Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 199853
Dear [Client]:
Subject: GST/HST RULING
Promotional allowance and eligibility to claim input tax credits
Thank you for your letter of May 23, 2019, concerning the application of the Goods and Services Tax/Harmonized Sales Tax (GST/HST) to amounts paid to a distributor and the eligibility to claim input tax credits (ITCs) for the tax payable on these amounts. We apologize for the delay in our response.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
Based on your letter and the information provided in the accompanying attachments as well as notes from the discussions with the GST/HST Rulings officer […], we understand the following:
1. […] ([…][Company A]) is a retailer that provides packaged nutritional products and medicine[…].
2. [Company A] sells the packaged products to the […] ([…][Company B]), a distributor, who then sells the product to the consumers. [Company B] is the legal name of the distributor but it operates as […] and is located in [Province A]. [Company B] operates and manages […] across Canada.
3. [Company A] and [Company B] are both GST/HST registrants.
4. [Company A] is a monthly filer for GST/HST purposes.
5. As an incentive, you indicated that [Company A] pays to [Company B] a specified dollar amount per annum for the purchase of services related to marketing and other promotional activities.
6. From [mm/yyyy] to [mm/yyyy], [Company B] did not charge [Company A] the GST/HST on these payments. However, as a result of an audit conducted by the Canada Revenue Agency (CRA), [Company B] notified [Company A] that the incentive payments were subject to the GST/HST and requested payment of the GST/HST.
7. A copy of an invoice from [Company B] dated [mm/dd/yyyy] was included for our consideration. This document shows a summary total of the related invoices from [mm/yyyy] to [mm/yyyy].
RULING REQUESTED
1. [Company A] is required to pay the GST/HST to [Company B] as a result of the assessment by CRA for the amounts [Company B] had invoiced from [mm/yyyy] to [mm/yyyy] but for which tax was not collected?
2. [Company A] is eligible to claim ITC’s for the GST/HST retroactively billed by [Company B] to [Company A] as a result of the CRA assessment?
RULING GIVEN
Based on the facts above, we rule that
1. [Company A] was required to pay the GST/HST to [Company B] in respect of the taxable supply made by [Company B] to [Company A] for the period from [mm/yyyy] to[mm/yyyy].
2. [Company A] was eligible to claim ITC’s for GST/HST paid in respect of the taxable supply made by [Company B] from [mm/yyyy] to [mm/yyyy] where all the conditions for claiming ITCs had been met. As a result, [Company A] would have been able to claim the ITCS for the GST/HST retroactively billed as a result of the CRA assessment where [Company A] was informed in writing by [Company B] of that assessment.
EXPLANATION
Under section 165 of the ETA, every recipient of a taxable supply made in Canada is required to pay the GST/HST on the value of the consideration paid or payable for the supply unless the supply is specifically exempt under Schedule V or zero-rated under Schedule VI.
Subsection 221(1) further provides that every person who makes a taxable supply is required to collect the GST/HST that is payable by the recipient in respect of the supply and file a GST/HST return pursuant to subsection 238(1) for each reporting period of the registrant and remit that tax in accordance with section 228.
Therefore, where [Company A] acquires taxable property and services in Canada from a GST/HST registrant, [Company A] is required to pay the GST/HST charged by the supplier on the consideration payable for the taxable supply.
ITC Eligibility
Subsection 169(1) generally provides that a person is eligible to claim an ITC for GST/HST paid or payable on property or a service to the extent that the property or service was acquired, imported or brought into a participating province for consumption, use or supply in the course of the person's commercial activities, provided that all the conditions for claiming an ITC are met.
To support an ITC claim, the invoices or receipts must contain specific information and documentary requirements set out in subsection 169(4) and Section 3 of the "Input Tax Credit Information (GST/HST) Regulations." These documentary requirements can be found in GST/HST Memorandum 8.4, Documentary Requirements for Claiming Input Tax Credits.
Time limit to claiming ITCs
Subsection 225(4) provides time limits with respect to claiming ITCs for a particular reporting period. Paragraph 225(4)(b), which is applicable to most registrants, provides that a registrant must claim an ITC for a particular reporting period by the due date of the return for the last reporting period to end within four years after the end of the particular reporting period.
Paragraph 225(4)(c) allows a registrant to claim ITCs in respect of a supply of property or a service beyond the normal four-year limitation period where a supplier did not charge tax in respect of a taxable supply made to the registrant before the expiration of the four-year period but subsequently charges tax on that supply as a result of an assessment. In this case, the registrant is permitted to claim the ITC on the return for the period in which the registrant paid the tax to the supplier, provided the supplier discloses to the registrant in writing that the Minister has assessed the supplier for that tax and the registrant pays that tax to the supplier before the ITC is claimed.
DISCLAIMER
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA's interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-407-5134.
Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Monica Ma
General Operations Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate
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