24 March 2004 GST/HST Interpretation 46936 - Employee Reimbursements

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/ Harmonized Sales Tax (HST) to reimbursements made by XXXXX (the Company) to its employees.

Application Ruling Requested

You have requested that the Canada Revenue Agency (CRA) provide several application rulings on the application of GST/HST relating to reimbursements made by the Company to its employees. As part of your request you have asked that we confirm various statements you have made regarding this subject matter.

Facts

The employees use company credit cards to make purchases of goods and services, all or substantially all of which are taxable supplies, related to the commercial activity of the Company.

The Company's employees are jointly and severally liable with the Company for payment of the Company credit card charges.

You have stated that where the terms GST or the prescribed factor of 6/106th are used in the following statements, it is understood that these terms also refer to HST and 14/114th.

Interpretation Given

In accordance with GST/HST Memoranda Series section 4.1, an application ruling can only be issued with reference to a clearly defined fact situation of a particular registrant. Rulings are issued upon request and where the taxpayer has presented all the relevant facts such as the nature of the transactions undertaken, detailed descriptions of services and property involved, the parties involved in all transactions and relevant documentation such as invoices, contracts and other pertinent agreements. Where all the relevant facts are not provided, an interpretation may be issued. We are pleased to offer you the following interpretation.

You ask for confirmation of several statements. Each of these statements is reproduced below and our response provided. For the purpose of our responses, the terms GST or the prescribed factor of 6/106th also refer to HST and 14/114th respectively.

Statement 1

GST Memorandum 400-1-2 is not part of the Excise Tax Act (ETA), is not a Regulation and not part of any enacted legislation in Canada.

Response

We confirm the above statement. GST Memorandum 400-1-2 is the CRA's administrative policy with respect to documentary requirements.

Statement 2

From the CRA's standpoint, GST Memorandum 400-1-2 is still active.

Response

We confirm that GST Memorandum 400-1-2 is still active.

Statement 3

The CRA used (and still uses) GST Memorandum 400-1-2 to outline its administrative position in regards to the documentation requirements required to recover the GST/HST on employee expense accounts where the employer reimburses employees for expenses incurred by the employees in relation to the employer's business.

Response

The CRA used and still uses GST Memorandum 400-1-2 to outline its administrative position in regards to the documentary requirements for claiming ITCs on employee reimbursements in general.

In addition, Policy Statement P-184R was subsequently developed to clarify and address the CRA's administrative position relating specifically to the use of the prescribed factor method for claiming ITCs on employee reimbursements for purchases of property and services using company credit cards.

Statement 4

The two methods to calculate the eligible ITCs outlined in paragraph 65 of GST Memorandum 400-1-2 are still valid today and either method is available presently for GST/HST registered employers to use.

Response

The two methods (hereinafter referred to as the "prescribed factor method" and the "actual method") for calculating eligible ITCs in respect of employee reimbursements outlined in paragraph 65 of GST Memorandum 400-1-2 are still valid today and either method is presently available for GST/HST registered employers to use.

Statement 5

Employees can seek reimbursement for regular travel and living (T&L) expenses as well as for non-regular T&L expenses (e.g., a computer battery) and the same recovery methods (i.e., actual or prescribed factor) can be used for both types of expenses as paragraphs 65 and 69 of GST Memorandum 400-1-2 do not restrict the types of reimbursements.

Response

Employee reimbursements can be for regular T&L expenses or non-regular T&L expenses and the actual or the prescribed factor method may be used for either category. Paragraphs 65 and 69 of GST Memorandum 400-1-2 do not restrict the categories of reimbursements for which either the actual or the prescribed method may be used.

Statement 6

The requirements to use the prescribed factor method outlined in paragraph 65(a) of GST Memorandum 400-1-2 are listed in paragraph 69 of the Memorandum and these requirements in paragraph 69 are still valid today and are available presently to GST-registered employers to use today.

Response

For registrants using the prescribed factor method to calculate eligible ITCs on employee reimbursements, paragraph 69 of GST Memorandum 400-1-2 outlines the information that must be captured in the registrant's books and records and the documentation that must be retained (i.e., all documentation currently required to substantiate such deductions under the Income Tax Act including the information listed in items (a) to (f) of paragraph 69). These documentary and information requirements outlined in paragraph 69 of GST Memorandum 400-1-2 are still valid today and are presently available for the use of employers who are registered for the GST/HST.

However, with respect to credit card purchases paragraphs 29 to 31 of GST Memorandum 400-1-2 state that, as a general rule, when a credit card receipt is issued in conjunction with another component of supporting documentation, both components must be obtained and retained together by the registrant before the return in which the ITC is claimed is filed.

For supplies made in the hospitality industry and by gasoline service stations and dealers, GST Memorandum 400-1-2 states that a credit card receipt will constitute sufficient supporting documentation to claim an ITC, provided the credit card receipt meets all of the information requirements prescribed by regulations made pursuant to paragraph 169(4)(a) of the Act.

GST Memorandum 400-1-2 also states that where no other supporting documentation is issued in conjunction with a credit card receipt, the credit card receipt will constitute sufficient supporting documentation to claim an ITC provided that it meets all of the documentary and information requirements prescribed by regulations made pursuant to paragraph 169(4)(a) of the Act.

Policy Statement P-184 "Credit Card Expenses - Use of the 6/106 Factor" was issued on August 24, 1995 to clarify the CRA's administrative position on the use of the prescribed factor method with respect to expenses charged to company credit cards and subsequently reimbursed to employees. With respect to the documentary evidence used in the calculation of ITCs in such circumstances, paragraph 4 of Policy Statement P-184 states that such documentary evidence must satisfy the following criteria:

(a) where 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 input tax credit 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 input tax credit.

Note that the monthly credit card statement does not constitute sufficient documentary evidence to claim an input tax credit.

In effect, and with respect to the prescribed factor method, Policy Statement P-184 is the CRA's administrative approach which relieves registrants from obtaining full documentary evidence as required under paragraph 169(4)(a) of the ETA when determining ITC entitlements on reimbursed amounts in respect of credit card purchases. For example, credit card receipts do not usually contain the supplier's registration number or a description of the nature of the supply.

Policy Statement P-184 was revised and reissued as P-184R on August 24, 1995 to account for the introduction of the HST. However, the CRA's administrative position did not change.

Statement 7

Paragraph 69 of GST Memorandum 400-1-2 does not specifically require or infer that the supplier's original or a copy of hard copy receipts or invoices (e.g., original invoices for airfare, vehicle rentals, gasoline, hotel accommodation, taxi fares, meals and entertainment) or the original or a copy of a credit card "chit" be attached to the employee expense account.

Response

Paragraph 69 of GST Memorandum 400-1-2 explicitly requires that registrants maintain proper books and records capturing the information listed in (a) to (f) of paragraph 69 and to obtain and retain all documentation required to substantiate employee reimbursements as deductions under the ITA. For purposes of the ITA, general information as to documentary requirements is available in Information Circular 78-10R3, "Books and Records Retention/Destruction" and, for purposes of the ETA, such information is available in GST/HST Memoranda Series 15.1, "General Requirements for Books and Records".

Please note our comments with respect to employee reimbursements for credit card purchases in the response to statement #6.

Statement 8

For purposes of paragraph 69 of GST Memorandum 400-1-2, an employee expense account (a hard copy document) would be considered to be a "record" for purposes of the Income Tax Act (ITA) and such a record along with supporting documentation (i.e., original, physical hard copy hotel bill, taxi fare receipt etc.) and the original "chit" would be sufficient from an ETA perspective for the employer to substantiate a deduction under the ITA.

Response

We have consulted with the Income Tax Rulings Directorate as to whether an employee expense report would be considered to be a record and whether the expense report along with other supporting documentation is sufficient to support a deduction under the ITA. We have been advised that the auditor makes this determination.

As a general rule, the CRA does not specify the records and books to be kept. Records and books of account must be in an appropriate form and contain sufficient information to allow determination of the amount of tax to be paid or collected, or the amount to be refunded, rebated or deducted from net tax.

After taking into account the facts and circumstances of a given situation, the auditor using professional judgement has to make the determination whether the expense report along with the other supporting documentation qualifies as adequate documentation for the purposes of claiming a deduction under the ITA, captures the information listed in parts (a) to (f) of paragraph 69 of GST Memorandum 400-1-2, and hence, is adequate documentation to claim an ITC under the ETA.

Statement 9

For purposes of paragraph 69 of GST Memorandum 400-1-2, an employee expense account (a hard copy document) would be considered to be a "record" for purposes of the ITA and such a record without supporting documentation (i.e., without the original or a copy of the physical hard copy hotel bill, taxi fare receipt etc.) and without the original "chit" or a copy of the "chit" would also be sufficient from an ETA perspective for the employer to substantiate a deduction under the ITA.

Response

Please see our response to Statement #8. The registrant must have documentation to substantiate the reimbursements as deductions under the ITA including the information listed in parts (a) to (f) in paragraph 69 of GST Memorandum 400-1-2. In addition, for credit card purchases, the registrant must have the credit card receipt and other supporting documentation if such supporting documentation was issued.

Statement 10

Given that the employee is responsible for the payment of the expenses incurred on the employee's employer-provided credit card, and the employee is invoiced for these expenses directly by the credit card company, when the employee seeks reimbursement from the employer for these amounts incurred on the employer's behalf, the employer is entitled to use the prescribed factor method and calculate the GST recovery by taking the total value of the expenses and multiplying it by 6/106th (or 6/106th X 50% for meals and entertainment expenses) when supporting documentation is provided (i.e., original or a copy of the physical hard-copy hotel bill, taxi fare receipts, etc. and/or the original or a copy of the "chit").

Response

The employer may use the prescribed factor method for claiming ITCs on company credit card expenses charged to the company credit card if all of the following conditions are satisfied:

(1) the employee must have acquired property or service for consumption or use in relation to the commercial activities of the employer;

(2) there must be one or more written agreements between the employer, employee and the credit card issuer stating that the employee is solely or jointly and severally liable with the employer for payment of all charges made in connection with the company credit card issued to the employee;

(3) the employer must have reimbursed the employee for property or services recorded on the credit card statement which are all or substantially all taxable (other than zero-rated) supplies; and

(4) the documentary evidence must satisfy the following criteria:

(a) where a credit card receipt is issued in conjunction with another component of supporting documentation, both components must be obtained by the employer 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, the credit card receipt will constitute sufficient supporting documentation to claim an ITC.

Based on these requirements, the monthly credit card statement itself does not constitute sufficient documentary evidence to claim an ITC.

Statement 11

Given that the employee is responsible for the payment of the expenses incurred on his employer provided credit card, and the employee is invoiced for these expenses directly by the credit card company, when the employee seeks reimbursement from the employer for these amounts incurred on the employer's behalf, the employer is entitled to use the prescribed factor method and calculate the GST recovery by taking the total value of the expense and multiplying it by 6/106 (or 6/106 x 50% for meal and entertainment expenses) when supporting documentation is not provided (i.e., original, or a copy of the physical hard copy hotel bill, taxi fare receipts, etc., and the original or a copy of the "chit") are not provided.

Response

Please see our response to statement #10.

Without the credit card receipt and other documentation (if other documentation was issued), the employer is not eligible to claim ITCs on the reimbursements.

Statement 12

Paragraph 69 of GST Memorandum 400-1-2 does not stipulate the method of monetary payment required in order to use paragraph 69 in that the employee can pay cash, use his own personal credit card or an employer provided credit card with the employee having some liability to pay the credit card company as long as the employee is reimbursed by his employer and these three methods of monetary payment are acceptable to the CRA to allow the employer to claim back the GST associated with these supplies.

Response

Paragraph 69 of GST Memorandum 400-1-2, which was issued on November 8, 1990, does not stipulate the method of monetary payment required in order to use the prescribed factor method to calculate ITCs in respect of employee reimbursements under sections 169 and 175 of the ETA.

However, with regard to purchases paid for by credit card, please see our comments regarding GST Memorandum 400-1-2 and Policy Statement P-184R in the response to statement #6.

Statement 13

Policy papers are, in themselves, not legally binding in that they are not legislatively enacted and only represent the CRA's interpretation of various aspects of the ETA and associated Regulations.

Response

Policy Statements are not legally binding and are not legislatively enacted. Policy statements are the CRA's administrative position with respect to particular provisions of the ETA.

Statement 14

Policy Paper P-184R oversimplified states that if the "joint and severally liable" aspect of the employer-provided credit card, which could include T&L expenses and non-recurring non-T&L expenses (computer battery), does not entirely rest with the registrant (i.e., the employer) (in other words, in part, to some degree with the employee), the CRA will consider the direct payment made by the employer to the credit card provider for employee incurred expenses charged to the employer-provided credit card, a reimbursement and thus section 175 of the ETA is the relevant section of the ETA that an employer can use for ITC recoveries for expenses reimbursed on employee expense accounts.

Response

Policy Statement P-184R states that the CRA will permit a registrant who is, among other things, an employer to use the prescribed factor method for claiming ITCs on company credit card expenses charged to the company credit card if all of the following conditions are satisfied:

1. the employee must have been issued the credit card at the employer's request and have made the acquisition of the property or service for consumption or use in the employer's commercial activities;

2. there must be one or more written agreements between the employer, the employee and the credit card issuer stating that the employee is solely or jointly and severally liable with the employer for payment of all charges made in connection with the company credit card issued to the employee;

3. the employer must have reimbursed the card member for property or services recorded on the credit card statement which are all or substantially all (90% or more) taxable (other than zero-rated) supplies; and

4. the documentary evidence used in the calculation of the ITC must satisfy the criteria described in paragraph 4 of Policy Statement P-184R.

The CRA considers a direct payment made on account by the employer to the card issuer to be a reimbursement as long as the liability for payment of the credit card statement does not rest entirely with the employer. Where the liability does not rest solely with the employer, section 175 of the ETA would apply to deem the employer to have received a supply of the property or service and any consumption or use of the property or service is deemed to be consumption or use by the employer and not the employee. The employer is deemed to have paid tax in respect of the supply at the time the reimbursement is made. Assuming there is sufficient documentation, the employer can then claim an ITC equal to the lesser of the percentage of the cost reimbursed to the employee and the extent to which the property or service was acquired by the employee for consumption or use in the employer's commercial activities.

The reimbursement could include T&L and non-recurring non-T&L expenses.

Statement 15

If the employer-provided credit card had "joint and severally liable" clauses in that both the employer and employee have this obligation, then the "prescribed method" factor described in GST Memorandum 400-1-2, paragraphs 63 to 70 inclusive in reference to 169(5) would be available to the employer to use for the recoveries of GST/HST for expenses reimbursed on employee expense accounts.

Response

If the four conditions enumerated in the response to Statement 14 are satisfied, then the prescribed factor method of calculating ITCs in respect of expenses reimbursed to employees is available to the employer. Where the prescribed factor method is used to calculate the eligible ITCs on employee reimbursements, the employer will be exempt, pursuant to subsection 169(5) of the ETA from the documentary and information requirements established pursuant to paragraph 169(4)(a) of the ETA provided the employer maintains proper books and records capturing the information listed in subparagraphs (a) to (f) of paragraph 69 of GST Memorandum 400-1-2 (including all documentation currently required to substantiate such deductions under the ITA).

In addition, and with regard to company credit card expenses, where a credit card receipt is issued in conjunction with another component of supporting documentation, Policy Statement P-184R clarifies that the employer is required to obtain and retain both components of supporting documentation before filing the return in which the ITC is claimed. Where no other supporting documentation is issued in conjunction with a credit card receipt, the credit card receipt will constitute sufficient supporting documentation to claim an ITC. The monthly credit card statement does not constitute sufficient documentary evidence to claim an ITC.

Statement 16

If the employee incurred expenses qualify under section 175 of the ETA under the reimbursement provision, then the employer can follow the requirements detailed in GST Memorandum 400-1-2, paragraphs 63 to 70 inclusive.

Response

For reimbursements that qualify under section 175 of the ETA, the actual or the prescribed factor method can be used as explained in the response to statement #15.

Statement 17

If the employer is able to use the provisions of section 175 of the ETA and thus follow the requirements of GST Memorandum 400-1-2, the employer is not required to have the supporting documentation as outlined in the last paragraph of Policy Paper P-184R because the provisions of subsection 169(5) per GST Memorandum 400-1-2 paragraphs 63 to 70 do not state that the physical, actual hard-copy, supplier produced receipts are required if the employer chooses to use the "prescribed factor" method.

Response

If the employer is using the prescribed factor method to calculate ITCs on employee reimbursements for company credit card purchases, GST Memorandum 400-1-2 requires the employer to maintain proper books and records that capture the information listed in paragraph 69 of the Memorandum as well as all documentation currently required to substantiate such deductions under the ITA. The employer is also required to have the supporting documentation outlined in paragraph 4 of Policy Statement P-184R. As explained in our response to statements #3 and #6, Policy Statement P-184R was developed to address the CRA's administrative position relating specifically to the use of the prescribed factor method for claiming ITCs on employee reimbursements for purchases of property and services using company credit cards.

Statement 18

The fact that a "record" (an employee expense account document) is available but not physically filed or stored in hard copy form does not negate the use of the "prescribed factor" method and its acceptance at time of audit for the recovery of GST/HST on regular/non-regular T&L expenses.

Response

What is acceptable to audit is a matter of fact at the time of the audit. However, from a legislative view, an employee expense account document that is available but not filed or stored in hard copy form does not negate the use of the prescribed factor method for calculating ITCs on employee reimbursements for company credit card purchases of regular and non-regular T&L expenses.

If the employer is using the prescribed factor method to calculate ITCs on employee reimbursements for company credit card purchases, GST Memorandum 400-1-2 requires the employer to maintain proper books and records that capture the information listed in paragraph 69 of the Memorandum as well as all documentation currently required to substantiate such deductions under the ITA. The employer is also required to have the supporting documentation outlined in paragraph 4 of Policy Statement P-184R.

Records and books of account may be in a number of forms, including traditional books of account with supporting source documents and records recorded in an electronically readable format that can be related back to the supporting source documents and that are supported by a system capable of producing accessible and readable copy.

All records and books of account (including source documents) that originate in paper format must be retained in such format except where an acceptable imaging or microfilming program is in place. Paper format includes paper source documents that are data entered into an electronic record keeping system. For more information on imaging or microfilming programs, please refer to paragraphs 9 to 11 of the enclosed section 15.1, General Requirements for Books and Records of the GST/HST Memoranda Series.

Every person required to keep records and who records them electronically, is required to retain the records in an electronically readable format. This means a person who utilizes computerized systems to generate records and/or books of account, must retain the electronic records, even when hard copy is retained.

Statement 19

The CRA's answers to #17 and #18 above apply to every XXXXX employer that is a fully commercial operation and that uses the similar employer provided credit card with the same joint and severally liable clauses in their agreement between the credit card company, the employers and their employees.

Response

We confirm this statement.

Statement 20

If the CRA indicates that the employer needs to retain credit card "chits" and accompanying documentation for employers who use the "prescribed factor" method, or for those employers who have chosen the actual method for gasoline purchases, please comment and answer the following questions as to what is required to be attached to the employee expense account.

(A) Does the employer need the original (or will a copy suffice) of the credit card "chit" for the gasoline purchase assuming a credit card "chit" was provided to the employee who paid for the gasoline at the kiosk?

(B) Does the employer need the detailed gasoline receipt (which shows the amount of litres, price and total cost) that was obtained at the gasoline pump when the employee used one's credit card at the pump (since there would be no credit card "chit" issued)?

(C) If the employee pays by credit card at the pump, but the pump receipt machine is not working, does the employee need to obtain a detailed gasoline receipt (which shows the amount of litres, price and total cost) at the kiosk and submit that receipt on his employee expense account?

(D) If a gasoline receipt or credit card "chit" has not been received, can an ITC still be claimed? Assume the employer reimburses the employee without a receipt.

Response

Whether the employer uses the actual or the prescribed factor method to calculate ITCs, the credit card statement must be supported by another document to enable the employer to claim an ITC.

(A) Where no other document is issued, the original credit card receipt is sufficient documentation to support an ITC claim for a reimbursement of a gasoline purchase. Whether a copy of a credit card receipt is sufficient documentation to support an ITC claim is at the auditor's discretion.

(B) Where the employee purchases gasoline and pays by company credit card at the pump, the employer will be required to retain the detailed gasoline receipt.

(C) If the pump receipt machine is not working, the employee will be required to obtain a gasoline receipt at the kiosk and to submit that receipt with his/her expense report.

(D) Where a credit card receipt has not been received, and assuming no other documentation is issued, the employer is not eligible to claim an ITC.

Statement 21

If the CRA indicates that the employer needs to retain credit card "chits" and accompanying documentation for employers who use the "prescribed factor" method, or for those employers who have chosen the "actual" method for meal and entertainment expenses, please comment and answer the following questions as to what is required to be attached to the employee's expense account.

(A) Does the employer need the original (or will a copy suffice) of the credit card "chit" for the meals and entertainment purchase assuming a credit card "chit" was provided to the employee?

(B) Does the employer need the supplier's itemized invoice/receipt of the cost of each meal and beverage and entertainment item that the employee purchased to be attached to the employee expense account if such a supplier's invoice/receipt was obtained?

(C) Does the employer need to have both the supplier's itemized invoice/receipt and credit card "chit" attached to the employee expense account if both were provided?

(D) If a meal and entertainment receipt and a credit card "chit" have not been received, can an ITC still be claimed? Assume the employer reimburses the employee without a receipt.

Response

Whether the employer uses the actual or the prescribed factor method to calculate ITCs, the credit card statement must be supported by another document to enable the employer to claim an ITC.

(A) Where no other document is issued, the original credit card receipt is sufficient documentation to support an ITC claim for a reimbursement of a meal and entertainment purchase. It is at the discretion of the auditor whether a copy of the credit card receipt is sufficient documentation to support an ITC claim.

(B) Where an itemized invoice for a meal and entertainment purchase is issued by the supplier, the employer is required to retain the invoice as well as the credit card receipt.

(C) Where an invoice and a credit card receipt are provided, the employer is required to retain both documents.

(D) If a meal and entertainment receipt and a credit card receipt have not been received, the employer is not eligible to claim an ITC.

Statement 22

Please provide the CRA's understanding of the term "hospitality industry".

Response

The CRA considers the "hospitality industry" to mean the industry that makes supplies of food, beverages and entertainment to which section 236 of the ETA applies.

Statement 23

Under the Company's existing process, the credit card company invoices the employee directly. Assume there are proper joint and severally liable clauses in the agreement between the credit card company, the Company and its employees. An employee completes a "hard copy" employee expense account form for the following expenses:

Items 1 through 5 (four regular T&L expenses and one non-regular T&L expense) were purchased using the employer provided credit card. The employee paid cash for items 6, 7 and 8. No receipts were obtained for items 6, 7 and 8. Assume that no receipts at all were attached to the expense report.

The employee sends the expense report to accounts payable for processing and seeks a reimbursement of $1,461.32. The Company is using the prescribed factor method. The Company's accounts payable process calculates the ITC entitlement to be 6/106ths of $1,375.06 (i.e. the total cost of all items except the meals) plus 6/106ths x 50% x $86.26 (the total cost of the two meals) or $77.83 + $2.44 respectively.

Under this existing process, the Company is eligible to recover the GST as calculated above on the employee expenses paid for using the employer-provided credit card or cash without any supporting 'actual-hard-copy" receipts because there is a joint and severally liable clause between the three parties and GST Memorandum 400-1-2 does not require full documentation on such employee reimbursements.

The employer does not fit the illustrative examples in Policy Paper P-184R since the employer did not pay the invoices directly to the credit card company. The illustrative example in this policy paper, specifically paragraph 5 states that the company receives a monthly statement from the credit card issuer for purchases made on the company cards and infers that the company pays the statement directly to the card issuer. In the Company's existing process, the employee is invoiced for the charges incurred on the employer-provided credit card and, therefore, under the current process, the Company does not fit the example in Policy Paper P-184R.

Response

We assume that, in this statement, you are referring to amounts charged to the Company's credit card for supplies of property or services acquired by an employee for consumption or use in the Company's commercial activities. Second, we assume that one or more agreements exist between the employee, the Company and the credit card issuer stating that the employee is solely or jointly and severally liable with the Company for the payment of all charges made in connection with the credit card issued to the employee.

All of the supplies acquired by the employee and charged to the Company credit card are taxable supplies.

