers the property to a common carrier or mails the property for export and delivery to the recipient at a place outside Canada. For purposes of section 12 of Part V of Schedule VI, a common carrier generally refers to a person engaged in the business of transporting property from place to place for compensation, and who offers services to the public. The auctioneer who supplies a vehicle to a person in Canada and zero-rates that supply pursuant to section 12 of Part V of Schedule VI must arrange for the delivery of the vehicle to a common carrier who will deliver the vehicle to the person at a destination outside Canada. The auctioneer should maintain sufficient evidence that the property has been sent outside of Canada to the recipient of the supply. You will find in the attached Memoranda Series 4.5.2 an outline of the export documentation acceptable to the Department.

3. Whether Auctioneer or Principal Accounts for Tax

3(a) Special Rules for Auctions: Auctioneer Treated as Supplier

Effective April 1, 1997 subsection 177(1.2) of the Act applies as follows. A supply of tangible personal property made by an auctioneer who is a registrant and agent acting on behalf of a principal is deemed to be a taxable supply made by the auctioneer in all cases. As a result, the auctioneer will be responsible for accounting for and remitting the GST or HST on all supplies of tangible personal property made by auction, even where the principal would not have been required to collect tax in respect of the supply. Furthermore, the auctioneer is not required to charge GST or HST on the consideration for the services provided to the principal relating to the supply of the tangible personal property.

3(b) Election for Principal to be Treated as Supplier

An auctioneer who is a registrant and a registrantprincipal may make a joint election in certain circumstances. This election is provided for at subsection 177(1.3) of the Act. Where the election is made, the rules under subsection 177(1.2) do not apply. As a result, the supplier of the property is the principal and the principal has the obligation to account for tax in respect of the supply (provided it is a supply taxable at 7% or 15%).

This election can only be made where all, or substantially all, of the proceeds for supplies made by auction on a particular day on behalf of the principal at the particular auction are attributable to certain prescribed goods. The list of prescribed goods in the draft Regulations includes "motor vehicles designed for highway use" 14. Also, the election would apply only with respect to sales by auction where the principal would otherwise be required to collect the GST or the HST. In situations where this election is made, the supply of services by the auctioneer to the principal is taxable.

Under the next subtitle, we will indicate the consequences of collecting excessive tax and how it is possible to make the related adjustments.

4. Excess of Tax Collected by Supplier: Treatment

4(a) Net Tax Deduction by Supplier

Please note that subsection 225(1) of the Act requires any amounts collected in a reporting period by a person on account of tax to be included in the person's net tax for the reporting period. It is the supplier, or the person deemed to be the supplier for the purposes of the Act, who has the obligation to collect and remit such tax. In the case at issue, the person considered to be the supplier for the purposes of the Act would be the auctioneer or the principal, as explained above under the subtitle "Whether Auctioneer or Principal Accounts for Tax". In your letter, you raise the issue of refunding to the recipient the excess tax collected and the manner of recovering this refunded tax.

The Act does not obligate a supplier to refund or credit an amount collected as tax in error from the recipient of the supply. However, where a supplier has collected an excess amount of tax, subsection 232(1) of the Act gives the supplier the discretion to refund or credit the excess amount to its customer, and provides the means by which to do so. Subsection 232(1) provides that a registered supplier has up to two years from the end of the reporting period in which the excess amount in question was charged or collected to make the refund or adjustment.

Where the supplier chooses to take this action, then pursuant to subsection 232(3) of the Act, the supplier must, within a reasonable time, issue a credit note to the recipient for the amount of the refund or credit. The credit note must contain the information provided for under the Credit Note and Debit Note Information (GST/HST) Regulations. Generally, the credit note must contain the following information:

1. a statement that the document is a credit note;

2. the principal's or the auctioneer's name (or business name) and Business Number;

3. the date on which the note is issued;

4. a brief description of the items;

5. the date of any invoice concerning the credit or refund; and

6. the amount of the refund or credit of tax for which the note is issued.

If the amount refunded or credited has been included in determining net tax for a reporting period in which it issued the credit note, or for a previous reporting period, the supplier may deduct that amount in determining its net tax for the reporting period in which it issued the credit note on line 107 of the GST/HST return.

4(b) Rebate Claim by Recipient

Where the supplier does not give a refund or credit to the recipient for tax collected in error, the recipient may claim a rebate. A supplier cannot claim a rebate for an amount it charged on account of tax. Only the recipient of a supply may claim a rebate under section 261 of the Act. In the circumstances at issue, the recipient of the supply is the non-resident dealer. In order to claim a rebate for an amount charged on account of tax, the claimant, in this case, must be able to demonstrate that the supply on which an amount was charged on account of tax met the above-noted conditions for zero-rating. The time limit to apply for such a rebate is two years after the day the amount was paid by the recipient.

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) 952-8815.

Yours truly,

Raymond Labelle
A/Rulings Officer
Services and Intangibles Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate

Att.

c.c.:

I. Bastasic (for sign-off only) J. Frobel (not including Memoranda Series 4.5.2) P. McKinnon (not including Memoranda Series 4.5.2)

Encl.:

Credit Note Regulations, with proposed amendments, as of October 1998. Memoranda Series 4.5.2 Exports - Tangible Personal Property Appendix: Required Information For The Section 177(1.3) Election

Appendix

REQUIRED INFORMATION FOR THE SECTION 177(1.3) ELECTION

The Department is currently finalizing a prescribed election form for the purposes of the subsection 177(1.3) election. In the interim, in lieu of the election form prescribed by the Minister, the Department would accept the following information contained on another document(s) provided the documents are cross-referenced:

Auctioneer's Identification	Principal's Identification
Complete legal name	Complete legal name
Business Number	Business Number
(GST Registration #)	(GST Registration #)
Trading Name	Trading Name
Business Address (City, Province, Postal Code)	Business Address (City, Province, Postal Code)
Business Telephone #	Business Telephone #

Election Details

Description of the prescribed property

Confirmation that:

1. both auctioneer and principal are registrants,

2. the prescribed property would have been the subject of a taxable supply if made by the principal, and

3. the prescribed property represents at least 90% of the total value of the property supplied at auction on behalf of the principal.

Effective date and duration of election (e.g., single transaction or indefinite).

Sample Certification

The following statements signed and dated by each party respectively:

I, _____________________, certify that the information given on this form and in any attached documents is, to the best of my knowledge, true, correct and complete, and that I am authorized to sign on behalf of the auctioneer making this joint election.

I, _____________________, certify that the information given on this form and in any attached documents is, to the best of my knowledge, true, correct and complete, and that I am authorized to sign on behalf of the principal making this joint election.