5 May 2000 GST/HST Interpretation 25508R - Application of GST on PST Charged in Invoices to Clients

Dear XXXXX

Thank you for your letter of February 23, 2000. You have requested clarification on the application of GST to invoices that you issue to your clients for expenses that you have incurred where you were charged PST by the supplier.

Expenses incurred that a client has agreed to reimburse are treated as additional consideration payable by the client for your services. The reimbursement for these expenses is treated in the same manner as the base contract amount, i.e., the GST is applicable on the amount being reimbursed even though this amount may include other taxes which was previously charged to you on the supply.

When calculating the taxes on the value of the consideration, the PST charged by you, if you are required to charge PST under provincial law, would not be included in the value of the consideration for the supply. Therefore, PST and GST are each calculated separately based on the value of the consideration of the supply on accordance.

For example, assume you made a purchase for $100 on which you were charged GST of $7. When you invoice your client for this expense you will invoice your client $107 (referred to as the value of the consideration) plus GST of $7.49 ($107 x 7%). If you were also required to charge PST of this invoice, you would calculate the PST on the value of the consideration, i.e., $107 x PST rate. The invoice total would be equal to the value of consideration ($107) plus GST ($107 x 7%) plus PST ($107 x PST rate).

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 Canada Customs and Revenue Agency 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) 952-9577 or Duncan Jones at (613) 952-9210.

Yours truly,

Marilena Guerra
Senior Technical Analyst
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate