7 July 1999 Internal T.I. 9910000 - QUICK METHOD OF GST ACCNTG TAX TREATMENT

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Whether the difference between the amount of GST collected and the amount of GST remitted under the Quick Method is taxable under paragraph 12(1)(x) since it technically still belongs to the Crown.

Position: Yes.

Reasons: The better position is to consider the difference between the amount of GST collected and the amount remitted under the Quick Method to be transferred permanently to the registrant.

		July 7, 1999

	Tom Alley	HEADQUARTERS
	Tax Avoidance	J. Gibbons
	Audit Directorate	(819) 458-1197

		5-991000

Quick Method of GST Accounting (the “Quick Method”)

We are replying to your electronic mail message of April 15, 1999, to Mr. Bryan Dath, in which you question the position taken in technical interpretations 9202885 and 9205035 concerning the Quick Method. These letters held that the difference (the “difference”) between the amount of GST collected and the amount remitted under this method should be reported as income.

We discussed the Quick method with GST Rulings, and they provided the following explanation:

The provision which entitles registrants to use the Quick Method is subsection 227(1) of the Excise Tax Act. Basically, it provides that a registrant (other than a charity) may elect to determine their net tax for a reporting period during which the election is in effect by a prescribed method.

Paragraph 17 of the Streamlined Accounting (GST) Regulations provides the formula for determining the registrant's net tax under the Quick Method.

The Quick Method provides an alternative way for small businesses to calculate their net tax remittances under the GST/HST. The percentage rate takes into account the GST/HST paid or payable on business purchases, based on an industry average. For example, rather than keeping track of the 7% GST charged on sales and claiming input tax credits (ITCs) for the GST payable on purchases, the registrant need only remit 5% and may keep the difference in lieu of the ITCs the registrant would otherwise have claimed for day to day business expenses.

Generally, subsection 228(2) of the ETA provides that where the net tax for a reporting period of a person is a positive amount, the person shall remit that amount to the Receiver General. However, as noted above, subsection 227(1) of the ETA allows the registrant to elect to determine their net tax based upon a prescribed method. Basically, subsection 222(1) of the ETA provides that, subject to subsection 222(1.1), every person who collects an amount as or on account of the GST/HST is deemed to hold the amount "in trust" for Her Majesty, until the amount is remitted to the Receiver General or withdrawn under subsection 222(2) of the ETA.

It could be argued that the amount of tax collected and not remitted (i.e., the difference held in lieu of claiming ITCs) is technically not "withdrawn" under subsection 222(2) of the ETA. Amounts withdrawn under subsection 222(2) of the ETA are no longer deemed to be held in trust.

Paragraph 222(2)(a) of the ETA provides that the amount of any input tax credit may be "withdrawn" from the aggregate of the moneys so held in trust. Paragraph 222(2)(b) of the ETA provides that any amount that may be deducted in determining net tax may also be "withdrawn" from the aggregate of the moneys so held in trust. These two paragraphs do not apply in respect of the percentage amount/difference not remitted under the Quick Method.

It could be argued that the amount not remitted (i.e., the difference) by a registrant using the Quick Method would technically still be "held in trust", and as Mr. Alley stated "belong to the Crown", since the provisions under subsection 222(2) of the ETA do not apply. However, the Department would not pursue the registrant for the amount not required to be remitted under the Quick Method. To do so would defeat the purpose of the Quick Method and render it unworkable. As such, the registrant benefits from such amounts similar to registrants who do claim ITCs.

Based on the foregoing discussion, you will note that the better position is to consider the difference between the amount of GST collected and the amount remitted under the Quick Method to be transferred permanently to the registrant. We agree with this view, and as noted in our earlier correspondence, it remains our opinion that the difference is taxable under paragraph 12(1)(x) of the Income Tax Act.

We trust that these comments will be of assistance.

Yours truly,

J.F. Oulton, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate

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