Subsection 141.01(5) of the ETA does not prescribe any particular method for allocating how properties are used, other than that the methods used must be “fair and reasonable”. A registrant can decide how to account for expenses that must be allocated between commercial activities which give rise to input tax credits and exempt activities which generate no input tax credits.

In two recent cases (Blanchard, [2001] GSTC 94 and in Pension Positive, [2001] GSTC 104) the auditor used the revenue method of apportioning inputs. This seems to run counter to the CCRA’s own policy as found in Policy P-063, “Output Based Method for Input Tax Credit Allocation”, which is that revenue-based (output-based) allocation methods should only be used as a last resort. What is the CCRA’s view on appropriate methods for allocating ITCs? Has CCRA’s policy changed so that the revenue-based method is now acceptable or preferred? What about a method of allocating ITCs based on costs incurred to generate taxable versus exempt revenue? Is such a method acceptable?

Answer

While subsection 141.01(5) of the ETA does not prescribe a particular method for allocating how properties are used, other than the methods must be “fair and reasonable”, various CCRA publications set out guidance in determining appropriate input tax credit (ITC) allocation methods.

GST Memorandum 700-5-1 entitled “ITC Allocation for Financial Institutions” sets out three acceptable methods for allocating inputs: direct allocation method; input based method; and, output based method. CCRA’s preferred method is direct allocation which involves allocating inputs directly to commercial activities based on directly measurable factors. Where it can be demonstrated that inputs have been directly attributed to the largest extent possible, CCRA may accept the application of an input based allocation method to the remaining GST paid.

An output based allocation method (for example, a revenue based method) is to be used only where direct allocation and input based methods are not possible. This is reiterated in policy statement P 063, “Output Based Methods for ITC Allocation”. The policy states that an output based method is acceptable if it can be demonstrated to be fair and reasonable, that a significant amount of GST paid has been directly attributed, and attempts have been made to allocate to the greatest extent possible using both direct allocation and input-based allocation methods.

A method of allocating ITCs based upon costs incurred to generate taxable versus exempt revenue may be acceptable provided inputs have been directly attributed to the greatest extent possible and the allocation of ITCs based upon costs incurred to generate taxable versus exempt revenue meets the “fair and reasonable” requirements of subsection 141.01(5).

Q.2 - Securitizations and Section 139

Company A sells its portfolio of mortgages/receivables to a Special Purpose Vehicle (“SPV”) on a fully serviced basis for a single purchase price. For regulatory reasons, an amount for servicing must be set out separately from the amount for the mortgages/receivables. This amount for servicing does not appear in the Agreement of Purchase and Sale.

Transferring the ownership of the mortgages/receivables is an exempt financial service. Assume that the transfer of the mortgages/receivables is related to the servicing to be provided by Company A, and that it is the usual practice of Company A to sell its portfolio of mortgages/receivables on a fully serviced basis in the ordinary course of its business. Assume further that the consideration for the transfer of the mortgages/receivables, if supplied separately by Company A, would be greater than 50% of the total consideration for all services or property supplied to the SPV by Company A if that service or property had been supplied separately.

Please confirm that section 139 of the ETA would apply in these circumstances to deem the supply of the servicing to be a financial service.

If section 139 is held not to apply on the basis that setting out a separate amount for servicing violates the “single consideration” requirement of paragraph 139(a), please comment on the Tax Court of Canada’s decision in O.A. Brown Ltd. v. Canada, [1995] G.S.T.C. 40; 2867 E.T.C. The Tax Court of Canada concluded in Brown that the services rendered by the appellant were for a single consideration, even though the invoice issued by the appellant separately itemized amounts for the livestock, feed, inoculation, transportation and insurance.

Answer

The CCRA has conducted a review of numerous agreements pertaining to mortgage securitization practices in the financial services sector. Based on this review, it is CCRA’s observation that the agreements between the participants in this sector are very complex and vary significantly depending on the parties to the agreement. As such, CCRA cannot comment generally on the tax status of service fees based only on one criteria of several which may need to be reviewed to determine the tax status on fees that may be charged for administrative services. At this time CCRA is only issuing rulings on a case by case basis relative to each agreement and the participants involved.

It is the CCRA’s view that the determination of the taxable status of service fees may depend on several factors and not just on information which may be found in an agreement between the parties. Other factors that must be considered are the accounting treatment of such fees in the parties financial statements, their books and records, the particular practices in the industry, and the treatment of such fees per Generally Accepted Accounting Principles.

With respect to the case O.A. Brown Ltd. V Canada, [1995] G.S.T.C. 40; 2867, it is CCRA’s observation that the Tax Court of Canada’s decision was based on the facts of that case, which involved the buying and selling of cattle. However, it should also be noted that the Judge indicated that the primary issue before him was whether the disbursements (other than feed and insurance) and the clearing commission are separate taxable supplies or are consideration for the supply of zero-rated livestock. In the final analysis the Judge determined that there was only one supply, being the supply of livestock and, accordingly, only one consideration. The Court did not provide an analysis as to what constitutes “single consideration” as this was not required since the Court determined that there was only one supply.

Q.3 - Section 167 Election

A company engaged in a services business wishes to sell the business to a purchaser. The vendor plans to sell all of the assets used in the business, including premises lease, computer hardware lease, computer software, and fixed equipment and office equipment. The company has certain existing contracts with customers, which it will retain, but will assign any contracts entered into within the 30 days before closing. The value of the existing contracts far exceeds the value of the new contracts.

Questions

1. Are the contracts “necessary” assets for purposes of section 167? It seems that the contracts are not necessary at all, since they are the result of the operation of the business, they are not necessary to establish a business.

2. In the event you consider these contracts to be generally a “necessary” asset, are ALL of the contracts “necessary”, or some or one contract. In other words, is it sufficient that the “new” contracts are being assigned to the purchaser, or must the purchaser receive an assignment of 90% of all of the contracts, existing and “new”?

Answer

It is a question of fact whether a supply meets the requirements of subsection 167(1) of the Excise Tax Act (ETA), including the following two tests: first, the supplier is supplying a business or part of a business that was established or carried on by the supplier or by another person and acquired by the supplier and, second, the recipient is acquiring, under the agreement, ownership, possession or use of all or substantially all (90% or more) of the property that can reasonably be regarded as being necessary for the recipient to be capable of carrying on the business or part as a business. Policy Statement P-188 provides information concerning the application of the provision and whether a supply meets these two tests.

The assets of a business generally include real property, equipment, inventory, and intangibles such as goodwill. The nature of a business will generally determine the package of assets that would comprise a business or part of a business.

In determining whether the supply described in the question meets these two tests, it is necessary to review the details of the transaction and the exact nature of the business. Even though the contracts are the result of the operation of the business, they may well be considered “necessary” assets for the purchaser to be capable of carrying on the same business that was carried on by the vendor. The fact that the vendor is retaining most of its service contracts may indicate that the vendor is continuing its services business and only selling assets.

Q.4 - Sale of Partnership Interest and Section 167 Election

Companies A and B hold a 60% and 40% partnership interest in C (a partnership).

C carries on business and does not make any exempt supplies. A sells its 60% partnership interest to B. Given that B now holds a 100% interest in C, C ceases to exist as a matter of law. This results in the assets of C effectively being transferred from C to B.

Assume that B and C are registered for GST purposes and that the assets transferred from C to B constitute all or substantially all of the property necessary for B to be capable of carrying on the business or part as a business.

Would B be entitled to enter into a joint election with C under subsection 167(1) of the ETA to allow the assets to be transferred from C to B without being subject to GST?

Answer

In this situation, Company A, a member of Partnership C, sells its interest in the partnership to Company B, the only other partner, so that there are no longer persons carrying on business in common with a view to profit. Consequently, the Partnership would cease to exist as a matter of law. However, under subsection 272.1(6) of the Excise Tax Act (ETA), where a partnership would be regarded as having ceased to exist but for the subsection, the partnership is deemed for purposes of Part IX of the ETA not to have ceased to exist until the registration of the partnership is cancelled.

Under subsection 272.1(4) of the ETA, while Partnership C is deemed to still exist, the transfer of property from Partnership C to Company B is deemed to be a supply of property for consideration equal to the total fair market value of the property immediately before the time the property is disposed of. Partnership C and Company B are eligible to make the election that is available under subsection 167(1) of the ETA provided the requirements of that election have been met. A detailed review of the transfer, the facts related to the transfer and the nature of the business would be required in order to determine whether these requirements have been met.

Q.5 - ITCs and Invalid Registration Numbers

In Centre de la Cité Pointe Claire v. R., [2001] GSTC 119 (TCC), Judge Louise Lamarre Proulx held that a registrant was able to claim an ITC based on an invalid GST number (the supplier had previously been deregistered and its number was no longer valid). Her reason was that article 2163 of the Quebec Civil Code provides that if X allows it to be believed that Y is his mandatory (agent), X is liable to a third person who contracts in good faith with Y unless X has taken appropriate measures to prevent the error. In the Court’s view, the CCRA was at fault for not providing a mechanism to allow third parties to determine whether a registration number provided by a supplier (who is deemed by ETA s. 221 to be an agent of the Crown) is valid.

In effect, the Court has recommended that the CCRA provide a mechanism to allow purchasers to check that suppliers’ registration numbers are valid. This is a tool that could easily be provided via the Internet. That would give purchasers the ability to double-check large invoices before making their ITC claims.

Questions

1. Does the CCRA accept the Pointe Claire decision? If so, does this mean that invoices with invalid registration numbers can be used in good faith to claim ITCs in Quebec but not elsewhere in Canada?

2. Will the CCRA provide such a “Business Number check” tool on its Web site? It should allow a registrant to enter a BN and the supplier’s name (or the key part of the name), and confirm that the number is correct. (Would an amendment to ETA s. 241 be needed?)

Answer

1. Strictly, there is no provision creating an obligation for an input tax credit claimant to verify the supplier's registration number. Where the registration number of the supplier is not correct however, the related input tax credit claim is not valid. Where an invalid input tax credit has been claimed, the claimant may be subject to assessment and applicable interest and penalties. Note that pursuant to paragraph 3(a) of the Input Tax Credit Information (GST/HST) Regulations (Regulations), a registration number is not required where the consideration is for less than $30.

Where the fact that a registration number is not accurate for purposes of the Regulations is attributable to a clerical error for example, discretion can still be used to validate the related input tax credit claim where it is demonstrated that the claim was made in good faith and all other documentary and compliance requirements are satisfied. Where the documentary requirements provided for at subsection 169(4) of the Excise Tax Act (ETA) are not met, subsection 169(5) of the ETA provides authority for the Minister of National Revenue to exempt a specified registrant, a specified class of registrants or registrants generally from any of the documentary requirements under subsection 169(4) of the ETA for claiming input tax credits. The Minister's discretionary power is delegated under the authority of subsection 275(3) of the ETA to various persons, including certain audit positions at the District or Regional levels.

2. The CCRA, or MRQ as the case may be, will give verbal or written GST/HST registration confirmation where there is a valid need to know that a person is a registrant. This confirmation is available by contacting the local CCRA Business Window or MRQ office. A letter of confirmation can be picked up in person by the requestor, mailed or faxed to a secure fax. The confirmation will be similar to the following form:

Example

On January 22, 2002, you provided information to Canada Customs and Revenue Agency and requested confirmation of the GST/HST registration status of XYZ Company.

In response to your enquiry, this is to confirm that XYZ Company has been assigned Business Number 123456789, and on January 22, 2002, was registered for GST/HST.

If you have any questions concerning this letter, please contact our Business Number Services Unit at 1-800-959-5525.

We have also taken note of your request for an automated verification tool and have forwarded the request to the appropriate area for evaluation.

Q.6 - Exporting of Leased TPP Delivered in Canada

A non-resident lessor delivers leased TPP in Ontario to a Canadian resident lessee. In the first lease interval, the lessee exports the leased TPP in compliance with all requirements of section 1 of Part V of Schedule VI of the ETA. The lessee then re-imports the leased TPP to Canada in the second lease interval.

Is the first lease interval lease payment subject to GST?

Is the second lease interval payment subject to GST?

If the lessee re-imports the leased TPP to Canada in the first lease interval, does the lessee lose the zero-rating benefit of section 1 of Part V of Schedule VI of the ETA altogether?

Answer

Paragraph 136.1(a) of the Excise Tax Act (ETA) deems a supplier of property by way of lease to have made a separate supply of the property for each lease interval for purposes of Part IX of the ETA. Paragraph 136.1(d) further provides that all of these deemed supplies of property are deemed to be made in or outside Canada, as the case may be, if, in the absence of paragraph 136.1(a), the supply of the property would be deemed to be made in or outside of Canada.

Whether a supply of TPP for a particular lease interval that is made in Canada is zero-rated under section 1 of Part V of Schedule VI depends on whether that specific supply satisfies the conditions of the provision. This can result in the deemed supplies for some lease intervals being zero-rated and some not being zero-rated.

The conditions for a supply to be zero-rated under section 1 of Part V of Schedule VI include the requirement that the supply be made to a recipient who intends to export the TPP and that the supplier maintain satisfactory evidence of that exportation. When the supply for a particular lease interval is made, the supplier must be satisfied that the recipient intends to export the TPP being supplied. If not, the supplier should collect tax at the appropriate rate of 7% GST or 15% HST. The recipient must also export the TPP as soon after the property is delivered to the recipient as is reasonable having regard to the circumstances surrounding the exportation.

In the circumstances described, the supply of TPP made for the first lease interval will be zero-rated under section 1 of Part V of Schedule VI provided the lessee intends to export the TPP when the supply is made, the TPP is exported in accordance with the requirements of the provision and the lessor maintains satisfactory evidence of that exportation.

The supply of TPP made for the second lease interval will also be zero-rated under section 1, if the TPP is still outside Canada when that supply is made, regardless of whether the TPP is subsequently imported during that lease interval. Of course, if the TPP is in Canada when it is supplied for the third lease interval, all of the conditions of section 1 of Part V of Schedule VI would once again have to be met, as in the case of a supply made for any other lease interval.

If the TPP supplied for the first lease interval was zero-rated under section 1 of Part V of Schedule VI when that supply was made, the subsequent importation of the TPP during that lease interval would not affect its zero-rated status. However, the supply for the second lease interval would once again have to meet all of the conditions of the provision in order to be zero-rated.

Finally, it should be noted that the importation of the TPP by the lessee will be subject to Division III tax if that TPP has previously been supplied on a zero-rated basis under Part V of Schedule VI.

Q.7 - Cancellation of GST Registration

Subsection 171(3) of the ETA triggers GST on the cancellation of a GST registration for non-capital property such as inventory. Why does subsection 171(3) not specify that it only applies to property situated in Canada, deemed taxable supplies made in Canada, or more specifically, only trigger GST to the extent that ITCs were claimed in respect of the acquisition or importation of the property? Presumably, subsection 171(3) would only trigger GST to the extent that such ITCs were claimed. Is it a drafting error?

Answer

Your question as to whether there is a problem in the drafting of this section is a question that only the Department of Finance can address. Our understanding of the provision is as follows.

Paragraph 171(3)(a) of the Excise Tax Act (ETA) provides that, for the purposes of Part IX of the ETA, where a person ceases at any time to be a registrant, the person is deemed to have made, immediately before that time, a supply of each property of the person (other than capital property) that immediately before that time was held by the person for consumption, use or supply in the course of commercial activities of the person.

The person is deemed to have collected, immediately before that time, tax in respect of the supply, calculated on the fair market value of the property at that time. As well, the person is deemed to have to have received, at that time, a supply of the property by way of sale and to have paid, at that time, tax in respect of the supply equal to the amount determined under subparagraph 171(3)(a)(i) of the ETA.

Paragraph 171(3)(b) of the ETA provides that where the person was, immediately before that time, using capital property of the person in commercial activities of the person, the person is deemed to have, immediately before that time, ceased using the property in commercial activities. When this is the case, the "change in use" rules would have to be considered for "self-assessment" purposes.

There can be cases where subsection 171(3) of the ETA will not apply to property of the person upon ceasing to be a registrant. Subsection 142(1) of the ETA deems certain supplies to be “made in Canada” for purposes of Part IX of the ETA. For example, it is CCRA’s position that at the time a non-resident person ceases to be a registrant, that person will be required to self-assess tax on the deemed supply of property (including capital property under the change-in-use rules) only where the supply is deemed to have been “made in Canada” at that particular time.

Therefore, upon ceasing to be a registrant, a non-resident person that has no permanent establishment in Canada is not required to account for any tax in respect of property (including capital property) that is located outside Canada, and not used in its commercial activities in Canada immediately prior to that time.

In situations other than the example noted above, the application of paragraph 171(3)(a) would be determined on the facts of the particular case.

Q.8 - Non-Arm’s Length Supplies

Does section 155 of the ETA apply to deem a supply to be at fair market value if the supplier and recipient are arm’s length, but the recipient will not be using the supply in the course of a commercial activity?

Answer

Subsection 155(1) of the Excise Tax Act (ETA) provides that where a supply of property or a service is made between persons not dealing with each other at arm’s length for no consideration or for consideration less than fair market value of the property or service, and the recipient is not a registrant who is acquiring the property or service for consumption, use or supply exclusively in the course of commercial activities, the supply will be deemed to have been made for consideration equal to the fair market value of the supply at that time.

Since, in the above transaction, the supplier and the recipient are dealing with each other at arm’s length, the deeming provisions in subsection 155(1) of the ETA would not apply to deem the value of the consideration for the supply to be the fair market value of the supply. Where the consideration for the supply is expressed in money, the value of consideration is generally deemed to be the amount of the money under paragraph 153(1)(a) of the ETA.

Q.9 - Collections

What is the status of section 323.1 of the ETA?

Answer

Proposed section 323.1 of the Excise Tax Act (ETA) was to have applied to a secured creditor (as defined by subsection 317(4) of the ETA) who has influence over the issuance or clearance of a payment or remittance of net tax or other amount required to be paid or remitted under Part IX of the ETA and who exercises that influence for the purpose of interfering with the payment or remittance either by way of postponing it, subordinating it in favour of another payment, or simply causing the payment or remittance not to be made. The proposed amendment has not been enacted.

However, the CCRA continues to be concerned about third party interference with GST/HST remittances and is monitoring the frequency of such occurrences. The CBA may wish to contact the Department of Finance for a more detailed update on this issue.

Q.10 - Bare Trusts

Would the CCRA consider amending its administrative policy on bare trusts to establish a joint and several liability between the nominee company and the beneficial owner?

Answer

The issue raised in the question is not currently under review. While we are not contemplating the change proposed, we would consider and review any analyses submitted which would explain the need and the rationale for effecting such a change.

The CCRA’s current policy on bare trusts is outlined in Policy Statement P-015 “Treatment of Bare Trusts Under the Excise Tax Act” and in Technical Information Bulletin B-068 “Bare Trusts”.

In a bare trust situation, it is the beneficial owner that retains all powers and responsibilities to manage and/or dispose of the trust property. In such cases, the beneficial owner retains the right to control and direct the trustee in all matters relating to the trust property. The sole duty of the trustee (which may be a nominee corporation) will be to convey legal title to the trust property according to the instructions of the beneficial owner. As a result, it is the beneficial owner, rather than the bare trustee, that is viewed to be in commercial activities relating to the trust property, and the beneficial owner would be required to account for the GST, to file GST returns, and generally to comply with the obligations placed on registrants under Part IX of the Excise Tax Act.

Nonetheless, a bare trustee may also perform various duties as agent of the beneficial owner, such as leasing commercial property to tenants specified by and for the account of the beneficial owner for example. In this case, the common law rules of agency will apply. Where a taxable supply is made by the trustee as agent, it is the beneficial owner, as principal, who will generally be liable for the collection and remittance of the tax on any supplies made by the agent as if the supply were made by the principal directly, whether or not the principal is disclosed to the recipient of the supply. The principal will be required to account for that tax in the principal's return, will pay tax on the agent's services, if those are taxable, and may claim the appropriate input tax credits.

An exception to the above treatment can occur under subsection 177(1.1), which permits an agent who makes a supply (otherwise than by auction) on behalf of a principal who is required to collect tax in respect of the supply to elect jointly with the principal to account for the tax collectible on the supply as if the tax were collectible by the agent. Thus, the agent is responsible for collecting, reporting and remitting the tax on the supply. However, the agent and the principal are jointly and severally liable for all obligations that arise upon or as a consequence of the tax becoming collectible or any failure to account for or remit the tax. To be eligible to make this election, both the agent and the principal must be registrants for GST/HST purposes.

Q.11 - Joint Ventures

What is the status of the additions to the prescribed joint ventures?

Answer

The Department of Finance has received numerous requests for additional activities to be given prescribed status. The Department of Finance, in the context of its review of these requests, is continuing to work on this issue and expects to finalize it in the coming months.

Q.12 - Disclosure Obligations

What disclosure information would the CCRA require of the vendor on an invoice or in an advertisement in respect of a “NO GST” sale, “Don’t Pay the GST” sale?

Answer

Where tax is properly payable, the recipient of a taxable supply is required pursuant to subsection 165(1) of the Excise Tax Act (ETA) to pay the GST on the value of the consideration for the supply. In addition, the supplier is required pursuant to subsections 223(1) and (1.1) of the ETA to disclose tax.

When a registrant makes a taxable supply (other than a zero-rated supply), the registrant is required pursuant to subsection 223(1) of the ETA to indicate to the recipient either in prescribed manner or in the invoice or receipt issued to the recipient in respect of the supply, the consideration paid or payable by the recipient for the supply and the tax payable in respect of the supply in a manner that clearly indicates the amount of tax, or that the amount paid or payable by the recipient for the supply includes the tax payable in respect of the supply. Subsection 223(1.1) of the ETA sets out the requirements where a registrant indicates the tax payable or the rate or rates at which tax is payable.

Subsection 2(1) of the Disclosure of Goods and Services Tax Regulations provides that the prescribed manner is giving clearly visible notice to the recipient of a taxable supply at the place where the supply is made.

Even though a registrant may advertise that there is “no GST”, in all cases where tax is properly payable there is still an obligation on the registrant to disclose the tax in the manner stipulated in subsections 223(1) and (1.1) of the ETA.

Q.13 - GST and Customs

What co-ordination is there between the GST and Customs Branches of the CCRA? What can be done if during a Customs verification, a verification officer issues a GST assessment in circumstances where the GST Branch has stated administrative positions to the contrary (that is, in favour of the taxpayer)? Can GST Headquarters get involved? What is the appropriate course of action for a practitioner to take?

Answer

The level of co-ordination and communication between the Excise and GST/HST Rulings Directorate of the Policy and Legislation Branch and the Customs Branch of the CCRA is considerable. The Excise and GST/HST and Rulings Directorate at Headquarters will assist the Customs Branch with respect to any GST issue as and when requested by Customs.

In the circumstances described, the taxpayer should provide all relevant information, including any administrative guidance received from the Excise and GST/HST Rulings Directorate to the Customs verification officer at the time of review. Should the taxpayer not be satisfied with the decision rendered at the end of the verification, the taxpayer may use the formal customs dispute resolution procedures which are administered by the Appeals Branch.

Where relevant, regional customs appeals officers will consult with officers in the Excise and GST/HST Rulings Directorate concerning the issue giving rise to the dispute and may also contact the GST division in the Appeals Branch at Headquarters.

Q.14 - Penalties for Third Parties

If an Enron situation were to happen in Canada, would the CCRA use section 285.1 of the ETA? If so, given the current understanding of the facts, who would the CCRA assess under section 285.1?

Answer

It is a question of fact whether a person is liable to a penalty under section 285.1 of the Excise Tax Act (ETA). We are unable to provide comments concerning the Enron case, as we have not been presented with the facts necessary to make such a determination. In cases where we are provided with a specific set of facts, CCRA may decline to issue an interpretation or ruling on whether a particular person is liable to a penalty in the circumstances, as per paragraph 20 of Memoranda Series Chapter 1.4.

Generally, subsection 285.1(4) of the ETA will apply to third parties such as tax return preparers and advisors who make false statements or counsel and assist others in making false statements. Where a false statement is made in a return, the third party would not be liable to a penalty under subsection 285.1(4) of the ETA in respect of this particular false statement if it did not prepare the return nor provide any advice in respect of the return. However, if the third party prepared the return and knowingly did not report any outstanding liabilities (i.e., the third party made the false statement in the return on behalf of the person) or advised the person to not report any liabilities, the third party would be liable to a penalty under subsection 285.1(4) of the ETA.

There are other circumstances where the third party may be liable, for example, where the third party would reasonably be expected to know but for circumstances amounting to culpable conduct that a statement is a false statement that could be used by or on behalf of the person for GST/HST purposes.

It should be noted that the false statement is not limited to returns. A false statement includes a statement that is misleading because of an omission from the statement regardless of any intention to deceive. The false statement may be in the form of an oral or documentary representation. For example, the statement may be included on election forms, correspondence, invoices, valuation reports, certifications, financial statements and their notes, contracts or selling documents. A third party is not liable to a penalty under section 285.1 of the ETA if there is no false statement. When considering the application of third-party civil penalties, the CCRA will respect the intention of the legislation. Specifically, it is meant to apply to those who counsel and assist others in making false statements when they file their returns or who are wilfully blind to obvious “errors” when preparing, filing or assisting another person in filing a return. It also is intended to apply to arrangements and plans that contain false statements, often without the knowledge of the client.

Information Circular IC 01-1 –Third Party Civil Penalties provides a framework for the application of third-party civil penalty provisions in section 285.1 of the ETA

Q.15 - Importations

A U.S. resident supplier not registered for GST delivers goods to a recipient F.O.B. Seattle, but makes arrangements to ship the goods to Canada. Title to the goods passes in Seattle and the recipient is the importer of record and is responsible for risk of loss or damage during transit. The U.S. resident supplier issues an invoice for the goods and charges a disbursement for freight. Does the supply of the TPP take place in Canada or in the United States?

Answer

A supply of tangible personal property (TPP) by way of sale is deemed to be made in Canada if the TPP is, or is to be, delivered or made available in Canada to the recipient of the supply, and is deemed to be made outside Canada if the TPP is, or is to be, delivered or made available to the recipient of the supply outside Canada.

The place where TPP is delivered or made available may be determined by reference to the place where the TPP is considered to have been delivered under the applicable sale of goods legislation, the terms of the contract for the supply of that TPP and all relevant circumstances of the transaction.

In the circumstances described, the delivery terms are f.o.b. Seattle. The term f.o.b. a designated place generally means that the buyer is responsible for the shipment of TPP from that place. Although the supplier may arrange for the carriage of the TPP on behalf of the buyer, the buyer must contract at its own expense for that carriage of the TPP from the designated place and settle the carrier’s account. In this case, transfer of possession of the TPP by the supplier to the carrier (acting as the buyer’s intermediary) is considered to be delivery to the buyer. As a result, if the TPP is to be delivered on an f.o.b. basis and this actually occurs, the place of delivery will generally be the place designated in the contract.

Although the terms of the contract in the circumstances described are f.o.b. Seattle, the supplier is arranging for the freight transportation of the TPP to Canada and invoicing the buyer for that freight. If the supplier is actually paying the carrier to transport the TPP to Canada, this would be an indication that the TPP is being delivered to the recipient in Canada. As previously indicated, all relevant circumstances surrounding the transaction would be required to make a definitive determination with respect to where the TPP is considered to have been delivered.

Finally, if it is determined that the non-registered supplier has delivered the TPP to the recipient in Canada, that TPP would nevertheless be deemed to have been supplied outside Canada if the supplier is not carrying on business in Canada.

Q.16 - Real Property – Sale of Underground Cable Rights

Company A has installed underground fibre optic cable and wishes to sell all rights of ownership to use this cable to Company B, a registrant. Is Company A relieved of the obligation to collect GST under subsection 221(2)? Does it matter whether the rights to use the cable are registerable as a real or immovable right in a province?

Answer

Whether the supply by way of sale of underground fibre optic cable (cable) is a sale of real property for purposes of subsections 221(2) and 228(4) of the Excise Tax Act (ETA) is predominately a question of fact and law to be determined on a case-by-case basis.

In making this determination the CCRA would rely upon certain factors including:

the definition of “real property” in subsection 123(1) ETA;
the CCRA interpretative policy on determining whether tangible personal property becomes real property – including Memorandum Series 19.1, Policy Statements P-070, P-085, P-104, and the HQ rulings database;
applicable federal statutes (other than the ETA) or provincial statutes – including those with respect to retail sales taxes, property taxes and property registration systems (i.e. for registration of property and caveats and encumbrances on property);
common law in those parts of Canada outside of Quebec;
the Civil Code of Quebec (CCQ) in the Province of Quebec;
contract law; and
leading jurisprudence on fixtures v. chattels

A. Characterization of the Cable Outside of Quebec

Outside of Quebec, real property for GST/HST purposes is defined to include “messuages, land and tenements of every nature and description”. Interests in real property that are less than the entire estate (i.e. the fee simple) are considered to be real property where they fall within the phrase “…and every estate or interest whether legal or equitable” in the definition of real property in subsection 123(1) of the ETA. Common law is used to distinguish between real and personal rights.

The general rule in common law is that tangible personal property (TPP) merges with and becomes part of real property where it is affixed or annexed to real property. However TPP transformation to real property does not depend solely on the property’s physical attachment to land or buildings. Whether a chattel becomes a fixture depends upon the degree and the object of its affixation to land.

It is the CCRA’s view that characterizing underground cable as a fixture (i.e. real property) or as a chattel (i.e. tangible personal property) requires a close examination of all of the circumstances in each case.

One of the factors to consider is whether the object of annexation is for the better use of the land or rather for the better use of the cable, as a chattel. In cases where cable is buried underground the degree of affixation may be sufficient to support a real property characterization but the object of the affixation may not.

In cases where fibre optic cable is attached to the interior walls of a building it may be clearer that such cable has improved the use of the building in the same way as wiring, plumbing or ventilation systems in buildings.

In establishing the object of the affixation consideration may be given to such factors as:

the reasonable expectations of the land owner and the owner of the cable (where they are separate persons) that the cable is, or is not, to become part of the land, as evidenced by their agreements and conduct ;
whether the cable improves the use of the land in which its buried or any other real property to which it is affixed or whether the cable’s placement in relation to the land (e.g. underground) serves only to provide for better use of the cable as tangible personal property; and
whether the owner of the cable requires additional real property rights, such as an easement or right of way, to access the cable.

The fact that certain property or rights in property is registrable as real property in a particular province may be a factor but would not be determinative as to the characterization of the cable for GST/HST purposes.

B. Characterization of the Cable in Quebec

The difference in the ETA definition of real property for Quebec, compared to the rest of Canada, recognizes that real property in Quebec is determined pursuant to the civil law of the province.

For GST purposes real property in Quebec includes property that is an “immovable and every lease thereof” as determined under the civil law. Movables which are permanently physically attached to immovables become immovables for as long as they remain there, even where they have not lost their individuality as a movable or become incorporated with an immovable.

C. Cable as a Telecommunications Facility

After applying the factors above consideration must be given as to whether the supply is also as described in paragraph (b) of the definition of “telecommunication service” in subsection 123(1) of the ETA.

In the event that the supply is, by definition, a “telecommunication service” then subsections 221(2) and 228(4) will not apply.

Summary

In order for the CCRA to provide a specific answer as to whether a registered recipient is required to self-assess the GST rather than pay the GST to a supplier in a particular case, we would require sufficient information so as to be able to determine whether the property being supplied by way of sale is real property. The required information would generally include all applicable agreements, full legal or other descriptions of the property involved and the jurisdiction where the property is situated and the supply takes place.

Q.17 - Bad Debts

Subsection 231(4) of the ETA provides that a person may not claim a bad debt deduction unless the amount is written off as a bad debt within four years. Assume that Company A has sold widgets to Company B in January 1998 for $1,000,000, plus GST of $70,000, which is remitted to the CCRA. Company B believes that the proper amount of consideration payable for the widgets is $800,000 and pays GST only in the amount of $56,000. Company A sues Company B for $200,000, plus GST of $14,000. It appears that the litigation will not be resolved within the four year period. Must Company A write-off the bad debt within the four year period to be eligible for the bad debt deduction? Is Company A entitled to write-off the amount even though it believes it has a good claim and a reasonable chance of recovery?

Answer

Subsection 231(4) of the Excise Tax Act (ETA) limits the claiming of a bad debt deduction by a person under subsection 231(1) of the ETA to within 4 years from the reporting period in which the debt is written off as a bad debt in the person’s books of account. Accordingly, the time limit for claiming the deduction starts when the person writes off the debt in their books of record rather than when the tax was remitted.

According to the scenario presented there is no indication that the amount in question has been written off in the person’s books of account as a bad debt, therefore until such time Company A is not able to claim a bad debt deduction under subsection 231(1) of the ETA.

The question of when a debt becomes a "bad debt" is a factual one, and must be determined on a case-by-case basis. A determination whether or not an amount is a "bad debt" must be consistent with 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.

If in fact a debt has been written off and a deduction under subsection 231(1) of the ETA was claimed and the person recovers the debt, in part or in whole, the person would be required to adjust their net tax for the reporting period in which the debt was recovered pursuant to subsection 231(3) of the ETA which is not subject to any time limitations for its application.

Q.18 - Section 156 Election

Please provide us with an update on the CCRA’s position with respect to the ability of a non-resident corporation with a permanent establishment in Canada to make a section 156 election concerning taxable supplies made from that permanent establishment to another Canadian corporation within the same corporate group.

Answer

Our position on this issue has not changed. As explained in our response to CBA Question #12 at our meeting last year, it is our view that in order for the residency requirement in subsection 128(1) of the Excise Tax Act (ETA) to be met, the corporation in its entirety must be resident in Canada. Where a non-resident person has a permanent establishment in Canada, subsection 132(2) of the ETA provides that the person is deemed to be a resident but only in respect of the activities carried on through the permanent establishment. The person as a whole is not deemed to be resident in Canada. Accordingly, where a non-resident corporation has a permanent establishment in Canada and is deemed under subsection 132(2) of the ETA to be resident in Canada in respect of the activities carried on through the permanent establishment, the residency requirement in subsection 128(1) of the ETA is not met.

Therefore, a non-resident corporation with a permanent establishment in Canada and a Canadian corporation within the same corporate group are not closely related under subsection 128(1) of the ETA and, as a result, are not eligible to make the election under section 156 of the ETA.

It should be noted that this response does not address the situation where the non-resident corporation is an insurer with a permanent establishment in Canada.

The Department of Finance is aware of this issue. It is our understanding that they are currently reviewing the GST/HST group relief provisions in the ETA and that this review will take into account this specific issue.

Q.19 - Input Tax Credits – Commercial Services

A Canadian corporation imports moulds and dies owned by a non-resident, non-registrant for the purpose of using them to produce goods to be sold for export to the non-resident. Would you please confirm that the Canadian corporation will be entitled to claim input tax credits either under subsection 169(1) or subsection 169(2) even though it does not have title to the moulds and dies at the time of importation. In the context of subsection 169(2), does the CCRA agree that the Canadian corporation would be “making a taxable supply to the non-resident person of a commercial service in respect of the [moulds and dies”]?

Answer

Subsection 169(1):

The Canadian corporation that imported the moulds and dies for the purpose described and is the importer of record would be entitled to claim an ITC under subsection 169(1) of the Excise Tax Act (ETA) for the tax it paid on the importation of the goods.

Subsection 169(2):

A registrant can claim an ITC under subsection 169(2) of the ETA if the registrant imports goods of a non-resident non-registered person for the purpose of making a taxable supply of a commercial service in respect of the goods to the non-resident person and tax in respect of the importation becomes payable by the registrant or is paid by the registrant without having become payable.

Commercial service in respect of tangible personal property is defined in section 123 of the ETA and means a service in respect of the property other than a service of shipping the property supplied by a carrier and a financial service.

CCRA considers that a service is in respect of a good if there is a functional relationship between the service and the property. A functional relationship will be considered to exist between the service and the property where the purpose of the service arises from or relates to the property. The functional relationship between the service and the property must be more direct than indirect for subsection 169(2) to apply.

In this example, moulds and dies owned by a non-resident are imported to be used by the registrant to produce goods to be sold by the registrant to the non-resident. In this case, it can be said that the registrant is making either a supply of TPP to the non-resident person or a supply to the non-resident person of a service of manufacturing or producing goods for the non-resident.

If the registrant is making a supply of a service of manufacturing or producing goods, the moulds and dies are used in making a supply of service of manufacturing or producing goods and that service is clearly not in respect of the mould and dies.

There is no direct functional relationship between the service and the moulds and dies used to produce the goods sold to the non-resident. Therefore, subsection 169(2) does not apply.

Q.20 - Securitization – Adjustments

Company A, a leasing company, has leased a fleet of vehicles to a number of independent lessees subject to long-term leases. The vehicles are concurrently leased to Company B which pre-pays most of the rentals, plus GST. The GST is remitted by Company A and input tax credits are claimed by Company B. The next year the concurrent leases are prematurely terminated. Company B assigns all its rights to the leased equipment to Company A and is paid an amount equivalent to the pre-paid rentals relating to the unexpired terms of the leases. Please confirm that no GST adjustments are required in conformity with section 232 of the ETA and Technical Interpretation Bulletin B-042.

Answer

The amount paid by Company A to Company B equivalent to the pre-paid rentals relating to the unexpired terms of the leases is considered a refund pursuant to section 232 of the ETA since the criterion set out in Technical Interpretation Bulletin B-042 are met. Company B is therefore entitled to claim an adjustment refund or credit of the GST paid to Company A.

However, since both Company A and Company B are registrants involved in commercial activities and are entitled to claim ITCs for the above-mentioned transaction, the person making the adjustment (Company A) may choose not to refund or adjust the GST previously charged or collected. This may be desirable since Company A has already accounted for the tax and Company B has already claimed or is entitled to claim a corresponding input tax credit.

Q.21 - Voluntary Disclosure (Imports)

An importer, which is engaged exclusively in commercial activities, conducts a customs compliance review of its importations and determines that certain duty-free goods have been undervalued. Will the CCRA confirm that if a voluntary disclosure is made, all interest will be waived on the underpaid GST? If not, why does CCRA’s policy differ from that in respect of voluntary disclosures concerning domestic transactions between registrants?

Q.22 - Ascertained Forfeitures

It is understood that there have been ongoing discussions between Customs and GST Policy with respect to the amount of penalties, if any, which should be levied when an ascertained forfeiture has been made concerning the undervaluation of duty-free goods imported by a registrant. When only GST has been underpaid and the importer is entitled to claim input tax credits, it would appear that the maximum penalty should not exceed 25% of the GST underpaid, as provided by section 285 of the ETA. Please comment.

Q.23 - Membership Fees

Membership discounts, where the total “value” of the discounts is insignificant (i.e., less than 30%) in relation to the consideration for the membership; and newsletters, reports and publications that are similarly insignificant in “value” may be provided to members without endangering the exempt status of membership fees charged by a public sector body pursuant to paragraphs 17(e) and (f) of Part VI of Schedule V of the ETA.

Assume that an Ontario NPO charges a membership fee of $100 and provides members with two free publications. The NPO charges non-members $50 for each publication. This charge to non-members is purposely inflated to act as an incentive for interested non-members to become members of the NPO. To date, no non-member has ever requested or purchased either publication for $50, as expected, given its inflated price.

Each publication costs the NPO about $5 to produce.

Would the provision of these two publications free to members endanger the exempt status of the membership fee under section 17 of Part VI of Schedule V of the ETA?

Answer

Subparagraph 17(f)(i) allows members to receive publications where the value of the publication is insignificant in relation to the consideration for the membership. Information in the publication may be on any topic whatsoever and fees may be charged to non-members without affecting the exempt status of memberships.

Subparagraph 17(f)(ii) deals with publications that provide information on the activities or financial status of the body. If the value of the publication is significant in relation to the consideration for the membership and a fee for the publication is ordinarily charged to non-members, memberships are no longer exempt. Therefore a publication may have significant value but, if it deals with the activities or financial status of the body and is provided to non-members for no charge, the membership fees will remain exempt.

In the above question, no information is given as to the content of the publications and little is given as to their value, only the cost to produce them. It remains a question of fact whether the fair market value of these publications is in fact $50 each, or much lower. The cost to produce a publication does not necessarily give any indication as to its value. Generally, the CCRA will consider the value of a publication to be the price at which it is offered to the general public.

You indicate that the publications have been overpriced so as to induce interested parties to become members and that no non-member has requested nor purchased these publications at for $50.

It may still be that these publications are of some significant value, otherwise they could not be used as an inducement to attract members. The fact that non-members have not purchased them for $50 does not necessarily mean that there is no fee for non-members nor that the publications do not have a value, but merely that they are not worth $50 each.

If the value of the publications is at least 30% in relation to the value of the membership, then membership fees would be excluded from exemption under section 17 (i.e., the supply of the membership would be a taxable supply).

Q.24 - Basic Groceries

How does the CCRA treat fruit-flavoured teas, ice-tea mixes, and coffees?

Our understanding is that the beverages are all zero-rated, notwithstanding the 25% fruit juice rule in paragraph 1(d) of Part III of Schedule VI.

Why is that ?

Answer

During the implementation of the GST, the public was informed that the tax status of most foods under the Federal Sales Tax (FST) would not change with the introduction of the GST unless we had strong reservations about continuing an existing policy. Since the general intent of the provision for basic groceries (to zero-rate food and beverages that are commonly thought of as staple grocery products) remained the same with the introduction of GST, the existing policy to zero-rate all flavours of coffee, tea, and ice-tea mixes was continued.

Q.25 - Computer Software

Is “canned software” considered “tangible personal property”, a “service” or “intangible personal property” for GST purposes?
Is “custom software” considered “tangible personal property”, a “service” or “intangible personal property” for GST purposes?
Does the CCRA’s answer to #1 and #2 change depending on whether we are talking about the application of Division II, III or IV taxes?
Is “custom software” supplied by way of license on a physical medium tangible or intangible personal property?
Is “canned software” supplied by way of license on a physical medium tangible or intangible personal property?
Which of the foregoing would qualify as intellectual property for purposes of section 10 of Part V of Schedule VI?

Notes:

(i) Assume that “canned software” means a pre-packaged computer program that may be purchased in a form that is ready for use without further modifications and includes a computer program that is designed and developed for the use of more than one person.

(ii) Assume that “custom software” means a computer program that is designed and developed solely to meet the specific requirements of, and that is intended for the exclusive use of, a particular person.

Answer

The following response reflects our current position. However, it should be noted that Technical Information Bulletin B-037R Imported Computer Software is currently under review.

A supply of “canned software”, as defined in the question, is considered to be a supply of tangible personal property (TPP) if it is supplied on a physical medium. If the “canned software” is supplied electronically, it is considered to be a supply of intangible personal property (IPP).
If the supplier retains rights to the “custom software”, as defined in the question, and supplies it by way of licence, it is considered to be a supply of IPP, whether or not it is supplied on a physical medium. If the supplier does not retain any rights to the “custom software”, the supply of that software will be considered to be a supply of a service whether or not it is supplied on a physical medium.
The answer to questions # 1 and #2 would generally be the same for purposes of Division II, III or IV tax. However, for purposes of Division III, imported “custom software” that is supplied by way of licence on a physical carrier medium would be subject to Division III tax on the value of the carrier medium as TPP, while the value of the software program would be subject to any applicable Division II or IV tax as IPP.
As indicated in the response to question #2, a supply of “custom software” supplied by way of license on a physical medium is considered to be a supply of IPP.
As indicated in the response to question #1, a supply of “canned software” supplied by way of license on a physical medium is considered to be a supply of TPP.
A supply of software that is characterized as a supply of IPP would qualify as intellectual property for purposes of section 10 of Part V of Schedule VI of the Excise Tax Act and could therefore be zero-rated if all of the conditions of the provision are met.

Q.26 - Leasing – ITC Claims

Part A

After a lessor executes a lease, and delivers the leased property to the lessee, are the lessor’s activities in respect of the property still considered to be related to the “consumption, use or supply” of the property in the course of commercial activities?

Specifically, if the lessor incurred expenses relating to the property, after possession was given to the lessee (and which expenses were incurred by the lessor by virtue of its ownership of the property), would the GST applicable be refundable to the lessor by way of ITC?

(The supply to the lessee is not an exempt supply).

Part B

Does the answer change if the expenses incurred by the lessor are required to be incurred by the lessor under the terms of the lease agreement?

Answer

It is assumed that the lessor is a GST/HST registrant and that the question is whether the lessor can claim an ITC under subsection 169(1) of the Excise Tax Act. In our response, any reference to an ITC means an ITC under subsection 169(1).

Division II tax

Where a supply is made in respect of leased property, and GST/HST is paid without becoming payable or becomes payable in respect of the supply, the ITC under subsection 169(1) may be claimed by the recipient of the supply. Where consideration for the supply is payable under an agreement for the supply, the recipient of the supply is the person who is liable under the agreement to pay that consideration.

If the lessor, either by virtue of ownership of the property or under the terms of the lease agreement, incurs expenses relating to a supply made in respect of the leased property, the lessor would only be entitled to claim an ITC for the tax on that supply if the lessor is the recipient of the supply and provided all other conditions for claiming an ITC have been met.

If the lessee is the recipient of the supply made in respect of the leased property, it is the lessee that would be entitled to claim an ITC for the tax on that supply provided all other conditions for claiming the ITC have been met. If the lessor pays GST/HST in respect of a supply made in respect of a leased property but the lessor is not the recipient of the supply (for example, it is the lessee that is the recipient of the supply), the lessor would not be entitled to claim an ITC for tax on the supply.

Division III tax

Where leased property is imported into Canada and Division III tax is paid in respect of the property, it is the de facto importer (i.e. the person who caused the goods to be imported into Canada) who may claim an ITC for the tax, provided the property is imported for consumption, use or supply in commercial activities of the de facto importer and if all other conditions for claiming the ITC have been met. Whether the lessor is the de facto importer is a question of fact that must be determined on a case-by-case basis.

Q.27 - Export Distribution Centres

A Chinese company wants to set up a North American hub to distribute goods to the United States and Canada. The Chinese company does not know at the time it is establishing its business venture in North America whether 90% or more of the goods will ultimately be sold in the U.S. market. However, the Chinese company can reasonably expect that more goods will be sold in the United States than in Canada and, given the market sizes of Canada and the United States, forecasts 90% or more of its North American sales will be in the United States. The Chinese company is considering the benefits of establishing its business venture in Canada, as opposed to the United States. When considering the issue of the GST, the Chinese company recognizes that it would have to pay GST at the border at the time of importation into Canada. This is a cash flow concern for the Chinese business and considered to be a reason for not establishing its business venture in Canada as it would likely be in a net refund position every month (assume that the company will register for GST purposes).

(i) Does section 273.1 of the ETA provide relief? Assume that there will not be value added services provided in Canada?

(ii) If the Chinese company is granted a certificate, would the Chinese company be penalized if at the end of the year it turns out that only 80% of its revenue was attributable to exports? Looking forward, it would not be beneficial to establish its business venture in Canada if it could be penalized if it underestimates the Canadian market.

(iii) If the Chinese company is granted a certificate and the export sales account for 80% of its revenue, would the certificate be revoked?

Answer

Any registered person who meets the eligibility criteria for the EDC program can apply for an authorization to use an EDC Certificate. Pursuant to subsection 273.1(7) of the Excise Tax Act (ETA), an eligible person must be registered for GST/HST purposes and must be engaged exclusively in commercial activities. In addition, for a person to be authorized to use EDC certificates, it must reasonably be expected that the following three criteria will be met for the fiscal year in which the person wants the authorization to become effective:

The person, in the course of a business carried on by the person, will not engage in the substantial alteration of property in the year. Substantial alteration means manufacturing or producing, or engaging another person to manufacture or produce, property, and any processing undertaken by or for the person to bring property of the person to a state of finished inventory if the person’s percentage value added amounts in respect of finished inventory exceed the value added percentages specified in the legislation.
The person’s percentage value added amounts in respect of customer’s goods will not exceed one of the value added percentages specified in the legislation.
The person’s export revenue percentage for the year will be at least 90%.

These eligibility criteria relate to the registrant applying for the authorization. If the North American hub is an entity separate from the Chinese company and is registered for GST/HST, the hub can apply for the authorization if it meets the criteria. If the hub is not a separate entity, the Chinese company can apply if it is registered for GST/HST and if it meets the eligibility criteria. If for example the Chinese company manufactures or produces goods in the course of a business carried on outside Canada, the company would not be authorized to use an EDC certificate.

Section 273.1 of the ETA contains the relevant definitions for the EDC program, and general provisions regarding eligibility, application, authorization, revocation and cessation. The relieving provisions for persons authorized under the EDC program, are in section 1.2 of Part V of Schedule VI for domestic purchases and section 11 of Schedule VII for importation. Other relevant provisions are section 236.3 and paragraph 217(e).

(i) A registered person that is just starting a new business can apply for authorization to use and EDC certificate beginning in a fiscal year. However, one of the conditions for authorization is that the person must be able to demonstrate that it can reasonably be expected that the person’s export revenue percentage for the year will be at least 90%. The basis on which the expected revenue percentage is made must be reasonable and would generally have to be based on something more specific than the respective market sizes of Canada and the US. All relevant information that an applicant has relied on in arriving at its expected revenue percentage for a year will be considered by Audit in authorizing a person to use an EDC certificate. This could include information such as a list of established customers.

(ii) Where a registrant has been authorized to use an EDC certificate and it is determined at the end of a fiscal year that its export revenue percentage for the year was less than 90%, the registrant is required to add, under subsection 236.3(2) of the ETA, an amount to its net tax for the first reporting period of the following fiscal year. This adjustment to the net tax is not intended to be a penalty, but is rather meant to recapture the approximate cash flow benefit that the registrant obtained by using the EDC certificate where the eligibility conditions were not, in fact, all met during the year.

(iii) Under subsection 273.1(11) of the ETA, a person’s authorization to use an EDC certificate for a fiscal year is deemed to be revoked effective immediately after that year if the person’s export revenue percentage for the year is below 80%. Under subsection 273.1(10) of the ETA, a person’s authorization to use an EDC certificate may also be revoked by the Minister during a fiscal year if it can reasonably be expected that the person’s export revenue percentage for the year will be less than 80%.

Q.28 - Zero-Rated Exports – Services

(i) An estates lawyer prepares a will for a non-resident individual. The Canadian assets include financial instruments (no real property or tangible personal property in Canada). The lawyer takes instructions over the telephone and performs most of the drafting while the non-resident individual is outside of Canada. During the representation, the non-resident individual comes to Canada to (i) meet the lawyer and retain the lawyer or (ii) sign the documents prepared by the lawyer. Is the estates lawyer required to charge GST in respect of his/her fee?

(ii) A family law lawyer prepares a marriage contract for a non-resident individual who plans to marry a Canadian resident. The client of the lawyer is the non-resident individual. Assume that the non-resident individual does not own any real property or tangible personal property located in Canada and that all real property and tangible property owned by the non-resident individual is located in the United States. The lawyer takes instructions over the telephone and performs most of the drafting while the non-resident individual is outside of Canada. During the representation, the non-resident individual comes to Canada to (i) meet the lawyer and retain the lawyer or (ii) sign the documents prepared by the lawyer. Is the family law lawyer required to charge GST in respect of his/her fee?

Answer

Section 7 of Part V of Schedule VI to the Excise Tax Act zero-rates the supply of a service made to a non-resident person but excludes a supply of an advisory, consulting or professional service. A supply of an advisory, consulting or professional service made to a non-resident person is zero-rated under section 23 of Part V of Schedule VI to the Excise Tax Act provided none of the exclusions apply.

(i) In this case, the estates lawyer is providing a supply of a professional service of preparing a will. Considering none of the exclusions apply (in particular, the supply of the service is not in respect of real property or tangible personal property situated in Canada at the time the service is performed.), the supply of the service to the non-resident individual is zero-rated under section 23 of Part V of Schedule VI to the Excise Tax Act.

The fact that the non-resident individual comes to Canada to (i) meet and retain the lawyer or (ii) sign the documents prepared by the lawyer does not affect the zero-rated status of the service. (i) In this case, the family law lawyer is providing a supply of a professional service of preparing a marriage contract. Considering none of the exclusions apply (the non-resident individual does not own any real property or tangible personal property situated in Canada at the time the service is performed), the supply of the service to the non-resident individual is zero-rated under section 23 of Part V of Schedule VI to the Excise Tax Act.

The fact that the non-resident individual comes to Canada to (i) meet and retain the lawyer or (ii) sign the documents prepared by the lawyer does not affect the zero-rated status of the service.

Q.29 - Zero-Rated Exports – Goods

A Canadian registered company sells all of its inventory to a non-resident company that is not registered for GST purposes. The non-resident company plans to export the inventory to the United States and sell the inventory as assets of its existing business located in the United States. One of the many assets sold to the non-resident purchaser is work-in-progress inventory. The agreement provides that the work-in-progress inventory must be finished before export to the United States and, therefore, could be exported within 90 days of the closing date. Can the property be zero-rated under section 1 of Part V of Schedule VI?

Answer

Section 1 of Part V of Schedule VI to the Excise Tax Act zero-rates a supply of tangible personal property made by a person to a recipient (other than a consumer) who intends to export the property provided the restrictions in the provision are met. One of the conditions for the supply to be zero-rated, paragraph 1(d) of Part V of Schedule VI requires that after the supply is made and before the recipient exports the property, the property is not further processed, transformed or altered in Canada except to the extent reasonably necessary or incidental to its transportation. Another condition is that the recipient exports the property as soon after the property is delivered by the supplier to the recipient as is reasonable having regard to the circumstances surrounding the exportation and, where applicable, to the normal business practice of the recipient.

If the agreement between the registered company and the non-resident company is for a supply of finished goods that are to be, and are, exported in accordance with all of the conditions of section 1 of Part V of Schedule VI, the supply of the goods may be zero-rated. However, if the goods supplied by the registered company are to be further processed, transformed or altered in Canada after they are supplied by the registered company and before they are exported by the non-resident company, the supply of the goods will not qualify for zero-rating under section 1 of Part V of Schedule VI.

Q.30 - Interplay Between ETA Section 185 and Division IV

Section 185 provides, in summary, that a registrant may claim an input tax credit with respect to imports or inputs into financial services that relate to the commercial activity of the registrant, by deeming the registrant to have imported or acquired the input for consumption, use or supply in commercial activities.

The definition of “imported taxable supply” in section 217 excludes a service made outside Canada to a Canadian resident who acquired it “for consumption, use or supply exclusively in the course of commercial activities.”

There is no specific reference between section 185 and the definition of “imported taxable supply”.

This could have consequences, for example, in the case of a Canadian resident that received advisory services from a New York brokerage firm on a proposed financing transaction. Assume in this case that the Canadian does qualify under subsection 185(1) – i.e. the financing transaction relates to its commercial activities within CCRA’s policy guidelines – notably P-094 and P-108).

Does the CCRA require that the Canadian resident self-assess GST under Division IV, notably complete and file GST Form 59, and claim the offsetting ITC? Or does CCRA accept that the Canadian resident is not required to self-assess and report a Division IV “imported taxable supply” under these circumstances.

Answer

The definition of “imported taxable supply” in section 217 of the Excise Tax Act (ETA) excludes a supply of a service made outside Canada to a Canadian resident who acquired the supply “for consumption, use or supply exclusively in the course of commercial activities.” Accordingly, a supply of a service for which a registrant could claim a full input tax credit (ITC) would normally be among those types of supplies that are excluded from the definition of “imported taxable supply”. Consequently, a person who is resident in Canada will usually not be required to self-assess with respect to such a supply. However, if a person does receive a supply of a service that fits within and is not excluded from the definition of “imported taxable supply” in section 217, the person is required to self-assess, even if the person is subsequently eligible to claim a full ITC with respect to that service.

If a taxable supply of a service (other than a zero-rated supply) is made to a Canadian resident outside Canada and it is acquired for consumption, use or supply in making exempt supplies of financial services, the supply of the service would not be excluded from the definition of “imported taxable supply” by reasons of subparagraph 217(a)(i). For purposes of applying section 217, the service has not been acquired for consumption, use or supply exclusively in the course of commercial activities of the person, and the deeming provisions in subsection 185(1) of the ETA do not change that fact.

The deeming provisions in subsection 185(1) apply only for the purpose of determining the ITC eligibility of a person (or for purposes of Subdivision d of Division II of Part IX of the ETA with respect to change of use), and not for the purpose of determining whether tax is payable on a service that was acquired or imported by the person and for which an ITC may be available.

Consequently, in the situation described, the Canadian resident must self-assess under Division IV. As a registrant, it must report the GST/HST in its regular GST/HST return, but would be eligible to claim an offsetting ITC, provided the other conditions in section 169 of the ETA are met.

Q.31 - Exclusivity between Exempting Provisions – Rental Accommodation under Part I, Schedule V, Health Care Services under Part II and Personal Care Services under Part IV

We understand that CCRA has concerns that services and accommodations provided at senior care residences should, where the care component has become significant, be viewed as exclusively as a supply of either as an “institutional health care service” under section 2 of Part II, or as a supply of personal care services under section 2 of Part IV. We understand that, accordingly, the operator of the home would not be viewed as making a supply of rental accommodation under section 6 of Part I.

Although the supply to the resident is exempt under any of the above provisions, the owner of the project is not entitled to the new rental residence rebate under ETA section 256.2 unless the supply is viewed as exempt under Part I. At the same time, it is possible that the owner of a new development would still be subject to self-assessment under section 191, because the home would appear to meet the definition of “residential complex”.

Please comment on the status of CCRA’s deliberations on this issue.

Answer

Background

For purposes of our response we have assumed that the senior care residences referred to in Question 31 are residential care facilities that would meet the definition of “health care facility” in section 1 of Part II of Schedule V to the Excise Tax Act (ETA) or would be an establishment as described in section 2 of Part IV of Schedule V to the ETA.

The new residential rental property rebate is generally available to a person who makes supplies of long-term residential rents. Specifically, one of the criteria for the rebate is that the residential unit must be held by the person for the purpose of making exempt supplies that are included in section 5.1, 6, 6.1 or 7 of Part I of Schedule V to the ETA. (The specific exempting section that creates the rebate eligibility depends on the type of residential property being provided).

Operators of residential care facilities, such as nursing homes and personal care homes, make supplies that are exempt under section 2 of Part II, or section 2 of Part IV, of Schedule V to the ETA. These residential care facilities provide a combination of property and services on a continuing basis to individuals who have limited physical or mental capacity for self-supervision and self-care and thus have moderate to heavy care needs that cannot be met in their own homes. In addition to accommodation, residential care facilities are operated for the purpose of providing a significant level of personal care, supervision and assistance with the activities of daily living, as well as social and recreational services and meals. They may also provide medical and nursing care.

If a residential care facility operator makes a supply under section 2 of Part II of Schedule V or another supply outside Part I of Schedule V, the operator may not be eligible for the new residential rental property rebate, despite the fact that an element of the operator’s supply is long term residential accommodation. Further, the operator may be required to self-supply under section 191 upon giving possession of the residential unit to a person for the purpose of the unit’s occupancy by a resident. However, it is unclear whether, in all circumstances, the operator is giving ‘possession’ of the residential unit to the resident.

Issues Being Considered One of the key issues is characterizing the supply for GST/HST purposes based in part on the particular facts and circumstances surrounding the supply. For example:

Is the supply made by the residential care facility operator a single or multiple supply?
Do the self-supply provisions in section 191 apply to residential care facilities?

Single v Multiple Supply

It must be determined whether a residential care facility operator is making a single supply or multiple supplies. If the operator is making a single supply, it must further be determined whether the supply is that of a service, such as a health care or personal care service, a supply of a residential unit in a residential complex or some other type of supply. If the operator is making multiple supplies, it must be determined whether any of the supplies fall under one of the aforementioned exempting provisions.

If the conclusion of the single-multiple supply analysis is that the operator is making a single supply of something other than residential rents, there is, arguably, no manner in which the operator is making a supply under one of the exempting provisions that generate the rebate eligibility. Alternatively, if the conclusion is that there is a single supply of residential accommodation, then it would be possible that elements of this supply would be exempt even where the provisions of section 2 of Part II or Part IV of Schedule V would not apply to the individual elements.

Self-supply of the Residential Complex

Ordinarily, supplies of long-term residential accommodation are made in residential complexes and the rental of the unit is exempt under section 6 of Part I of Schedule V. In this case, the new residential rental property rebate is available where the conditions for a self-supply under section 191 have been met. In cases where long-term residential accommodation is provided in a residential care facility that is not a residential complex, self-supply would not occur and the new residential rental property rebate would not be available.

In certain cases residential care facilities may also be residential complexes. The issue, in this case, is if the accommodation is not exempt under section 6 of Part I, but is an element of another supply that is exempt under a section outside of Part I (e.g. section 2 of Part II of Schedule V) it must be determined whether subsection 191(3) applies as that provision requires that the builder of the complex:

“gives, to a particular person . . . possession of any residential unit in the complex under a lease, licence or similar arrangement entered into for the purpose of the occupancy of the unit by an individual as a place of residence, …”

The CCRA is currently reviewing this issue to determine the extent to the self-supply rules apply to residential care facilities without the new residential rental property rebate being available.

Q.32 - Priority Between ETA 183 and ETA 266

Subsection 183(11) gives priority to the receivership rules in ETA 266 where both sets of rules apply.

Under ETA 266, “receiver” includes a person who «(a) under the authority of a debenture, bond or other debt security, of a court order or of an Act of Parliament or of the legislature of a province, is empowered to operate or manage a business or a property of another person».

Typically, a creditor is “empowered” by its mortgage contract to manage the property in case of a default by the debtor. Does it mean that Section 183 cannot apply in such a case?

For example, if upon default, the commercial property is immediately and voluntarily transferred to the creditor, shall we, by reference to Subsection 183 (9), apply Section 183? The creditor would obtain the property tax-free under Subsection 183 (1) and would be subject to Subsection 183 (2) at time of resale, i.e. would have to collect the tax under its own name.

Or shall we apply ETA 266, as the creditor is a person empowered to operate or manage a business or a property of another person? In such case, the creditor would be deemed to detain the property as agent of the debtor and at time of sale would have to collect the tax as agent of the debtor.

Answer

Section 266 takes priority over the rules in subsections 183(1), (2), and (7) through (9) when the requirements of subsection 183(11) are fulfilled.

More specifically, paragraph 183(11)(a) gives priority to the receivership rules in section 266 where a creditor exercises a right or power to seize or repossess property for the purpose of satisfying in whole or in part a debt or obligation owing by a person (a debtor) and the creditor is, in respect of that property, a “receiver” (within the meaning assigned by subsection 266(1)), while paragraph 183(11)(b) gives priority to the receivership rules in section 266 where a creditor appoints an agent to exercise a right or power to seize or repossess property for the purpose of satisfying in whole or in part a debt or obligation owing by a person (a debtor), and the agent is, in respect of that property, a “receiver” (within the meaning assigned by subsection 266(1)).

Included in the definition of “receiver” under subsection 266(1) is a person who is empowered to operate or manage a business or a property of another person under the authority of a debenture, bond or other debt security, a court order, or an Act of Parliament or of the legislature of a province. Also included in the definition of “receiver” is a person appointed to exercise the authority of the creditor under a debenture, bond or other debt security to operate or manage another person’s business or property (but where such a person is appointed to exercise such authority, “receiver” does not include the creditor).

Whether a person (in your example the creditor) meets these requirements and is, in respect of the property, a receiver for purposes of the Excise Tax Act is a question of fact. As we have not been provided with the details specific to a transaction, including the terms of any security agreement or of any applicable legislation, we are unable to provide a definitive response. However, we would be pleased to review any submissions or representations that you would like to make regarding the application of these provisions to the circumstances outlined in your question.

Q.33 - Seizures and Repossessions

A) A mortgagor seizes an immovable of a debtor who has defaulted. The creditor can then have the immovable sold in a sale by court order or a sale by the creditor. In the event the creditor acquires the property under one of these two situations, would the creditor be required to pay the GST with respect to its acquisition or would the rules of Subsection 183(1) apply and result in no tax on the transaction?

B) If the creditor is the receiver in relation to the immovable, would the answer be the same or can it be claimed that the rule in Subsection 183(1) then applies, if it did not apply before.

Answer

For purposes of this response all references are to the Excise Tax Act.

Part A of the question refers to a mortgagor who seizes an immovable from a debtor. We have assumed that the writer meant a mortgagee (i.e. the creditor) seizes the immovable.

We have assumed that both scenarios (i.e. sale by court order or a sale by creditor) describe instances where a creditor exercises a right under a debt security or applicable legislation to cause the supply of a debtor’s property. Policy P-226 – The Application of the GST/HST to Supplies Made Pursuant to Various Creditor Remedies provides the CCRA’s view that a private power of sale remedy, whether contained in a mortgage or under statute, falls within subsection 183(10). This policy also provides that judicial sales fall within subsection 183(10) on the basis that these are “rights” available to creditors under statute law.

In addition, we have assumed that subsection 183(3) does not apply; that no exemption applies to the supply of the immovable; that the creditor is registered for GST/HST purposes; and that the supply is made in a non-participating province (reference is made to the GST only). Lastly, we have assumed that the creditor is a receiver (within the meaning of subsection 266(1)) in respect of the immovable for purposes of Part B, and that the creditor is not such a receiver for purposes of Part A.

Part A)

Subsection 183(10) generally provides that where, for the purposes of satisfying in whole or in part a debt or obligation owing by a person (the debtor), a creditor exercises a right under an Act of Parliament or the legislature of a province or an agreement relating to a debt security to cause the supply of property, the creditor is deemed to have seized the property immediately before that supply and that supply is deemed to have been made by the creditor and not the debtor. However, these deeming rules will not apply in circumstances where subsection 183(3) applies or where a receiver (within the meaning of subsection 266(1)) has authority in respect of the property.

As subsection 183(3) does not apply to the supply, and as no receiver has authority in respect of the property, subsection 183(10) will apply. As subsection 183(10) applies, subsection 183(1) will also have application.

Paragraphs 183(1)(a) and (b) generally provide that at the time of seizure or repossession of a property, the debtor is deemed to have made, and the creditor is deemed to have received, a supply by way of sale of the property for no consideration (for purposes of Part IX other than sections 193 and 257). Further, subsection 183(2) generally provides that where a creditor has seized or repossessed property in the circumstances in which subsection 183(1) applies, and the creditor makes a supply (other than an exempt supply) of the seized or repossessed property, the supply will be deemed to have been made in the course of a commercial activity of the creditor. Subsection 183(2) also provides that anything done by the creditor in the course of, or in connection with, the making of such a supply (and not in connection with the seizure or repossession) will be deemed to be in the course of the commercial activity.

Given the preceding, the CCRA takes the view that the following has occurred in either of two scenarios presented (i.e. sale by court order or a sale by the creditor):

The creditor is deemed to have seized the immovable from the debtor pursuant to subsection 183(10) and this seizure is deemed to be a supply for no consideration by the debtor to the creditor pursuant to subsection 183(1); and,
The creditor is deemed to have made the subsequent supply of the seized immovable in the course of its commercial activities, pursuant to subsection 183(2).

Given that the supply is deemed to be made in the course of the commercial activities of the supplier (i.e. the creditor), and given the assumption that the supply of the seized immovable is not an exempt supply, GST would apply to the transaction pursuant to subsection 165(1). The creditor as a registered recipient, would be responsible for self-assessing the GST on the supply and for remitting the GST directly to the Receiver General where subsections 221(2) and 228(4) apply.

Part B)

As previously stated, subsection 183(10) generally provides that where, for the purposes of satisfying in whole or in part a debt or obligation owing by a person (the debtor), a creditor exercises a right under an Act of Parliament or the legislature of a province or an agreement relating to a debt security to cause the supply of property, the creditor is deemed to have seized the property immediately before that supply and that supply is deemed to have been made by the creditor and not the debtor. These deeming rules will not apply in circumstances where subsection 183(3) applies to the supply or where a receiver (within the meaning of subsection 266(1)) has authority in respect of the property.

As the creditor is a receiver (within the meaning of subsection 266(1)) who has authority in respect of the property, the deeming provisions in subsection 183(10) will not apply. Rather, section 266 will govern the debtor’s supply of the immovable to the creditor. Among other things, subsection 266(2) generally provides that where a receiver is vested with authority to manage or operate the relevant assets of a person, the receiver is deemed to be the agent of the debtor, and any supply made or received and any act performed by the receiver in respect of the relevant assets of the receiver is deemed to have been made, received or performed by the receiver as agent on behalf of the debtor.

Given the assumption that the supply of the immovable is not an exempt supply, the CCRA views that the creditor, as the receiver and agent of the debtor, has made a taxable supply by way of sale of the immovable to the creditor pursuant to subsection 266(2) and that GST would apply to the transaction pursuant to subsection 165(1). The creditor, as a registered recipient, would be responsible for self-assessing the GST on the supply and for remitting the GST directly to the Receiver General where subsections 221(2) and 228(4) apply.

Q.34 - Section 183 vs. Section 266

If a creditor seizes an immovable and appoints an administrator to collect the rent and look after the maintenance and repairs, the official receiver rules (Section 266) apply and not the rules of Section 183.

If the property that is seized is a moveable rather than an immovable property, which rules (183 or 266) would apply in the following situations:

Inventory is seized and a person is appointed to oversee it.
Inventory is seized and a person is appointed to oversee and sell it.
An automobile is seized and a person is appointed to take possession of it (a towing company), store it and oversee it before it is sold at auction. This person is generally an auctioneer.

Answer

For the purposes of this question, all references are to the Excise Tax Act.

Section 266 takes priority over the rules in subsections 183(1), (2), and (7) through (9) when the requirements of subsection 183(11) are fulfilled.

With reference to the three examples in the question, we have assumed that the creditor has seized the property in each case and that the seizure meets the requirements of section 183.

In the first two examples, where the inventory is seized by the creditor and another person was “appointed” to “oversee the inventory”, and “oversee and sell the inventory”, it is unclear that the requirements of subsection 183(11) are met, and therefore it is unclear whether section 266 would have priority over section 183. In these two examples, it does not appear that either the creditor or the person “appointed” have the authority to operate or manage the property or business of the debtor (i.e. it does not appear that either is a “receiver”, based on the information provided). In addition, even if the person “appointed” by the creditor was a “receiver” empowered to manage and operate the debtor’s business or property, subsection 183(11) would not appear to apply as this person has not been appointed to exercise a right or power to seize or repossess the property (i.e. based on our assumption that the creditor seized the property).

In the third example, the creditor seizes an automobile and appoints an auctioneer to take possession of the automobile (by hiring a towing company to tow the property), and to store and oversee the automobile before the auctioneer sells it at an auction. Once again, it is unclear that the requirements of subsection 183(11) are met, and therefore it is unclear whether section 266 would have priority over section 183. As in the previous examples, it does not appear that either the creditor or the auctioneer have the authority to operate or manage the property or business of the debtor (i.e. it does not appear that either is a “receiver”, based on the information provided). In addition, even if the auctioneer were a “receiver” empowered to manage and operate the debtor’s business or property, subsection 183(11) would not appear to apply as the auctioneer has not been appointed to exercise a right or power to seize or repossess the property (i.e. based on our assumption that the creditor seized the property).

The previous comments are based on the information submitted. In the absence of facts to the contrary, it seems more likely that section 183 would apply. Notwithstanding, if our understanding of the facts is inaccurate, or should you disagree with our conclusions, we would invite you to make a submission (e.g. complete statement of facts and supporting analysis) so that we may examine the question in greater detail.

Q.35 - Section 183 and ITCs

When a creditor seizes a property, no ITC can be claimed with respect to goods and services acquired relating to the seizure. The same is true if a creditor acquires the services of an administrator because such services are acquired to protect and eventually realize its security.

Is it not the same where a creditor hires an auctioneer to take possession of a vehicle, store it, oversee it and finally sell it? In other words, can a creditor claim ITCs for the services of an auctioneer under these circumstances?

Answer

For purposes of this response all references are to the Excise Tax Act.

It is a question of fact whether a creditor’s expenses are in respect of the seizure or repossession of property or the subsequent supply of the seized or repossessed property. We are unable to provide a definitive response to the question, as it is necessary to analyze the nature of the services provided, the timing of the delivery of such services, and under what authority the services are being rendered. The facts of a particular circumstance will determine whether an auctioneer’s services are in respect of the collection of debt (e.g. where the service is an input in the creditor’s seizure of the property) or in respect of the creditor’s subsequent supply of the seized or repossessed property, and whether the auctioneer’s activities relate to pre- or post-seizure periods.

Subsection 183(2) generally provides that where a creditor has seized or repossessed property in the circumstances in which subsection 183(1) applies, and the creditor makes a supply (other than an exempt supply) of the seized or repossessed property, the supply will be deemed to have been made in the course of a commercial activity of the creditor. In addition, subsection 183(2) also provides that anything done by the creditor in the course of, or in connection with, the making of such a supply (and not in connection with the seizure or repossession) will be deemed to be in the course of the commercial activity.

Policy Statement P-175, Costs that fall within the Scope of Subsection 183(2), clarifies that a seizure or repossession includes the act of taking possession of property. Therefore, anything related to taking possession of property would be in connection with the seizure or repossession. As such, costs related to seizing or repossessing property, and costs incurred before the seizure or repossession that relate to making a supply of the property, will not be eligible for input tax credits as they are not considered to have been incurred in the course of, or in connection with, a commercial activity. This may include acquiring legal services to obtain necessary authority to take possession of the property; costs related to the physical removal of the property, etc.

Costs that may be incurred by a creditor solely in the course of, or in connection with, the making of a supply of seized or repossessed property might include selling commissions, legal fees for title search, publicity or advertising costs, post-seizure holding or storage costs and repair or improvement costs. If the supply of the seized asset by the creditor is not an exempt supply, then the creditor will be able to claim input tax credits on inputs acquired after the seizure that are for consumption or use in the course of, or in connection with, the supply pursuant to subsection 183(2).

Lastly, it will also be a question of fact whether the criteria under subsection 177(1.2) are satisfied and whether the auctioneer rules found therein will have application. Given the information provided, we are unable to make a determination in this regard.

Q.36 - Section 183 – Expenses

It is important to make a distinction between expenses related to the supply of a financial service and expenses incurred with respect to the property. In the former case, no ITC is allowed whereas in the second case, ITCs can be claimed by the creditor or for the account of the debtor if Section 266 applies.

There are times when it is difficult to distinguish between these two types of expenses. Could the following principles be applied for this purpose:

A) Assume that we are dealing with a supply of good(s) or service(s) that the debtor would not generally acquire on its own. In this case, the expense would be related to a financial service and no ITC would be available.

Example

A) Legal fees to collect the debt
B) Baliff's fees
C) Valuation of property before seizure
D) Inspection of property
E) Expenses for visiting a vacant property
F) Storage or surveillance fees
G) Towing costs
H) Auctioneer *
I) Winterizing of property J) Environmental study expenses

Even if the expenses of an auctioneer can be related to the sale of the property, they could be more like administrative expenses related to the collection of the debt.

B) Assume we are dealing with a supply of good(s) or service(s) that the debtor itself would generally acquire on its own. In this case, the expense would be related to the property, except for the services of an administrator which are always incurred to protect the debt.

Example

A) Maintenance and repairs
B) Electricity, heating
C) Other expenses of operating the property
D) Advertising for purposes of sale
E) Real estate agent
F) Decontamination costs for purposes of sale
G) Appraisal costs for purposes of sale

In short, we find it difficult to argue that a good or service is acquired for a debtor if the debtor would never have acquired this good or service personally. In this case, arguably the good or service acquired is related to the supply of a financial service.

Answer

For purposes of this response all references are to the Excise Tax Act.

Subsection 183(2) generally provides that where a creditor has seized or repossessed property in circumstances in which subsection 183(1) applies, and the creditor makes a supply (other than an exempt supply) of the seized or repossessed property, the supply will be deemed to have been made in the course of a commercial activity of the creditor. In addition, subsection 183(2) also provides that anything done by the creditor in the course of, or in connection with, the making of such a supply (and not in connection with the seizure or repossession) will be deemed to be in the course of the commercial activity.

Costs that may be incurred by a creditor solely in the course of, or in connection with, the making of a supply of seized or repossessed property include selling commissions, legal fees for title search, publicity or advertising costs, post-seizure holding or storage costs and repair or improvement costs. If the supply of the seized asset by the creditor is a taxable supply, then the creditor will be able to claim input tax credits on inputs acquired after the seizure that are for consumption or use in the course of, or in connection with, the supply pursuant to subsection 183(2). Notwithstanding, section 266 will take priority over the rules in subsections 183(1), (2), and (7) through (9) when the requirements of subsection 183(11) are fulfilled.

Generally, paragraph 266(2)(a) states that the receiver is deemed to be the agent of the debtor, and any supply made or received and any act performed by the receiver in respect of the relevant assets of the receiver is deemed to have been made, received or performed by the receiver as agent on behalf of the debtor. Therefore, to the extent that the creditor, in its capacity as receiver under section 266, incurs expenses that are in respect to the operation and management of the debtor’s business or property, the debtor will be entitled to input tax credits on the tax paid or payable pursuant to sections 169 and 141.01, to the extent that the inputs are acquired, imported, or brought into a participating province for the purpose of making taxable supplies for consideration in the course of a debtor’s commercial activities, as paragraph 266(2)(a) deems the receiver to have incurred such expenses as agent and on behalf of the debtor. Conversely, to the extent that the creditor incurs expenses in respect of its own activities (i.e. in relation to its financial services), input tax credits would not be available.

Whether a creditor or their agent is, in respect of any property or business of a debtor, a “receiver”, and whether the requirements of subsection 183(11) have been met, are questions of fact which can only be determined after analyzing the particular security agreement, relevant statutes and other pertinent information. In addition, it is also a question of fact whether expenses are incurred by a creditor as agent and on behalf of the debtor (i.e. in their capacity of receiver) or whether such expenses are incurred in respect the creditor’s own activities. As we have not been provided with details of the transactions and supporting documentation, we cannot provide a definitive response. However, we would be pleased to review any submissions that you would like to make regarding the application of these provisions.

Q.37 - Section 266 – Instalment Sale

In the case of an instalment sale, a creditor retains ownership until the debt has been fully repaid. Assuming a seizure occurs, is it correct to say in such a case that the receiver rules (Section 266) do not apply because the creditor or administrator cannot act on behalf of the debtor? Can we say that section 183 applies?

Answer

Section 266 takes priority over the rules in subsections 183(1), (2), and (7) through (9) when the requirements of subsection 183(11) are fulfilled.

Whether a creditor or the creditor’s agent is, in respect of any property or business of a debtor, a “receiver”, and whether the requirements of subsection 183(11) have been met, are questions of fact that can only be determined after analyzing the particular security agreement, the applicable statutes and other pertinent information. As we have not been provided with the details specific to any transaction, including the terms of any security agreement, relevant legislation, or any other documents, we are unable to provide a response. However, we would be pleased to review any submissions or representations that you would like to make regarding the application of these provisions to the circumstances outlined in your question.

Q.38 - Place of Supply – Services

The CCRA’s Discussion Paper on Electronic Commerce at pages 60-61(Place of Supply Section) contains the recommendation that a supply of a service be considered to be performed, in part in Canada where:

“the supply involves doing something to or with the recipient’s computers by accessing them from a remote location and the recipient’s computers are in Canada…”

Can the CCRA advise whether this recommendation is still being considered and if so, on what legal and factual basis it relies on in support thereof?

How does this recommendation correspond with a taxpayer’s obligation to withhold income tax under Regulation 105 on fess paid to a non-resident who has rendered services in Canada?

Answer

The discussion paper issued by CCRA contains a number of recommendations on the administration of the GST/HST in an electronic commerce environment. A three month period ending March 1, 2002 was provided to all interested parties to provide feedback on the recommendations in the paper. We will not be making changes to the recommendations until we have received and have had an opportunity to review all comments. A Technical Information Bulletin will be developed after March 1st, 2002 which will incorporate the recommendations in the discussion paper and any changes required to the recommendations as a result of the public consultation process.

At present, there are no GST/HST cases before the courts dealing with services performed through remote access of a recipient’s computer. The above recommendation provides meaning to the words “…the service is, or is to be, performed in whole or in part in Canada…” in the context of supplies (specifically services) provided by electronic means.

The question of whether a service is performed in whole or in part in Canada must take into consideration all of the relevant facts. The recommendations with respect to services and place of supply are intended to provide some guidance on place of performance. It is our view that this approach is a reasonable and appropriate interpretation of the legislation with respect to the remote access and performance of work on a recipient’s computer.

Paragraph 153(1)(g) of the Income Tax Act (Act) and Subsection 105(1) of the Income Tax Regulations require a withholding of 15% from payments of fees, commissions, or other amounts paid to non-resident individuals, partnerships, or corporations, in respect of services rendered in Canada. It is our understanding that in respect of the recommendation on page 61, there would be a requirement to withhold and remit to the Receiver General 15% of a payment to a non-resident for the performance of a service on a recipient’s computer carried out through remote access. The amount withheld is not a definitive tax and in the event that the non-resident is not liable for tax under Part I of the Act, the amount withheld and remitted to the Receiver General may be recovered by the non-resident taxpayer by filing an income tax return in Canada.

Q.39 - Exported R&D Services

If a registrant supplying a non-resident with research and development services such as developing know-how, manufacturing processes or research acquires or produces tangible personal property in order to be able to perform the services, are such services considered to be in respect of tangible personal property in Canada?

For example, a registrant may supply a service of developing the formula for a car wax to be manufactured outside Canada. In developing the know how to make the car wax, the registrant manufactures one or more sample waxes and acquires one or more automobiles to which it applies the waxes to determine their respective qualities. The registrant provides the non-resident recipient with the formula it develops for the car wax. Is the R&D service in respect of tangible personal property situated in Canada?

Would the answer depend on whether the registrant shipped a sample of the wax to the non-resident?

Alternatively, does the CCRA accept that all R&D services supplied to non-registered non-residents are zero-rated under section 10 of Part V of Schedule VI to the ETA?

Answer

If the agreement between the registrant and the non-resident is for the supply of a service of developing know-how, a manufacturing process or research, the service would not generally be considered to be a supply of a service in respect of tangible personal property simply as a result of tangible personal property being acquired or produced in order to perform that service.

With respect to the example provided, if the supply that is to made by the registrant under the agreement with the non-resident is the supply of the formula for the car wax (i.e. know-how), that supply would not be considered to be a supply of a service in respect of tangible personal property situated in Canada. This would be the case regardless of whether the registrant ships a sample of the wax to the non-resident.

A supply of a service may not be zero-rated under section 10 of Part V of Schedule VI of the Excise Tax Act as this provision only zero-rates the supply of intellectual property or a right to use intellectual property, which is considered to be the supply of a certain type of intangible personal property. The supply must also be made to a non-resident who is not registered for a supply to qualify for zero-rating under section 10 of Part V of Schedule VI.

The supply by the registrant of the formula for the car wax in the example would not be considered to be a supply of intangible personal property if the registrant is not retaining any property rights to the formula, but rather a supply of a service.

Q.40 - Voluntary Disclosures

It is understood that the CCRA has been looking into the issue of how far back a taxpayer must pay GST-related arrears in a voluntary disclosure. When this issue was raised with the Department of Justice in October 2000, the CBA was advised that the normal practice was that payment need only be made for the last 4 years, unless the CCRA had already initiated an internal review of the taxpayer of which the taxpayer was not aware, in which case a longer period of accounting and payment may be required (the disclosure would still be voluntary, however, because the taxpayer was not aware of the CCRA’s internal review). Please confirm where the CCRA stands on the issue.

Answer

The CCRA is reviewing the issue of how VDP officers should be guided in determining the number of years or periods to assess once a disclosure has been made.

VDP officers make the determination of the number of years or periods to assess based on the particular facts of each case and on a full disclosure by the client. There is no limitation on the number of years that may be included in a disclosure. All affected non-statute-barred years will be adjusted, and statute-barred years may be adjusted where the VDP officer is of the opinion that the minimum standard of carelessness or neglect applies to the omission.

Q.41 - Confirmation that GST Form 502 in Error

Under the scheme of the ETA, where an agent makes a taxable supply of property (other than by auction) on behalf of a principal, it is generally the principal who is required to account for the tax collectable on the supply of the property. Subsection 177(1.1) however, allows an agent and principal to jointly elect to have the agent account for the tax due on supplies made by it on behalf of the principal. Where such an election is made, subsection 177(1.1) provides that the agent and principal are jointly and severally liable for a failure to account for or remit the tax.

Subsection 177(1.2) specifically addresses auctioneers and provides that the auctioneer and not the principal is required to account for tax on supplies of property made via auction. Subsection 177(1.3) however, allows an auctioneer and principal in certain circumstances to jointly elect to have subsection 177(1.2) of the ETA not apply such that the principal becomes liable to account for the tax on supplies of prescribed property made via auction. In contrast to subsection 177(1.1) of the ETA, subsection 177(1.3) does not impose joint and several liability on the electing parties.

If an agent and principal wish to jointly elect under subsection 177(1.1) of the ETA, they must do so by completing the prescribed form GST 506 Election and Revocation of an Election between Agent and Principal. Similarly, if an auctioneer and principal wish to make an election as per subsection 177(1.3) of the ETA, both parties must complete the prescribed form GST 502 Election and Revocation of an Election between Auctioneer and Principal. Part C of form GST 502 contains the following wording “I…certify that the information given on this form and in any attached document is, to the best of my knowledge, true, correct, and complete in every respect, and that I am authorized to sign on behalf of the auctioneer/principal making this election. I agree that the principal and auctioneer in this election are jointly and severally liable for all obligations that arise upon or as a consequence of the tax becoming collectible, or any failure to account for or remit the tax”.

Can you confirm that the CCRA does not consider the parties to an election under subsection 177(1.3) of the ETA to be jointly and severally liable, notwithstanding Form GST 502 includes words to that effect in Part C – Certification of Election?

Assuming the CCRA does consider that the parties are not jointly and severally liable, can you please state whether Form 502 will still be considered a prescribed form if such wording is crossed out by the parties signing the election.

Answer

CCRA does not consider the parties to an election under subsection 177(1.3) of the ETA to be jointly and severally liable. We will accept GST Form 502, Election and Revocation of an Election Between Auctioneer and Principal, if the parties signing the election cross out the wording regarding this liability.

We are in the process of removing the statement that refers to this joint and several liability from the election form. The electronic version of the form on our website has been amended.

Q.42 - Input Tax Credits for Takeover Costs

The CCRA previously has indicated that ITCs generally will not be available for costs incurred by a target corporation in the course of a takeover by another corporation, where the target corporation was not legally required to incur the expenses pursuant to relevant corporate legislation. This policy appears to directly mirror the CCRA’s policies for non-deductibility of such costs under the Income Tax Act (Canada) (“ITA”).

The denial of ITCs in these circumstances appears unreasonable. The test for availability of ITCs (generally, use in the course of commercial activities) is significantly broader than the tests for deductibility under the ITA (generally, incurred for the purpose of earning income from a business or property, and not on account of income). For public corporations and many larger private corporations, planning for and dealing with takeover bids are part of the ordinary business undertakings of such corporations.

A) Does the CCRA agree that ITCs should be available to corporations that, in the ordinary course of business, plan for the possibility or eventuality of corporate mergers, acquisitions and takeovers and that are exclusively engaged in making taxable supplies?

B) Does the CCRA agree that section 185 could apply to permit the target corporation to claim ITCs where the target is neither a listed financial institution nor a financial institution and the target corporation is exclusively engaged in making taxable supplies?

C) Could the ITCs be claimed by the target corporation even in the event the takeover was not successful and there were no transfers of shares of the target corporation?

Answer

A) Generally, subsection 169(1) of the Excise Tax Act (ETA) permits a registrant to claim input tax credits (ITCs) in respect of GST/HST paid or payable on the acquisition, importation or bringing into a participating province of property or services to the extent the property or services were acquired, imported or brought in for consumption, use or supply in the course of commercial activities of the person, where the other requirements of section 169 are met.

Section 141.01 reinforces and clarifies that businesses must look to the purpose of acquiring a particular input for consumption or use and how it relates to the business’s activities in determining their eligibility to claim an ITC. Only if and to the extent that inputs are consumed or used or acquired, imported or brought in for consumption or use, for the purpose of making taxable supplies for consideration in the course of the registrant’s endeavour will the registrant generally be eligible to claim an ITC for the related GST/HST.

Paragraph 141.01(2)(a) deems a person to have acquired, imported or brought in the property or service for consumption or use in the course of commercial activities of the person to the extent that the property or service is acquired, imported or brought into the province by the person for the purpose of making taxable supplies for consideration in the course of the person’s endeavour.

Paragraph 141.01(2)(b) deems a person to have acquired, imported or brought in the property or service for consumption or use otherwise than in the course of commercial activities of the person to the extent that the property or service is acquired, imported or brought into the province by the person for the purpose of making supplies in the course of that endeavour that are not taxable supplies made for consideration, or for a purpose other than the making of supplies in the course of that endeavour. Subsection 141.01(3) is similar to subsection 141.01(2), but pertains to the actual consumption or use of properties or services, rather than the intended consumption or use. This provision is pertinent to provisions of Part IX of the ETA that are dependent on whether and to what extent properties or services are, at a given time, consumed or used in commercial activity.

In response to a takeover bid, a target corporation may acquire, import or bring into a participating province property or services in fulfilling its obligations under a securities or corporations act in order to produce circulars for shareholders concerning the takeover bid. It is our position that these inputs are generally considered to be acquired, imported or brought in for the purpose of making supplies for consideration in the course of the target corporation’s endeavour for the purposes of section 141.01. These inputs generally include legal and accounting services, advisory services related to fairness opinions (valuation reports), printing and mailing services. Consequently, to the extent that the target corporation is engaged in commercial activities, the corporation is eligible to claim ITCs in respect of tax paid or payable on these inputs related to producing the circulars, provided the other conditions of section 169 are met.

The above information applies to a target corporation's ITC eligibility with respect to inputs acquired, imported or brought in to fulfill the target corporation's legal obligations to produce circulars for shareholders concerning takeover bids. To determine whether the target corporation is eligible to claim any ITCs with respect to other inputs acquired, imported or brought in with respect to the same takeover bid, it is again necessary to determine the purpose for acquiring, importing or bringing in the particular input.

For example, in order to maximize the amount for which the target corporation’s shares are sold, the target corporation acquires professional advisory services in response to a takeover bid to assist in the identification and review of the options available to accomplish this goal. In this situation the target corporation would not be eligible to claim ITCs related to these services, as they have not been acquired for consumption or use in the course of making taxable supplies for consideration in the course of its endeavour.

B) Subsection 185(1) of the ETA deems, for the purpose of determining an ITC and for purposes of Subdivision d of Division II of Part IX of the ETA (generally related to the change of use of capital property), property or services acquired, imported or brought into a participating province by the registrant for consumption, use or supply in the course of making supplies of financial services that relate to commercial activities of the registrant to be for consumption, use or supply in the course of those commercial activities. Thus, for subsection 185(1) to apply to a particular input acquired, imported or brought into a participating province by a registrant target corporation that is not a financial institution, it must be determined whether a particular input is acquired, imported or brought in by the target corporation for consumption, use or supply in the course of making supplies of financial services. Then, it must be determined if the supplies of financial services relate to the target corporation’s commercial activities. It is necessary to examine the particular fact situation to determine if these two conditions are met with respect to a particular input.

C) Where the target corporation’s eligibility to claim an ITC related to a particular input is based only on the purpose of acquiring, importing or bringing in the particular input for consumption or use and not on the actual use of the input then the success of the takeover would not normally affect the target corporation’s eligibility to claim an ITC. However, where the target corporation’s eligibility to claim an ITC related to a particular input is affected by how the input was actually consumed or used in the target corporation’s commercial activity (e.g., capital property subject to the change-in-use provisions) then the success of the takeover may affect the target corporation’s eligibility to claim an ITC.

Q.43 - Supplies made in Canada – Satellites

A) Would the CCRA consider the sale of satellite transponders to be a supply made in Canada when, at the time of sale, the satellite was in a fixed orbit above the equator but with an ‘orbital slot’ (i.e., designation) assigned to Canada?

B) What if the transponders are leased rather than purchased?

C) What if the satellite was in orbit above Canadian territory at the time the transponders were leased or purchased?

D) What if the satellite enters and exits the skys above Canadian territory on a regular basis? Does the determination depend on where the satellite is at the precise time of the supply?

Answer

A) No. In these circumstances, the supply by way of sale of a satellite transponder is not considered to be made in Canada where the transponder is delivered or made available on a satellite that is in orbit.

The satellite that is in orbit is located in outer space. It is the CCRA’s position that the definition of Canada for GST/HST purposes is limited to the airspace above Canada’s soil and the submarine areas referred to in paragraph 123(2)(a) of the Excise Tax Act (“the Act”). As such, the satellite is located outside Canada.

The sale of a transponder is a supply of tangible personal property by way of sale. Paragraph 142(2)(a) of the Act provides that where tangible personal property supplied by way of sale is delivered or made available outside Canada to the recipient of the supply, the supply is deemed to be made outside Canada. Where the transponder is delivered or made available to the recipient on the satellite itself and the satellite is located outside Canada, the supply of the transponder is deemed to be made outside Canada.

B) In these circumstances, the supply by way of lease of satellite transponders would not generally be considered as being made in Canada.

We understand that a transponder is a combination of equipment required to amplify signals received by a satellite for the purpose of re-transmitting those signals to earth. We consider the “transponder” to be a “telecommunication facility”, as defined under subsection 123(1) of the Act, given that it appears that the transponder is capable of being used for telecommunications.

A “telecommunication service” as defined under subsection 123(1) of the Act includes the making available of a “telecommunication facility” of a person who carries on the business of supplying services of “emitting, transmitting or receiving signs, signals, writing, images or sounds or intelligence of any nature by wire, cable, radio, optical or other electromagnetic system, or by any similar technical system”. Where the supply is a “telecommunication service”, the supply of making telecommunications facilities available is not deemed to be made in Canada pursuant to paragraph 142.1(a) of the Act where the facilities, or any part thereof, are not located in Canada.

Where the supply is not a telecommunication service, the relevant place of supply rules are paragraphs 142(1)(b) and (2)(b) of the Act. They provide that the supply of tangible personal property otherwise than by way of sale is deemed to be made in Canada where possession or use of the property is given or made available in Canada to the recipient, or outside Canada where such possession or use is given or made available outside Canada. Based on the question, it appears that the use or possession of the transponder is given or made available on the satellite, which is outside Canada. Therefore, the supply of the transponder is deemed to be made outside Canada pursuant to paragraph 142(2)(b) of the Act.

C) The supply of a transponder on board the satellite, by way of lease or sale, would not be considered as having been made in Canada, for the reasons explained in the answers to questions A and B.

D) The supply would be deemed to be made outside Canada, even if the satellite is above the Canadian territory at the precise time of the supply, for the reasons explained in the answers to questions A and B.

Q.44 - Supplies made in Canada – Satellites (Services)

How does the CCRA characterize and treat services rendered in Canada by a Canadian resident supplier to a Canadian resident purchaser of services relating to operation of, and transmission of electronic signals by, a satellite in orbit above the equator? Above Canada?

Answer

The answer depends on the nature of the service and on whether the service would be considered a “telecommunication service” under subsection 123(1) of the Excise Tax Act (the Act).

A service relating to the operation of a satellite, i.e., the service of keeping the satellite in correct orbit and functioning appropriately, is not necessarily a “telecommunication service”. The transmission of electronic signals to maintain the satellite’s orbit is the method used to supply the service, but does not constitute the service itself. Also, such a service does not necessarily imply the making available of a “telecommunication facility”. Based on the information provided, it does not appear that the service meets the definition of a telecommunication service.

Where the service is not a “telecommunication service”, the service is subject to the place of supply rules for services in section 142 of the Act. Where at least a part of the service is performed in Canada, the service is deemed to be made in Canada pursuant to paragraph 142(1)(g) of the Act. In this situation, since the service of keeping the satellite in orbit and functioning appropriately is performed in Canada, the service is deemed to be made in Canada.

Where the service is a “telecommunication service”, it is subject to the place of supply rules provided for such services in section 142.1 of the Act.

Q.45 - ITCs for Importers

Would the CCRA please provide an update concerning the status of its deliberations concerning availability of ITCs for an importer of record that is not the “de facto importer” of goods into Canada?

Answer

Our interpretation regarding who can claim an ITC for Division III tax has not changed and we do not envisage changing our current interpretation unless the legislation is amended. Also, the Department of Finance is aware of this interpretation and consequential issues that have been raised with respect to the claiming of ITCs in respect of imported goods.

In respect of tax paid under Division III on importation of goods, it is generally the de facto importer that may claim an ITC provided that the goods are imported for consumption, use or supply in the course of its commercial activities and other conditions for claiming an ITC are met.

Where a registered supplier makes a supply of goods and the goods are delivered or made available outside Canada to the recipient of the supply but the supplier is shown as the importer of record, the supplier would not be considered to be the de facto importer in respect of these goods and would not be entitled to claim an ITC for Division III tax paid.

Q.46 - Characterization of Raw Land

The characterization of real property that is, for example, raw land may be difficult in particular circumstances. If we accept that a particular parcel of land (“Blackacre”) is held on income account, there can be uncertainty as to whether the land is held “in the course of a business” or “in the course of an adventure or concern in the nature of trade”. That being the case, will the CCRA accept a GST Form 22 election filed after the sale takes place, notwithstanding Visser v. The Queen, [1994] G.S.T.C. 75?

Answer

The CCRA’s policy position with respect to the filing of this election is stated in Memorandum Series 19.4.1 paragraph 6, which states that the form must be filed with the CCRA, before the supply to which it relates is made.

This policy is consistent with the wording in subparagraph 9(2)(b)(ii) of Part I of Schedule V to the Excise Tax Act (ETA), as follows:

9(2) A supply of real property made by way of sale by an individual…., other than

(b) a supply of real property made ….

(ii) where the individual…has filed an election with the Minister in prescribed form and manner and containing prescribed information, in the course of an adventure or concern in the nature of trade of the individual…

(emphasis added)

It is the CCRA’s view that the wording in subparagraph 9(2)(b)(ii) is clear, requiring that the election be made in respect of a particular property prior to the person making a supply by way of sale of the property. Therefore, the CCRA concurs with the decision of the Tax Court of Canada in Visser .

With respect to the issue of distinguishing whether a particular sale of raw land (or other real property) by an individual or a personal trust occurs in the course of an adventure or concern in the nature of trade or a business, the CCRA has published guidelines in Appendix C of Memorandum 19.5 – Land and Associated Real Property. In addition, the matter of distinguishing between a sale in the course of a business versus an adventure or concern in the nature of trade can usually be determined in advance of the sale of a particular real property. As a result, the vendor or his representative may have an opportunity to obtain a ruling or interpretation as to the characterization of a sale of the property. Note, that in the case of a ruling, such a determination would be primarily one of fact. In this case the CCRA reserves the right not to issue a ruling where all the pertinent facts cannot be established at the time of the request for the GST ruling.

Q.47 - Zero-rated Custodial Services

Pursuant to section 17 of Part V of Schedule VI to the ETA, a custodial service supplied to a non-resident in respect of securities of the non-resident is zero-rated.

If a non-resident custodian of securities retains a Canadian registrant to provide custodial services in respect of securities owned by the custodian and securities owned by the custodian’s non-resident clients, will the services provided by the Canadian registrant be zero-rated under section 17 of Part V of Schedule VI to the ETA?

Answer

The supply to the non-resident of custodial services in respect of the custodian’s securities will be zero-rated. The supply from the Canadian registrant to the non-resident custodian of custodial services in respect of securities owned by the custodian’s non-resident clients will be taxable.

Q.48 - Execution of Drop Shipment Certificates

A registrant enters into a transaction in which the supply is in all respects consistent with the requirements for the application of subsection 179(2). However, the drop-shipment certificate in respect of the supply is not signed by the consignee until several months after the particular supply in question.

The drop-shipment certificate is subsequently signed under a current date with an effective date as of the day of the supply.

Question

In the foregoing circumstances where all the conditions for the operation of subsection 179(2) are otherwise satisfied, will the CCRA accept that drop-shipment certificates which are signed after the day of the particular supply continue to be valid.

Answer

In the circumstances described, the CCRA will accept a drop shipment certificate that is signed after the day on which the particular supply is made as valid for purposes of subsection 179(2) of the Excise Tax Act, provided all of the conditions of the provision are otherwise satisfied.

As is normally the case, the drop shipment certificate must state the consignee’s name and registration number and contain an acknowledgement that the consignee, on taking physical possession of the property, is assuming liability to pay or remit any amount that is or may become payable or remittable by the consignee under subsection 179(1) or Division IV in respect of the property.

Q.49 - Application of Section 222.1

A registrant which has made a taxable supply that gives rise to an account receivable enters into an arrangement whereby accounts receivable are pooled in an S.P.V. under a securitization arrangement and co-ownership interests in the pool of receivables are sold to third party investors although a portion of the pool continues to be held by the registrant.

Question

Can the recipient of a co-ownership interest rely on the relief in section 222.1 pro rata to their interest in the receivables which have been sold or does the fact that the registrant has retained a percentage interest in the receivables which have been pooled prevent the operation of section 222.1.

Answer

Section 222.1 of the Excise Tax Act (ETA) applies, for purposes of sections 222, 225, 225.1 and 227, where a person who makes a taxable supply that gave rise to an account receivable supplies the debt by way of sale or assignment. It is our understanding that when an account receivable has been pooled into an SPV, that there is a sale of the account receivable to a trust. Based on this understanding, section 222.1 of the ETA would apply to the sale of the account receivable to the trust.

Pursuant to section 222.1of the ETA, the person who sold the accounts receivable to the trust is deemed to have collected, at that time, the amount, if any, of the tax in respect of the taxable supply that was not collected by the person before that time, and any amount collected by any person after that time on account of the tax payable in respect of the taxable supply is deemed not to be an amount collected as or on account of tax.

Where the account receivable has been pooled in an SPV under a securitization arrangement and co-ownership interests in the pool of receivables are sold to third party investors, it is an interest in these debts that is being transferred and not the actual debt itself. As such, section 222.1 of the ETA would not apply to the subsequent sale of the co-ownership interests by the trust.

Where the situation arises that the accounts receivable are pooled and a co-ownership interest in the pool of receivables is sold to a trust, section 222.1 of the ETA would appear not to apply. It is our view that the current wording of section 222.1 of the ETA applies only where a debt is transferred outright by way of sale or assignment, and the sale of a co-ownership interest in a debt does not constitute the actual sale of the debt.

Q.50 - Appeals Protocol

The CCRA has announced in the past that there is a formal Appeals Protocol for handling GST Appeals. The CBA was also advised by the Department of Justice, for example, that anyone who has been assessed for Director’s liability has the right to have their Objection reviewed by a Department of Justice lawyer. The Appeals Protocol, together with all the related rules and policies, is not widely distributed. Can the CBA be provided with an overview of the entire Protocol and all related policies?

Answer

There is a formal protocol between the Compliance Programs Branch and the Appeals Branch that outlines the roles and responsibilities of Appeals officers and CCRA auditors in the resolution of objections. Copies of the protocol may be obtained from the CCRA Tax Services Offices (as well, a number of copies of the protocol were made available to attendees for their information and guidance).

In particular, the protocol provides that Appeals officers will keep taxpayers informed of any discussions with auditors in the course of resolving an objection to ensure that the process is fair, open and transparent. In addition, the protocol further provides that an auditor will review additional information at the request of the Appeals officer and with the knowledge of the taxpayer, particularly when this information is extensive or was not produced at the time of the audit, and will advise the Appeals officer in writing, who will then make the decision.

The process for resolving GST objections is set out in pamphlet RC 4168: Resolving your Dispute: A more open, transparent process. Copies of the pamphlet may be obtained from local CCRA Tax Services Offices or electronically at the following address http://www.ccra-adrc.gc.ca/E/pub/cp/rc4168eq/README.html. (Copies of the pamphlet were made available to attendees for their information and guidance).

Department of Justice lawyers are no longer involved regarding Director’s liability issues prior to the issuance of the notice of assessment. However, a director who objects to such an assessment on the basis that he/she exercised due diligence, may request that an Appeals officer consult Justice counsel regarding the merits of the due diligence submission. Appeals officers will consult Justice counsel in appropriate cases.

Q.51 - Section 156 Retroactive Election

It is understood that the CCRA has now determined that the s.156 election can be made retroactively, provided the parties have carried on their relationship as if the election was in place – see CBA Question #43 from last year. Where has this been publicly stated by the CCRA, so that it can be referenced in the future?

Answer

The Canada Customs and Revenue Agency’s (CCRA) position regarding the timing requirements with respect to making an election under section 156 is outlined in a letter dated August 28, 2000 (Case 30915). It is possible to access this severed letter by way of a subscription service available through tax publishing houses.

The letter states: “The parties may make the election at any time, as the relevant legislative provision states that the parties must specify the effective date of the election but does not impose any limitations as to the time of making the election. In their election form, they may specify an effective date that is before the date of execution of the form.

If the parties have conducted themselves as if an election were in place (and if the conditions for making the election are met at all relevant times), then it is possible that a valid election may be made which would apply to a transaction which has already occurred, if the election form specifies an effective date that is prior to the date of the transaction.”

Although it is not necessary to file the completed election form with the CCRA, it must be kept in the books and records of the members that made the election.

Q.52 - Technical Interpretations

One Rulings/Interpretations Officer in Southern Ontario recently indicated that technical interpretations are no longer being given on a no-names basis. In other words, an advisor can no longer write in and request an interpretation of the ETA in the context of a particular situation if specific names of parties are not provided. For example, an advisor might want to get some comfort, on a no-names basis, about whether a certain situation qualifies for the joint venture election, or whether an input tax credit might be available in a particular situation. The Rulings Officer indicated that the CCRA has stopped providing non-binding technical answers in such cases and will only provide responses like “the situation will be governed by sections A, B and C”, or “enclosed is a copy of New Memorandum X.1 which deals generally with this situation”. Is this correct? If so, this new policy would seem to take away a very significant source of information to taxpayers and their advisors.

Answer

There has been no policy change in the manner in which the CCRA provides GST/HST interpretations. Our policy for issuing GST/HST interpretations and rulings is outlined in GST/HST Memorandum 1.4, Goods and Services Tax Rulings (September 1994).

Unlike GST/HST rulings, GST/HST interpretations do not relate to specific transactions or persons. They provide the CCRA’s view on how the legislation applies to generic fact situations or discuss certain interpretative issues. When requesting an interpretation, it is unnecessary to provide detailed information about a particular transaction, but it is still important to provide sufficient information to allow a clear understanding of the issues to be considered. Furthermore, there is no requirement in Memorandum 1.4 that the names of the parties to a transaction be disclosed in the case of a request for a GST/HST interpretation. Therefore, where a person’s advisor requests an interpretation without disclosing the names of the parties involved, the CCRA will provide one.

The CCRA does not consider itself bound by it interpretations. Consequently, where certainty is required in applying the legislation to a particular transaction, a ruling should be requested as opposed to an interpretation. Memorandum 1.4 will be updated to provide clarification on the distinction between the two products.

Q.53 - Wash Transaction on Importations

The CBA’s Question # 18 from last year’s meeting dealt with wash transaction relief for imports. The CBA was told last year at the meeting that the matter was being actively reviewed and looked promising, although the written response merely indicated that the matter was being considered. What is the current status of the issue.

Q.54 - Partnership Policies

In its answer to Question #14 from the February 24, 2000 CBA/CCRA Meeting, the CCRA indicated that the CCRA was in the process of researching and developing an administrative policy regarding partnerships. The application of GST to partnerships and their partners continues to pose real practical problems. When can we expect something formal (e.g., a Memorandum or Policy Statement from the CCRA on this issue. In the meantime, can we receive an update as to some of the issues the CCRA is considering.

Answer

In response to this issue we have prepared a draft GST/HST policy statement concerning the interpretation of the phrase “anything done by a person as a member of a partnership” in subsection 272.1(1) of the ETA. The draft policy statement is still at the discussion stage and should be available for your comments in the next few weeks.

According to this draft policy, the determination of whether a general partner does something as a member of a partnership for the purposes of subsection 272.1(1) of the ETA depends on the particular provincial partnership law and the facts of a particular situation. Factors to consider include, but are not limited to, the following.

The terms of the partnership agreement.
The nature of the action undertaken by the partner.
The partner’s ordinary course of conduct.

Other issues that have been raised in past discussions and which are currently under review include, concerns about GST/HST being incurred on distributions of partnership property where subsection 272.1(7) of the ETA applies, and also under subsection 272.1(4) of the ETA in situations where for example subsection 98(3) of the Income Tax Act applies, and whether subsection 177(1.1) of the ETA can apply in a partnership context.

Q.55 - GST Section 167 Election

Does the CCRA apply the “necessary assets” test from the perspective of “any purchaser” or “the particular purchaser” who is party to the agreement?

In particular, the section 167 election is available where, among other things, “under the agreement for the supply, the recipient is acquiring ownership, possession or use of all or substantially all of the property that can reasonably be regarded as being necessary for the recipient to be capable of carrying on the business or part as a business”.

For example, a purchaser is acquiring a services business from the vendor. Under the agreement, a purchaser is acquiring every asset it needs to carry on the very same business of the vendor; namely, a third party customer list, employees, books and records. The purchaser does not need the vendor’s technology, premises, computers, property, etc. It might be the case that a different purchaser might well need these latter assets; however, from the vendor’s perspective, they are getting out of the business, this business will cease to be carried on by them, there will be nothing left with them that should otherwise be part of this business. And, as of the closing date, the purchaser will be able to and will in fact operate the business formerly operated by the vendor.

Given the foregoing, can the purchaser and vendor make the section 167 election on the basis that the assets not being acquired by the purchaser are not “necessary” to this purchaser?

Answer

It is a question of fact whether a supply meets the requirements of subsection 167(1) of the Excise Tax Act (ETA), including the following two tests: first, the supplier is supplying a business or part of a business that was established or carried on by the supplier or by another person and acquired by the supplier and, second, the recipient is acquiring, under the agreement, ownership, possession or use of all or substantially all (90% or more) of the property that can reasonably be regarded as being necessary for the recipient to be capable of carrying on the business or part as a business. Policy statement P-188 provides information concerning the application of the provision and whether a supply meets these two tests.

To meet the first test, it is necessary that the vendor supply a business or part of a business. Policy Statement P-188 indicates that the assets of a business generally include real property, equipment, inventory, and intangibles such as goodwill. 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.

In the situation described, the purchaser is only acquiring a third party customer list, employees and books and records under the agreement. As only a few assets are being supplied, it is questionable whether the vendor is making a supply of a business. A detailed review of the transaction, the facts related to the transaction and the nature of the business is required in order to determine with certainty whether the vendor is supplying a business. Only if it is determined that the vendor is supplying a business is it necessary to consider the second test.

To meet the second test it is necessary to examine the property acquired by the recipient under the agreement when determining whether the recipient is acquiring ownership, possession or use of all or substantially all of the property that is reasonably necessary for the recipient to be capable of carrying on the business or part as a business, as indicated above. The recipient must be capable of carrying on the business with the property acquired under the agreement or, where certain property is not acquired under the agreement which is required to carry on the business, this property must fall within the remaining general margin of 10 % of the fair market value of all the property required.

In the situation described, the purchaser is not acquiring the vendor’s technology, premises, computers, and other property that the vendor used to carry on the business. Although it is a question of fact, it is unlikely in the described situation that the purchaser will be considered to be acquiring, under the agreement, all or substantially all of the property reasonably necessary for the purchaser to be capable of carrying on the same kind of business that was carried on by the supplier. However, a detailed review of the transaction and the nature of the business is required in order to make this determination.

Where either test has not been met, the vendor and purchaser may not elect under subsection 167(1) of the ETA to have subsection 167(1.1) apply to the supply by the vendor to the purchaser.

Q.56 - GST and Agency

A GST registered company based in the U.S. sells goods to Canadian customers on a landed basis (the U.S. company acts as importer of record of the goods). The supplier has a sister company which is also GST registered, based in the U.S., and sells goods to Canadian customers on a landed basis. The two companies decide to implement a “one customer one invoice” policy so that only one company will invoice for goods sold by both companies.

A) Can the two companies make the election pursuant to subsection 177(1.1) based on the information provided?

B) If not, would the election be available if the two companies enter into an “agency” agreement whereby one company is explicitly granted the authority to invoice customers on the principal’s behalf?

C) Once the election is made, the principal will continue to incur GST but will not have any GST collections. Please confirm that the principal continues to be engaged in commercial activities and as a result may continue to claim input tax credits and file net tax refund claims.

Answer

A) Subsection 177(1.1) of the ETA does not apply. Generally this election permits an agent who makes a supply (otherwise than by auction) on behalf of a principal, who is required to collect tax in respect of the supply, to elect jointly with the principal to account for the tax collectible on the supply as if the tax were collectible by the agent.

One of the qualifying requirements of this election is that one of the parties to the election acts as agent in making a supply on behalf of a principal. In the scenario presented, the sister companies agree to have one company act on behalf of the other in issuing the invoice and not in making the supply to the customer.

B) No, an “agency” agreement for the invoicing of customers does not meet the criteria for this election.

C) An election made under subsection 177(1.1) of the ETA provides flexibility regarding the accounting of the GST/HST related to the supplies made by the principal. The provision does not deem the agent to be the person making the taxable supply. It is the principal who is making the supply.

As a result of making the election, the principal’s commercial activity does not change. Where the conditions for claiming input tax credits (ITCs) are met, the principal may claim its ITCs and, depending on its net tax, obtain a net tax refund. The tax collectible by the principal is accounted for by the agent in its net tax calculation. The principal and agent are jointly and severally liable for all obligations relating to the tax becoming collectible or any failure to account or remit the tax.

Q.57 - GST and Imports

Please confirm the CCRA’s refund procedures in the following circumstances (i.e., whether the Customs Act or ETA (or both) procedures are applicable and which forms/support need to be filed):

A. Claimant is GST registered person:

1. Claim relates to “valuation” and involves customs duties and GST 2. Claim relates to “valuation” and involves only GST 3. Claim relates to “other than valuation” issues and involves customs duties and GST 4. Claim relates to “other than valuation” issues and involves only GST

B. Claimant is not registered for GST purposes:

Also, please provide the legislative authority for the different treatment of GST registrants and non-registrants in applying the rules respecting GST overpayments on imported goods?

In particular, the CCRA has stated that it will refund duties and GST to non-registered claimants who file under the Customs Act. However, GST registrants do not get a GST refund in such circumstances, but are required to apply separately for the GST refund and in particular are directed to file a GST Form 189 (i.e., the form prescribed for purposes of the rebate provisions of the ETA). However, at least in the case of valuation-related refund claims, the CCRA policy appears to be inconsistent with the express terms of the ETA, in particular subsection 216(6) and section 263.

Answer

Generally, subsection 216(6) of the Excise Tax Act (ETA) provides for the payment of a rebate of an amount determined to have been paid as excess tax pursuant to an appraisal or a further re-appraisal of the value of imported goods or a determination of the tax status of goods. Payment of the rebate is subject to section 263 and the provisions of the Customs Act that relate to the payment of refunds of excess duties and interest on such refunds apply, with such modifications as the circumstances require, as if the rebate of the excess tax were a refund of duty.

The procedures to recover an overpayment of GST on imported goods as set out in the circumstances described in the question are as follows:

In the case of a GST/HST registrant, if the claim either relates to an appraisal of the value of the imported goods or a determination of the tax status of the goods, the registrant should file Form B2. This is regardless of whether the claim involves both duties and GST or simply GST. Once the B2 request has been approved, the registrant may file form GST 189 General Application for Rebate of Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to recover the overpayment of GST, provided an ITC has not been claimed by the registrant for the amount. The B2 decision should be used to support the claim for the GST rebate. If an ITC has been claimed, no further action is required (i.e. a GST 189 should not be filed). There will be no net tax, penalty or interest consequences for having claimed the ITC provided a rebate is not claimed for the same amount.

In the case of a person who is not a GST/HST registrant, if the claim either relates to an appraisal of the value of the imported goods or a determination of the tax status of the goods, the person should file Form B2 Canada Customs – Adjustment Request. This is regardless of whether the claim involves both duties and GST or simply GST. Once the B2 has been approved, a separate rebate of the GST amount will be sent to the non-registrant automatically.

Section 263 of the ETA provides in part that a rebate of an amount under subsection 216(6) is not to be paid to a person to the extent that it can reasonably be regarded that the person has claimed or is entitled to claim an ITC in respect of the amount.

Unlike the case of a non-registrant, a rebate of the amount of an overpayment of GST on imported goods is not automatically provided to a registrant on the basis that it is reasonable to expect that the registrant has claimed an ITC in respect of the amount. Technically, an ITC may only be claimed in respect of “tax” which is defined as tax payable under subsection 123(1) of the ETA. However, if a person claims an ITC in respect of an overpayment of GST, that amount would have to be offset at the time of a net tax assessment by the amount of a rebate of the excess GST to which the person would have otherwise been entitled, without any penalty or interest consequences.

Claiming an ITC is a simpler process for a registrant than applying for a rebate and can be more beneficial, such as where the registrant is a monthly filer. Also, the ITC will often have been claimed before the registrant even realizes that there has been an overpayment of GST. If a rebate of the overpaid GST were to be automatically paid to the registrant who filed Form B2 in such a case without regard to the expectation that an ITC has been claimed, the previously claimed ITC would result in an amount of net tax being considered as having been under-remitted or an excess net tax refund having been paid, which would be subject to retroactive penalty and interest.

Finally, as previously indicated, a registrant may file Form GST 189 to recover a GST overpayment once the decision regarding the B2 has been approved, provided the registrant has not already claimed an ITC in respect of the amount.

Q.58 - Carrying on Business and Leases by Non-Residents in the Context of Section 136.1

Could the Agency confirm the following interpretation of the provisions in sections 136 , 136.1 and 143 of the legislation in connection with carrying on business in the following specific fact situation.

Facts

Tangible personal property located in Canada is acquired by a non-resident for purpose of the non-resident entering into a long term lease with a third party or for purposes of a sale-leaseback with rental payments payable on a periodic (monthly) basis such that a resident would lease the property from a non-resident. The non-resident is a financing company that has no operations in Canada and does not regularly conduct such leasing arrangements or sale-leaseback arrangements in Canada. It does not solicit business in Canada through employees or agents.

Analysis

While it is understood that the Agency does not rule or comment on carrying on business generally as each situation is specific to the factual situation in question, this question is on the narrow issue of whether the fact that section 136.1 deems each rental payment to be a separate supply would in itself cause the non-resident to be carrying on business in Canada such that the section 143 deeming rule is inapplicable. This was an issue when section 136.1 was enacted as part of the HST changes (it was necessary for harmonization purposes to deal with supplies provided by way of lease in the Harmonized Provinces where the property may move into or move out of such Provinces). Subsequently, an amendment to the legislation was made enacting paragraph 136.1(1)(d) to apparently clarify that section 136.1 was not relevant for purposes of the carrying on business test in section 143.

Confirmation Requested

Nevertheless, there is some uncertainty in this area as some CCRA policy seems to suggest that the mere fact of the initial lease being entered into in Canada and the fact that the monthly payments are deemed to be separate supplies for the purposes of section 136.1 means that the non-resident is carrying on business in Canada and must register.

Clearly, there is otherwise a supply in Canada, but if the non-resident is not otherwise carrying on business in Canada section 143 should apply to deem a supply to be made outside of Canada. Could the CCRA please confirm its agreement with this interpretation?

Answer

As indicated in the question, paragraph 136.1(a) of the Excise Tax Act (ETA) deems a supplier of property by way of lease to have made a separate supply of the property for each lease interval for purposes of Part IX of the ETA. Paragraph 136.1(d) further provides that all of these deemed supplies of property are deemed to be made in or outside Canada, as the case may be, if, in the absence of paragraph 136.1(a), the supply of the property would be deemed to be made in or outside of Canada.

With respect to the interaction of sections 136.1 and 143, it is our view that both sections must be considered. We note that based on the wording of section 136.1, multiple supplies of the property are still considered to have been made under paragraph 136.1(a), regardless of whether all of those deemed supplies are subsequently deemed to have been made in or outside of Canada under paragraph 136.1(d).

We would like to confirm, however, that the deeming of separate supplies of the property under section 136.1 of the ETA, would not, in itself, result in a particular person being considered to be carrying on business in Canada. However, as acknowledged in the question, a definitive determination of whether a particular person is carrying on business in Canada must be made based on the particular facts of the case taking into account all relevant factors and circumstances. Factors that could be considered in determining whether a particular non-resident is carrying on business in Canada in a particular situation could include, among others, where the property was acquired by the non-resident and where that property is located while it is being leased.

We would also note that the property being supplied under a long-term lease is still considered as being supplied on a continuous basis regardless of the deeming rule under section 136.1 of the ETA and that the definition of a “business” includes any activity engaged in on a regular or continuous basis that involves the supply of property by way of lease.

Q.59 - Status of Jurisprudence

Please provide a summary of important GST/HST, FST and excise tax cases pending before the Tax Court and federal and provincial courts.

Answer

1.Commission Scolaire Deschênes (Federal Court of Appeal)

Issue:

Whether a specific payment made by a government to the appellant is a grant or consideration for a supply? Whether the School Board or the students is the recipient of the supply.

Decision:

The Federal Court of Appeal ruled that the Ministry of Transport of the Province of Quebec had an obligation to pay the transfer payment to the school board because it had first authorized the school board to provide transportation to its students, and then had determined the budgetary rules that were necessary for that purpose in accordance with the Loi sur l’instruction publique. The Court thus concluded that the Transport Minister had an obligation to pay the amount and as such that it was payable by operation of law.

Status :

After consultation with the Department of Justice, the Agency did not seek leave to appeal to the Supreme Court of Canada.

On December 21, 2001, the Department of Finance announced a proposed amendment to the Excise Tax Act relating to the treatment under the goods and services tax/harmonized sales tax of school authorities and their provision of student transportation services. The amendment is intended to ensure that the provision of these services by school authorities continues to be treated as an exempt activity under the GST/HST.

2.LaBrasserie Labatt Limitée (Tax Court of Canada)

Issue:

Whether the reimbursement paid by a registrant to its employees or partners, in respect of a supply of food, beverages and entertainment, is subject to the ITC’s recapture provisions under section 236 of the Excise Tax Act.

Decision:

The appeal was allowed by judgment dated August 24, 2001. The Court concluded that subsection 236(1) as it read prior to the amendment, did not apply to limit the amount of ITCs to 50% of the reimbursed GST. The basis for the decision was the inclusion of the word “allowance” and the omission of the word “reimbursement” in section 236. These words have well-defined legal meanings and “allowance” does not include “reimbursement”.

The Court also held that sections 174 and 175, which allow employers to claim ITCs in respect of allowances and reimbursements, do not have the effect of deeming the employer to be the recipient of the supply.

Status:

The CCRA did not file an application for judicial review. All claims and objections with comparable facts will be reassessed, after an audit of the expenses.

3.Riverfront Medical Evaluations Limited (Tax Court of Canada)

Issue:

Whether the supply of independent medical evaluation reports to insurance companies and lawyers is an exempt supply within the meaning of section 2 or section 5 of Part II of Schedule V of the Excise Tax Act (The Act). There was the further issue of whether, if the supply were not exempt, the company would be liable for penalties imposed pursuant to section 280 of the Act.

Decision:

Riverfront is a “health care facility” supplying services that are exempt under section 2, Part II of Schedule V of the Act.

Status:

The decision was appealed to the Federal Court of Appeal. This decision is contrary to CCRA’s published policy regarding these types of supplies

4.The Colleges of Applied Arts and Technology Pension Plan (Tax Court of Canada)

Issue:

Whether GST is exigible on the supply of services received by the Trust from various service providers on the basis that the supplies were exempt financial services, and specifically whether the Trust’s principal activity is the “investing of funds”.

Agency’s position:

Any services supplied to the Appellant by Service Providers did not consist of “the agreeing to provide, or the arranging for” any of the financial services referred to in paragraphs (a) to (i) of the definition of “financial service” in subsection 123(1) of the Excise Tax Act and were not otherwise exempt under paragraph (a) to (m) of the definition of “financial service” in subsection 123(1) of the Act.

Status:

No date has been set for hearing.

5.Seaspan International Ltd. (Excise Tax)

Issue:

Whether the diesel fuel used by the Plaintiff to generate electricity for the comfort of its crew is electricity used primarily in the operation of the Plaintiff’s vessels.

Status:

Case will be heard in June 2002.

You are here

28 February 2002 CBA Roundtable

Q.1 - ITC Allocation Methods for Financial Institutions

Answer

Q.2 - Securitizations and Section 139

Answer

Q.3 - Section 167 Election

Questions

Answer

Q.4 - Sale of Partnership Interest and Section 167 Election

Answer

Q.5 - ITCs and Invalid Registration Numbers

Questions

Answer

Example

Q.6 - Exporting of Leased TPP Delivered in Canada

Answer

Q.7 - Cancellation of GST Registration

Answer

Q.8 - Non-Arm’s Length Supplies

Answer

Q.9 - Collections

Answer

Q.10 - Bare Trusts

Answer

Q.11 - Joint Ventures

Answer

Q.12 - Disclosure Obligations

Answer

Q.13 - GST and Customs

Answer

Q.14 - Penalties for Third Parties

Answer

Q.15 - Importations

Answer

Q.16 - Real Property – Sale of Underground Cable Rights

Answer

A. Characterization of the Cable Outside of Quebec

B. Characterization of the Cable in Quebec

C. Cable as a Telecommunications Facility

Q.17 - Bad Debts

Answer

Q.18 - Section 156 Election

Answer

Q.19 - Input Tax Credits – Commercial Services

Answer

Q.20 - Securitization – Adjustments

Answer

Q.21 - Voluntary Disclosure (Imports)

Q.22 - Ascertained Forfeitures

Q.23 - Membership Fees

Answer

Q.24 - Basic Groceries

Answer

Q.25 - Computer Software

Answer

Q.26 - Leasing – ITC Claims

Part A

Part B

Answer

Division II tax

Division III tax

Q.27 - Export Distribution Centres

Answer

Q.28 - Zero-Rated Exports – Services

Answer

Q.29 - Zero-Rated Exports – Goods

Answer

Q.30 - Interplay Between ETA Section 185 and Division IV

Answer

Q.31 - Exclusivity between Exempting Provisions – Rental Accommodation under Part I, Schedule V, Health Care Services under Part II and Personal Care Services under Part IV

Answer

Background

Single v Multiple Supply

Self-supply of the Residential Complex

Q.32 - Priority Between ETA 183 and ETA 266

Answer

Q.33 - Seizures and Repossessions

Answer

Part A)