Notice to the reader:

Please note that the following GST Memorandum, although correct at the time of issue, has not been updated to reflect any subsequent legislative changes since the date of issue. As a result, some of the technical information this memorandum contains may no longer be valid. Please contact your GST/HST Rulings Centre for assistance.

GST memoranda 500-2-1

ADMINISTRATION AND ENFORCEMENT RETURNS AND PAYMENTS AUTHORIZED FISCAL PERIODS AND REPORTING PERIODS

Bill C-62, the proposed legislation on the Goods and Services Tax, received third reading and was passed by the House of Commons on April 10, 1990. Although this Bill has not yet received Royal Assent, Revenue Canada would like to help businesses and organizations prepare for the tax. Accordingly, the information contained in this memorandum, although subject to change, is being provided at this time for your convenience.

Ottawa, December 21, 1990

This memorandum in the RETURNS AND PAYMENTS sub-series explains the

options available to a registrant under the proposed Goods and Services Tax (GST) for a fiscal year and for reporting periods as required under the Excise Tax Act.

LEGISLATIVE REFERENCES

Excise Tax Act - sections 127, 237, 239, 243, 244 to 251

subsections 123(1), 238(1) and 280(2)

Income Tax Act - subsections 256(1) to 256(6)

TABLE OF CONTENTS

• Definitions
• General
• The GST Fiscal Year
• Reporting Periods
• Instalment Base Calculation for Annual Filers
• Transitional Instalment Base Calculation
• Accounting Periods
• Registrants with Separate Filing Branches

DEFINITIONS

The following definitions have either been taken from the Excise

Tax Act (as amended by Bill C-62) or represent departmental

interpretations or terms relevant to the administration of that

Act:

"Act" means the Excise Tax Act as it is to be amended by Bill C-62;

"associated persons" persons are considered to be associated in the following circumstances:

1. a particular corporation is associated with another corporation if, by reason of subsections 256(1) to (6) of the Income Tax Act, the particular corporation is associated with the other corporation for the purposes of that Act;
2. a person other than a corporation is associated with a particular corporation if the particular corporation is controlled by the person or by a group of persons of which the person is a member and each of whom is associated with each of the others;
3. a person is associated with:
   
   1. a partnership if the total of the shares of the profits of the partnership to which the person and all other persons who are associated with the person are entitled is more than half of the total profits of the partnership, or would be more than half of the total profits of the partnership if it had profits; and
   2. a trust if the total of the values of the interests in the trust of the person and all other persons who are associated with the person is more than half of the total value of all interests in the trust; and
4. a person is associated with another person if each of them is associated with the same third person;

"calendar quarter" means a period of three months beginning on the first day of January, April, July or October in each calendar year;

"consideration" means money, property, a service, or anything else which induces a supplier to make the supply;

"Department" means the Department of National Revenue, Customs andExcise;

"exempt supply" means a supply included in Schedule V to the Excise Tax Act;

"financial institution", at any time, means a person who is at that time a financial institution under section 149 of the Excise Tax Act;

"fiscal month" of a person means a period that is determined under section 243 of the Excise Tax Act to be the fiscal month of the person;

"fiscal quarter" of a person means a period that is determined under section 243 of the Excise Tax Act to be the fiscal quarterof the person;

"fiscal year" of a person means

(a) where the person has made an election under section 244

of the Excise Tax Act that is in effect, the period that the person elected to be the fiscal year of the person; and

(b) in all other cases, the taxation year of the person;

"listed financial institution" means a person referred to in

paragraph 149(1)(a) of the Excise Tax Act. Under paragraph 149(1)(a) a person is a financial institution throughout a particular taxation year of the person if, at any time in the particular year, the person is

(a) a bank,

(b) a corporation that is licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada the business of offering to the public its services as a trustee,

(c) a person whose principal business is as a trader or dealer in financial instruments or as a broker or salesperson of financial instruments,

(d) a credit union,

(e) an insurer or any other person whose principal business is providing insurance under insurance policies,

(f) a segregated fund of an insurer,

(g) the Canada Deposit Insurance Corporation,

(h) a person whose principal business is the lending of money or the purchasing of debt securities or a combination thereof,

(i) an investment plan,

(j) a person providing services referred to in section 158, or

(k) a corporation deemed under section 151 to be a financial institution;

"Minister" means the Minister of National Revenue;

"person" means an individual, partnership, corporation, trust or estate, or a body that is a society, union, club, association, commission or other organization of any kind;

"registrant" means a person who is registered, or who is required to apply to be registered, under sections 240 and 241 of the Excise Tax Act;

"reporting period" of a person means the reporting period of the person as determined under sections 245 to 251 of the Excise Tax Act;

"supply" means, subject to sections 133 and 134, the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition;

"taxable supply" means a supply that is made in the course of commercial activity, but does not include an exempt supply;

"taxation year" of a person means

(a) where the person is a taxpayer within the meaning of

that term in the Income Tax Act, the taxation year of the person for the purposes of that Act; and

(b) in any other case, the period that would be the taxation

year of the person for the purposes of that Act if the person were a corporation;

"zero-rated supply" means a supply included in Schedule VI to the Excise Tax Act.

GENERAL

1. Registrants are required to calculate their net GST remittance or refund on a periodic basis - monthly, quarterly or annually, depending on sales volumes. Following each reporting period, a registrant must file a GST return and remit the net tax owing, orclaim a refund.

2. The reporting period is determined by the registrant's "threshold amount" for a fiscal year or fiscal quarter. Detailed instructions on how to calculate these threshold amounts are included in paragraphs 35 through 40 of this memorandum.

3. The reporting periods are as follows:

(a) Monthly - For registrants whose threshold amount for a fiscal year or fiscal quarter is greater than $6 million.

(b) Quarterly - For registrants whose threshold amount for a fiscal year is $6 million or less.

(c) Annually - Registrants whose threshold amount for a fiscal year does not exceed $500,000 may elect to file annually and pay quarterly instalments.

4. At the time of registration, the Department will assign a reporting period based on annual taxable sales (refer to paragraphs 36 and 37 of this memorandum for additional information). The reporting period will either be monthly for annual sales greater than $6 million or quarterly for annual sales of $6 million orless. The reporting period of a listed financial institution that is not a registrant is the fiscal year of the institution.

5. A person is permitted, subject to certain legislative limitations, to adopt an alternative reporting period by filing an election. An election for an alternative reporting period shall be filed with the Minister in a prescribed manner, on the form entitled "ELECTION FOR REPORTING PERIOD", containing prescribed information and specifying the first fiscal year to which the election applies. A copy of this form is attached as Appendix A.

6. An election will be filed:

(a) where the election is to take effect on the day the person becomes a registrant, when a person applies to be registered, or between that time and the effective date of registration, if the effective date is later;

(b) where the election is for fiscal years and the reporting period ending immediately before the day the election is to take effect is a fiscal quarter, within three months after that day; and

(c) in all other cases, within two months after the day the election is to take effect.

THE GST FISCAL YEAR

Choosing a Fiscal Year

7. For reporting purposes, every registrant is required to have a single "fiscal year".

8. A person's fiscal year for GST purposes will be the person's taxation year unless the person has made an election which is in effect to have another period as the person's fiscal year. For example, where the taxation year of a person is a calendar year, the calendar year will normally also be the person's GST fiscal year.

9. The year end entered on the registration form should be the year end for income tax purposes.

10. As stipulated in subsection 244(1), where a taxation year is not a calendar year, a person may elect to have fiscal years that are calendar years effective on the first day of the calendar year.

11. Where, for purposes of the Income Tax Act, the fiscal period of an individual or a trust for a business carried on by the individual or trust is not the taxation year of the individual or trust, the individual or trust may elect to have the fiscal year be the fiscal period of the business. This election is effectiveon the first day of that fiscal period.

12. The GST fiscal year is defined by reference to the Income Tax Act. For the purpose of the Income Tax Act, the taxation year of an individual is normally a calendar year.

13. Subsection 244(4) stipulates that an election or revocation under section 244 must be made in prescribed form, specify the day the election or revocation is to become effective and be filed with the Minister before the day that is one month after the effective date. For example, if the effective date of the election is January 1, the election form must be filed before February 1. If the effective date is January 15, the election form must be filed before February 15.

14. The registrant must complete the form entitled "ELECTION/REVOCATION OF AN ELECTION FOR GST FISCAL YEAR", in order to make one of the two elections described in paragraphs 10 and 11 of this memorandum or to revoke a previous GST fiscal year election made under section 244 of the Excise Tax Act, as outlined in paragraph 16 of this memorandum. A copy of this form is attached as Appendix B.

15. An election to adopt a fiscal year for GST purposes is binding on the registrant for a period of at least one year. The election remains in effect until such time as it is revoked.

Revocation of Election

16. A registrant may revoke an election effective on the first day of a taxation year, if that taxation year commences more than one year after the day the election became effective.

REPORTING PERIODS

17. For GST purposes, a registrant will have one of three alternative reporting periods: fiscal month; fiscal quarter; or fiscal year. As discussed in paragraph 4 of this memorandum, when an application for registration is filed, the Department will assign either a monthly or quarterly reporting period. Pursuant to sections 246, 247 and 248, a registrant will be permitted, in certain circumstances, to elect a reporting period different from the one assigned.

18. The registrant must complete the form entitled "ELECTION FOR REPORTING PERIOD".

19. A registrant who elects to file annually must also complete the form entitled "TRANSITIONAL INSTALMENT BASE CALCULATION", a copy of which is attached as Appendix C of this memorandum. Details on the instalment base calculation can be found in paragraphs 41 to 46 of this memorandum.

20. Pursuant to section 237, registrants filing on an annual basis must make instalment payments equal to 1/4 of the instalment base for that reporting period on or before the last day of each fiscal quarter. The instalment base is generally based on the net tax remittable for a year. On the return, which is filed within three months after the end of the fiscal year, the registrant will reconcile the instalment payments with the actual net tax remittable.

21. Penalty and interest will apply if a quarterly instalment is underpaid or paid late, or if the registrant based the instalment payments on a low estimate of net tax remittable.

22. Pursuant to paragraph 245(1)(a), the reporting period for a non-registrant, that is not a listed financial institution, is a calendar month. Paragraph 245(1)(b) provides that the reporting period of a non-registrant that is a listed financial institution is the fiscal year of the institution.

23. The reporting period of a registrant that is a listed financial institution is a fiscal year, unless the listed financial institution has made an election for monthly or quarterly filing.

24. Reporting periods apply to the person or registered entity as a whole. A parent or head office is responsible for informing its separately filing branches or divisions of any change to reportingperiods.

Changing Reporting Periods

25. Registrants may elect to change their reporting periods to one of the following:

(a) monthly;

(b) quarterly; or

(c) annually.

26. It should be noted that it is mandatory for registrants whose threshold amount for a fiscal year or fiscal quarter is in excess of $6 million to report on a monthly basis.

Monthly

27. In accordance with section 246, any person may elect to report on a monthly basis.

28. This election would be in effect until an election to file on a quarterly or annual basis takes effect on the first day of a fiscal year.

29. An election to have reporting periods that are fiscal months may be of interest to persons engaged in making zero-rated supplies, and who anticipate making regular claims for a refund of net tax.

Quarterly

30. Pursuant to section 247, a person may elect to file on a quarterly basis, providing the threshold amount for a fiscal year does not exceed $6 million.

31. The election to file on a quarterly basis would take effect on the first day of the fiscal year.

32. An election for quarterly filing remains in effect until the earliest of

(a) the beginning of the day an election for monthly or annual filing takes effect;

(b) the first day of the first fiscal quarter for which the threshold amount exceeds $6 million; and

(c) the first day of the first fiscal year for which the threshold amount exceeds $6 million.

Annually

33. Subsection 248(1) permits a person to elect to file on a annual basis provided the threshold amount for a fiscal year does not exceed $500,000.

34. Subsection 248(2) provides that an election under subsection 248(1) will remain in effect until the earliest of

(a) the day on which an election for quarterly or monthly filing takes effect;

(b) the first day of the first fiscal quarter for which the threshold amount exceeds $500,000, if this should be the second or third fiscal quarter in a fiscal year; and

(c) the first day of the fiscal year for which the threshold amount exceeds $500,000.

Threshold Amounts

35. The reporting period for registrants is dependent on the threshold amount for a fiscal year or fiscal quarter. The threshold amount for a fiscal year refers to the consideration for taxable supplies made in the immediately preceding fiscal year. The threshold amount for a fiscal quarter at any time in a fiscalyear refers to the consideration for taxable supplies made in all preceding fiscal quarters ending in that fiscal year.

36. The threshold amount includes:

(a) goods and services taxable at seven per cent; and

(b) zero-rated supplies such as basic groceries and exports.

37. The threshold amount does not include:

(a) exempt supplies such as long term residential rents and daycare services;

(b) supplies of financial services; and

(c) supplies by way of sale of real property that is capital property.

