Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5XXXXX
XXXXX
XXXXX
XXXXXAttention: XXXXX
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Case Number: 38168Business Number: XXXXXJanuary 21, 2002
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Subject:
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GST/HST INTERPRETATION
Subsection 296(2) of the Excise Tax Act
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Dear XXXXX:
Thank you for your letter of November 19, 2001, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to assessments.
You have presented a scenario as follows:
Corporation X is registered for purposes of the GST, has a monthly reporting period and is not a specified person for GST purposes.
The Canada Customs and Revenue Agency (CCRA) is auditing Corporation X for GST for the period from XXXXX to XXXXX.
The CCRA is proposing to assess Corporation X in the amount of $XXXXX relating to the reporting period XXXXX to XXXXX. This is the only assessment the CCRA proposes for the complete audit period.
Corporation X discovers that, in XXXXX, it paid $XXXXX in GST that it never claimed as an input tax credit (ITC). Corporation X has sufficient documentation to support a related ITC claim.
Corporation X immediately brings this discovery to the attention of the CCRA auditor and asks that the proposed $XXXXX assessment be vacated.
Interpretation Requested
You are asking for confirmation of your position that the proposed assessment for the reporting period of XXXXX should be vacated as there was an equal offsetting ITC available in the XXXXX reporting period. You also ask that we confirm this position is in accordance with the CCRA's interpretation of subsection 296(2) of the Excise Tax Act (the Act).
XXXXX
Interpretation Given
Subsection 169(1) of the Act provides that a person's ITC for a reporting period in respect of property or a service that is acquired, imported or brought into a participating province for consumption, use or supply exclusively in the course of a commercial activity of the person is equal to the tax that becomes payable (or that is paid by the person without having become payable) in respect of the supply, importation or bringing in during the reporting period. This is provided the person is a registrant during the reporting period.
Pursuant to paragraph 225(4)(b) of the Act an ITC for a "particular reporting period" must generally be claimed by a person who is not a specified person in a return filed by the person on or before the due date of the return for the last reporting period of the person that ends within four years after the end of the "particular reporting period".
The CCRA considers the "particular reporting period" to be the reporting period in which the ITC first became claimable. This interpretation of the term "particular reporting period" is consistent with the application of sections 169, 225 and 296 of the Act. This position is also noted in the explanatory notes to subsection 296(2) of the Act.
The explanatory notes to subsection 296(2) of the Act state, in part, that "the Minister shall, unless the person being assessed requests otherwise, continue to take an input tax credit for a reporting period (i.e., an input tax credit claimed to recover tax that became payable in the period) (emphasis added) into account in determining the net tax for that period within the four-year period for assessing that period, even if the limitation period for claiming the credit has expired". It is the CCRA's position that subsection 296(2) of the Act does not allow an ITC to recover tax that became payable in another period to be included when assessing the net tax for a "particular reporting period". Our position is that subsection 296(2) of the Act permits the CCRA to allow only ITCs for the "particular reporting period" (i.e., ITCs that first became claimable in that same period).
In our telephone conversations, you requested that we provide you with an illustration of the application of paragraph 296(2)(c) of the Act. Consider the following example. A person is a specified person and the CCRA is assessing a reporting period in 1999 for which the person did not claim an ITC. The CCRA may take the ITC into account in assessing the person's net tax provided that the ITC first arose in the reporting period being assessed. Paragraph 296(2)(c) of the Act permits the CCRA in assessing the net tax for the particular reporting period to allow the ITC even if the two year time limit has expired and the ITC could not be claimed in a return filed on the day the notice of assessment is sent to the person only by reason of the expiration of this time limit.
Paragraph 296(2)(c) of the Act would apply to deny an ITC in situations where the legislation has been amended subsequent to the reporting period during which the ITC was first claimable. For example, if the ITC could not be claimed in a return filed on the date of assessment, due to a legislative amendment, the CCRA would not take the ITC into account in assessing the net tax for the particular reporting period.
As a result, we cannot confirm your position that, in the scenario presented, the proposed assessment for the reporting period from XXXXX should not be raised. The CCRA confirms that the position that the proposed assessment in the scenario presented should be offset by an ITC relating to a reporting period in XXXXX is not in accordance with the CCRA's interpretation of subsection 296(2) of the Act.
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) 954-7913.
Yours truly,
Anne Kratz
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate