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
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 231621
Dear [Client]:
Subject: GST/HST interpretation
Adjustment, credit or refund of tax charged or collected under Subdivision E of Division II
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to an adjustment, credit or refund of tax charged or collected under Subdivision E of Division II. We apologize for the delay in this 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.
Based on your incoming correspondence and our telephone conversation of [mm/dd/yyyy], you are seeking confirmation that a supplier is not at risk when adjusting, crediting or refunding amounts of GST/HST charged or collected under Subdivision E of Division II.
INTERPRETATION REQUESTED
More specifically, can a person registered under Subdivision E of Division II refund GST/HST charged to a Canadian resident customer who provides evidence that they are registered for GST/HST under Subdivision D of Division V after the supply has taken place? If so, is the supplier required to issue a credit note in prescribed form in order to deduct the GST/HST that was refunded from the GST/HST collected?
INTERPRETATION GIVEN
A GST/HST registrant is generally required to collect GST/HST on the person's taxable supplies that are not zero-rated. Where a taxable supply, other than a zero-rated supply, is made or deemed to be made in Canada, it is subject to the GST at 5% when it is deemed to be made in a non-participating province, and subject to the HST at the applicable rate when it is deemed to be made in a participating province.
Liability for tax – Simplified registration under Subdivision E of Division II
Where a person is registered for GST/HST under Subdivision E of Division II (simplified GST/HST registration regime), their “specified supplies” made to “specified Canadian recipients” are deemed to be made in Canada in accordance with subsection 211.14(1). As a result, simplified registered persons are required to charge, collect and remit GST/HST, under Division II, on such supplies made to such recipients in accordance with sections 165, 221 and 228.
A “specified supply” is defined in subsection 211.1(1), in part, as “a taxable supply of intangible personal property or a service”.
A “specified Canadian recipient” is defined under subsection 211.1(1), as follows:
“(…) is a recipient of a supply who:
(a) has not provided to the supplier or to a distribution platform operator in respect of the supply, evidence satisfactory to the Minister that the recipient is registered under Subdivision D of Division V; and
(b) has a usual place of residence that is situated in Canada.
Conversely, a person that is registered under the simplified GST/HST regime would not be required to charge nor collect the GST/HST on their specified supplies to a person that is registered for the GST/HST under Subdivision D of Division V and whom has a usual place of residence that is situated outside Canada.
Evidence of registration
A supplier who is registered for GST/HST under the simplified regime would rely on a valid GST/HST registration number of the recipient as evidence of its registration status under Subdivision D of Division V. Where a Canadian resident recipient of a specified supply does not provide the required evidence of valid GST/HST registration under Subdivision D of Division V to the supplier before the supply is made, the specified supply would generally be subject to the GST/HST at the applicable rate.
Additional information regarding GST/HST obligations under the new digital economy measures may be found on the Canada Revenue Agency’s (CRA) website at https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/digital-economy.html.
Refund, adjustment or credit of the GST/HST charged or collected by a person registered under the simplified regime.
Pursuant to subsection 211.17(1):
“No amount of an input tax credit, rebate, refund or remission under this or any other Act of Parliament shall be credited, paid, granted or allowed to the extent that it can reasonably be regarded that the amount is determined, directly or indirectly, in relation to an amount that is collected as or on account of tax, or in relation to an amount of tax that is required to be collected, by a person that is registered or required to be registered under this Subdivision.”
In other words, subsection 211.17(1) generally restricts the recipient from claiming an input tax credit or filing a rebate application in respect of tax charged or paid under Subdivision E of Division II.
Subsection 211.17(2) provides exceptions to 211.17(1) in limited circumstances. One of these exceptions is noted in paragraph 211.17(2)(b) which permits adjustments to tax charged or collected by a person registered under the simplified regime in instances where subsection 232(1) is involved.
Subsection 232(1) states, in part,
“Where a particular person has charged to, or collected from, another person an amount as or on account of tax under Division II in excess of the tax under that Division that was collectible by the particular person from the other person, the particular person may, within two years after the day the amount was so charged or collected,
(a) where the excess amount was charged but not collected, adjust the amount of tax charged; and
(b) where the excess amount was collected, refund or credit the excess amount to that other person.”
In circumstances in which GST/HST registration evidence is provided by the Canadian resident recipient to the supplier after the supply has been made, the Canada Revenue Agency (CRA) will permit the use of subsection 232(1) despite the fact that such evidence is provided after the supply has been made provided that the recipient’s registration under Subdivision D of Division V was valid at the time the supply was made.
However, there is no requirement for the supplier to refund, adjust, or credit the GST/HST charged or collected under either circumstance noted in subsection 232(1). The legislation notes that it is at the discretion of the supplier whether the tax is refunded, adjusted or credited.
To assist in ensuring the accuracy of GST/HST liability, GST/HST registries (both regular and simplified) are available for suppliers and recipients alike to verify registration status of their contracting party. Furthermore, due diligence on the Canadian resident recipients’ part to provide proof of registration under Subdivision D of Division V to suppliers who are registered under the simplified regime providing specified supplies will also assist in ensuring GST/HST is applied appropriately.
Amounts of GST/HST adjusted, refunded or credited – subsection 232(3)
When a supplier refunds, adjusts, or credits an amount of GST/HST that was collectible by the supplier to the recipient, the supplier is required to issue a credit note pursuant to subsection 232(3) including prescribed information within a reasonable time to the recipient, unless the recipient first issues a debit note to the supplier.
A credit or debit note must contain prescribed information pursuant section 3 of the Credit Note and Debit Note Information (GST/HST) Regulations. The following prescribed information must be included on all credit and debit notes:
a. a statement or other indication that the document is a credit or debit note;
b. the name of the supplier or an intermediary in respect of the supply, or the name under which the supplier or the intermediary does business, and the registration number of the supplier or the intermediary;
c. the name of the recipient or name of the recipient's business or the name of the recipient's duly authorized agent or representative;
d. the date on which the note is issued; and
e. unless the note is issued in respect of a patronage dividend or for a total amount that includes both the consideration and the tax for more than one supply, the amount of the adjustment, refund or credit of tax for which the note is issued.
Where a supplier may have difficulties in issuing a credit note, the recipient is permitted to issue a debit note to the supplier, with the prescribed information noted above, in order for the requirements of subsection 232(3) to be satisfied.
For more information, refer to GST/HST Memorandum 12-2, Refund, Adjustment, or Credit of the GST/HST under Section 232 of the Excise Tax Act.
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 interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 873-355-5326.
Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287 or by fax to 1-418-566-0319.
Sincerely,
David Agbetiafa
Rulings Officer
Digital Economy Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate
PROTECTED B
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