5 July 2002 GST/HST Interpretation 38197 - The Application of GST to Rebates

Dear XXXXX:

This letter is in response to your letter of XXXXX, which was forwarded to us from the XXXXX GST/HST Rulings Centre, where you requested that we reconsider the position taken in the earlier ruling of XXXXX. The purpose of this letter is to clarify the Canada Customs and Revenue Agency's ("CCRA") position in regards to the GST treatment of XXXXX rebates.

You requested confirmation that XXXXX customers in XXXXX are entitled to receive a credit of the GST from XXXXX in respect of the XXXXX rebates paid out in XXXXX, ("hereafter referred to as the percentage rebate"), and the XXXXX rebates paid out in XXXXX, with retroactive interest thereon.

Your views in regards to the application of the GST to the XXXXX rebates were given careful consideration. Nonetheless, we hereby confirm the position presented in the letter of XXXXX, issued by the XXXXX GST/HST Rulings Centre that there is no entitlement to a credit of tax, with respect to the $XXXXX rebate, or the percentage rebate.

We were provided with copies of two letters issued to you by XXXXX dated XXXXX, and XXXXX. Both letters present the view that XXXXX cannot change the price of XXXXX without the approval of the XXXXX. XXXXX has not treated the $XXXXX rebate, nor the previous percentage rebate as being reductions in consideration.

For purposes of XXXXX consolidated income statements for the years ended XXXXX, and XXXXX, XXXXX has included special line items to account for the rebates. XXXXX has treated the rebates as being in the nature of customer profit sharing. In the letter to you of XXXXX, XXXXX presented the view that the intent behind the $XXXXX rebate was to help XXXXX families deal with rising XXXXX prices. These points support the view that the rebates did not relate to the supply of XXXXX.

For purposes of subsection 232(2) of the Excise Tax Act (ETA), you presented the view that the provisions relating to the supplier's option whether or not to refund, adjust or credit the tax to a recipient in relation to a subsequent reduction in consideration would be very strictly controlled. However, since XXXXX did not subsequently reduce the consideration for the supply of XXXXX when it paid out the rebates, subsection 232(2) of the ETA does not apply in respect of either rebate.

Where a supplier subsequently reduces the consideration for a supply, subsection 232(2) of the ETA provides that a supplier "may" refund, adjust or credit the tax to the recipient. Any such refund, adjustment or credit is entirely at the discretion of the supplier. Under this provision, the CCRA cannot require a supplier to refund, adjust or credit the tax to its customers. Paragraph 11 of the Interpretation Act provides that the expression "shall" is to be construed as imperative and the expression "may" as permissive.

Section 181.1 of the ETA is another provision that applies to certain rebates (i.e., usually manufacturers' rebates) paid out by registrants, and it outlines the rules governing such rebates. This provision was explored in the ruling issued by the XXXXX GST/HST Rulings Centre, and applies when certain conditions have been satisfied, amongst other things, that the registrant provides written indication that a portion of the rebate is an amount on account of tax. In the case at hand, no amount in respect of either rebate was identified as being on account of tax. As such, section 181.1 of the ETA does not apply to these rebates.

In your letter of XXXXX, you requested an up to date copy of the Excise Tax Act, as well as copies of sections 232 and 181.1 of the ETA. It is our understanding that XXXXX of our XXXXX Office provided you with details that will allow you to access the legislation "on-line", and provided you with information so that you may order/purchase a copy of the Excise Tax Act.

You inquired whether or not you could appeal our decision in regards to this matter. The CCRA provides rulings and interpretations for the convenience and guidance of registrants and other persons in applying the provisions of the legislation. The service is not codified in the legislation, and therefore, there is no specific recourse available under the legislation. However, our office welcomes any request for review of letters issued by local rulings centres. We have given consideration to your views, and reviewed our previous ruling, and find that it was correct.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact Gunar Ozols, A/Manger of the General Operations Unit at (613) 952-0301, or me at (613) 954-9699.

Yours truly,

Douglas Wood, CGA
Rulings Officer
General Operations Unit
General Operations & Border Issues Division
Excise and GST/HST Rulings Directorate