17 January 2002 GST/HST Interpretation 36144 - Application of 6/106 Factor

Dear XXXXX:

Thank you for your letter of September 18, 2001 with a copy of a letter dated May 30, 2001 from XXXXX to the Canada Customs and Revenue Agency (CCRA) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to meal reimbursements made by XXXXX to its employees. Also attached was a copy of the CCRA's response (case #36144) to that letter.

Your letter of September 18, 2001, which was addressed to XXXXX XXXXX, has been forwarded to us for a direct response.

It is our understanding that, in the letter from XXXXX dated May 30, 2001 to the CCRA, XXXXX was seeking confirmation that it is permissible for a registrant to use the 6/106 factor to calculate its ITC entitlement when the registrant reimburses employees for meal expenses charged to a company credit card and receipts are not requested from the employees.

The view of XXXXX in this regard is that, in applying the authority granted to the Minister under the provisions of subsection 169(5) of the Excise Tax Act (ETA) to exempt specified registrants, specified classes of registrants, or all registrants from any of the requirements provided for under subsection 169(4) of the ETA, the CCRA issued GST memorandum 400-1-2. XXXXX position is that, pursuant to paragraph 56 of GST memorandum 400-1-2, a registrant who is using the 6/106 factor to calculate ITCs on meal expenses, is only required to keep proper books and records which capture only certain information including all the documentation currently required to substantiate such deductions under the Income Tax Act (ITA). The following information requirements are listed in paragraph 56 of GST memorandum 400-1-2:

(a) the name and registration number of the registered employer or partnership who has made the reasonable reimbursement;

(b) the name of the employee or member of the partnership who has received the reasonable reimbursement;

(c) the total amount of the reimbursement received by each employee or member of the partnership;

(d) the total GST deemed to have been paid in respect of the reimbursement (6/106ths of the total amount, subject to the 80-per-cent (after 1996, the reference here to "80-per-cent" should read "50-per-cent") restriction, if applicable; and

(e) the reporting period in which the reimbursement was paid.

In the response dated XXXXX, provided to XXXXX by GST/HST Rulings XXXXX XXXXX, it was stated that registrants are required to maintain the documentary evidence as per Policy P-184R when using the 6/106 factor to calculate ITCs with respect to credit card expenses.

Paragraph 4 of Policy P-184R states that with respect to credit card expenses and a registrant's use of the 6/106ths or14/114ths factor for claiming ITCs, the documentary evidence used in the calculation of the ITC must satisfy the following criteria:

(a) When a credit card receipt is issued in conjunction with another component of supporting documentation, both components must be obtained by the registrant before the return in which the ITC is claimed is filed; and

(b) Where no other supporting documentation is issued in conjunction with a credit card receipt (e.g., gasoline service stations and hospitality industry), the credit card receipt will constitute sufficient supporting documentation to claim an ITC.

Note that the monthly credit card statement alone does not constitute sufficient documentation to claim an ITC.

XXXXX is not in agreement with the reply as it fails to answer the question on how Policy P-184R overrides the intention of subsection 169(5) of the ETA and GST memorandum 400-1-2, without either subsection 169(5) of the ETA or memorandum 400-1-2 being changed.

Interpretation Requested

You are requesting an interpretation as to how P-184R overrides the intention of subsection 169(5) of the ETA and GST memorandum 400-1-2 without either subsection 169(5) of the ETA or GST memorandum being changed.

Interpretation Given

We agree with the conclusion provided in the response issued to you by GST/HST Rulings XXXXX XXXXX. Specifically, our position is that registrants are required to maintain the documentary evidence as per Policy P-184R when using the 6/106 factor to calculate ITCs with respect to credit card expenses.

It is the CCRA's position that where the Minister is satisfied there are or will be sufficient records available to establish the particulars of any supply or importation of a specified class (in this case meal reimbursements made to employees by the employer) and the tax paid or payable in respect of the supply or importation, paragraph 169(5)(a) of the ETA provides the Minister with the authority to exempt a specified registrant, a specified class of registrants, or registrants generally from the documentary requirements of subsection 169(4) of the ETA in respect of that supply or importation.

In addition, paragraph 169(5)(b) of the ETA provides the Minister with the authority to specify the terms and conditions from the exemption provided under the provisions of paragraph 169(5)(a) of the ETA.

Policy P-184R does not override the intention of subsection 169(5) of the ETA or GST memorandum 400-1-2. Rather, it is the CCRA's administrative policy with respect to the terms and conditions specified by the Minister (as authorized to do so pursuant to paragraph 169(5)(b) of the ETA) when a registrant is using the 6/106 factor to calculate ITC entitlements on expenses charged to a credit card.

A memorandum contains general information provided for convenience and guidance in applying the provisions of the ETA. GST memorandum 400-1-2 provides guidance with respect to the general documentary requirements registrants must obtain prior to claiming an ITC. In contrast, Policy Statement P-184R was developed to address documentary requirements relating specifically to the use of the 6/106 factor and expenses charged to credit cards.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, 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 Canada Customs and Revenue Agency 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) 952-0419.

Yours truly,

Anne Kratz
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate