27 March 2000 General Information Letter 7952/HQR0001558 - GENERAL INFORMATION LETTER Net Tax Calculation

Dear XXXXX

This letter is in response to a letter dated January 7, 1999 from XXXXX concerning the remittance of tax by the XXXXX a prescribed registrant for the purposes of subsection 188(5) of the Excise Tax Act (ETA). In the letter, it is requested that XXXXX be permitted to remit 7% on the amount of reimbursements paid to the XXXXX[.] Pursuant to subsection 188.1(5) of the ETA, XXXXX is a "distributor" of XXXXX. The letter also states that XXXXX will not claim input tax credits with respect to any tax it paid on the inputs being reimbursed and therefore, there will be no tax loss to the Canada Customs and Revenue Agency (CCRA). It is argued that the required method of calculating XXXXX remittance results in significant additional effort for your organization.

Pursuant to subsection 188(5) of the ETA, prescribed registrants must calculate their net tax in a prescribed manner.The net tax calculation is set out in the Games of Chance (GST) Regulations. XXXXX[.] Under this calculation, an amount equaling the reimbursements paid to distributors, other than certain excluded amounts, must be accounted for under variables A3 and C1. As these variables are multiplied by 7% under the calculation, this effectively results in XXXXX accounting for 14% tax on most of the reimbursements.

You will appreciate that the proposed method of calculating XXXXX net tax is not in compliance with the provisions of the ETA. The legal obligations of a GST/HST registrant to collect and remit tax and a registrant's entitlement to claim input tax credits are required to be undertaken by a registrant on their own account. While the method proposed may be satisfactory for your purposes, it is not possible for the CCRA to approve its use. Accordingly, as a prescribed registrant, XXXXX is required to calculate its net tax in each reporting period as set out in the previous paragraph. Please note that the net tax determined by a registrant for a reporting period is subject to verification by the CCRA at the time of audit.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-7656 or Brent Fleming at (613) 952-0370.

Yours truly,

P. Bertrand
Director
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate