Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
XXXXX
XXXXX
XXXXX
Case Number: 100709
Business Number: XXXXX
XXXXX
July 22, 2008
Subject:
GST/HST INTERPRETATION
Entitlement to input tax credits with respect to an insurance claim
Dear XXXXX:
Thank you for your XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to an insurance claim and the additional documentation subsequently provided. We apologize for the delay in responding to your enquiry.
All legislative references are to the Excise Tax Act (ETA) and the regulations thereunder, unless otherwise specified.
Based upon the information and documentation that we were provided with, we understand the following:
1. The parties to the transaction are: the insurer XXXXX the insured, XXXXX registered for GST/HST purposes with Business Number XXXXX; and the supplier of the property, XXXXX, registered for GST/HST purposes with Business Number XXXXX
2. On XXXXX a XXXXX was damaged. The XXXXX was insured under an insurance policy issued by XXXXX. The claim was reported to XXXXX, who assigned an adjuster to investigate the claim. An offer of $XXXXX as compensation for the damaged XXXXX was made to settle the claim but XXXXX rejected this offer and requested that XXXXX be repaired. The adjuster advised XXXXX once the repairs were complete and the claim file was closed.
3. Subsequently, XXXXX indicated that the XXXXX and its insurance broker advised XXXXX. In XXXXX requested an estimate of the repairs that needed to be done XXXXX. It was determined that the original repair was not done correctly and the existing damage could not be repaired.
4. The insurance claim was re-opened and XXXXX was the adjuster assigned by XXXXX to handle the claim XXXXX reviewed the existing insurance policy between XXXXX and XXXXX and determined that XXXXX was entitled to receive a replacement XXXXX as the existing one could not be repaired XXXXX was required to find the replacement XXXXX.
5. XXXXX.
6. XXXXX:
This letter is to advise that your InsurerXXXXXhas agreed to the purchase XXXXX.
7. When the XXXXX was delivered to XXXXX, the balance owing was billed by XXXXX to XXXXX:
XXXXX
XXXXX
XXXXX.
8. On XXXXX sent a letter to XXXXX:
XXXXX request for the balance owing XXXXX. The outstanding amount is $XXXXX for the GST ... Can you please advise when we will be receiving payment for the outstanding amount ....
9. XXXXX.
10. A copy of the relevant insurance policy, XXXXX issued by XXXXX XXXXX has been provided. XXXXX of the XXXXX of this insurance policy provides, in part:
XXXXX
11. XXXXX
Interpretation Requested
Is XXXXX entitled to claim an input tax credit (ITC) with respect to the GST payable on the purchase of the XXXXX?
Interpretation Given
According to GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Services, the Canada Revenue Agency (CRA) will not issue a ruling when it considers that it would be inappropriate to do so. Circumstances in which the CRA may not issue a ruling include when XXXXX.
As XXXXX, we will not address the issue in a ruling but rather an interpretation that sets out the CRA's view of how the legislation applies to the facts of the case.
The ETA sets out the circumstances and conditions that must exist before an ITC can be claimed.
According to subsection 169(1), where a person acquires or imports property or a service, or brings it into a participating province and, during a reporting period of the person in which the person is a registrant, the GST/HST in respect of the property or service becomes payable by the person or is paid by the person without having become payable, that person may be eligible to claim an ITC in respect of the tax to the extent it was acquired, imported or brought into a participating province for consumption, use or supply in the course of the person's commercial activities.
Documentary requirements for claiming ITCs are set out in subsections 169(4) and 223(2) and in the Input Tax Credit Information (GST/HST) Regulations (the Regulations). Subsection 169(4) provides that the recipient must obtain certain documentation to claim an ITC. Subsection 223(2) states that the supplier must, on request by the recipient, provide particulars of the transaction that are sufficient to support a claim for an ITC. The Regulations specify the invoicing requirements necessary for claiming an ITC.
According to subsection 165(1) tax is payable by the recipient of the supply. Therefore, the person that is eligible to claim the ITC for the tax paid or payable on the property or service is generally the recipient of the supply. The term recipient of a supply of property or a service is defined under subsection 123(1) to mean, in part:
(a) where consideration for the supply is payable under an agreement for the supply, the person who is liable under the agreement to pay that consideration,
(b) where paragraph (a) does not apply and consideration is payable for the supply, the person who is liable to pay that consideration ....
XXXXX is liable to pay the consideration for the supply of the XXXXX to XXXXX; is the recipient of the supply of the XXXXX based upon the following facts:
• The letter from XXXXX to XXXXX, dated XXXXX, states that XXXXX agreed to the purchase of the XXXXX, advanced $XXXXX toward the purchase, and was awaiting the final billing for the purchase.
• XXXXX dated XXXXX, issued by XXXXX and sent to XXXXX indicates that the person who is liable to pay the consideration for the supply of the XXXXX is XXXXX
• The letter from XXXXX to XXXXX dated XXXXX, requests payment for the balance owing XXXXX for the purchase of the XXXXX; the outstanding amount is $XXXXX for the GST payable on the supply.
• In the XXXXX dated XXXXX, XXXXX indicates that XXXXX purchased and paid for the XXXXX.
One of the ways that an insurer indemnifies an insured for a loss related to damaged property is that the insurer repairs or replaces the damaged property directly. The insurer generally would not be entitled to claim an ITC with respect to the tax paid or payable on the purchase or repair as the insurer is not acquiring the property or service for consumption, use or supply in the course of commercial activity. The insurer is acquiring the property or service for use in the provision of a financial service according to paragraph (f.1) of the definition of financial service in subsection 123(1), i.e. the settlement of an insurance claim, which generally would be an exempt supply according to section 1 of Part VII of Schedule V.
In this case, XXXXX XXXXX of the insurance policy between XXXXX and XXXXX provides that the insurer, in settling a claim, may replace the damaged property rather than make a cash payment to the insured. XXXXX purchased the replacement property directly from XXXXX for purposes of settling the insurance claim. XXXXX was invoiced for and made payment towards the purchase.
It is XXXXX position that XXXXX is eligible for an ITC for the GST payable with respect to the purchase of the XXXXX. In the case where the insurer compensates the insured for the cost of repairing or replacing the damaged property and the insured acquires the repair services or replacement property directly, and is the recipient of the supply of the services or property, the insured, if a registrant, may be eligible to claim an ITC in respect of the tax paid or payable by the insured, provided the other requirements set out in the ETA for claiming an ITC are met.
The documentation provided to us does not give evidence that XXXXX is liable to pay the consideration for the supply of the XXXXX to XXXXX; XXXXX is not the recipient of the supply by XXXXX of the XXXXX. As such, XXXXX would not be eligible to claim an ITC with respect to the GST payable on the XXXXX.
XXXXX is the recipient of the supply made by XXXXX of a financial service of settling the insurance claim. XXXXX would not be entitled to claim an ITC with respect to the tax paid or payable on the purchase of the XXXXX as it did not acquire the property for consumption, use or supply in the course of a commercial activity. XXXXX acquired the property for use in the provision of the exempt supply of settling the insurance claim.
The foregoing comments represent our general views with respect to the subject matter of your request. These comments are not rulings and, in accordance with the guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, do not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or our interpretative policy could affect this interpretation.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9248. 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,
Ivan Bastasic
Director
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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