11 September 1998 GST/HST Ruling HQR0001091 - Applicability of the GST to Interchange Canada Agreements Involving the Assignment of Employees to Departments of the Federal Government

                                                                        GST/HST Rulings and Interpretations
                                                                                                Directorate
Place Vanier, Tower C, 10th Floor
25 McArthur Avenue
Vanier, ON
K1A 0L5

                                                                        September 11, 1998

Dear XXXXX

Thank you for your letter of 16 February 1998, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the transactions described below.

Statement of Facts

Our understanding of the facts, the transactions, and the purpose of the transactions is as follows:

1. XXXXX has entered into various agreements under the Interchange Canada program whereby XXXXX employees are assigned to departments of the federal government. Two such agreements were forwarded by XXXXX as representative of these arrangements.

2. The agreements covered specific time periods with provisions for extension or early termination.

3. Under the agreements, XXXXX employees continue to receive their salaries and benefits from XXXXX[.] The federal government departments agree to reimburse these amounts to XXXXX[.]

4. While with the federal government departments, XXXXX employees are to be treated as federal employees with respect to:

a) third party liability

b) the Official Secrets Act, the Conflict of Interest and Post-Employment Code for the Public Service, and

c) all work produced by XXXXX employees while on assignment remains the property of the host federal department[.]

Ruling Requested

XXXXX has requested a ruling on the applicability of the GST to reimbursement paid for the services of XXXXX employees placed through the Interchange program.

Ruling Given

Based on the facts set out above, we rule that:

1. The reimbursement of salaries and benefits under the Interchange Canada program (as described in the sample Letters of Agreement provided) is not subject to the GST.

In your letter you also seek advice as to the correct method to be applied to recover the amounts remitted as tax. Section 232 of the Excise Tax Act applies to situations where a person has charged to, or collected from, another person an amount as or on account of GST in excess of the tax that was collectible by the particular person from the other person.

Under subsection 232(1), a supplier who has charged, but not collected tax, may, within two years after the day the amount was charged or collected, adjust the amount of tax charged. Subsection 232(3) requires the registrant to issue a credit note to the customer containing prescribed information, for the amount of the adjustment, refund or credit. To the extent that the amount has been included in determining the net tax for the reporting period or a preceding reporting period of the person issuing the credit note, the amount may then be deducted in determining the net tax of the person issuing the credit note for the reporting period in which the credit note is issued.

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 transactions 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) 952-9580.

Yours truly,

Oscar Jacobs
Governments Unit
Public Service Bodies and Governments Division
GST/HST Rulings and Interpretations Directorate