31 March 1999 GST/HST Interpretation HQR0000688 - Remittance of GST Subsequent to Liquidation

Dear XXXXX

This is in response to the letter of May 5, 1997 sent by Mr. XXXXX and telephone conversations with you in which you request our opinion on how the XXXXX of the XXXXX should account for a particular amount received following the liquidation of XXXXX XXXXX[.] It is our understanding that you have replaced XXXXX[.]

Statement of Facts

Our understanding of the facts is as follows:

1. The XXXXX is a XXXXX which is a GST Registrant.

2. Pursuant to the XXXXX may act as the liquidator of a sale of an insurance company and may recover the liquidation costs from other insurance companies.

3. XXXXX was appointed as liquidator for XXXXX XXXXX and XXXXX purchased taxable services from the agent of the liquidation, an accounting firm. The amount GST collected by the accounting firm was $XXXXX[.] This amount was charged to the XXXXX[.]

4. XXXXX recovered the cost of the accounting firm's services, net of GST (excluding the $XXXXX from other member insurance companies.

5. XXXXX as a creditor of XXXXX was reimbursed for the amount paid to the accounting firm, including the $XXXXX GST that the accounting firm collected as tax. That reimbursement was derived from revenues that the accounting firm realized on the sale of the liquidated assets of the XXXXX[.]

6. XXXXX paid back the net amount (i.e., the amount of the reimbursement described above excluding the $XXXXX to the member insurance companies to offset the amounts they had previously paid to XXXXX as reimbursement for the accounting firm's fees. XXXXX retained the reimbursement of GST portion since the insurance companies, when originally reimbursing XXXXX taxable services it incurred from the accounting firm, had not included GST.

Interpretation Requested

Should the $XXXXX paid to XXXXX by the accounting firm from the assets of XXXXX be remitted to the Department and, if so, in what manner?

Interpretation Given

As you know, the XXXXX 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, discusses the procedures departments are to follow.

In accordance with Treasury Board' policy, "any GST or HST refunded should be credited to the XXXXX the current year." While the $XXXXX amount at issue may not represent a refund of tax (rather, it is described as a reimbursement of an amount incurred as tax and charged to the XXXXX, it is our view that since the tax collected by the accounting firm of XXXXX as charged to the XXXXX when this amount is then received by XXXXX in the nature of a "reimbursement," it must be remitted. Since the money was originally charged to the XXXXX it is our understanding from conversations with XXXXX representatives that the money should be credited to the XXXXX[.] Since the responsibility to establish government policy respecting GST/HST as it applies to federal departments rests with the XXXXX, the mechanism to be used by XXXXX to account for GST/HST refunded in the situation described should be confirmed with that office.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-0420.

Yours truly,

Lorrie Grannary
Charities and Non-profit Organizations Unit
Public Service Division
GST/HST Rulings and Interpretations Directorate