2 February 2000 GST/HST Ruling 13551 - Time of Liability for GST/HST

Dear XXXXX

Thank you for your letter of November 26, 1999, with attachments, concerning the time the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) is payable in respect of the transactions described below.

SITUATION #1

Statement of Facts

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

1. XXXXX (hereafter referred to as "Co. A") sends to customers, willing to accept a 30-day free trial, a manual entitled "XXXXX["] other materials, a letter and a document which is clearly identified as an invoice for the manual and a one year subscription to the update service (hereafter referred to as "the document").

2. The letter specifies that the manual is provided on a free 30 day trial basis and the document stipulates that there is a 30 day review.

3. The letter instructs the customer to pay the enclosed invoice if, at the end of the 30 day period, the customer chooses to keep the manual and receive the updates. Alternatively, the customer may return the manual by ordinary post. Certain materials may be kept by the customer free of charge regardless of whether the customer accepts the offer to purchase the manual and become a subscriber.

4. The document contains the date that the manual was sent to the customer, identifies both the supplier, Co. A, and the customer, indicates an invoice number, an amount for the GST and the total amount payable in respect of the taxable supply of the manual which includes a one year subscription to receive updates to the manual.

5. There is no evidence of an underlying obligation for the customer to pay to Co. A any amount for the manual and the one year subscription in either the letter or the document at the time that they are sent, with the manual, to the customer.

6. The amount payable indicated on the document is not carried into Co. A's financial records unless and until payment is received.

7. The customer may pay for the manual by sending a cheque payable to Co. A or provide information for credit card payment. In the latter case, the customer signs the area on the document that authorizes the credit card payment and returns the document to Co. A.

8. There is no requirement for the customer to sign the document or the letter to indicate that the customer is accepting the offer to purchase the manual and become a subscriber.

9. The letter and the document do not constitute agreements in writing that are entered into by the customer and Co. A.

10. With respect to manuals that are returned, no credit notes are issued pursuant to section 232 of the Excise Tax Act (the ETA) and no bad debt adjustments are taken pursuant to section 231 of the ETA as the revenue and the GST/HST are never recognized in Co. A's records.

Rulings Requested

Is GST/HST payable in respect of an offer made by Co. A that is not accepted by the customer and, consequently, no payment received by Co. A?

When does the GST/HST become payable and, consequently, when is Co. A required to include the tax in its net tax calculation?

Rulings Given

Based on the facts set out above, we rule that there are no GST/HST consequences when the offer is not accepted by the customer and no payment is received by Co. A (i.e., the manual is returned by the customer to Co. A).

Based on the facts set out above, we also rule that the GST/HST becomes payable on the day that the consideration is paid by the customer to Co. A and that Co. A is required to include the GST/HST paid in its net tax calculation for the reporting period during which the GST/HST was paid.

TRANSACTION #2

Statement of Facts

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

1. XXXXX hereafter referred to as "Co. A") sends annual subscription renewal offers automatically to customers upon the expiry of their subscriptions for the updates to the manual entitled "XXXXX XXXXX[".]

2. The offer to renew the subscription is sent in the format of a letter which invites the customer to renew the subscription and indicates that the accompanying document is an invoice for the renewal of the subscription. The document is clearly identified as a renewal invoice (hereafter referred to as "the renewal document").

3. The renewal document contains the date that the offer to renew the subscription was sent to the customer, identifies both the supplier, Co. A, and the customer, indicates an invoice number, an amount for the GST and the total amount payable in respect of the taxable supply of a one year subscription to receive updates to the manual.

4. There is no evidence of an underlying obligation for the customer to pay to Co. A any amount for the renewal of the subscription in either the letter or the renewal document at the time that they are sent to the customer.

5. The amount payable indicated on the renewal document is not carried into Co. A's financial records unless and until payment is received.

6. The customer may pay for the subscription renewal by sending a cheque payable to Co. A or provide information for credit card payment. In the latter case, the customer signs the area on the renewal document that authorizes the credit card payment and returns the renewal document to Co. A.

7. There is no requirement for the customer to sign the renewal document or the letter to indicate that the customer is accepting the offer the renew the subscription.

8. The letter and the renewal document do not constitute agreements in writing entered into by the customer and Co. A.

9. With respect to subscriptions that are not renewed (i.e., no payments are received in respect of the renewal document), no credit notes are issued pursuant to section 232 of the ETA and no bad debt adjustments are taken pursuant to section 231 of the ETA as the revenue and the GST/HST are never recognized in Co. A's records.

Rulings Requested

Is GST/HST payable in respect of an offer made by Co. A to renew a subscription to the update service that is not accepted by the customer and, consequently, no payment received by Co. A?

When does the GST/HST become payable and, consequently, when is Co. A required to include the tax in its net tax calculation?

Rulings Given

Based on the facts set out above, we rule that there are no GST/HST consequences when the offer to renew a subscription to the update service is not accepted by the customer and no payment is received by Co. A.

Based on the facts set out above, we also rule that the GST/HST becomes payable in respect of the renewal of the subscription to the update service on the day that the consideration is paid by the customer to Co. A and that Co. A is required to include the GST/HST paid in its net tax calculation for the reporting period during which the GST/HST was paid.

These rulings are 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 these rulings 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 rulings.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-2488.

Marcel R. Boivin
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate