25 March 2002 GST/HST Interpretation 39749 - Application of GST to Supplies of Dutiable Spirits

This is to inform you that there has recently been some discussion relating to the above-captioned subject and the issue has been addressed with industry.

Our interpretation of s. 154 of the Excise Tax Act (ETA) is that the consideration for any supplies of dutiable spirits made prior to excise duty becoming payable will not include amounts of excise duty; whereas, consideration for supplies of dutiable spirits made after the duty on the spirits has become payable will include the amount of duty. Under the terms of the Excise Act (EA) and Regulations, excise duty generally becomes payable when spirits "are entered for consumption" (leave the in-bond warehouse).

Although the application of s. 154 to supplies of dutiable spirits was addressed in a XXXXX interpretation to the XXXXX, most of the industry has, for a number of reasons, been treating in-bond supplies of dutiable spirits as if the duty were payable (calculating GST based upon a duty-included consideration).

In this context, please note that XXXXX interpretations issued on XXXXX, by the XXXXX do not reflect the above interpretation of s. 154 of the ETA. Please advise these registrants of our interpretation of s. 154.

While there was no revenue loss and since the parties involved were registrants, the cashflow of the XXXXX was negatively impacted. Further, in some instances, this resulted in significant gaps between amounts invoiced by XXXXX as GST/HST and amounts paid by the XXXXX. Some XXXXX remitted the invoiced amount of GST/HST, even where the recipient had paid a lower amount of GST/HST, resulting in over-remittances on account of GST/HST. XXXXX XXXXX, on the other hand, were claiming ITCs in respect of amounts that they had paid as GST/HST that were not in fact GST/HST.

Representatives of the CCRA met with representatives of the XXXXX in late January to discuss the application of GST/HST to supplies of dutiable spirits. The result of these meetings is that XXXXX will effect the systems changes required in order to correctly apply GST/HST to dutiable spirits by April 1, 2002 (for the most part, the systems of XXXXX are set up to pay duty-included amounts of GST). In addition, an information letter has been sent to both the XXXXX and the XXXXX setting out the application of s. 154 XXXXX, and outlining the consequences in terms of ITCs, rebates and adjustments for past transactions. Application rulings were also issued to XXXXX Canadian XXXXX with respect to the application of the GST to their supplies, specifically addressing how to recoup their over-remittances. XXXXX[.] In addition, a technical memorandum was drafted to the attention of the Excise Division, setting out the application of s. 154 as well as the calculation of GST on imported spirits. XXXXX[.] Please advise your staff that reference may currently be made to any of the three above-noted cases XXXXX. Should you or your staff require further information or guidance, general questions regarding the application of s. 154 may be addressed to the attention of Mr. Philippe Nault, Manager, Specialty Tax Unit (613-952-9219), whereas questions specific to the application of s. 154 to supplies of dutiable spirits may be directed to Mr. Duncan Jones, Manager, Financial Institutions Unit at 613-952-9210.

Ivan Bastasic
A/Director
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate