Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 167830
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
GST applicability to payment made under a Design and Construction Energy Guarantee
Thank you for your [correspondence] of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to payments made under the Design and Construction Energy Guarantee. We apologize for the delay in responding to your request.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
We understand
- […] (Project Co.) has […][an Agreement] with […][the Joint Venture] for construction of […][the Asset]
- Under […] of the Agreement, the Joint Venture provides a Design and Construction Energy Guarantee (Guarantee). In accordance with the Guarantee, the Joint Venture has paid the Project Co. $[X].
- Project Co. believes that the $[X] payment should have GST applied, and as such, has invoiced the Joint Venture $[X] plus 5% GST.
RULING REQUESTED
You would like to know if GST should be applied (i.e. refunded) to the initial $[X] payment described above, as well as any future payments made under the Agreement.
RULING GIVEN
Based on the facts set out above, we rule that it is at the Joint Venture’s discretion whether to refund the GST paid on the amount of the consideration refunded under the Guarantee.
EXPLANATION
[…][Relevant Terms of the Agreement between the Parties]
The Joint Venture […] has made an initial payment of $[X] to the Project Co.
The tax originally paid pursuant to the Agreement was properly payable at that time.
Consequently, a refund or credit to the Project Co, as provided for under the Guarantee would be regarded as a subsequent reduction in consideration pursuant to subsection 232(2).
Subsection 232(2) states that
[w]here a particular person has charged to, or collected from, another person tax under Division II calculated on the consideration or a part thereof for a supply and, for any reason, the consideration or part is subsequently reduced, the particular person may, in or within four years after the end of the reporting period of the particular person in which the consideration was so reduced,
(a) where tax calculated on the consideration or part was charged but not collected, adjust the amount of tax charged by subtracting the portion of the tax that was calculated on the amount by which the consideration or part was so reduced; and
(b) where the tax calculated on the consideration or part was collected, refund or credit to that other person the portion of the tax that was calculated on the amount by which the consideration or part was so reduced.
Note that the legislation uses the word “may”. As such, it is at the discretion of the Joint Venture (the particular person) whether to refund the GST on the reduction in consideration.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613.670.9882. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Doug Campbell
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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