18 January 2013 GST/HST Interpretation 148153 - Small suppliers and non–substantial renovations

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.

Dear [Client]:

Thank you for your letter of October 2, 2012, concerning the application of section 192 of the Excise Tax Act (ETA) to a non-substantial renovation performed by a non-registered small supplier and how the application of that section would affect the person's small supplier status.

HST applies at the rate of 15% in Nova Scotia, 13% in Ontario, New Brunswick, and Newfoundland and Labrador, and 12% in British Columbia. GST applies at the rate of 5% in the remaining provinces and territories. 

All legislative references are to the ETA unless otherwise specified.

Interpretation Requested

You would like to know the following:

1. If a person is a small supplier as defined in subsection 148(1) is the person responsible for remitting tax under section 192 should they satisfy the conditions of that section?

2. Is the consideration referred to in section 192 to be included in determining whether a person has exceeded the small supplier threshold under subsection 148(1) or 148(2)?

Interpretation Given

1. A small supplier who renovates or alters a residential complex of the small supplier under the conditions set out in section 192 is required, pursuant to subsection 225(1) and 228(2), to remit the tax deemed under paragraph 192(b) to have been collected by the small supplier, as calculated on the total consideration determined under paragraph 192(a).

2. The consideration for the taxable supply deemed to have been made under section 192 is not included in determining whether a person is a small supplier under subsection 148(1) or 148(2).

ANALYSIS

Issue 1

Under section 192, where, in the course of a business of making supplies of real property a person renovates or alters a residential complex of the person and that renovation or alteration is not a substantial renovation:

1) paragraph 192(a) deems the person to have made and received a taxable supply at the earlier of the time the renovation is substantially completed and the time ownership of the complex is transferred for consideration equal to the amount determined under that paragraph; and

2) paragraph 192(b) deems the person to have paid as a recipient and collected as a supplier, tax in respect of that deemed supply, calculated on the total consideration determined under paragraph 192(a).

Effectively, section 192 deems all persons described in that section, including non-registrant small suppliers, to have made a taxable supply and to have paid and collected tax based on the total amount of consideration determined under paragraph 192(a).

Subsection 225(1) requires that all amounts collected as or on account of tax in a reporting period of a "person" be included in calculating the "net tax" of the "person" (i.e., the requirement is not limited to registrants or other specific persons) for that reporting period. Subsection 228(2) requires the person to remit the net tax. Neither subsection provides relief for non-registered small suppliers.

Therefore, a non-registered small supplier is required to:

a) account for tax it is deemed to have collected under paragraph 192(b) in the reporting period in which that tax was deemed collected; and

b) remit the net tax for that reporting period.

We further note that, under subsection 245(1), the reporting period of a person who is not a registrant is generally a calendar month. Subsection 238(2) requires every person who is not a registrant to file a return for each reporting period of the person for which the person has net tax remittable. That return must be filed within one month after the end of that reporting period. Further, under subsection 228(2), where the net tax for a reporting period of a person is a positive amount, the person is generally required to remit that amount on or before the due date for the person's return for that reporting period.

Issue 2

In determining whether a person is a small supplier, paragraph 148(1)(a) requires the person to total the value of the consideration that "became due" or that "was paid" without having become due to the person in the four immediately preceding calendar quarters. While section 192 may apply to deem a taxable supply to have been made and tax to have been paid and collected, it does not deem any consideration to have "become due" or to have "been paid" at any time.

Therefore, because the deemed consideration under section 192 was not due or paid and did not become due to the person, when making the small supplier calculation in either subsection 148(1) or 148(2), no amount determined as consideration under section 192 for purposes of applying that section should be included.

The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the Canada Revenue Agency with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-8222. 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,

Lisa Papineau
Real Property Unit
Financial Institutions & Real Property Division
Excise and GST/HST Rulings Directorate