You also state that the Company reimburses the employee. For GST purposes, Policy Statement P-075 "Allowances and Reimbursements" states that a reimbursement is considered to be a payment by an employer to an employee to repay the employee for amounts spent by the employee on the employer's business. An amount constitutes a reimbursement for the purposes of section 175 of the ETA where the recipient spends the amount for an expense incurred in the course of the employer's business and the amount is fully accounted for by the recipient. If this is not the case, then the amount will not be considered to be a reimbursement and, therefore, section 175 of the ETA will not apply to deem the Company to have received a supply of the property or service or to have paid tax in respect of the supply.

The payment made by the Company to the employee in these circumstances is considered to be a reimbursement by the Company to the employee for acquisitions of property or services made by the employee for consumption or use in relation to the Company's commercial activities. There is an agreement between the Company, the employee and the credit card issuer stating that the employee is jointly and severally liable with the Company for the payment of all charges made in connection with the company credit card issued to the employee. Policy Statement P-184R is therefore applicable. As a result, the Company is required to obtain and retain the documentary evidence referred to in paragraphs 4(a) and (b) of Policy Statement P-184R for expenses charged to the Company credit card. For the expenses paid for by cash, the Company is required to obtain and maintain such information and documentation listed in paragraph 69 of GST Memorandum 400-1-2.

Statement 24

For purposes of this statement, use the same example provided in statement 23. Assume, again, that no supporting documentation will be sent to accounts payable for the five credit card purchases or for the cash expenditures.

Under the Company's proposed future process, the Company would pay $1,382.57 directly to the credit card company and would hold these five (now employer paid) amounts in a designated account until the employee cleared those amounts from that account to the proper expense accounts dictated by the Company's T&L policy. In other words, the mechanics of the payment process would have changed along with the method of how the employee would process his employee expense account. The employee would request an additional $78.75 payment from the Company to reimburse the employee for cash expenditures.

Under the Company's proposed future process, the Company will also be able to recover the GST as calculated in the example on all employee incurred expenses paid for by using the employer-provided credit card and by cash without any supporting "actual hard-copy" receipts when the Company is first charged by the credit card company and the Company pays the credit card company directly and the employee uses the proposed future employee expense account process to account for the regular and non-regular T&L charges.

As with the existing process, there will be a joint and severally liable clause between the three parties and GST Memorandum 400-1-2 does not require full documentation on such employee reimbursements when the Company is using the "prescribed factor" method.

Response

The Company may use the prescribed factor method of calculating ITCs on these reimbursements. However, prior to claiming the applicable ITCs, the Company must obtain and retain the appropriate documentation to support the ITC claims. For the expenses charged to the Company credit card pursuant to Policy P-184R, the credit card receipts and any other documentation that may have been issued must be obtained and retained before the Company can claim the ITCs. For the expenses paid by cash, the Company must maintain proper books and records including all documentation needed to substantiate these fares as deductions under the ITA.

Statement 25

If the CRA disagrees with statement 24, and requires that the full support documentation (e.g., the supplier's invoice or receipt and the credit card "chit") is required in order for the Company to recover the GST, please confirm that the employee must provide the receipt for the first taxi fare in the example (the fare paid by credit card) and yet the receipts for the second and third taxi fares (paid with cash) are not required because these two fares were paid by cash.

Response

In the example provided under statement 23, the employee must provide the Company with the credit card receipt and a receipt if one was issued for the fare paid by credit card. For the taxi fares paid for by cash, the Company is required to maintain proper books and records including all documentation needed to substantiate the fares as a deduction under the ITA.

Statement 26

Travel agencies usually generate electronic airline tickets (e-tickets) for employee travel. No documentation is received directly from the airline. If the CRA disagrees with statement 24 and states that full supporting documentation (e.g., supplier's invoice and credit card "chit") is required in order for the Company to recover the GST, please confirm that the employee must attach the e-ticket to its employee expense account form and that the e-ticket will suffice as suitable supporting documentation even though that e-ticket has been generated by the travel agent - not the airline carrier itself.

Response

An e-mail invoice sent in respect of an electronic ticket for air travel may be sufficient documentation for purposes of claiming an ITC. Generally, all of the documentary requirements outlined in the Input Tax Credit Information (GST/HST) Regulations must be included in an invoice sent by e-mail in order that a registrant may claim an ITC in its return. In respect of air travel, the CRA will continue to accept the airline identifier code as a substitute for the Business Number for both regular airline tickets and e-tickets.

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 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) 954-7931.

Yours truly,

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