38. The threshold amount of a particular person for a fiscal year of the particular person is an amount equal to the total of

(a) an amount determined by the formula

A x 365/B

where

A is the total of all consideration for taxable supplies (other than supplies of financial services and supplies by way of sale of real property that is capital property) made by the particular person that became due or was paid without having become due to the particular person in the immediately preceding fiscal year (the "base year") of the particular person; and

B is the number of days in the base year; and

(b) the total of all amounts, each of which is an amount in respect of a person (the "associate") who was associated with the particular person at the end of the particular fiscal year of the associate that is the last such year ending at the same time as, or at any time in, the base year, determined by the formula

C x 365/D

where

C is the total of all consideration for the taxable supplies (other than supplies of financial services and supplies by wayof sale of real property that is capital property) made by the associate that became due or was paid without having become due to the associate in the particular fiscal year of the associate; and

D is the number of days in the particular fiscal year of the associate.

39. The threshold amount of a particular person for a fiscal quarter at any time in a fiscal year of the particular person is the total of:

(a) the total of all consideration for taxable supplies (other than supplies of financial services and sales of capital real property) made by the particular person that became due, or was paid without becoming due, to the particular person in all preceding fiscal quarters of the particular person ending in that year; and

(b) the total of all amounts each of which is an amount in respect of a person (referred to as the "associate")associated with the particular person at the beginning of the fiscal quarter equal to the total of all consideration for taxable supplies (other than supplies of financial services and supplies by way of sale of capital real property) that became due, or was paid without having become due, to the associatein all preceding fiscal quarters of the associate ending in the fiscal year of the particular person and before the beginning of the particular fiscal quarter.

40. Persons with associates should contact a Revenue Canada Excise office for more information on how the value of taxable supplies made by associates will affect the threshold amounts and, consequently, filing frequency.

INSTALMENT BASE CALCULATION FOR ANNUAL FILERS

41. Subject to subsection 237(5), a registrant's instalment base for a particular reporting period of the registrant is the lesser of

(a) the net tax for the particular reporting period or, in the case of a reporting period determined under subsection 248(3), the amount determined by the formula

A x 12/B

where

A is the net tax for the particular reporting period;and

B is the number of months in the particular reporting period; and

(b) an amount determined by the formula

A x 365/B

where

A is the net tax for all reporting periods of the registrant ending in the twelve month period immediately preceding the particular reporting period; and

B is the number of days in those preceding reporting periods.

42. To determine the amount of the quarterly instalment payment, the instalment base is divided by four. At the end of the year, the registrant will remit the balance payable, or claim a refund if the total of instalment payments exceeds the amount remittable.

Minimum Instalment Base

43. Where a registrant's instalment base for a reporting period is less than $1,000, the instalment base is deemed to be nil and the registrant is not required to submit quarterly instalment payments for that year. The registrant would be required only to file the annual return with the net tax remittable.

Anticipated Decline in Tax

44. A registrant who anticipates a decline in net tax in the current year is permitted to base the current year's instalment payments on an estimate of the current year's net tax, rather than the actual amount of the preceding year's net tax. Providing that the registrant has not underestimated the current year's net tax, no penalty or interest is payable pursuant to subsection 280(2).

Ceasing to Qualify

45. Where a registrant ceases to qualify for annual reporting at the beginning of a second or third fiscal quarter and, as a result, is required to have a reporting period which is shorter than 12 months, the net tax for the short reporting period is to be grossed-up to an amount for a 12-month period in order to determine the instalment base for the short period.

Negative Net Tax

46. Where the net tax for a reporting period is a negative amount, the net tax is deemed to be nil for that reporting period, for purposes of calculating the instalment base.

TRANSITIONAL INSTALMENT BASE CALCULATION

47. In accordance with subsection 237(5), where the reporting period of a registrant who is an annual filer begins before 1992, a special "transitional" instalment base calculation must be used. The calculation must be reported on the form entitled "TRANSITIONAL INSTALMENT BASE CALCULATION", attached as Appendix C.

48. The instalment base for that reporting period of the registrant is the lesser of

(a) 75% of the net tax for the reporting period as determined under paragraph 237(2)(a); and

(b) the amount determined by the formula

A x B x 365/C

where

A is the prescribed percentage;

B is the total consideration received by or due to the registrant for supplies of property (other than supplies by way of sale of capital property of the registrant) or services by the registrant in the fiscal year of the registrant that immediately preceded that reporting period; and

C is the number of days in the fiscal year of the registrant that immediately preceded that reporting period.

49. The prescribed percentages will be:

(a) 1.75 per cent for vendors whose supplies of zero-rated basic groceries constitute at least 25 per cent of their total supplies in the previous fiscal year; and

(b) five per cent for other vendors.

ACCOUNTING PERIODS

50. For GST purposes, registrants filing on a fiscal year basis may adopt fiscal quarters and fiscal months that correspond to the registrant's accounting periods for business purposes, provided they observe the rules in subsections 243(3) and 243(4). In this case, the registrant submits a form entitled "NOTIFICATION OF ACCOUNTING PERIODS", attached as Appendix D. This form must besubmitted every year.

51. Where a fiscal year is a calendar year, the fiscal quarter shall be a calendar quarter.

52. Where the fiscal quarter is a calendar quarter, the fiscal

month shall be a calendar month.

53. A calendar year is January 1 to December 31. An example of a calendar quarter is January 1, 1991 to March 31, 1991 and of a calendar month is January 1, 1991 to January 31, 1991. An example of a non-calendar fiscal quarter is January 6, 1991 to March 30, 1991 and of a non-calendar fiscal month is January 1, 1991 to January 28, 1991.

54. A registrant who elects to use the calendar year must also

adopt calendar months (e.g., January 1 to January 31) or quarters

(e.g., January 1 to March 31). The registrant is not eligible to have accounting periods (i.e., non-end of the month cut-offs, such as March 17).

Criteria for the Use of Accounting Periods

55. A registrant who elected to have a fiscal year that is a calendar year under section 244 of the Excise Tax Act is not permitted to use accounting periods.

56. A person who has a GST fiscal year that is a calendar year by virtue of having a taxation year that is a calendar year may not adopt accounting periods.

57. However, an individual or a trust may elect to have a GST fiscal year that is the fiscal period for a business carried on by the individual or trust. By so doing the individual or trust would be eligible to adopt accounting periods.

58. A taxation year for a corporation is normally a fiscal period. A corporation which has a fiscal period that ends on December 31 is not required to file an election for a fiscal year in order to adopt accounting periods. The corporation must, however, complete and submit the form entitled "NOTIFICATION OF ACCOUNTING PERIODS".

Fiscal Quarter Rules

59. In accordance with subsection 243(3), where a fiscal year is not a calendar year, the fiscal quarter will be determined according to the following rules:

(a) there cannot be more than four fiscal quarters in each fiscal year;

(b) the first fiscal quarter in the fiscal year begins on the first day of the fiscal year, and the last fiscal quarter of the fiscal year ends on the last day of that fiscal year;

(c) each fiscal quarter cannot be longer than 114 days; and

(d) except for the first and last fiscal quarters in the fiscal year, each fiscal quarter cannot be shorter than 84 days.

Fiscal Month Rules

60. Pursuant to subsection 243(4), where the fiscal quarter is not a calendar quarter, the fiscal month shall be determined according to the following rules:

(a) the first fiscal month in each fiscal quarter begins on the first day of that fiscal quarter and the last fiscal month in each fiscal quarter ends on the last day of the fiscal quarter;

(b) each fiscal month cannot be longer than 35 days; and

(c) except for the first and last fiscal months in a fiscal quarter, each fiscal month cannot be shorter than 28days.

61. The "NOTIFICATION OF ACCOUNTING PERIODS" is effective for one fiscal year. A new notification will be submitted each year the registrant wishes to continue to use accounting periods.

REGISTRANTS WITH SEPARATE FILING BRANCHES

62. Branches or divisions authorized under section 239 to file separate returns will be required to have the same fiscal year, fiscal quarters and fiscal months and the same reporting periods as those of the parent.

NOTE: This memorandum contains general information and is provided for convenience and guidance in applying the Excise Tax Act and Regulations. Readers should refer to the legislation and/or contact the nearest Revenue Canada Excise office if interpretation problems occur.

To view Appendices A, B, C and D, please see the printed copy of this publication. You can obtain a copy by contacting your local Excise office (addresses and telephone numbers of Excise offices are at the end of this memorandum).

REFERENCES

OFFICE OF RESPONSIBILITY:

Policy and Legislation

LEGISLATIVE REFERENCES:

Excise Tax Act as amended by Bill C-62

HEADQUARTERS FILE:

N/A

SUPERSEDES GST MEMORANDUM:

N/A

OTHER REFERENCES:

N/A

SERVICES PROVIDED BY THE DEPARTMENT ARE AVAILABLE IN BOTH OFFICIAL LANGUAGES.

THIS MEMORANDUM IS ISSUED BY TECHNICAL INFORMATION, EXCISE BRANCH UNDER THE AUTHORITY OF THE DEPUTY MINISTER OF NATIONAL REVENUE, CUSTOMS AND EXCISE.