11 January 2000 GST/HST Interpretation HQR0001741 - Invoice Issue

Dear XXXXX

This letter is in response to your memorandum of April 9, 1999, to Dave Caron, and the subsequent correspondence from XXXXX regarding the XXXXX XXXXX XXXXX. I apologize for the delay in responding to this matter.

Background Information

XXXXX.

XXXXX has proposed to raise an assessment against the XXXXX as a result of "timing differences" relating to when tax is considered payable. In the case at hand, this relates back to when consideration is considered to have become due.

The main issue is whether or not the document first provided to the customer by the XXXXX when goods are ordered for future delivery is an invoice for GST/HST purposes. The XXXXX contends that the document is a sales order rather than an invoice.

Once a customer decides to purchase a particular type of merchandise from the XXXXX, the salesperson completes a "sales order" which may include the following information:

a) Balance due,

b) Credit card information,

c) Customer's personal information (i.e., name, address, phone number and signature),

d) Delivery instructions,

e) Deposit information,

f) Details of the merchandise purchased (i.e., quantity, item code, fabric color, description of goods purchased),

g) GST payable,

h) Manager's signature,

i) PST payable,

j) Sales comments, and

k) The XXXXX registration number.

The sales order accumulates information about the customer and the customer's selection. The XXXXX sales policy is to ask for a deposit from all customers at the time the sales order is completed. The sales order identifies the funds received as being a deposit.

One of the sales orders provided is labeled "FURNITURE INVOICE". Another has the label "APPLIANCE INVOICE" in the bottom right hand corner, and another uses the terms "sales order" and "invoice" on the same document. One of the "delivery documents" reviewed refers back to the invoice number on the "sales order" initially provided to a customer.

After the sales order is entered into the retail system, the salesperson takes steps to obtain the merchandise ordered. Prior to delivery, the sales order details are confirmed with the customer. Historical experience indicates that approximately 9.84% of all sales orders issued are cancelled by customers.

Upon delivery, the customer is required to sign the delivery document, at which time the customer acknowledges receipt of the merchandise. It has been argued by the XXXXX that it is at this point in time at which the customer becomes liable to pay any balance outstanding.

Interpretation Requested

The question at hand is whether or not the document referred to as a sales order by the XXXXX is an invoice for GST/HST purposes.

Interpretation Given

It could be argued that the XXXXX sales order is an invoice for GST/HST purposes, simply based upon the definition of invoice under subsection 123(1) of the ETA. This definition provides that an invoice includes a statement of account, a bill and any other similar record, regardless of its form or characteristics, and a cash register slip or receipt. This definition is sufficiently broad to include the XXXXX sales order.

However, the CCRA's administrative position, found in GST Memoranda 300-6-3, outlines some additional characteristics of invoices, one being that they notify or carry an obligation to pay. Based upon a review of the materials provided, it is not clear that the XXXXX sales order establishes an obligation to pay at the time at which goods are ordered by the customer for future delivery.

Simply looking at the sales order, there is certainly the appearance of an obligation to pay. However, the XXXXX advises that the salesperson who is dealing with the customer advises the customer that any amount identified as a "Balance Due" would be due upon the satisfaction of all conditions, with the final condition being the delivery and acceptance of the goods by the customer.

The fact that a particular document contains the word "invoice" or is referred to by either the supplier or recipient as an invoice, will not necessarily cause that document to be considered an invoice for GST/HST purposes. In the case at hand, there are a number of factors which support the XXXXX position that the sales order does not establish an obligation to pay. It is our understanding that only delivered sales are included in the XXXXX revenue for financial statement purposes. The delivery of the merchandise triggers a number of different transactions for the XXXXX as follows:

1. The customer's warranty period begins.

2. The 30 day XXXXX Satisfaction Guarantee period commences.

3. The inventory item ceases to be covered by the XXXXX warehouse insurance policy and transit insurance policy.

4. The customer becomes entitled to Air Miles points.

5. The XXXXX financial obligation to Air Miles is established.

6. The XXXXX salesperson becomes entitled to his/her sales commission. The right to the sales commission only exists after delivery and acceptance of the merchandise by the customer.

Given the XXXXX sales policy, as demonstrated by their business practices, we would be prepared to "treat" the sales order issued by the XXXXX when a customer orders goods for future delivery as a document which is not an invoice for GST/HST purposes. However, to prevent confusion in the future, it may be appropriate for the XXXXX not to use the label "invoice" on documents which are not truly invoices.

We have discussed this matter with the Technical Applications Section, Technical Applications and Valuations Division, Audit Directorate, V.E.C.R. Branch. They agree that arguments can be made that the sales orders could be considered "invoices" for GST/HST purposes. Further, they recognize that the "timing difference" in accounting for the amounts for GST/HST purposes results in a permanent deferral as the aggregate of the amounts rolls over from reporting period to reporting period although the amount of the deferral rises and falls from period to period.

In light of the fact that there has been some confusion within this particular industry regarding sales documentation, the Technical Applications Section has advised us that, in these particular circumstances, they would strongly recommend that the portion of the proposed assessment relating to "timing differences" associated with these "sales orders" not be raised against the XXXXX. Our Directorate would support this position.

Should you have any further questions or require clarification on the above noted matter, please contact Douglas Wood at (613) 954-9699 or Dave Caron, Manager, General Operations Unit at (613) 952-0301.

Yours truly,

Adrien Venne
Director
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate