27 August 2001 GST/HST Interpretation 37056 - Coin-Operated Devices Remission Order

This is further to our meeting of XXXXX, and your e-mail of that date with respect to the Coin-Operated Devices Remission Order [SI/99-21] (the "remission order").

The situation that you are dealing with involves a registrant who made supplies through coin-operated devices during the period of January 1, 1991, to April 23, 1996, (the "eligible period") and has filed a request for a remission of the tax payable in respect of those supplies. We understand that the supplies in question are considered to be "eligible supplies" as defined in the remission order in that they are supplies in respect of which the tax payable would have been equal to zero under subsection 165.1(2) of the Excise Tax Act (ETA) had that subsection been in effect at the time the supplies were made. Generally, as you know, subsection 165.1(2) of the ETA provides that the tax payable is zero in respect of a supply of tangible personal property or a service made through a mechanical coin-operated device that is designed to accept only a single coin of twenty-five cents or less as the total consideration for the supply.

At issue is whether unclaimed ITCs that arise during the eligible period are required to be taken into account in determining the amount to which a registrant is entitled under the remission order. The registrant in this case was previously under the impression that XXXXX. The calculation of net tax reported in the registrant's returns filed for reporting periods during the eligible period reflected this type of arrangement. However, based on its agreements with the premises owners, the registrant has since determined that it XXXXX was making all of the eligible supplies through the devices and that the amounts paid to the premises owner were for the rental of space. The registrant's representative contends that the wording of the remission order is sufficiently broad to take into account unclaimed ITCs in respect of the space rental in determining the amount to be paid to the registrant under the remission order. The registrant's representative has also questioned why unclaimed ITCs have been taken into account in assessing the registrant's net tax for 1997 to 2001 reporting periods but not for earlier reporting periods during the eligible period.

Interpretation Requested

You have requested confirmation of the manner in which the remission order applies in a case such as this and our comments regarding your XXXXX.

Interpretation Provided

It is first important to note that the authority under which a remission of tax is made under the remission order is the Financial Administration Act as opposed to the ETA. Specifically, amounts paid under the remission order are not paid under section 261 of the ETA (rebate of amount remitted as net tax in error), nor are they assessed under sections 296 (assessment of net tax) or 297 (assessments of rebates) of the ETA. XXXXX As you know, the amount of the remission that is granted under the remission order with respect to a reporting period of a registrant beginning in the eligible period is determined by the formula "A-B". Part "A" is the positive or negative amount of the registrant's net tax for the reporting period while part "B" is the positive or negative amount that would have been the registrant's net tax for the reporting period if that net tax did not include any amount collected or collectible by the registrant as or on account of tax in respect of eligible supplies.

For purposes of the remission order, "net tax" is defined to have the same meaning as under Division V of Part IX of the ETA and, in the case of this particular registrant, would have the same meaning as in subsection 225(1) of the ETA. As you know, subsection 225(1) of the ETA generally defines the net tax for a particular reporting period as the positive or negative amount determined by the formula "A-B" where "A" is the total of all amounts that became collectible and all other amounts collected in the particular reporting period as or on account of tax and "B" is the total of all amounts each of which is an input tax credit for the particular reporting period or a preceding reporting period claimed in the return filed for the particular reporting period.

The amount of "A" in the formula in the remission order in respect of a reporting period of the registrant beginning during the eligible reporting period is therefore equal to the amount of the registrant's net tax for that reporting period as defined under subsection 225(1) of the ETA. With respect to the issue in question, it is important to note that ITCs that have not been claimed in the return filed for a reporting period do not form part of the net tax for that reporting period under subsection 225(1) of the ETA.

As previously indicated, part "B" of the formula in the remission order with respect to a reporting period is equal to the positive or negative amount that would have been the registrant's net tax for the reporting period if that net tax did not include any amounts collected or collectible as tax by the registrant in respect of eligible supplies. In other words, the net tax amount in part "B" of the remission order formula is equal to the actual net tax amount in part "A" of that formula with the only difference being that part "B" excludes amounts collected or collectible as or on account of tax in respect of eligible supplies.

The wording of the remission order is clear in that part "B" only excludes amounts collected or collectible as tax in respect of eligible supplies from the amount of the registrant's net tax, without regard to the amount of any unclaimed ITCs for the reporting period, be they in relation to the making of eligible supplies or not. We note that this result is consistent with the effect under subsection 165.1(2) of the ETA as this provision strictly affects the tax payable in respect of a supply. The remission order is merely intended to relieve eligible supplies from tax payable to the same extent that they would have been relieved had subsection 165.1(2) of the ETA been in effect during the eligible period.

With respect to why unclaimed ITCs for more recent periods have been allowed but not for those during the eligible period, it is first important to note, as previously indicated, that the granting of a remission under the remission order is made under the authority of the Financial Administration Act and does not allow for an assessment of net tax to be made under section 296 of the ETA, let alone beyond the time limit under section 298 of the ETA.

We note that subsection 296(2) of the ETA requires unclaimed ITCs for a reporting period to be taken into account in assessing the net tax for that reporting period as if the ITCs had been claimed in the return filed for the reporting period. Subject to certain restrictions, the consequential net tax overpayment may, under subsection 296(3) of the ETA, either be applied against GST/HST amounts owing by the registrant or refunded to the registrant. However, an unclaimed ITC may not be taken into account unless the net tax for the reporting period in which the ITC arose is being assessed. Therefore, if the net tax for a reporting period, including the net tax for a reporting period during the eligible period in the remission order, may no longer be assessed because the time limit to do so under section 298 of the ETA has expired, any unclaimed ITCs for those reporting periods may consequently not be taken into account.

It is also important to note that even if the time limit to assess the net tax for the reporting periods in question had not expired and could therefore be assessed so that unclaimed ITCs could be taken into account, the overpayment that they would generate could still not be refunded to the registrant. Specifically, subsection 296(4) of the ETA provides that such an overpayment may not be refunded if the time limit to claim the ITC in question has expired when the corresponding notice of assessment is issued, nor may it be applied against amounts that became owing after the expiration of the time limit to claim the ITC.

With respect to XXXXX, it should be noted that section 3 of the remission order reduces the amount of the remission with respect to a reporting period by the total amounts collected or collectible by the registrant as or on account of tax in respect of eligible supplies included in the positive net tax for that reporting period that remained outstanding when the registrant filed an application for remission. As a result, the amount to which the registrant is entitled under the remission order will not exceed the amount that was actually remitted by the registrant on account of that positive net tax. This restriction applies where the net tax was not assessed before the application was filed and cannot be assessed after that time because the time limit to do so under section 298 of the ETA has subsequently expired.

In conclusion, unclaimed ITCs may not be taken into account in determining the amount to which the registrant is entitled under the remission order. In keeping with the result of subsection 165.1(2) of the ETA, the remission order formula merely considers what the registrant's net tax would have been if amounts had not been collected or collectible as tax in respect of eligible supplies.

The ITCs would also not have formed part of the registrant's net tax for the reporting periods in question to the extent that they were not claimed in returns filed for those reporting periods. Nor could the ITCs otherwise form part of that net tax by assessing the net tax for the reporting periods to the extent that the net tax may no longer be assessed, unlike the case of net tax for more recent reporting periods. Again, even if that net tax could still be assessed so that the ITCs could be taken into account, a refund of the resulting overpayment would be restricted from being made as the time limit to claim those ITCs would have expired.

Should you have any questions regarding this matter, please do not hesitate to call me at 952-8815.

Raymond Labelle
Senior Technical Analyst
Services and Intangibles Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate