24 August 2001 GST/HST Interpretation 36055 - Documentary Requirements

Dear XXXXX

Thank you for your letter of May 18, 2001, with attachments, concerning the documentary requirements for purposes of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST).

In accordance with section 1.4 of Chapter 1 of the GST/HST Memoranda Series, an application ruling can only be issued in respect of a clearly defined fact situation of a particular person. Rulings are issued upon request and where the person has presented all the relevant facts such as the nature of the transactions undertaken, detailed descriptions of the services or property involved, the parties involved in all transactions and relevant documentation such as invoices, contracts and other pertinent agreements. Where all the relevant facts are not provided, an interpretation may be issued. As discussed in our telephone conversation of June 21, 2001, we are pleased to provide you with the following interpretation.

It is our understanding that third party retailers will be given an opportunity to sell electricity to consumers XXXXX. A copy of the XXXXX was included in your submission. The XXXXX outlines the process to "settle" the accounts of retailers and consumers under three different settlement/billing options. The retailer and consumer determine the selection of a billing option. The nature of your request focuses on the "retailer-consolidated billing" and the "distributor-consolidated billing" options. Under the first option, the retailer bills the consumer for the electricity that it provides as well as the charges for the local distribution company's (LDC's) distribution, transmission and other services as indicated in your letter. Under the second option, the LDC bills the consumer for the distribution services it provides and the electricity provided by the retailer.

Although the XXXXX addresses the settlement processes, there is no specific information in your submission with respect to the actual supplies that are being made. For example, it is not clear in the XXXXX, under either option, whether the supplies of electricity and distribution services to the consumer are made by the retailer, XXXXX as the LDC, or jointly by both parties. While there is no clear indication, it appears that the LDC is supplying electricity to the retailer, who subsequently supplies the electricity to the consumer. In addition, it appears that, in all cases, the LDC is providing the distribution (i.e., the delivery) services to the consumer.

Under the retailer-consolidated billing option, the provisions of the XXXXX require the LDC to deliver "settlement invoices" to the retailer. Generally, XXXXX provides that the LDC is required to itemize the costs that are attributable to each consumer served by the retailer including distribution, transmission and other services provided by the LDC. The retailer uses this information to subsequently bill the consumer. According to the XXXXX, in all cases, the specific payment and billing schedule for settlement processing shall be clearly delineated in the service agreement that is entered into by the retailer and the LDC. We have not been provided with a copy of such an agreement.

As indicated above, under the distributor-consolidated billing option, the LDC bills the consumer for the distribution services it provides and the electricity provided by the retailer.

Interpretation Requested

You have requested that we confirm that an LDC is not required to itemize the GST on an individual customer basis in the settlement invoices/documents issued to the retailer in accordance with the XXXXX and that it is sufficient to indicate the GST on the aggregate of charges relating to the retailer's customers where all such charges are subject to GST at 7%.

In addition, you have requested confirmation that, under the distributor-consolidated billing, where an LDC chooses to account for the GST collectible by the retailer in the LDC's net tax calculation as the amounts become collectible by the retailer for the supplies the retailer makes to its customers, the LDC's name and registration number should appear on the invoice issued to the customer and not the name and registration number of the retailer.

Interpretation Given

This interpretation is based on the following assumptions:

•   the LDC supplies the electricity to the retailer who, in turn, supplies the electricity to the consumer;

•   the nature of the supplies made to the consumer under either billing option are that of separate supplies made by the retailer and the LDC, for example, supplies of electricity are made by the retailer and supplies of distribution services are made by the LDC, both of which occur simultaneously; and

•   the LDC is not an agent of the retailer and vice-versa.

These assumptions are based on the inferences in your letter and the XXXXX. For example, XXXXX provides that, under retailer-consolidated billing, the retailer shall pay the consumer's LDC for costs incurred by the consumer. This lends support to the assumption that the LDC is making supplies to the consumer and that the retailer is paying the amounts to the LDC on behalf of the consumer.

As such, it appears that the settlement invoices/documents issued by the LDC to the retailer will contain information regarding the taxable supplies made by the LDC to the retailer and the taxable supplies made by the LDC to the consumer. There are no provisions in the Excise Tax Act (the ETA) that impose any GST/HST disclosure requirements for information that is relayed to a third party for purposes of invoicing the recipient of the supply. In other words, where a supplier engages a third party, such as a billing agent, to invoice the recipient of the supply and collect any amounts payable by the recipient, there are no requirements with respect to the information that must be provided by the supplier to the third party. Generally, such information is provided to assist the third party in charging and collecting the amounts on the supplier's behalf. As such, the parties involved, i.e., the third party and the supplier, may resolve the level of information to be provided within the terms of their agreement. The GST/HST disclosure requirements only address the provision of information by the supplier to the recipient, or in this case, the information provided by the third party (the retailer) to the recipient (the consumer) on behalf of the supplier (the LDC).

With respect to the taxable supplies made by the LDC to the retailer, for example, the supplies of electricity, the LDC is required to meet the documentary requirements of section 223 of the ETA and the Input Tax Credit Information (GST/HST) Regulations (the Regulations) to facilitate the claiming of input tax credits (ITCs) by the retailer, assuming that the retailer is entitled to claim ITCs. Therefore, to the extent that the settlement invoices/documents contain information relating to the taxable supplies, other than zero-rated supplies, made by the LDC to the retailer, the GST/HST disclosure requirements must be met in those invoices/documents provided that no other supporting documentation is made available to the retailer.

Subsection 223(1) of the ETA provides that where a registrant makes a taxable supply, other than a zero-rated supply, and there is no visible notice given at the place where the supply is made, the registrant is required to indicate in the invoice, receipt or written agreement, the consideration paid or payable by the recipient for the supply and the tax payable in respect of the supply in a manner that clearly indicates the amount of the tax. Where the amount paid or payable by the recipient includes the tax, there must be an indication in the invoice, receipt or written agreement that the amount paid or payable includes the tax payable in respect of the supply.

The Canada Customs and Revenue Agency (the CCRA) maintains the position that where two or more taxable supplies, other than zero-rated supplies, are made, the requirements of subsection 223(1) of the ETA are considered to be met where the supplier indicates the aggregate consideration for those supplies and the aggregate amount of tax that is payable in respect of those supplies. In other words, there is no requirement for GST/HST purposes to indicate the consideration and the tax payable for each separate supply identified in an invoice, receipt or written agreement. As evidenced below, this position is consistent with the scheme of the ETA and its regulations.

For your information, subsection 165.2(1) of the ETA provides that where two or more taxable supplies are included in an invoice, receipt or agreement and that tax is imposed at the same rate, the tax may be calculated on the total consideration for those supplies. For example, if all the supplies included in an invoice are taxable at 7%, the tax may be calculated on the total consideration for those supplies as opposed to calculating the tax on the consideration payable for each separate supply and then totalling the tax payable.

Subsection 223(1.1) of the ETA essentially addresses those supplies that are subject to the HST. The provision ensures that the amount of tax payable in respect of a supply that is subject to the HST that must be shown on an invoice, receipt or written agreement is the total amount of tax payable in respect of the supply as opposed to the 7% federal component and the 8% provincial component of the HST. Given that the supplies made by XXXXX are made in a non-participating province and subject to the GST, we will limit our comments regarding the application of the HST.

Subsection 223(2) of the ETA requires, in part, that a supplier furnish upon request such information in writing as may be required to substantiate an ITC claim by the recipient. The documentary requirements for such purposes are provided in the Regulations. As indicated above, there is no provision in the Regulations that would require a supplier to indicate the tax payable for each separate supply included in an invoice, receipt or written agreement as opposed to the total tax payable for all taxable supplies. In fact, where two or more supplies are made, pursuant to clause 3(b)(iii)(A) of the Regulations, the supplier shall indicate on the supporting documentation for purposes of the recipient claiming an ITC either the tax that is paid or payable in respect of each supply or in respect of all supplies where the total amount paid or payable shown on the documentation in respect of the supplies is more than $30 and the amount does not include the tax.

With respect to your second question, the name and registration number that must be included in an invoice, receipt or written agreement is addressed in the Regulations. Pursuant to subparagraph 3(b)(i) of the Regulations, where the total amount paid or payable shown on the supporting documentation in respect of the supply(ies) is more than $30, the name of the supplier or the intermediary in respect of the supply, and the GST/HST registration number assigned to the supplier or intermediary, as the case may be, must be indicated on the documentation. Alternatively, the name under which the supplier or the intermediary does business may be used along with its registration number.

Section 2 of the Regulations provides that "intermediary" means a registrant who, acting as agent of the person or under an agreement with the person, causes or facilitates the making of the supply by the person.

Therefore, where an LDC who is a registrant, causes or facilitates the making of the supply by the retailer under an agreement with the retailer, the LDC would be considered to be the intermediary of the retailer. It is the CCRA's view that the distribution (delivery to the consumer by the LDC) of the electricity supplied by the retailer to the consumer facilitates the making of the supply by the retailer. Provided that the LDC facilitates the making of the supply by the retailer pursuant to an agreement with the retailer, either the name and registration number of the retailer or the name and registration number of the LDC may appear on the invoice issued to the consumer to support an ITC claim where the consumer is entitled to claim an ITC. The fact that the LDC may be accounting for the tax collectible by the retailer in the LDC's net tax does not preclude the use of the retailer's name and registration number.

For your information, we note that there have been no discussions with respect to the retailer-consolidated billing option on whether a retailer will be accounting for the tax collectible by the LDC for the taxable supplies, if any, that are made by the LDC to the consumer, in the retailer's net tax as the amounts become collectible by the LDC. Regardless of the provisions for the settlement of accounts in the XXXXX, the LDC is liable for all amounts of tax that are collectible by the LDC and is required to account for these amounts in its net tax calculation. Where a retailer accounts for the tax collectible by the LDC, it is the CCRA's position that the LDC's liability for the tax is only extinguished at the time that the tax is remitted by the retailer. This mirrors the CCRA's position with respect to a retailer's liability where the distributor chooses to account for the tax collectible by the retailer in its net tax under the distributor-consolidated billing option.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA or its regulations, 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 CCRA 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) 954-2488.

Sincerely,

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

XXXXX