17 November 1998 GST/HST Ruling HQR000066 - Taxable Status of Reimbursements to the Crown (DND) for Loss/Damage of Property

Dear Mrs. Bertrand:

This refers to an earlier request from XXXXX with attachments, concerning the application of the Goods and Services Tax (GST) to reimbursements made to the Crown for loss or damage of public and non-public property. We apologize for the delay in providing a written response. However, this case was outstanding pending the completion of our policy with respect to damage payments. The Departmental policy on the tax status of damage payments was recently released as policy statement P-218.

Statement of Facts

Our understanding of the facts based on our review of the documentation submitted wit[h] XXXXX letter is as follows:

1. Clothing and personal equipment are issued from Canadian Forces clothing outlets to an individual's care or custody. These include items referred to as "Personal Allotment" and "Temporary Allotment" described in paragraphs 5 and 6 of the Canadian Forces Publication (CFP 181), Chapter 26.

2. Personal or Temporary Allotment items are issued free of charge to the temporary care and custody of the individual. These items remain subject to recall from the individual when the member's operational requirement for such clothing or equipment expires, i.e., helmets, webbing, combat clothing, fire fighting clothing, diver's wet suits, parkas, coveralls, cadet clothing, etc.

3. Paragraph 5, Chapter 26, states in part, "This equipment is retained by individuals as long as they continue to meet the entitlement parameters of the applicable scale. This period may last their entire Service career or only until the requirement ceases." With respect to the Temporary Allotment, paragraph 6, Chapter 26, states in part, "It is to be issued to individuals, both military and civilian, as authorized by the applicable scale, and is to be returned to the issuing customer account holder on termination of the special circumstances."

4. Loss of these Personal or Temporary Allotment items, whenever a member is found to be liable for the loss, is considered a reimbursement of publicnon-public property owned by the Crown, as directed by the Queen's Regulations and Orders ("QR&O") Chapter 38. Pursuant to the QR&O regulations, an officer or man who is found to be liable for damage is liable to reimburse the Crown for the financial loss incurred.

5. Recovery for any loss or damage referred to in the QR&O is obtained by way of deduction or set-off against any sum of money that may be payable by the Crown to such person found liable under the QR&O. For the most part, in the case of DND employees and Canadian Forces personnel, the cost of the damageloss is recovered by way of an administrative deduction or reimbursement by way of cash, cheque or money order by the member.

Ruling Requested

Determination of the taxable status of amounts reimbursed to DND for loss or damage of clothing and equipment as described in Canadian Forces Publication (CFP 181), Chapter 26, paragraph 5, "Personal Allotment", and paragraph 6, "Temporary Allotment".

Ruling Given

Based on the facts set out above, we rule that the amounts reimbursed to DND for loss or damage of clothing and equipment as described in Canadian Forces Publication (CFP 181), Chapter 26, paragraph 5, "Personal Allotment", and paragraph 6, "Temporary Allotment", are not subject to HSTGST.

Explanation

The amount reimbursed represents compensation for damages that the first person (member) has caused the second person (Crown) to suffer. The payment is not consideration for a taxable supply. It is compensatory in nature, intended to restore the Crown to the position it was in prior to the loss or damage occurring.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST 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 transaction(s) for which you requested a ruling.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-0328.

Yours truly,

C. Antonelli
Specialty Tax Unit
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate