A non-resident manufacturer of industrial equipment who is not registered for GST has agreed to provide a Canadian lessor with a “lease subsidy” payment for qualifying equipment that the Canadian lessor leases to customers in Canada. The sole purpose of the “lease subsidy” is to encourage the lessor to provide favorable lease rates to Canadian lessees through compensating the lessor for the difference between (i) the implicit lease “interest rate” that is normally built into the lease; and (ii) the subsidized lease rate that is actually built into a lease.

For example, if the regular implicit lease interest rate is 7% and the lessor agrees to calculate the lease price based on an implicit lease interest rate of 2%, then the non-resident manufacturer will provide a lease subsidy to compensate the lessor for agreeing to lease the equipment at a reduced lease price (i.e., the 5% differential).

Question

In the following fact situation could the CRA confirm that GST is not collectible on the lease subsidy payment on the basis that either section 7 or 8 of Part V of Schedule VI to the ETA applies to zero-rate the payment:

ManufactureCo is a non-resident corporation who is not registered for GST;
ManufactureCo manufactures industrial farm equipment solely in the United States;
ManufactureCo sells the equipment to a Canadian distributor who, in turn, resells the equipment to a Canadian leasing company;
The Canadian leasing company leases the equipment to GST registrants and charges and collects GST on the lease payments;
For certain types of equipment, ManufactureCo will provide the Canadian leasing company with a lease subsidy of the type described above;
The lessee is generally not aware of the subsidy;
The lease agreement will generally be concluded at a time when the equipment is situated outside Canada however, in certain situations the equipment may be situated in a Canadian warehouse at the time the lease agreement is concluded.

Reasons in Support of Zero-Rating

Based on the CRA’s administrative policy with respect to inducement payments, ManufactureCo’s payment of the lease subsidy may be regarded as consideration for the Canadian lessor’s “service of entering into the lease” with the Canadian lessee.

Subject to certain exclusions, section 7 of Part V of Schedule VI provides for the zero-rating of any service made to a non-resident person. Excluded from zero-rating are services rendered “in respect of tangible personal property that is situated in Canada at the time the service is performed”.

As provided for in GST Memorandum 4.5.3, “there must be more than a mere indirect or incidental connection between a service and the underlying real or tangible personal property before the supply of a service "in respect of" real property or tangible personal property will be excluded from zero-rating”. Based on the foregoing, it is submitted that the lease subsidy is directly related to the terms of the lease agreement and, as such, is only indirectly related to the equipment. Accordingly, the Canadian lessor’s service of entering into the lease and agreeing to provide favorable lease terms should qualify for zero-rating.

CRA Comments

An inducement is generally provided for a supply of agreeing to perform a specific action. In the background information for question 1, it indicates that the sole purpose of the “lease subsidy” is to encourage the lessor to provide favourable lease rates to Canadian lessees through compensating the lessor for the difference between (i) the implicit lease “interest rate” that is normally built into the lease; and (ii) the subsidized lease rate that is actually built into a lease. Where compensation, referred to in question 1 as a “lease subsidy” payment, is an inducement for the lessor to agree to lease qualifying equipment at a reduced lease price, the inducement payment would be consideration for a taxable supply of a service provided by the Canadian lessor to the non-resident ManufactureCo. Based on the information provided, it appears that none of the exclusions set out in section 7 of Part V of Schedule VI apply and the supply by the Canadian lessor to the non-resident ManufactureCo would be zero-rated.

Q.2 - Constructive Importer Rules And Section 180 Exclusion

Facts / Background

In situations where there is a “specified supply” that meets the conditions specified in subsection 178(2), then the following is deemed to have occurred:

(i) the constructive importer is deemed to have imported the goods;

(ii) and any amount paid or payable as Division III Tax is deemed to have been paid or payable by the constructive importer.

Subsection 178.8(9) however, provides that subsection 178.8(2) does not apply in respect of goods imported in circumstances where section 180 deems a person to have paid tax in respect of a supply of property equal to the tax under Division III.

Although the net result is generally the same in that the recipient of the supply is the person entitled to claim ITCs, the rules in subsection 178.2(2) are automatic; whereas, section 180 is permissive in nature in that it requires certain actions to be undertaken by the non-resident supplier (e.g., the non-resident must provide evidence to the recipient that “the tax has been paid”). As a result, depending on the particular section that applies, there could be timing differences as to when the “constructive importer” is entitled to claim an ITC for Division III tax. For example, under subsection 178.8(2) the “constructive importer” would be entitled to claim an ITC at the time Division III tax became payable (i.e., at time of release). Conversely, under section 180 the Canadian recipient would only be entitled to claim an ITC once it receives evidence from the non-resident supplier that tax was paid.

Question

Could the CRA comment on the foregoing and, in particular, confirm whether the “constructive importer” can claim ITCs under subsection 178.8(2) in circumstances where the conditions in section 180 are not satisfied at the time the ITC is claimed but will be satisfied sometime in the future (e.g. on a yearly basis the non-resident provides the constructive importer with evidence of the Division III tax that was paid).

CRA Comments

The above question involving the interaction and timing of section 180 and subsection 178.8(2) of the Excise Tax Act was asked in question #6 from our meeting in 2005. Our interpretation of the provisions as set out in the response to that question remains unchanged.

We note that the above question suggests that the person is claiming an ITC on the basis of subsection 178.8(2) of the ETA before the documentary requirements of section 180 of the ETA have been met. It is important to note that a person’s entitlement to an ITC under subsection 169(1) of the ETA is distinct from a person’s ability to claim the ITC based on subsection 169(4) of the ETA. As indicated in our 2005 response, although there may be a difference in the timing of the application of section 180 and subsection 178.8(2) of the ETA, there is no difference in the timing of when the documentary requirements under subsection 169(4) for claiming the ITC will be met for purposes of both provisions. Where either provision applies, the documentary requirements will only be satisfied once the person obtains the import documentation. It is also at this time that section 180 of the ETA will apply to override section 178.8 of the ETA. Therefore, with respect to the statement made in the question, there would be no legislative basis for the person to claim the ITC before the documentary conditions of section 180 of the ETA are met.

Q.3 - Assignment Of Employment Contracts & Reverse Payment

Facts / Background

In situations where a GST registrant acquires various assets of an Operating Company, the GST registrant may also agree to honor the employment contracts of the Operating Company through agreeing to the assignment of said employment contracts. Where the employees have accumulated vacation time (and there are other employment law concerns such as the requirement to provide reasonable notice or pay in lieu of notice on terminating the particular employees), the Operating Company that assigns the employment contracts may pay or credit an amount to the GST registrant for agreeing to continue employing the former employees.

Question

Could the CRA discuss its views on the GST status of payments made by the Operating Company to a purchaser of assets who, in connection with acquiring the assets, agrees to the assignment of the employment contracts?

CRA Comments

We understand that the purchaser of the business assets is agreeing to employ individuals who were previously employed by the vendor of those assets, and to assume liability for any rights to vacation or severance pay that the individuals had acquired in their previous employment, in exchange for a payment/credit towards the purchase price from the vendor.

The GST/HST treatment of the amount paid/credited would depend on whether it is consideration for an assignment, or a payment pursuant to an employment contract.

If the amount being paid or credited is consideration for assuming liabilities upon the assignment of the employment contracts, then this amount would be consideration for a taxable supply (i.e. the supply by the purchaser of agreeing to assume liabilities pursuant to the assignment) and would be subject to GST/HST. The consideration would be calculated as set out in the agreement, by reference to accumulated vacation and other entitlements.

On the other hand, the payment of salary or benefits to an employee would not be subject to tax, since the definition of service in ss123(1) excludes anything provided by an employee to an employer in the course of or in relation to the person's office or employment. The amount paid or credited in such circumstances would not be consideration for a supply.

Whether an employee/employer relationship exists in any particular situation is determined by CPP/EI Rulings at CRA.

Q.4 - Wash Transaction Assessment That Is Subsequently Overturned

Facts / Background

A GST Registrant is assessed for non-collection of GST with respect to a wash transaction. As a result of the assessment, the GST Registrant recovers the GST payable from the recipient of the supply and the recipient claims a corresponding ITC.

To the extent the GST Registrant appeals the assessment (i.e., to eliminate the 4% wash interest/penalty) and is successful in having the assessment vacated, could the CRA advise how the reassessment can be processed such that the GST Registrant is not required to pay interest with respect its collection (and non-remittance) of the GST from its recipient. As an example, consider the following situation:

(i) On May1, 2007 Corporation A is assessed for non-collection of GST on taxable supplies made during the 2006 calendar year. The assessment results in $100,000 in GST being collectible plus a wash penalty of $4,000;
(ii) On May 2, 2007 Corporation pays the $104,000 assessment;
(iii) In July 2007, Corporation A recovers the $100,000 in GST from its customers who claim an ITC;
(iv) Corporation A files a Notice of Objection and on October 1, 2008 the CRA agrees to vacate the assessment.

Question

In processing the assessment, will the CRA consider refunding the “wash penalty” plus interest or will CRA repay the $104,000 plus interest thus resulting in Corporation A having a potential GST liability with respect to the non-remittance of the $100,000 in GST collected from its customers in July 2007. In the later situation, the excess interest cost could, in situations where the Appeals Branch’s decision is significantly delayed, exceed the $4,000 wash penalty that is refunded. The preferred approach would be for CRA to adopt a policy whereby it will issue a reassessment for the period which includes both; (i) the period covered by the initial assessment; and (ii) the period in which the registrant collects an amount as or on account of tax from its customers?

CRA Comments

First we will explain the operation of the law under the assumed set of facts. We will consider the suggestion above and offer an alternative means to mitigate the assessment of interest under section 280. [All section references are to the Excise Tax Act] Refer to the attached schedule.

Step 1. Audit assessment

The effect of the wash is to waive statutory penalty and interest under section 280 from 2007-01-31 (the due date of the return), to the assessment date 2007-05-01 with the exception of the remaining 4% wash penalty. Therefore it is the lesser of 4% of the tax and the statutory P&I that will be assessed under the policy. [GST Memoranda Series Chapter 16.3.1 Reduction of Penalty and Interest in Wash Transaction Situations] Authority for Ministerial discretion to waive section 280 penalty and interest is found under section 281.1.

Section 280 interest would be applicable after 2007-05-01 and continued to accrue until the balance was extinguished by the payment on 2007-05-02. There was an amendment to the ETA eliminating the section 280 penalty effective 2007-04-01.

Step 2. Objection Refund Interest Payable

A credit on the account as a result of the reassessment on Objection is payable to Corporation A under subsection 230(1).

Subsection 230(3) governs the refund interest calculation. It was amended for a refund in respect of a reporting period that ends on or after April 1, 2007. In this example the old rules apply:

… interest at the prescribed rate shall be paid to the person on the refund for the period beginning on the day that is twenty-one days after the later of

(a) the day the return for the reporting period is filed with the Minister, and

(b) the day the requirement under subsection (2) is fulfilled,

and ending on the day the refund is paid.

Where there is a reassessment pursuant to a favourable decision on objection, CRA will repay the $104,000 plus interest once the credit is posted assuming Corporation A is up to date with the filing of its returns under the various acts administered by CRA [230(2)] and there are no other reasons to hold the refund.

Step 3. When the customers paid the tax

Corporation A has a potential GST liability with respect to the non-remittance of the $100,000 in GST collected from its customers in July 2007. The formula for net tax under clause 225(1) (A) (a) requires the inclusion of:

all amounts that became collectible and all other amounts collected by the person in the particular reporting period as or on account of tax under Division II, …

However 225(2) states:

An amount shall not be included in the total for A in the formula set out in subsection (1) for a reporting period of a person to the extent that that amount was included in that total for a preceding reporting period of the person.

Initially there is no requirement to report the tax received by the customers on a GST return at the time it was received, because of subsection 225(2). After the Objection reassessment the amount was no longer “included” in A. Clause 225(1)(A)(a) requires the amount to be reported in the reporting period of receipt; 2007-09-30. This will trigger section 280 interest effective the due date of the return; 2007-10-31.

If Corporation A does not report the amount the CRA, through the Compliance Branch, may assess it.

Step 4. Credit Note / Refund to customers

We assumed that Corporation A issued a credit note immediately after the reassessment was received pursuant to the decision on the objection and the amount was refunded to the customers. An offsetting ITC would be claimed in the period ended 2008-12-31. [s232] We further assumed that the return was received on 2009-01-14.

Section 280 interest would be applicable for the period 2007-10-31 (from step 3 above) to 2009-01-14 (the received date of the return). The latter assumes no earlier credit or payment on the account.

Based on our understanding of the facts the interest for the above interval is the issue in this question.

Alternative Reassessment

You suggest that the Appeals Branch could include the period ended 2007-09-30 in its reassessment. Appeals would not reassess periods outside the period under objection. Corporation A has the option to have a Notice of Confirmation issued, confirming the tax component of the Audit assessment. The objection may also be held in abeyance pending the outcome of the credit note. In either case, there would be no objection reassessment of tax; therefore no amount would be assessed for the payment of the tax by the customers at step 3 due to the operation of subsection 225(2). Where Corporation A issues a credit note to its customers and refunds the tax, Corporation A would be eligible for an offsetting ITC. Since steps 2 and 3 are eliminated, section 280 interest will not be liable under this scenario for the period 2007-10-31 to 2009-01-14.

Waiver of Interest

In the event that the objection reassessment is issued, Corporation A may apply for a waiver of interest under the Taxpayer Relief provisions found in Chapter 16.3 of the GST Memoranda Series “Cancellation or Waiver of Penalties and/or Interest”. We cannot comment on whether the fairness request would succeed or fail.

Response to further comments during the Roundtable discussion: The author of the question expressed concern over any remaining wash penalty where the Appeals Branch does not reassess to reverse the tax.

In this case the wash penalty replaces penalty that would have been assessed under subsection 280(1). To the above response we would add that the wash penalty may be relieved at the objection stage where there is a finding of due diligence, without the need of a separate request under the “Taxpayer Relief” guidelines (formerly “fairness”). Refer to GST/HST Policy Statement P-237R THE ACCEPTANCE OF A DUE DILIGENCE DEFENCE FOR A PENALTY IMPOSED UNDER SUBSECTION 280(1) OF THE EXCISE TAX ACT FOR FAILURE TO REMIT OR PAY AN AMOUNT WHEN REQUIRED, AND FOR A PENALTY IMPOSED UNDER SECTION 280.1 FOR FAILURE TO FILE A RETURN WHEN REQUIRED Where it is found that the corporation has taken reasonable care in ensuring that the correct amount was remitted and other criteria have been met, the wash penalty may be cancelled.

Canadian Bar Association Roudtable Answer to Question 4
February 26, 2009
Wash Transaction Assessment That is Subsequently Overturned


				s280	s280
		Date of	Quarter	P&I from	P&I to		ETA
		occurance	End	date	date	Amount	Reference

1	Audit tax adjustment	01-05-2007	31-12-2006	01-05-2007	02-05-2007	100,000.00	225(A)(a), 281.1
	wash penalty			01-05-2007	02-05-2007	4,000.00
	payment	02-05-2007		02-05-2007		- 104,000.00
	balance					-

2	Objection tax adjustment	01-10-2008	31-12-2006	02-05-2007	31-10-2008	- 100,000.00	230(3)	refund interest
		01-10-2008		02-05-2007	31-10-2008	- 4,000.00
	refund paid	31-10-2008				104,000.00
	balance					-

3	Tax Collected from customers	01-07-2007
	Reported tax collected	01-10-2008	30-09-2007	31-10-2007	14-01-2009	100,000.00	225(A)(a), 225(2)

4	Credit note adjustment	01-10-2008	31-12-2008			- 100,000.00	232
						-


	Note: 280 penalty eliminated 2007-04-01- amendement to ETA

Assumptions:
	Filing frequency: calendar quarters
	Credit note / repayment issued to customers on 2008-10-01

Q.5 - Section 167 Election On Dissolution Of Partnership

Facts / Background

For example, consider a Limited Partnership that is comprised of two members – ACo who holds a 99.99% limited partnership interest and BCo who, as the general partner, holds a 0.01% interest. ACo acquires BCo’s 0.01% partnership interest thus resulting in the Limited Partnership ceasing to exist, such that all of the property of the Limited Partnership now belongs to ACo.

Question

In situations where a partnership ceases to exist as a result of one partner buying out its fellow partners, would the supply of 100% of the partnership’s property by the “former partnership” to the sole partner qualify for a section 167 election?

CRA Comments

As noted in the question, where one partner acquires all the partnership interest, the partnership ceases to exist. The person acquiring all the partnership interest ceases to be a member of the partnership at the moment of acquiring 100% of the partnership interest. Under the provisions of paragraph 272.1(4)(c), the partnership disposes of its property to that person.

The agreement for a supply of partnership interest by one partner to another person is an agreement for a supply of a partnership interest.

For subsection 167(1) to apply, there must also be an agreement for a supply of a business that satisfies the conditions set out in subsection 167(1). Where the disposition of 100% of the partnership property from the partnership to another person constitutes the supply of a business, and where an agreement for a supply of the business from the partnership, as supplier, to the other person exists, an election under subsection 167(1) could be available, provided the conditions for the election are met.

The applicability of an election pursuant to subsection 167(1) is a question of fact in each case.

Q.6 - Drop Shipment/Gst Memoranda Series 3.3.1

WITHDRAWN

Q.7 - Zero-Rating Of Financial Services

Facts / Background

A Co is a financial institution that provides money exchange services to non-resident persons (e.g., tourists to Canada) and Canadian resident persons at major travel destinations in Canada. A supply of a financial service by a financial institution to a non-resident person, subject to several exceptions (none of which are relevant in these circumstances), is zero-rated for GST purposes pursuant to section 1 of Part IX of Schedule VI to the Excise Tax Act.

Question

What documentary evidence will A Co need in order to support the zero-rating of money exchange services supplied to non-resident persons?

CRA Comments

The supply of a financial service that is the exchange of money by A Co, a financial institution, to a non-resident individual will be zero-rated where none of the exceptions in paragraphs 1(a) to (e) of Part IX of Schedule VI to the ETA apply.

To determine if a supply is made to a non-resident individual, the CRA will look at the facts of the particular situation. Suppliers are responsible for confirming the residence status of the recipients of their supplies and retaining satisfactory evidence to support the fact that a particular recipient is a non-resident.

The CRA will generally accept a written self-declaration by the recipient that includes their complete home address to support the fact that a particular recipient is a non-resident, similar to the example provided in Appendix A to GST/HST Memorandum 3.4, Residence. It should generally be supported by another document such as, valid government issued identification for the recipient that includes the recipient’s photograph, complete home address, and contains a unique identifier number. A photocopy of such supporting documentation can be attached to the self-declaration.

The CRA will also consider other forms of documentation as proof of non-residence.

If documentation is unavailable to determine or support the fact that the recipient of the supply is a non-resident person at the time the supply is made, the CRA will not consider the transaction to be a zero-rated supply under section 1 of Part IX of Schedule VI to the ETA.

Detailed information on determining the residence status of persons for GST/HST purposes is explained in GST/HST Memorandum 3.4.

Q.8 - Gst Registration & T2 Returns

Facts / Background

The test for “carrying on business” in the GST context differs slightly than that in the “income tax” context, the former being broader, and also allowing for voluntary registration in certain instances. Thus, there can be circumstances where a corporation is required to be registered for GST, or may choose to voluntarily register for GST, where the corporation is not carrying on business in Canada for income tax purposes, and is not required to file a T2 tax return. The CRA agrees with this position, and in response to Q15 of the CBA/CRA GST Roundtable of February 26, 2008, the CRA stated:

“A non-resident corporation who does business with Canada but not in Canada may be properly registered for the GST because they import into Canada but need not file a T2 tax return. If they are doing Business “with” Canada and not “in” Canada there is no need to send in a T2 Return.”

We note that when applying for a GST number for a corporation, the Business Window will automatically assign a corporate income tax account number to the corporation, even in circumstances where the corporation is not carrying on business in Canada for income tax purposes, and would not otherwise be required to file an income tax return. Once the corporation receives a corporate tax account number, it must either file a Canadian income tax return, or it will begin to receive notices of its failure to file demanding that a return be filed.

Question

Will the CRA allow a corporation which is not carrying on business for income tax purposes and is not required to file an income tax return, to voluntarily register for GST and obtain a GST account number without also receiving a corporate tax account number? If so, what must the corporation do to insure that a corporate account is not inappropriately opened? CRA Comments

The CRA currently automatically assigns a corporate tax (RC) account number in all cases where a non-resident corporation applies for and receives a GST/HST (RT) account. We have brought the issue raised in the question to the attention of the relevant operational area for their consideration. In the meantime, non-resident corporations are advised to complete form RC145 Request to Close Business Number (BN) Account to cancel the RC account where it is not warranted.

Q.9 - Special Investigation

Facts / Background

Assume that a supplier has experienced poor economic times and has fallen behind in GST remittances.

Question

Under what circumstances this would be turned over to Special Investigations? If the supplier approaches the CRA and reports the failure to remit GST and demonstrates that it is serious about working with the CRA to pay the amounts owed (however under a payment arrangement), would the CRA be lenient and not refer the matter to Special Investigations?

CRA Comments

Paragraph 46 of IC00-1R2 is merely to advise taxpayers/registrants that they need to remain compliant after making a disclosure, however this does not limit the number or type of disclosures a taxpayer may make, if beyond the taxpayer’s control. The VDP will consider each request for second disclosures on a case by case basis. The VDP will review paragraph 46 of the IC, to clarify the wording.

Q.10 - Bad Debts

Facts / Background

In the current poor economic climate, suppliers are finding their recipients slow to pay for supplies (including GST) and that the recipients are seeking CCAA protection or declaring bankruptcy. The lending of the GST to the recipients (by way of remitting the amount to the CRA before it has been paid by the recipient) is a burden for the suppliers and adding to the financial troubles of some suppliers.

Question

Would the CRA accept a practice of writing off bad debts at the supplier’s fiscal year end or within 6 months of non-payment (whichever is longer) as a reasonable period of time? What forms of leniency would the CRA consider in refunding GST to the suppliers that has not been collected from the recipients?

CRA Comments

The question of when a debt becomes a “bad debt” is a factual one, and must be determined on a case-by-case basis. Whether or not an amount is a “bad debt” must be determined under Generally Accepted Accounting Principles (GAAP). Generally, a debt is considered a bad debt when all reasonable steps have been taken to obtain payment and it has become evident that the debt is uncollectible. Subsection 231(1) of the Excise Tax Act requires that a “bad debt” be written off in the books of account, before claiming the deduction from net tax.

Q.11 - Gst Treatment Of Payments On Behalf Of Co-Owners

Facts / Background

In a co-ownership arrangement relating to the ownership and use of real property, the property manager employs cleaning and other staff as agent for the co-owners. The employees are aware that they are jointly employed by the co-owners. The co-owners reimburse the property manager for their proportionate share of the salaries and benefits paid to the employees. The CRA recognizes that there can be multiple employer arrangements in GST Policy P-238.

Question

Will the CRA confirm that the reimbursement payments by the co-owners to the property manager for the employee salaries and benefits will not be subject to GST?

CRA Comments

As GST/HST registrants, property managers are required to charge and collect GST/HST in respect of the taxable services that they provide to the co-owners of the real property that they manage. The consideration payable for these taxable services generally includes the salaries and benefits paid by the property manager to individuals for the cleaning and maintenance of the real property.

The GST/HST treatment of the payments made by the co-owners to the property manager for the employee salaries and benefits is dependant on the facts of the particular situation.

Whether the co-owners are joint employers of the cleaning and other staff is a question of fact and would be determined by CPP/EI Rulings based on the facts of the particular situation.

Also, whether the property manager is acting as agent of the co-owners in paying the salaries and benefits of the employees is based on the facts of the particular situation and the application of the established principles of agency.

If CPP/EI Rulings determines that the co-owners are joint employers of the cleaning and other staff and the property manager is acting as agent of the co-owners in paying the salaries and benefits of these employees, then the reimbursement payments by the co-owners to the property manager for their proportionate share of the employee salaries and benefits will not be subject to GST.

However, if it is determined that the co-owners are not joint employers of the cleaning and other staff, then the proportionate share of the salaries and benefits paid by the co owners would be part of the consideration payable for the taxable services provided by the property manager to the co-owners, and subject to GST/HST.

Q.12 - Section 186 Input Tax Credit Entitlement Facts / Background

A company (“Holdco”) is incorporated to serve as a publicly-traded holding company. Holdco does not engage in commercial activities and the expenses on which it incurs GST relate to its holdings in subsidiary companies that are themselves wholly engaged in commercial activities.

Section 186 of the Excise Tax Act provides a basis upon which a holding company can recover GST paid on supplies that that can reasonably be regarded as having been acquired by it for consumption or use in relation to shares of the capital stock, or indebtedness of another company that is related to the holding company.

Question

CRA has interpreted section 186 based on the “one step removed” doctrine referenced in GST Policy Statement P-196R, thereby limiting Holdco’s ability to claim input tax credits. However, that doctrine has now been conclusively rejected by the courts, most recently in Stantec Inc. v. The Queen, 2008 TCC 400.

In light of the Stantec decision, please advise as to the status of CRA’s policy and the ability of Holdco to claim input tax credits without restriction.

CRA Comments

The Stantec decision is currently under appeal and consequently we cannot comment on a case that is before the courts.

There is no change in our current position regarding the interpretation of section 186, and Policy P-196R “Whether Administrative Overhead Costs Fall Under Subsection 186(1) of the Excise Tax Act”. A service or property acquired for consumption or use in relation to the holding company’s share structure does not meet the requirements of section 186.

Q.13 - Deemed Financial Institution

Facts / Background

Assume a registrant is engaged exclusively in taxable commercial activities. As part of its contractual obligations, it must maintain significant sums in escrow accounts deposited in long-term interest bearing accounts. Investments are also made in GICs and bankers’ acceptances. Interest earned from these investments exceeds $1 million.

Question

Would the interest be considered by the CRA to be with respect to the lending of money”, as described is subparagraph 149(1)(c)(ii) of the ETA?

Discussion

In GST Ruling HQR 00000380, the CRA decided that interest earned from a bankers’ acceptance purchased on the secondary market where the bank is the primary lender is not subject to 149(1)(c). It would appear that similar treatment should apply to interest earned from deposits in a bank where the depository is not lending directly to third parties.

If the interest is viewed as being from the lending of money, is there abbreviated annual information schedule that can be completed other than GST 111?

CRA Comments

The following response to Question 13 is based on the assumption that the interest earned is not excluded by subsection 149(4) of the ETA and that the persons are not persons described in subsection 149(4.1) of the ETA.

One of the criteria for the inclusion of interest amounts in the calculation in paragraph 149(1)(c) of the ETA is that the interest must be with respect to “the making of an advance, the lending of money or the granting of credit”. When a person receives interest with respect to interest bearing accounts, guaranteed investment certificates (GICs) and/or bonds, either government or corporate, that have been acquired from the issuer (whether or not through an intermediary), the amount of interest should be included in the calculation in paragraph 149(1)(c) of the ETA. However, if, for example, a GIC or bond is purchased on a secondary market (i.e. from a person other that the issuer or an agent of the issuer), any interest received with respect to such a financial instrument should not be included in this calculation.

Please note that these interest amounts are only included in paragraph 149(1)(c) of the ETA if they are included in computing, for the purposes of the Income Tax Act, the person’s income, or, where the person is an individual, the person’s income from a business, for the preceding taxation year.

A banker’s acceptance is a negotiable instrument issued by a debtor and accepted by a bank. Upon acceptance, the bank has a direct and primary obligation or liability in respect of the banker’s acceptance. Where an investor purchases a banker’s acceptance on the secondary market, the investor does not make a loan directly to the issuer of the instrument. Thus, any interest earned by the investor is not directly in respect of the lending of money, as described in paragraph 149(1)(c) of the ETA. In the case of bank deposits, however, the depositor is directly lending money to the bank when the deposit is made and, as a result, the interest should be included in paragraph 149(1)(c) of the ETA, subject to the other requirements of the provision being met.

There is no abbreviated version of the GST111 Schedule 1 – Financial Institution GST/HST Annual Information Schedule.

Q.14 - Dealing With Taxpayer Representatives

Facts / Background

As professional advisors, we are frequently called upon to make inquiries on behalf of our clients. As lawyers, these inquiries are frequently urgent in nature and involve taxpayers which we may not represent in these types of matters on a regular basis. The present system where, in general, it is necessary to submit an appropriate authorization form and then wait two weeks for that form to be processed and our name to appear on the computer before we can take any actions is unworkable.

Question

Has any consideration been given to providing a manner by which the appropriate authorization may be provided by electronic means, ideally a scanned document attached to an e-mail, to the appropriate representative of the CRA at the time information is sought?

CRA Comments

At this time, the emailing of confidential information is not a secure means of communicating with the Canada Revenue Agency (CRA). We ask that you do not transmit information relating to a business to CRA using unsecured email because we cannot be sure of who is sending the message. Similarly, we won’t send any business information through unsecured email because we cannot ensure your confidentiality. We do provide alternate secure methods of communications for your use.

The CRA currently has a process in place by which third party representatives can be authorized by electronic means. This process is available through Represent a Client (RAC). The third party representative must first register for an Epass with the CRA prior to registering with RAC. Once the Epass is obtained, they then can register with RAC to receive a representative identifier (RepID). Once this has been done, the RepID is provided to the business or taxpayer who must also register for an Epass with CRA. Authorization is provided on-line through My Business Account (MyBA). Through MyBA, the business or taxpayer is able to provide authorization for all CRA accounts or specific program accounts such as the GST only.

Facts / Background

Similarly, it is nearly impossible for a representative to register a new taxpayer for GST purposes and ensure the registration is valid prior to completion of a transaction as the representative will not appear on the "system" until well after the transaction is completed. Further, on-line registration is not available where the client has not received a business number.

Question

Will the CRA consider implementing a system whereby the representative may, with electronic transmission of all of the relevant documents, proceed with the registration of a client (including obtaining a business number) over the phone?

CRA Comments

Businesses and their authorized representatives can register for a Business Number (BN) and CRA accounts over the telephone and the BN is provided at that time. There are restrictions as to what type of entities can be registered over the telephone.

The CRA currently has partnerships with the provinces of British Columbia, Manitoba, Ontario, Nova Scotia and New Brunswick. Businesses that incorporate in these provinces are automatically registered with the CRA and can only be registered in this manner. Federally incorporated entities are also registered through an auto create process. In both of these instances, provincial and federal corporations receive their notification of their BN from the CRA. Upon receipt of the notice, authorization through Represent a Client (RAC) and My Business account can take place on-line.

Corporations that do not automatically receive a Business Number (BN) from the incorporating authority may register for a BN by submitting the request in writing by mail or by fax to the CRA as we require the certificate of incorporation. They may also use the Business Registration Online (BRO) internet registration facility. If BRO is used for the registration, the articles of incorporation are to be mailed to the CRA with the BN noted on the document.

The goal of the CRA is to offer electronic services that support timely and accurate registration and account maintenance. BRO is currently available and will be enhanced in the next few years to better meet the needs of corporations and their agents. The CRA is also working with the federal and many provincial incorporating authorities to further integrate the issuance of Business Numbers (BN) into the incorporation process.

Q.15 - S. 167 - Availability Of Election.

Question

Can a registrant make a section 167 election on the sale of business assets where a particular asset, such as a license or key contract, cannot be legally transferred or assigned?

CRA Comments

As noted in Policy P-188, Supply of a business or part of a business for the purpose of the election under subsection 167(1), “The nature of a business will generally determine the package of assets that would comprise a business or part of a business. Generally, no one type of property, regardless of its value, is determinative that there is a supply of a business.”

When determining if a supplier is supplying a business for purposes of the election under subsection 167(1), the supplier must be supplying as part of its business assets all the intangible personal property (IPP) that is required to operate the business and that is property of the business. Where the IPP attaches to the supplier of the business rather than to the business itself and is not transferable by the supplier of the business, the IPP may not be considered to be property of the business and therefore may not be required for subsection 167(1) to apply.

The applicability of an election pursuant to subsection 167(1) is a question of fact in each case.

Q.16 - Debt Security And Contingent Right

Facts / Background

The CRA takes the position that the definition of "debt security" does not include a "contingent right". However, there is no legislative or other basis provided for this position, and no examples given of what is considered to be a "contingent right". We understand that the present equitable assignment of a future chose in action (i.e., agreeing today to assign an account receivable that will be generated in the future) is considered to qualify as a "debt security" and by definition this situation does NOT represent a "contingent right".

Question

Please explain the CRA's position on what is a "contingent right" and provide examples to illustrate the meaning of this phrase.

CRA Comments

Pursuant to subsection 123(1) of the ETA, "debt security" means a right to be paid money and includes a deposit of money, but does not include a lease, licence or similar arrangement for the use of, or the right to use, property other than a financial instrument. A debt security generally includes a deposit of money, debentures, notes, mortgages, treasury bills, bonds, etc. Accounts receivable are also included in this definition as the receivable constitutes the supplier’s right to be paid money generally for the supply of goods or services. Generally, if a supplier enters into a contract with a third party for the assignment of its receivables to the third party, this is considered a transfer of a debt security and a supply of a financial service by the supplier.

A “debt security” does not include a contingent right. Where a right to be paid money is a possibility but not a certainty, i.e., contingent on certain events occurring, this is a contingent right and not a “debt security”.

The following is an example of a contingent liability:

A has entered into a contract with B wherein B is to complete a project for A.
C supplies a guarantee to A in which C will pay the costs of completing the project only if B fails to complete the contract.

The guarantee supplied by C represents a right to be paid money however, it is contingent on a certain event occurring, the failure of B to complete the project, which may never happen. C is not making a supply that involves a debt security to A since the right to be paid money is very uncertain.

An agreement to assign existing and future receivables to an assignee is typically not contingent on certain events occurring. As long as the assignor continues as a going concern, the assignment will occur once the receivable comes into existence.

Where a right to be paid money is established, the transfer of the receivable (i.e., the debt security) through an assignment is a service under paragraph (d) of the definition of financial service in subsection 123(1) of the ETA.

Q.17 - Garnishment Under Section 317 – Designated Office Of Bank

Facts / Background

Subsection 462(2.1) of the Bank Act (and parallel provisions of other legislation for other financial institutions), as added by the 2004 Budget bill effective June 12, 2005, provides that the CRA can issue a garnishment notice to the "designated office" of a bank, so as to seize a tax debtor's accounts at any branch of that bank.

Questions

(a) Does the CRA use this procedure?

(b) If so, how are tax debtors identified? Always by address and social insurance number, to prevent innocent persons from having their accounts frozen or seized because they have the same name?

(c) If the CRA doesn't know where the tax debtor is banking, does the CRA send garnishment notices to the designated office of each of the five large banks, just in case any accounts show up?

CRA Comments

(a) If CRA knows that a debtor deals at a particular branch of a bank we will serve our garnishee (Requirement to Pay) on that branch directly. If we know that a client deals with a particular bank but, are unsure of the exact branch of account we will then issue our garnishee to the designated branch.

At this time three of the big five banks have now authorized CRA to issue all garnishee’s directly to their designated branches. For these banks the only time CRA will serve a branch of account is when CRA determines a danger of loss may exist. For these files we will hand deliver a garnishee to have it actioned immediately.

(b) Garnishee’s issued by CRA are issued under various Tax Acts (ETA, ITA, EIA, CA).and because of this while the account number that attaches to the garnishee may be the debtors SIN# that is not always the case. We also recognize that often times the spelling of the debtors name and the address CRA has on file may differ from what the bank records have. While we make every effort to supply a reasonable amount of information we are guided by the Privacy Act and usually will supply only the SIN# and an address. If before we issue the garnishee we suspect there may be problems correctly identifying the debtor we will include a date of birth. If there remains any doubt on the banks end they need only call the collector named in the garnishee and ask for further confirming information.

CRA will only issue a garnishee when we have reasonable grounds to believe a debtor deals with a particular bank.

For example investigation may show:

A debtor has cashed a GST refund cheque at a particular bank.
A debtor credit bureau report may show recent inquiries by a particular bank giving CRA reason to believe the debtor may have started dealing there.
Information from an employer provides deposit information.
Information from an accounts receivable source provides deposit information.

Q.18 - Non-Compete Agreements

Facts / Background

At the March 3, 2005 CRA/CBA Meeting the CRA indicated that, “[A] determination as to whether a person provides a non-competition agreement as a service or something else for purposes of the ETA can only be made on a case-by-case basis” and went on to indicate that, “[T]the supply of a non-competition agreement would not be considered to be a supply of property for purposes of the ETA in the same fact situation as Manrell”.

Based on this response it seems that where a non-compete agreement falls squarely within the fact situation in Manrell v. The Queen, 2003 D.T.C. 5225 (F.C.A.), the agreement will constitute a service. Will the CRA provide further guidance with respect to non-competition covenants provided by registrants that do not fall squarely within the facts set out in Manrell? This is of particular concern where, in the context of an asset purchase agreement a registrant vendor agrees to a non-compete covenant because, to the extent that the vendor is providing a service, such service will be excluded from the subsection 167(1.1) election by virtue of paragraph 167(1.1)(a)(i).

Question

In this regard, does CRA view an amount received in connection with a restrictive covenant pursuant to subsection 56.4(2) of the Income Tax Act to be consideration for a taxable supply?

CRA Comments

A determination as to whether a supply made pursuant to a restrictive covenant, as defined in proposed subsection 56.4(1) of the Income Tax Act, is a supply of a service or is something else for purposes of the ETA can only be made on a case-by-case basis. The definition of “service” in subsection 123(1) of the ETA is anything other than:

(a) property,
(b) money, and
(c) anything that is supplied to an employer by a person who is or agrees to become an employee of the employer in the course of or in relation to the office or employment of that person.

As a result, where a person makes a supply pursuant to a restrictive covenant that is not a supply of property (e.g., where the Manrell decision applies) and the exclusions in paragraph (b) and (c) of the definition of “service” do not apply; the supply would be a supply of a service.

If a particular supply made pursuant to a restrictive covenant is made by the supplier under an agreement for the sale of a business or part of a business, tax would be payable, as a result of subparagraph 167(1.1)(a)(i) of the ETA, in respect of the supply if it is a taxable supply of a service made by a registrant supplier.

However, whether a particular supply made pursuant to a restrictive covenant is a supply made by the supplier under the agreement for the supply of a business or part of a business is a question of fact. For example, a corporation may make an election as the supplier under subsection 167(1) of the ETA and the supply pursuant to the restrictive covenant may be made by a shareholder of the corporation. If the supply is made by a third party (e.g. a shareholder), it is a question of fact whether tax would apply to that particular supply.

We would be pleased to provide a ruling regarding the application of tax in a particular case based on specific facts and circumstances.

Q.19 - Multiple Voluntary Disclosures By The Same Person

Facts / Background

Paragraph 46 of IC00-1R2 “Voluntary Disclosures Program”, dated October 27, 2008 indicates as follows:

A Second Disclosure by the Same Taxpayer

46. Taxpayers are expected to remain compliant after using the VDP. Under normal circumstances, a taxpayer is entitled to utilize the benefits of the VDP only one time. A second disclosure for the same taxpayer may be considered by the CRA if the circumstances surrounding the second disclosure are beyond the taxpayer's control. At the time of making a second disclosure, a taxpayer must provide their name and specify that they had previously made a disclosure. If it is discovered during the course of the disclosure review that the taxpayer had previously made a disclosure and the taxpayer has not disclosed this fact, the CRA may deem the disclosure to be invalid for VDP purposes. If the second disclosure is for the same issue that was previously denied as incomplete due to information not being received by the stipulated date, then the second disclosure will be denied.

Question

Based on the above, it appears as though a company, no matter how large or diverse, can only make one disclosure in its lifetime, regardless of whether the second disclosure relates in any way to the first, unless the circumstances are beyond the taxpayer’s control. Please confirm whether this is the case.

CRA Comments

Q.20 - Voluntary Disclosures Involving Closely Related Bare Trustees

Facts / Background

A common voluntary disclosure involves correcting for a bare trustee improperly reporting GST and claiming ITCs on behalf of the beneficial owner. The collection of GST has not been an issue as long the nominee bare trustee remitted the tax collected (this is consistent with the CRA’s policy regarding collection of tax by third parties).When such disclosures involve a nominee corporation that was closely related to the beneficial owner, certain CRA offices would allow the disclosure to be completed without the repayment of ITCs improperly claimed by the nominee corporation provided the beneficial owner/s provided an undertaking not to claim any ITCs for the same GST.

Apparently, this policy which is widely known and applied almost universally in some offices has not to date been adopted by all CRA offices. We understand that the policy is now being reviewed for national application.

Question

Can the CRA confirm that this policy will be adopted nationally?

CRA Comments

As such a policy not only affects the VDP, but all compliance programs, this issue has been referred to Policy and Consultation Division in the Audit Professional Services Directorate of the Compliance Programs Branch.

Q.21 - Eta 178.1/178.5 Direct Seller

WITHDRAWN

Q.22 - Eta 178.1/178.5 Direct Sellers

WITHDRAWN

Q.23 - Real Estate

Question 23A

If one separates a building from the underlying land such that the building is conveyed separate from the land (for example, the land is transferred to one person and the building to another person) is the building still “real property” for purposes of the legislation. For example, would section 221 still apply to the building?

CRA Comments

The determination of whether the sale of a building is a supply of real property for GST/HST purposes is made in accordance with the definition of “real property” in subsection 123(1) of the Excise Tax ETA (the ETA), and by applying the principles of civil law within the province of Quebec and common law for the rest of Canada.

In general, a building that is of a permanent nature and affixed to land is considered to be “real property” as defined in subsection 123(1) of the ETA. The determination of whether a building constitutes real property or tangible personal property depends upon the permanency and degree of annexation of the particular building to the land.

Where a building has been separated from the land (e.g., where the building is being relocated to another site with a different legal description), in all provinces except Quebec, the sale of the building is not considered to be a sale of real property but rather a sale of tangible personal property. In this case, the supplier of the building would be required to charge and collect tax in respect of a taxable supply of the building and the exception in subsection 221(2) of the ETA would not apply.

In the province of Quebec, the sale of a building that has been physically separated from the land to be relocated to another site is a sale of real property. As such, where the conditions of subsection 221(2) of the ETA are met, the supplier is relieved from the obligation to charge and collect tax in respect of the sale.

Question 23B

When a purchaser enters into a section 167 election can it still apply the self assessment provisions of sections 221 and 228 so as to account for GST on the real property even though section 167 is being applied? While generally unnecessary, the reason for doing this would be to avoid any risk, howsoever slight, that the 167 election is not applicable (and avoid penalty interest being applied subsequently) where the land and building are by far the most significant part of the purchase price for the assets?

CRA Comments

Subsection 221(2) of the ETA relieves a supplier, under certain conditions, from the requirement to collect GST/HST payable by the recipient on a taxable sale of real property. Where the supplier is not required to collect the tax payable by the recipient on a taxable purchase of real property, the recipient is required under subsection 228(4) of the ETA to account for the tax payable in respect of the supply.

Section 167 of the ETA permits a supplier to make a supply of a business or part of a business to a recipient with no GST/HST payable on the property or services supplied under the agreement for the supply (with some exceptions), if both parties to the transaction elect to do so. It is a question of fact whether the supply of assets used in a business meets the conditions in subsection 167(1).

Under the terms of the election, a taxable supply of property which is included in the supply of a business can be made without tax being payable. Specifically, paragraph 167(1.1)(a) provides that where a supplier and recipient make a joint election under subsection 167(1), no tax is payable in respect of a supply of any property or service made under the agreement, subject to certain exceptions.

As such, where the agreement for the supply of a business or part of a business includes the taxable sale of real property, in respect of which a section 167 election is in effect, no tax will be payable in respect of the supply of the real property made under the agreement.

Under subsection 228(4), a recipient is required to self-assess GST/HST in respect of the acquisition of a taxable supply of real property only where tax is payable in respect of the supply. Since the effect of a section 167 election is that no tax will be payable in respect of any property made under the agreement, subsection 228(4) will not apply under such circumstances. As such, the recipient is not required to account for tax in its GST/HST return.

Generally, if a recipient files its GST/HST return and accounts for tax that would otherwise be payable in respect of the acquisition of a taxable supply of real property made under an agreement for the supply of business assets, and claims a full ITC for this tax payable in the same return, the return will be processed in the normal manner. If upon audit, it is subsequently determined that the section 167 election is valid, there will be no consequences for having accounted for the tax in respect of the sale of the real property in its return and claiming the corresponding ITC. If it is determined upon audit that the section 167 election is not valid in this case, there will also be no consequences in respect of the supply of the real property since the recipient accounted for the tax in respect of the sale of the real property in its return. If the recipient did not account for the tax payable in respect of the supply of the real property in this situation, there would be no interest consequences if an assessment is made to account for the tax payable and a net tax assessment for the same reporting period is made to account for the corresponding ITC.

Question 23C

(The question was revised by the requester. The response was prepared by the Goods Unit.)

If not all participants in a qualifying joint venture wish to, or do, enter into the joint venture election, is the election still valid for those that did enter into the election? Similarly, if a joint venture is reorganized such that there are new parties, not all of whom are simply directly replacing an existing party’s interest (such that they would be deemed under subsection 273(2) to have made the election), do all participants have to enter into the election to make it valid?

CRA Comments

Not all the participants to a joint venture must make the election. GST/HST Policy Statement P-139R Tax Liability and Input Tax Credit Entitlement of a Non-Electing Joint Venture Participant discusses how the election applies to participants who do not make the election while the other participants do. The election will apply to the electing participants and not to the non-electing participants.

As noted in the question, a new participant simply replacing an existing participant would be deemed pursuant to subsection 273(2) to have made the election upon acquiring its interest in the joint venture.

The question does not explain the situation where the deeming rule would not apply. As a result, we are not aware of under what circumstances it would not apply. We would be interested to know of any such cases you might have.

Q.24 - Late Filed Elections

Facts / Background

Redacted Rulings letter suggest that the primary factor is whether the actions are consistent with making the election; that is charging tax on the supply and taking ITCs in the usual course.

Question

What are the criteria for late filed elections, such as, for example, the election under Section 211?

CRA Comments

The manner, form, and time limitations for filing GST/HST elections are set out in the respective legislative provisions of the Excise Tax Act (the ETA). Subsection 211(5) of the ETA requires that an election made under subsection 211(1) by a public service body (PSB) must be filed in prescribed form (GST 26) and manner. The real property in respect of which the election applies and the date on which the election becomes effective must be specified on the form. Paragraph 211(5)(c) provides that the election must be filed with the Minister within one month after the end of the reporting period of the person in which the election comes into effect.

The ETA does not provide the Minister with discretion to accept a late filed section 211 election. Consequently, where the filing requirements as specified in paragraph 211(5)(c) are not met, the CRA will generally not accept a late filed election. However, if a PSB has been charging GST/HST on supplies of real property that would otherwise be exempt and has been accounting for that tax and claiming ITCs in its net tax calculations and remittances as if the election had been filed in accordance with subsection 211(5), the CRA may accept a late filed election in this case, effective as of the date the PSB began charging the tax if the PSB was eligible to file the election on that date. A late filed section 211 election in respect of a particular real property will not be accepted where the election would provide a retroactive tax planning benefit not otherwise available to the PSB. For example, the CRA will not accept a late filed section 211 election to allow a PSB to claim ITCs that it would be entitled to claim as a consequence of making the late filed election if the PSB is not making supplies of the real property that would require the PSB to collect tax.

The CRA’s acceptance of a late-filed section 211 election is not automatic. Each situation is reviewed on a case-by-case basis to determine whether the person was eligible to file the election and acted as though the election had been filed as required.

Q.25 - Section 273 Joint Venture Election

Meaning of “Exploitation”

Facts / Background

Although for several years the Department of Finance has said that it will review extending the scope of prescribed activities under section 273, all recent indications are that legislative amendments will not be forthcoming any time soon. Consequently, we understand that the CRA’s current administrative position is that the activities that permit a joint venture election to be made are limited to those that squarely fit within the existing wording of subsection 273(1) or the regulations thereunder. That being the case, it is very important that there be clarity in the CRA’s interpretation of the scope of existing section 273.

Subsection 273(1) refers to the “exploration or exploitation of mineral deposits”. “Exploitation” of mineral deposits potentially encompasses a range of activities. The term is not defined statutorily. However, a common-law definition of “exploitation” has emerged, in the context of oil, from the decision in Dunbar v. R., 2005 D.T.C. 1807 (T.C.C.). In that case, one of the issues for decision was the meaning of the term “exploitation” as used in the following clause (122.3(1)(b)(i)(A)) of the Income Tax Act in describing a category of activities in respect of which an individual’s employment may qualify him or her for an overseas employment tax credit:

(A) the exploration for or exploitation of petroleum, natural gas, minerals or other similar resources,

The activity in question in Dunbar was the transportation of crude oil to a refinery. The Crown argued that the “exploitation” phase had ended once the unrefined, but transportable, crude oil was sold to the shipper who arranged for the oil to be transported to the refinery. However, the taxpayer in Dunbar argued that “exploitation” refers to “turning to account” and that it is only once the crude oil is refined that its value is optimized and fully turned to account. The Court agreed with the taxpayer, ruling that “all stages necessary to take the natural resource to its maximum value for the pursuit of profit is part of the exploitation process”. The CRA has since confirmed it has adopted that definition of “exploitation”, which encompasses all stages up to and including the refining process, in CRA Views - Interpretation 2007-0237261E5, which states:

We believe that the Tax Court of Canada determined, in the case of Dunbar, that the refining process takes the natural resource to its maximum value for the pursuit of profit and, accordingly, signify the end of the exploitation process.

We understand that a new GST Memorandum is being developed to set out the CRA’s current administrative position on various GST matters pertinent to the natural resource industry, including the meaning of “exploitation”.

For that purpose, we further understand that the CRA is taking into account an administrative definition that was adopted at the start-up of the GST, which provides that “exploitation” includes processing of crude oil at the battery for transformation into transportable crude oil, but does not include any additional processing of the oil, such as refining. That definition obviously predates the Dunbar decision. Although, in Dunbar, the Court’s purpose for confirming what is meant by the exploitation of petroleum, natural gas, minerals or other similar resources was to apply an income tax provision, we believe that jurisprudence is equally applicable in interpreting the very similar terminology used in subsection 273(1).

Question

For purposes of administering section 273, will the CRA adopt the same definition of “exploitation” as the Court established in Dunbar and as the CRA already has adopted for income tax purposes? If the CRA sees any reason to deviate from that definition for GST purposes, please explain the reasons and any alternative authorities relied upon.

CRA Comments

The meaning of “exploitation” for purposes of the joint venture election was developed in consultation with the oil and gas industry as follows.

For GST/HST purposes, exploitation in the oil and gas industry would generally include activities up to and at the central point, provided the central point for gas processing is located in or adjacent to the field. In the oil industry, the central point is understood to be the first storage battery after treatment for crude oil and in the gas industry, to be the facility at which natural gas is collected, cleaned and processed into saleable product for delivery to market.

More specifically, the term exploitation has the following meaning:

for petroleum products, the extraction of the products from the earth and processing up to and including processing done at the battery for transformation into transportable crude oil and including transportation to the battery; and
for natural gas, the extraction of the product from the earth and all processing up to and including the removal of natural gas liquids at a gas plant and including transportation to the plant where the natural gas liquids are removed;

Exploitation does not include any additional processing of crude oil, such as refining, nor does it include any processing of gas downstream from a gas plant. It does not include transportation to market or downstream of the central point. It would generally include transportation up to the central point.

As noted above, the current meaning of exploitation for purposes of the election was developed in consultation with and is understood by the industry.

The CRA is in the process of finalizing a new Memoranda Series chapter concerning the application of the GST/HST to the supply of natural resource rights specifically named in section 162 of the Excise Tax Act. The Memorandum will provide an explanation of the meaning of “to explore for” and “to exploit” which are found in section 162, and will apply equally to the words “exploration” and “exploitation” found in section 273.

The oil and gas industry has not raised the impact of the Dunbar case on the joint venture election with the CRA. We would welcome comments from the oil and gas industry on the meaning of exploitation. The new Memorandum will be posted on the CRA’s website for consultation purposes.

Q.26 - Other Activities For Which The Jv Agreement Was Entered Into

Facts / Background

Under subsection 273(1), a GST-registered operator and another participant in a joint venture can make the election under that provision as long as their joint venture agreement (evidenced in writing) is for “the exploration or exploitation of mineral deposits or for a prescribed activity” (hereinafter, a “qualifying activity”). If these conditions are satisfied and the election is made, the rules in paragraphs 273(1)(a) and (b) then apply in respect of the “activities for which the agreement was entered into”. The latter general wording suggests that a valid election applies to all activities carried on pursuant to a particular joint venture agreement, including any activity that does not itself constitute a qualifying activity, as long as the joint venture includes at least one qualifying activity. This interpretation appears consistent with a statement formerly contained in the CRA’s Q&A Database, which indicated, in relation to the meanings of “exploration” and “exploitation”, that “activities not covered under the definition would only be covered by the election if they arose during the course of activities for which the joint venture agreement was entered into.”

Question

If a single joint venture agreement provides that the subject joint venture involves both a qualifying activity (e.g., the production of natural gas at the well-head), as well as an activity that does not itself constitute a qualifying activity (e.g., the distribution of fully processed gas to consumers), would an election validly made under section 273 in respect of the joint venture agreement apply to both of those activities?

CRA Comments

The specific example given in this question necessarily involves interpreting the term “exploitation of mineral deposits” in subsection 273(1). Our interpretation of “exploitation” in the context of the oil and gas industry is explained in the answer to Question 25. Under our current position, the distribution of fully processed gas to consumers is not an eligible activity. However, where a joint venture consists of two or more discrete activities that can be readily distinguished and separated from each other and neither is incidental to or necessary and integral to the other, the eligible and ineligible activities can be severed for purposes of the joint venture election. In this case, the distribution of fully processed gas to consumers is not incidental to, or necessary and integral to, the production of natural gas at the well-head and vice versa. Therefore, providing all the requirements of section 273 are met, the election would apply to those activities involving the production of the natural gas at the well-head but not to the distribution of fully processed gas to consumers.

Q.27 - Vacation Properties In Rental Pools – Determining Extent Of Personal Vs. Rental Use

Facts / Background

Where a GST-registered individual owns a vacation property, such as a condominium unit, and makes the property available, when not used by the individual, for short-term (taxable) rental through a rental pool that is managed like a hotel operation, a common question that arises is how any vacancy period should be taken into account in allocating the total use of the property between personal and taxable use for input tax credit purposes. In GST/HST Info-Sheet GI-025 dated February 2007, and in GST Headquarters Letter 81675 dated March 30, 2007, the CRA indicates that there are several potential relevant factors that must be taken into account in arriving at an appropriate allocation. However, all of the factors given as examples seem to point to one determination that the CRA apparently considers paramount; namely, the extent to which the property can reasonably be expected to be rented out (based, for example, on past vacancy rates). Therefore, it appears that the CRA’s view is that, regardless of the extent of the owner’s efforts and expenses in ensuring the property is continuously available for rent when in the rental pool, a high actual vacancy experience may be determinative of the question of the extent to which the property is considered used for the purpose of making taxable supplies. In its Info-Sheet, the CRA states definitively that “a method [of allocation] that automatically considers all unoccupied days as days for use exclusively in commercial activities would not be a fair and reasonable method”.

However, the above administrative position appears to conflict with the recent decision of the Tax Court of Canada in Nikel, G. v. R., [2008] T.C.C. 540. That case involved a condominium in a complex that was professionally managed as a hotel (under a rental pool arrangement), and aimed at obtaining customers, on a year-round basis. The GST-registered individual owner incurred regular expenditures throughout the year to keep the condominium on the market year-round. The historical vacancy rates were relatively high, particularly during the “off-season” periods, which tended to be when the condominium was not occupied by its owner. For that reason, the CRA took the position that none of the unoccupied days should be taken into account in determining the extent of taxable vs. personal use (i.e., the taxable use was considered to be equal to the proportion of rental days to total days the condominium was occupied). However, the Court held that the taxpayer’s alternative method of allocating all of the unoccupied days to taxable use was fair and reasonable, given that the condominium was continuously managed and maintained so as to be available for rent at all times when it was not used by its owner.

Question

In what respect, if any, will the CRA be amending its policy position, as currently set out in GST/HST Info-Sheet GI-025, to reflect the decision in Nikel?

CRA Comments

For a vacation property that is owned by an individual, actual usage (i.e., the extent to which it has been rented out or used personally) is an important and relevant factor to consider in determining the extent of the property's use in making taxable supplies of short-term accommodation (i.e. commercial activities) for ITC purposes. In addition to actual usage, GST/HST Info-Sheet GI-025 sets out 5 other factors that may be relevant in determining the extent to which a vacation property is acquired or held for use in commercial activities.

The Info Sheet states on page 7 that “a method based on days used personally and days rented (hereafter referred to as the “days occupied method”) is an acceptable method for determining the extent of use in commercial activities”. The Info Sheet does not state that this is the only fair and reasonable method for determining ITC eligibility. Rather the Info Sheet goes on to state that “all of the relevant factors should be considered when determining the extent of use in commercial activities at the time an ITC is being claimed”. Thus, it is our position that the consideration of all relevant factors is important for establishing, on a case-by-case basis, the extent of a vacation property’s use in commercial activities.

In Nikel, G. v. R., [2008] T.C.C. 540 (Nikel) Judge Jorré clearly had reservations with the Appellant’s method of allocating all days the condo was available for rent to the rental activity and acknowledged that the Appellant’s method significantly understated personal use by not recognizing the impact it had on rental occupancy and revenue.

Judge Jorré stated:

On the other hand, considering the low actual occupancy, the very high seasonality in spite of efforts to attract year-round clientele, I have reservations in accepting that one should simply allocate all days the condo is rented or available for rent to the rental activity, the commercial activity. [paragraph 33]

The Appellants primary use of the condo is in July. It is clear that this July usage reduces the revenue potential for the property more than in an average month and much more than in a very low month such as November. While this is somewhat offset by the limited use in April of one year and May of another – both months of low demand – the Appellant’s method in no way takes account of this and appears to significantly understate personal use in relation to its impact on rental revenue. [paragraph 34]

(emphasis added)

After finding that neither the Appellant’s method nor the Minister’s was appropriate, Judge Jorré concluded that no alternative method presented to him convinced him to view the Appellant’s method as being unreasonable by comparison. At footnote 16 Judge Jorré stated that “whether the existence of an alternative method that is reasonable and practical to apply in circumstances such as these, would change the outcome is a question for another case”. While these comments are obiter, they appear to support the view that in another case with similar facts, the Appellant’s method may be found not to be “fair and reasonable”.

The decision in Nikel is an informal decision of the Tax Court in a case that is highly fact specific, based as much on the absence of alternative approaches as it was on the approaches that were argued.

Our position remains that all relevant factors, including those listed in the Info Sheet, should be considered in determining the extent of use in commercial activities of a vacation property.

We are currently reviewing the Info Sheet with a view to providing further examples of the application of the factors to be considered in determining the extent of use in commercial activities of a vacation property owned by an individual.

Q.28 - Electronic Coupons, Points, And The Meaning Of “Fixed Dollar Amount”

Facts / Background

The CRA is on record as indicating that “points” that are part of commercial affinity programs will be treated as if they are coupons. There are however differing approaches on the treatment of these coupons depending on their nature as “fixed dollar coupons” within the meaning of that phrase in section 181(2) of the ETA. The CRA has indicated that “electronic” coupons may sometimes constitute “fixed dollar coupons”.

Questions

What are the essential requirements for an “electronic coupon” to constitute a “fixed dollar coupon” for purposes of section 181(2)?

Can a “points” program meet these requirements by ensuring that point’s transactions are electronically or physically documented by a receipt or other similar documentation evidencing these same essential requirements?

CRA Comments

For purposes of section 181, a “coupon” includes a voucher, receipt ticket or other device that may be exchanged for a property or service or that entitles the purchaser thereof to a reduction of the purchase price of property or a service but does not include a gift certificate or a barter unit.

The rules in subsection 181(2) apply to reimbursable coupons that entitle the person redeeming the coupon to a reduction in the purchase price of taxable goods or services (other than zero-rated goods or services) equal to a fixed dollar amount specified in the coupon.

To come within this provision the following conditions must be met:

the device must come within the definition of “coupon” (The CRA has taken the position in the past that the definition of “coupon” encompasses intangible devices that have the characteristics of a traditional paper coupon, such as points in a loyalty program.)
the coupon must be redeemed for a reduction in the price of taxable (other than zero-rated) goods or services (i.e. where the point or points is/are redeemed for the reduction in price.)
the reduction must be in respect of taxable (other than zero-rated) goods or services only. (The CRA has taken the position that where the points are redeemable for a reduction in respect of both taxable and zero-rated goods or services this condition is not met.)
the coupon must be for a fixed dollar amount specified in the coupon. (The CRA has taken the position that the amount must be a single fixed amount, i.e. it can not be for multiple or variable amounts, to meet this condition.)

With respect to the second part of the question, documenting the transaction via a receipt does not assist in determining whether there is a coupon being redeemed or whether the coupon meets all of the conditions of subsection 181(2) – this is generally determined by reference to the terms and conditions associated with the loyalty program.)

Where the conditions of subsection 182(2), with respect to whether the coupon applies to both taxable and zero-rated goods or services or whether there is a fixed dollar amount specified in the coupon, are not met the rules found in subsection 181(4) apply.

We are currently reviewing the above positions in relation to electronic coupons and loyalty programs.

Q.29 - Section 144.01 Of The Excise Tax Act

Facts / Background

Section 144.01 is an important provision is an important provision for the energy industry. Experience indicates, however, that CRA and CBSA are reticent to apply it.

Question

Has the CRA developed any written policy as to the application of the section? What is the status of that, if any?

CRA Comments

The CRA will await a further determination by the Courts to be made with respect to the application of section 144.01 of the Excise Tax Act before developing any written policy regarding the issue.

Q.30 - Rebate Documentary Requirements

Facts / Background

The Excise Tax Act does not provide specific formal documentary requirements to support rebate claims, as contrasted with input tax credit claims where ETA subsection 169(4) and the Input Tax Credit (GST/HST) Information Regulations set out specific requirements. Instead, the Minister (through Canada Revenue Agency) sets out requirements through the process of prescribing rebate forms and stipulating the supporting documentation required under ETA section 277. In many cases, especially in the case of rebates under section 261, the supporting documentation is stipulated to be “original receipts” (in the case of diplomatic missions) or “original proof of purchase” (in the case of the general application for rebate). In certain cases this has created a very onerous obligation, and yet CRA officials steadfastly state that no exception can or will be made.

Illustrations

Registrant self-assessed GST in error, and filed a GST form 189 to claim the rebate of net tax remitted in error. The error was generated exclusively by the client’s internal automated accounting systems that improperly generated GST debits on transactions that had not taken place. Since it was a case of self-assessment, there are no supplier invoices showing GST. Instead the client provided extracts from their financial accounting system that demonstrated that the self-assessment had occurred and had been reported in its net tax return. The client also offered to provide journal entries or reconciliations, but the Rebates unit claimed that without “original” documentation it could not pay a rebate.

Diplomatic representation – A recently-established representation filed a claim for an 18-month period that included 200 GST items – essentially the major component of the invoices in the entity’s records. In the past, CRA accepted a schedule of expenses and determined whether to request sample invoices for sampling. In this case, the claim was rejected outright, on the basis that the original support for each of the 200 rebate items must be submitted.

Questions

What is the rationale for what appears to be an unyielding and excessively onerous requirement that “original” documentation be submitted in all cases? Will the CRA consider introducing more flexible documentary support requirements and allow alternative forms of support materials to be provided where the integrity and veracity of the claim can reasonably be established? At a minimum, can supervisory officials in the rebates units be given the discretion to consider accepting such alternative documentary support methods?

CRA Comments

Where a registrant has remitted a self-assessed amount of tax that was not required to be remitted, the registrant is eligible to file an application for a rebate under the provisions of subsection 261(1) of the Excise Tax Act (ETA) to recover the tax remitted in error. The application for the rebate must be filed within two years after the day the amount was remitted by the registrant.

Most claims under subsection 261(1) are for tax paid in error by a recipient to a supplier. All rebate claims require the prescribed information referred to in subsection 262(1) of the ETA to substantiate such rebate claims. “Original” invoices or receipts are prescribed under the authority of subsection 262(1) and, consequently, the Canada Revenue Agency (CRA) requires such original proof of purchase. Original receipts are returned to the claimant after the application has been processed.

Given that all rebate claims are assessed under the provisions of section 297 of the ETA, a registrant who has remitted tax in error and whose claim has been denied may file a notice of objection under subsection 301(1.1) of the ETA within 90 days after the day the notice of assessment is sent to the registrant.

A rebate application submitted by a diplomatic representation (diplomatic mission, consular post, or international organization) must set out the details of purchases claimed for a rebate and normally is supported by the original copies of corresponding receipts. As a matter of practice, CRA will also accept a rebate application from a diplomatic representation that is supported by "certified true copies" of the original documentation.

Other than the rebate applications from diplomatic representations, the CRA’s general assessing policy with respect to rebate applications is to only accept original receipts or invoices as supporting documentation, rather than “certified true copies” of those documents. The GST/HST Rulings Directorate is not aware of any other arrangements concerning alternative documentary support methods. However, before submitting their rebate applications, persons may approach the Audit section at their local Tax Service Office to discuss their particular situation and documentary method.

Q.31 - Reporting Gst On Residential Real Estate Transactions – Interplay Between Eta Section 194 And Subsection 221(2)

Facts / Background

As a general rule, where the recipient of a supply of GST-taxable real estate is registered for GST, subsection 221(2) stipulates that the supplier does not collect GST and subsection 228(4) requires the recipient to self-assess and report the GST payable on its net tax return or on a form GST 60. Where the recipient is entitled to claim an offsetting input tax credit (“ITC”), it reports the ITC in the same period on its net tax return, resulting on a “wash” offset. Paragraph 169(4)(b), however, stipulates that the recipient must have reported the GST payable in order to claim the offsetting ITC. In certain real estate transactions, however, section 194 appears to create a potential conflict with subsection 221(2). Section 194 provides that where the supplier

Incorrectly states or certifies in writing to the recipient of the supply that the supply [of real property] is an exempt supply described in any of sections 2 to 5.3, 8 and 9 of Part I of Schedule V.

The supplier is deemed to have collected, and the recipient to have paid, GTS/HST based on the tax fraction of the purchase price (except where the recipient “knew or ought to have known” that the certification was false).

The certification under section 194 is a very common practice in the context of the sale of property in the residential context. The standard real estate board agreements of purchase and sale typically also contain a statement that the price is inclusive of GST “if applicable”.

Of course, the circumstances under which the section 194 certification arises, is usually where the facts surrounding the GST-exempt status of the sale are unclear and not known to the purchaser – generally where the vendor is an individual (or an estate trust). Furthermore, it is likely that the resolution of whether the supply was taxable or exempt will often follow from a CRA audit of the supplier at a time well after the transaction date.

In many cases where the supply of the land might be GST-taxable and the section 194 certification having real application, the supplier would be entitled to claim an offsetting ITC (for example, if the property were a vacant lot or an aged residential property that the recipient was purchasing for development/redevelopment. Neither section 194 nor subsection 221(2) contains wording to indicate whether section 194, or subsection 221 (2), has primacy over the other provision. This raises issues at to potential conflict between to two provisions, and potential double-liability of the recipient, as follows:

Notwithstanding that the supplier is deemed by section 194 to have collected GST, subsection 221(2) may require the recipient to report the GST payable again, albeit that it has already been deemed to have paid the GST. Case law, notably Franklin Estates Inc. v. The Queen, confirm that payment of the GST to the supplier may not excuse the recipient from reporting and self-assessing under ETA subsection 221(2).
The recipient may not have received the documentation under subsection 169(4) to support an offsetting ITC claim, especially if the supplier is not registered. Note that paragraphs 169(4)(a) and (b) are not set out as being alternative requirements, so that satisfaction or paragraph 169(4)(b) may not excuse the obligation to obtain the documentation under paragraph 169(4)(a).

Questions

Is CRA’s position that, notwithstanding section 194, the recipient would still be under the obligation to self-assess GST under subsection 221(2)? Alternatively, does the CRA accept that the recipient will have satisfied the obligation to pay GST on the taxable supply by virtue of having been deemed by section 194 to pay the GST to the supplier?

How does the recipient meet the requirements to claim the offsetting ITC where the supply of the property is determined to be GST-taxable? For example, if the recipient reported the GST payable either on the net tax return or on GST form 60, but did not include a remittance (because the amount had already been deemed paid) CRA’s return posting system might record that the recipient had under-remitted. Given Standardized Accounting and CRA’s automated processes, what steps would have to be taken to avoid a shortfall being recorded in the recipient’s account?

CRA Comments

No, where section 194 of the Excise Tax Act (the “ETA”) applies, the recipient is not required to pay tax to the Receiver General and file a return to report the tax payable under subsection 228(4).

Section 194 of the ETA deals with the situation where a supplier makes a taxable supply of real property by way of sale and incorrectly states or certifies, in writing, to the recipient of the supply that the sale is an exempt supply described by certain provisions of Part I of Schedule V to the ETA. In such a case, unless the recipient knew or ought to have known that the supply was not exempt, the tax payable in respect of the supply is deemed to be equal to the amount determined by the formula set out in paragraph 194(a). Generally, the sale price for the property is considered to include the tax.

Paragraph 194(b) deems the supplier to have collected, and the recipient to have paid, the tax calculated under paragraph 194(a). The tax is deemed collected by the supplier and paid by the recipient on the earlier of the day

ownership of the property was transferred to the recipient and the day possession of the property was transferred to the recipient under the agreement for the supply.

Subsection 221(2) of the ETA relieves a supplier’s obligation to collect tax on a taxable supply of real property by way of sale in any of the circumstances described in that subsection. Where subsection 221(2) applies, subsection 228(4) of the ETA generally requires the recipient of the supply to pay tax to the Receiver General and to file a return to report the tax payable. However, subsection 228(4) applies only where tax is payable on a supply of real property and the supplier is not required to collect and is not deemed to have collected tax on the supply. Where section 194 applies, the supplier is deemed to have collected tax. Accordingly, the recipient has no obligation to pay tax to the Receiver General or to file a return reporting the tax payable under subsection 228(4).

Where subsection 228(4) does not apply, paragraph 169(4)(b) of the ETA does not apply as the recipient is not required to report the tax payable in respect of the supply in a return filed with the Minister. [1] Nonetheless, the standard requirements of paragraph 169(4)(a) must be met in order for the recipient to claim an ITC in respect of the tax deemed paid under section 194. [2] It is expected that such requirements could be met through the agreement of purchase and sale for the property and evidence that the sale was a taxable supply (e.g., an assessment of the supplier or a GST/HST ruling). We note that a non-registrant that makes a taxable supply by way of sale of real property would not have a registration number, however the provisions of subparagraph 3(b)(i) of the Input Tax Credit Information (GST/HST) Regulations will still be satisfied where the name of the supplier is provided in the purchase and sale agreement.

It should also be noted that a statement included in a purchase and sale agreement that the price is inclusive of GST/HST “if applicable” is not considered to be an incorrect statement or certification to the recipient that the supply is an exempt supply described in any of sections 2 to 5.3, 8 and 9 of Part I of Schedule V to the ETA. Therefore, section 194 does not apply where the only statement made in writing regarding the GST/HST is that the price is inclusive of GST/HST if applicable.

Q.32 - Retroactive Deregistration

Facts / Background

The registration status of a person is important in many contexts. For example, a vendor may be registered for GST and collect and remit GST on a supply. In such a case, the purchaser relies on the vendor’s registration status to claim input tax credits (assuming all other ITC prerequisites are satisfied). In some instances, however, the CRA has deregistered vendors retroactively, and has taken the position that the purchaser is not entitled to claim ITCs as a result of the “non-registration” of the vendor: see for example, Westborough Place Inc. [2007] GSTC 35 (TCC). It seems patently unfair that a purchaser should be denied an ITC where the vendor was actually registered at the time of the supply (i.e. a check of the registry at that time would have confirmed registration).

Question

Please explain the CRA’s current policy regarding ITCs where there is retroactive deregistration of the supplier (i.e. does the CRA deny ITCs in all cases, in some cases?), and the reasoning behind it?

CRA Comments

The question describes a situation where a recipient of a supply has claimed an input tax credit and has been provided with supporting information, including the GST/HST registration number of the supplier. At the time of audit of the recipient’s ITC claim, it is noted that the supplier's registration had been cancelled with an effective date prior to the date of the transaction giving rise to the ITC.

In such a situation, pursuant to subsection 242(1) of the Excise Tax Act, the deregistration would result from a determination by the CRA that the supplier

was not required to be registered. In general this would involve a determination that the supplier was not making taxable supplies in the course of commercial activities.

In terms of reviewing input tax credits claimed by a recipient in these circumstances, the input tax credits may be denied notwithstanding that the supplier may have been registered and charged tax at the time the supplies were made. This is because where the CRA has subsequently determined that the supplier was not engaged in commercial activities, tax was not payable in respect of the supplies and therefore can not be included as an input tax credit of the recipient as defined in subsection 169(1).

The recipient, however, would be entitled to claim a rebate for tax paid in error pursuant to section 261 and, pursuant to subsection 296(2.1), this rebate, if not already claimed by the recipient, must be offset against the denial of the input tax credits.

Q.33 - Subsection 182(1)

Facts / Background

Subsection 182(1) ETA applies where an amount is paid or forfeited to the registrant as a consequence of the breach, modification or termination after 1990 of an agreement for the making of a taxable supply (other than a zero-rated supply) of property or a service in Canada by a registrant to a person and that amount is paid otherwise than as consideration for the supply.

When this Subsection applies, the registrant is deemed to have collected GST included in the amount paid. For example, if a registrant receives an amount of $10,000 and Subsection 182(1) ETA applies to that amount, the registrant is deemed to have collected $476.19 as GST (100/105 X $ 10,000 X 5%) leaving the registrant with a net amount of $952.38.

Question

Will the CRA accepts that the parties insert, in the agreement for the original supply, a clause to the effect of grossing-up the amount payable under a penalty clause to ensure that the full amount is payable if Subsection 182(1) ETA applies? Such a clause could read as follows:

“If an amount is payable under clause XXX as a consequence of the breach, modification or termination of the contract and the applicable legislation deems a part of the amount paid (assume $10,000) to include GST, then the amount will be grossed up to ensure that the full amount payable is received by the XXX in full without encroachment by any deemed payment, consideration, collection of taxes, input credit or otherwise.”

If such a clause was included in the original agreement, would the CRA recognize that the GST applicable is 5% of $10,000?

CRA Comments

While we cannot comment on the drafting of a specific clause in an agreement, the following comments regarding the application of section 182 may be of assistance.

Where an amount other than consideration is paid or forfeited to a person because of the breach, modification or termination of an agreement for the making of a supply by that person, the amount to be paid is a matter to be resolved between that person and the other party or parties to the settlement (e.g., the intended recipient of the supply). Once the amount has been determined and paid or forfeited, the formula in subsection 182(1) would apply to that amount in situations where subsection 182(1) applies (i.e, where the intended supplier is a registrant, the agreement was for the supply to be made in Canada, and the supply is a taxable supply other than a zero-rated supply).

Q.34 - Canadian Supplier

Facts / Background

Where a Canadian supplier has not charged GST to its non-resident customer based on a drop-shipment certificate issued by the non-resident's Canadian recipient, and the CRA later determines that the non-resident was carrying on business in Canada and should have been registered for GST purposes during the same period of time, what if any implications are there to the Canadian supplier?

Question

Could the Canadian supplier be assessed for failing to properly charge and collect the GST from its non-resident customer, or is the supplier protected from liability by the drop-shipment certificate and/or does the burden fall to the recipient of the supply by the non-resident in Canada?

CRA Comments

As indicated in GST/HST Memoranda Series 3.3.1 Drop-Shipments, the drop-shipment rules, including subsection 179(2) of the Excise Tax Act, do not apply if the non-resident recipient is registered for GST/HST purposes. Furthermore, a determination that a non-resident is carrying on business in Canada for GST/HST purposes can have an impact on the application of the drop-shipment rules.

Where it is subsequently determined that a non-resident recipient began carrying on business in Canada for GST/HST purposes and became a registrant on a particular date and the non-resident is registered retroactively to that date, this will have retroactive effect for purposes of the drop-shipment rules. In this case, notwithstanding that a drop-shipment certificate has been issued, subsection 179(2) of the ETA will not apply. As a result, the Canadian supplier would be liable to collect tax in respect of the supply made to the non-resident and could be assessed accordingly. The non-resident would also be liable to collect tax in respect of its supply to the recipient in Canada.

Q.35 - Gst Registration Procedures

Facts / Background

There is some uncertainty about which offices accept applications by non-residents and there appears to be an inordinate delay in obtaining GST registration numbers (we have been told 5-6 weeks in some cases).

Question

Can you review the GST registration procedures? Please also explain the internal steps taken in the registration process. For example, are all applications by a non-resident forwarded to the rulings dept for review?

CRA Comments

Non-resident registrations should be forwarded to the Tax Services Offices listed on the last page of GST/HST Guide RC4027 - Doing Business in Canada - GST/HST Information for Non-Residents based on the state or country in which the non-resident is situated. The guide is currently being updated to reflect a change in the offices that are responsible for non-resident registrations and will be available on the CRA web site in the next few months. In the meantime, the following changes have been made: GST/HST registrations that fell under the responsibility of the Calgary Tax Services Office and the Winnipeg Tax Services Office based on the June 27, 2006 version of the guide should be forwarded to the Halifax Tax Services Office for processing. GST/HST registrations that fell under the responsibility of the Ottawa Tax Services office on the guide should be forwarded to the Windsor Tax Services Office for processing.

With respect to the GST/HST registration procedures, once the registration form is received by the appropriate TSO the information on the form is reviewed by the registration officer who then contacts the non-resident person or their representative to discuss the information on the form. Where it is clear to the officer that the non-resident person may register for GST/HST purposes the registration is completed and a number is assigned.

A large majority of non-resident registrations are processed by non-resident registration officers without any referral to GST/HST Rulings. Non-resident registration officers may seek guidance from GST/HST Rulings in cases where they are not certain that the non-resident may register voluntarily for GST/HST purposes or in circumstances where they need assistance in determining whether a non-resident person is required to be registered on the basis that they were carrying on business in Canada.

Q.36 - Eta 169(4) Documentation

Facts / Background

The Input Tax Credit Information (GST/HST) Regulations stipulate certain information requirements that must be obtained to substantiate an ITC claim. The CRA indicated in the past that such information could be taken from several documents.

Question

In the following circumstances, would an ITC be allowed to the recipient?

1. The supplier has a valid GST registration number.
2. The recipient has obtained such number at one point in time in the past and has kept a copy in its files.
3. The supplier issues an invoice with the above-mentioned GST number but due to a typo (one character is wrong), the valid number is not exactly reproduced on the invoice.
4. At the time of issuing this invoice, the supplier GST number is still valid.

CRA Comments

Subsection 169(4) of the Excise Tax Act (the ETA) provides that, before filing the return for the period in which an input tax credit is claimed, the registrant must have obtained sufficient to allow the amount of the input tax credit to be determined, including information that may be prescribed under the Input Tax Credit (GST/HST) Information Regulations (the Regulations).

The requirement to obtain the registration number of the supplier is found under subparagraph 3(b) (i) of the Regulations. This obligation exists when the total amount paid or payable on the supporting documentation in respect of the supply is $30 or more. “Supporting documentation” is defined in section 2 of the Input Tax Credit Information (GST/HST) Regulations (the Regulations) to include:

(a) an invoice,
(b) a receipt,
(c) a credit-card receipt,
(d) a debit note,
(e) a book or ledger of account,
(f) a written contract or agreement,
(g) any record contained in a computerized or electronic retrieval or data storage system, and
(h) any other document validly issued or signed by a registrant in respect of a supply made by the registrant in respect of which there is tax paid or payable.

There is no requirement that the evidence needed to support an input tax credit claim be contained in a single document. Therefore, if the registrant has the correct registration number of the supplier in its files before filing the return in which the input tax credit is claimed, the registrant will have met the documentary requirement of subparagraph 3(b) (i) of the Regulations.

The determination of a registrant’s entitlement to an input tax credit under subsection 169(1) of the ETA and whether it may be claimed in any particular situation is subject to verification by the Canada Revenue Agency at the time of audit.

Q.37 - Documentation To Justify The Transfert Price

Facts / Background

Canco is a subsidiary of USParentCo. Canco is engaged in part in exempt activities. USParentCo allocates a cost to Canco for management and administrative services on a monthly basis and Canco makes an intercompany payment to USParentCo for the services.

Question

What documentation does the CRA require to justify the transfer price for the services?

Facts / Background

Canco is a subsidiary of USParentCo. Canco is engaged in part in exempt activities. USParentCo allocates a cost to Canco for intangible property (e.g., use of trademarks owned by USParentCo, use of computer software, etc.) on a monthly basis and Canco makes an intercompany payment to USParentCo for the intangible property.

Question

What documentation does the CRA require to justify the transfer price for the intangible property?

CRA Comments

Pursuant to section 218, every recipient of an imported taxable supply (as defined in section 217) shall pay tax at the rate of 5% on the value of consideration for the imported taxable supply.

The “value of the consideration” is defined under subsection 153(1) as “(a) where the consideration or that part (of the consideration) is expressed in money, the amount of the money; and (b) where the consideration or that part is other than money, the fair market value of the consideration or that part at the time the supply was made.”

Where the supply of a property or service between non-arms length parties is made for no consideration or for consideration less than fair market value, subsection 155(1) deems the supply to be made at fair market value.

These provisions do not reference to transfer price as set out in the Income Tax Act.

It should be noted that if Canco is a financial institution, it may be subject to the import rules set out in proposed section 217.1.

These proposals include as amounts of “qualifying consideration” amounts that are deductible for income tax purposes pursuant to section 247 of the Income Tax Act, including transfer pricing adjustments under subsection 247(2) and amounts of reportable transactions as defined in subsection 233.1 of that Act.

In terms of transfer pricing documentation, the requirement to maintain and have contemporaneous documentation available for examination by the CRA is set out in subsection 247(4).

For information concerning transfer pricing and related documentation, please consult Information Circular IC87-2R – International Transfer Pricing.

Q.38 - Canadian Auctioneer

Facts / Background

Canco is a Canadian auctioneer. Canco does not own the tangible personal property (e.g., a vintage car) at the time the tangible personal property is being auctioned. A U.S. resident who is not registered for GST purposes owns a number of vintage cars and provides the vintage cars to the auctioneer on a consignment basis to auction (e.g. a widow is auctioning off her late husband’s car collection). The auctioneer offers the vintage cars for auction at an auction held in Canada. During the course of an auction in Canada, a bidder offers $1,000,000 for the vintage car and the hammer falls on that price. The auctioneer charges the owner of the vintage vehicle a commission for services rendered in the amount of 10% (i.e, $100,000) and pays $900,000 to the owner of the vehicle. The auctioneer charges the buyer of the vintage vehicle a buyer’s premium for services rendered in the amount of 10% (i.e., $100,000).

Questions

(a) How should the auctioneer account for GST if it does not take ownership of the vintage vehicle?

(b) How should the auctioneer account for GST if it does take ownership of the vehicle after the hammer falls and resells the vintage vehicle to the buyer at the hammer price?

(d) Is the seller’s commission subject to GST if the vintage vehicle was not in Canada at the time of the auction (the auction took place with catalogue photographs and video streams)?

(e) Is the seller’s commission subject to GST if the vintage vehicle was in Canada at the time of the auction?

(f) Is the buyer’s commission subject to GST?

(g) Is the buyer required to pay GST on the vintage vehicle if it is purchased from the owner or could it pay GST at the border at the time the vehicle is imported into Canada?

(h) Is the buyer required to pay GST on the vintage vehicle if it is purchased from the owner and it never imports the vehicle into Canada (e.g. the vehicle is delivered to a location in Florida)?

(i) Is the buyer required to pay GST on the vintage vehicle if it is purchased from the auctioneer at an auction in Canada?

(j) Is the buyer required to pay GST on the vintage vehicle if it is purchased from the auctioneer and the buyer indicates that it does not intend to import the vehicle into Canada (and the buyer provides a U.S. address for delivery of the vehicle)?

CRA Comments

Some of the information provided in the question is unclear including the location of the vehicle, the delivery terms for the supplies made and the residency of the buyer. The following responses are provided based on the limited information provided and the assumption that the non-registered non-resident supplier is not carrying on business in Canada for GST/HST purposes.

(a) Tax would not be required to be collected on the supply of the vintage vehicle made through the auction since it appears that the supply would be deemed to be made outside Canada. If delivery of the vehicle occurs outside Canada, subsection 142(2) of the ETA would deem the supply of the vehicle to be made outside Canada. Even if delivery of the vehicle were to occur in Canada, the supply of the vehicle would be made outside Canada pursuant to subsection 143(1) of the ETA, based on the fact that the non-resident is not registered and the assumption that the non-resident is not carrying on business in Canada for GST/HST purposes.

Pursuant to subsection 177(1.2) of the ETA, the auctioneer would be deemed not to have made a supply to the non-resident person of a service in relation to the supply of the vintage vehicle and would therefore not be required to collect tax in respect of that service.

Based on the assumption that the supply of the vehicle to the buyer is made outside Canada, section 5 of Part V of Schedule VI to the ETA could apply to zero-rate the supply of the service made to the buyer for which the buyer’s premium is charged if the buyer is a non-resident person. Otherwise, the supply of the service would be subject to GST/HST and the auctioneer would be required to collect tax in respect of that supply.

(b) The supply of the vehicle to the auctioneer in this scenario would also be deemed to be made outside Canada by virtue of either subsection 142(2) or 143(1) of the ETA. The auctioneer would be required to collect Division II GST/HST on the consideration for its supply of the vehicle provided the supply is made in Canada and is not zero-rated under Part V of Schedule VI to the ETA.

(c) Whether a person is carrying on business in Canada for GST/HST purposes is a question of fact requiring consideration of all relevant facts. As previously indicated, based on the limited information provided, the assumption is made for purposes of these responses that the non-resident is not carrying on business in Canada for GST/HST purposes. Based on this assumption, the non-resident would not be required to register for GST/HST purposes.

(d) As indicated in the response to a), the auctioneer would be deemed not to have made a supply to the non-resident person of a service in relation to the supply of the vintage vehicle and would therefore not be required to collect tax in respect of that service.

(e) The response to this question would be the same as the response to (d).

(f) Assuming the supply of the vehicle to the buyer is made outside Canada, section 5 of Part V of Schedule VI to the ETA could apply to zero-rate the supply of the service made to the buyer for which the buyer’s premium is charged if the buyer is a non-resident person. Otherwise, the supply of the service would be subject to GST/HST and the auctioneer would be required to collect tax in respect of that supply.

(g) Where the circumstances of the supply of the vehicle are that of question (a), the supply of the vehicle is deemed to be made outside Canada and not subject to Division II GST/HST. Any importation of the vehicle, whether prior to or subsequent to auction, would be subject to Division III GST/HST.

(h) Where the supply of the vehicle by the owner to the buyer is deemed to be made outside Canada based on the previously explained provisions, the buyer will not be required to pay GST/HST on the supply of the vehicle.

(i) Based on the assumption that the relevant facts are essentially the same as in b), the response to this question would be the same as the response to (b).

(j) Assuming the auctioneer takes ownership of the vehicle and the supply of the vehicle made by the auctioneer is deemed made outside Canada pursuant to subsection 142(2) of the ETA, the buyer would not be required to pay GST/HST on the supply of the vehicle.

Q.39 - Emphyteusis

Facts / Background

Assume a registrant (“Owner”) owns a piece of land (the “Land”) and enters in the course of its commercial activities into a 50-year emphyteusis with another registrant (the “Emphyteutic Lessee”) that does not deal at arm’s length with the Owner. The emphyteusis is governed by the Civil Code of Quebec. Pursuant to the Emphyteusis, the Emphyteutic Lessee must, inter alia, (i) build a building (the “Building”) and (ii) pay a yearly fee as consideration for the rights granted under the Emphyteusis (the “Rent”). The Building is built in the second year of the Emphyteusis. The Emphyteutic Lessee does not have full ownership of the Building or the Land, but only enjoys the usual property rights of emphyteutic lessees under the Civil Code of Quebec. At the end of the Emphyteusis, the Land and the Building reverts to the Owner without compensation. Section 190 and 191 of the Excise Tax Act (“ETA”) do not apply.

Question 1

Based on GST Memorandum 19.2.3, the supply of real property under an emphyteusis is considered a supply of real property by way of lease, licence or similar arrangement for GST purposes. According to the CRA, there are two considerations paid for the supply of the Land: (1) the Rent paid overtime, and (2) at the end of the Emphyteusis, the value of the Building at the beginning of the Emphyteusis:

“La TPS s'applique sur les rentes annuelles le premier des jours où elles sont payées ou sont réputées devenir dues. La taxe payable sur la partie de la contrepartie constituée par la fourniture du bâtiment est à la fin de l'emphytéose, quand il est remis à la municipalité, selon les dispositions du paragraphe 168(l) de la LTA. La valeur de cet élément de la contrepartie est la juste valeur marchande(jvm) du bâtiment au moment de la fourniture du terrain par emphytéose, c.-à-d. au début de l'emphytéose, en vertu de l'alinéa 153(l)(b) de la LTA. Cette jvm. peut être déterminée par un évaluateur professionnel.” (Technical Interpretation 1195b-01, December 1999)

While it makes sense that GST be paid on the Rent, it is more difficult to understand why it should be paid on the value of the Building determined at the beginning of the Emphyteusis. The Building is not built at the beginning of the Emphyteusis such that it is impossible to compute the GST on that portion of the consideration. It is suggested that GST should be charged only on the Rent and not on the value of the Building at the end of the Emphyteusis or the value of the Building at the beginning. Please comment.

CRA Comments

It is the CRA’s position that, for GST/HST purposes, the Emphyteutic Lessee receives the use of the Owners’ land by Emhyteusis, i.e., by way of lease, licence or similar arrangement. In exchange for the use of the land, the Owner receives the Building at the end of the term of the Emphyteusis.

The consideration received by the Owner from the Emphyteutic Lessee is the monetary Rent payments made by the Emphyteutic Lessee and non-monetary consideration, i.e., the Building.

As such, GST/HST is payable by the Emphyteutic Lessee on the value of the yearly Rent payments as they become due or are paid, whichever is earlier. GST/HST is also payable on the non-monetary consideration which is the fair market value (FMV) of the Building determined at the time the Emphyteusis is entered into, and payable at the end of the Emphyteusis when the Owner receives the Building.

Question 2

With respect to the supply of the Building at the end of the Emphyteusis, it appears from Technical Interpretation 1195b-01 (December 1999) that GST must be computed on the difference between the value of the Land (at the end of the Emphyteusis) and the total of the Rent paid during the Emphyteusis:

“La taxe est payable sur la fourniture du bâtiment au premier en date du jour du transfert de la propriété du bâtiment et du jour du transfert de la possession du bâtiment à la municipalité aux termes de la convention portant sur la fourniture, c.-à-d. à la fin de l'emphytéose (à condition que le bâtiment ne soit pas un immeuble en copropriété tel que décrit dans l'aliéna 168(5)(a)de la LTA). La contrepartie est la fourniture du terrain par emphytéose ajustée par les rentes annuelles. La jvm du terrain est déterminée au moment de la fourniture du bâtiment, c.-à-d. à la fin de l'emphytéose…”

Revenu Québec stated in Technical Interpretation 99-0101388 (November 25, 1999) that GST should be computed on the difference between the value of the emphyteutic rights at the end of an emphyteusis and the total of the rent paid:

“La TPS doit être calculée sur la juste valeur marchande du droit d'emphytéose au moment de la fourniture du bâtiment par vente, c'est-à-dire à la fin de l'emphytéose, ajustée en tenant compte des rentes annuelles versées par l'organisme de bienfaisance (153(1) Loi fédérale).”

Pursuant to the Civil Code of Quebec, the Building reverts back to the Owner at the end of the Emphyteusis without consideration. No GST should then apply since there is no consideration paid. Even if we compute GST based on the value of the rights in the Emphyteusis at the end of it, such value will be close to nil such that, after taking into consideration the total Rent, GST is nil. In light of the foregoing, it seems that no GST should be payable with respect to the transfer of the Building to the Owner at the end of the Emphyteusis (unless another consideration is paid for the transfer). Please comment.

CRA Comments

In this question, the focus is on our position with respect to the Building that the Owner receives at the end of the Emphyteusis.

The consideration received by the Emphyteutic Lessee from the Owner is the non monetary consideration, which is the FMV of the use of the land over the term of the Emphyteusis that is in excess of the yearly Rent payable by the Emphyteutic Lessee. The value of this non monetary consideration is determined at the end of the Emphyteusis, which is when the Owner receives the Building from the Emphyteutic Lessee.

In valuing the use of the land over the term of the leasehold, the object to be valued for GST/HST purposes is a long-term lease, licence of similar arrangement that calls for consideration to be paid in the form of yearly Rent payments throughout the term of the Emphyteusis and non-monetary consideration in the form of a Building that is to be provided at the end of the Emphyteusis, which is the FMV of the Building. As a result, the FMV of the use of the land over the term of the leasehold that is in excess of the yearly Rent payable by the Emphyteutic Lessee is generally equal to the FMV of the Building.

As such, GST/HST is payable by the Owner on the non-monetary consideration which is, generally, the FMV of the Building determined at the end of the Emphyteusis, and payable at the end of the Emphyteusis when the Owner receives the Building.

Q.40 - Update By Appeals Branch

Please provide an update on important cases, decisions or other issues of interest concerning the Appeals Branch.

CRA Comments

(CRA gave a slideshow on this subject.)

41. UPDATE ON VOLUNTARY DISCLOSURE PROGRAM

Voluntary Disclosures are now under the purview of the Enforcement and Disclosures Division of the CRA. Please provide an update on the situation of the program:

1. statistics on the number of VDs; 2. policy wise, is there a review of the rule whereby a voluntary disclosure can only be made where there is a gross negligence penalty at stake or if GST Returns have not been filed?

CRA Comments

1. In 2007-2008 the VDP processed 8400 disclosures with a tax increase worth more than $373 million.

2. The Voluntary Disclosures program requires that there be a penalty or potential penalty applicable to the amounts being disclosed in order to be considered under the VDP. This is required for both income tax and GST disclosures. For all GST disclosures post April 1, 2007 the Failure to File penalty (FFP) or the potential application of the gross negligence will be the applicable penalties that will be considered.

42. UPDATE ON AUDIT ISSUES.

Please provide an update on significant audit issues.

CRA Comments

Pre-approvals of input tax credit methods for qualifying institutions

Proposed section 141.02 provides that financial institutions that are qualifying institutions – banks, insurers and securities dealers exceeding certain thresholds – must have their ITC allocation methods pre-approved by the CRA. In the absence of a pre-approval, an institution would be subject to recovery of ITC’s at a prescribed rate. The pre-approval regime is proposed to apply for fiscal years beginning after March, 2008 subject to the availability of a transitional election covering the year beginning after March, 2007.

In the past year, the CRA’s GST/HST Large File Audit Program has been engaged in implementation of the pre-approval process culminating in the review of transitional elections and pre-approval applications in the fall of 2008. In most cases, agreement was reached with the institutions and applications were approved.

Audit issues arising from recent jurisprudence

As a result of the recent Tax Court of Canada decisions in General Motors of Canada Ltd. and Canadian Medical Protective Association, there has been increased audit activity in the area of recovery of GST/HST on expenses related to pension plans and the application of tax to investment management services. This is attributable to the fact that these cases have generated increased claims for recovery of tax in these areas as well as an increased awareness of these issues in Audit.

Issues related to recovery of GST/HST on transaction costs such as expenses related to financing and reorganization continue to be common.

Section 211 elections

The increased use of this election to recover basic tax content on real property used partially in commercial activities has given rise to a number of issues including the acceptance of late-filed elections, application of elections to only a part of a legal description of real property, collection of tax on all supplies that become taxable as a result of the election and monitoring of change of use of the property.

1 Paragraph 169(4)(b) reads as follows: “(b) where the [input tax] credit is in respect of property or a service supplied to the registrant in circumstances in which the registrant is required to report the tax payable in respect of the supply in a return filed with the Minister under this Part, the registrant has so reported the tax in a return filed under this Part.

2 This part of subsection 169(4) reads as follows: “A registrant may not claim an input tax credit for a reporting period unless, before filing the return in which the credit is claimed, (a) the registrant has obtained sufficient evidence in such form containing such information as will enable the amount of the input tax credit to be determined, including any such information as may be prescribed”.

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26 February 2009 CBA Roundtable

Q.1 - Lease Subsidy Payments By Non-Resident Manufacturer To Canadian Lessor

Facts / Background

Question

Reasons in Support of Zero-Rating

CRA Comments

Q.2 - Constructive Importer Rules And Section 180 Exclusion

Facts / Background

Question

CRA Comments

Q.3 - Assignment Of Employment Contracts & Reverse Payment

Facts / Background

Question

CRA Comments

Q.4 - Wash Transaction Assessment That Is Subsequently Overturned

Facts / Background

Question

CRA Comments

Step 1. Audit assessment

Step 2. Objection Refund Interest Payable

Step 3. When the customers paid the tax

Step 4. Credit Note / Refund to customers

Alternative Reassessment

Waiver of Interest

Q.5 - Section 167 Election On Dissolution Of Partnership

Facts / Background

Question

CRA Comments

Q.6 - Drop Shipment/Gst Memoranda Series 3.3.1

Q.7 - Zero-Rating Of Financial Services

Facts / Background

Question

CRA Comments

Q.8 - Gst Registration & T2 Returns

Facts / Background

Question

Q.9 - Special Investigation

Facts / Background

Question

CRA Comments

Q.10 - Bad Debts

Facts / Background

Question

CRA Comments

Q.11 - Gst Treatment Of Payments On Behalf Of Co-Owners

Facts / Background

Question

CRA Comments

Q.12 - Section 186 Input Tax Credit Entitlement Facts / Background

Question

CRA Comments

Q.13 - Deemed Financial Institution

Facts / Background

Question

Discussion

CRA Comments

Q.14 - Dealing With Taxpayer Representatives

Facts / Background

Question

CRA Comments

Facts / Background

Question

CRA Comments

Q.15 - S. 167 - Availability Of Election.

Question

CRA Comments

Q.16 - Debt Security And Contingent Right

Facts / Background

Question

CRA Comments

Q.17 - Garnishment Under Section 317 – Designated Office Of Bank

Facts / Background

Questions

CRA Comments

Q.18 - Non-Compete Agreements

Facts / Background

Question

CRA Comments

Q.19 - Multiple Voluntary Disclosures By The Same Person