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: 105345
XXXXX
October 16, 2008
Subject:
GST/HST INTERPRETATION
Dear XXXXX:
Thank you for your XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST).
All legislative references are to the Excise Tax Act (ETA) and the regulations there-under, unless otherwise specified.
We understand that you have questions specifically with regard to section 225 of the ETA and CRA's GST Policy P-149R Administrative Policy Regarding Adjustments to the GST/HST Return. In your XXXXX, you have described two distinct example situations and enumerated questions under each of them. We have addressed each of those questions hereunder.
Interpretation Requested
Situation #1
ABC Ltd. is a GST registrant and is a monthly filer. On July 20, 1998, ABC filed its June 30, 1998 GST return reporting no sales and no ITC's. Essentially, it filed a nil GST return. Subsequently, ABC Ltd. submits an amended GST return for June 30, 1998, requesting a net refund of $30,000 as shown below:
GST collected
1,000
ITC
(31,000)
Net refund
(30,000)
With respect to the above, you have the following questions:
Q1. Is the June 30, 1998 document, showing a Nil amount, a tax return "filed as required" under 238(1) of the Excise Tax Act?
Q2. Is the subsequent "amended GST return" requesting an amendment to the previously filed return called a "Taxpayer Requested Adjustment" (TPR)? What is the difference between a Tax Return and a "Taxpayer Requested Adjustment"?
Q3. Under P-149R Administrative Policy Regarding Adjustments to the Goods and Services Tax/Harmonised Sales Tax Return, would the previously filed GST return be re-assessed for $1,000 GST owing, while the refund of $31,000 be denied?
Q4. Does section 225 apply to any adjustments to prior tax returns where the effect is a net refund? Was section 225 a factor in the development of P-149?
Q5. Has P-149 been in effect since 1994?
Q6. Is there any "requirement" under the ETA that a TPR requesting a refund be filed? Does P-149 support CRA's position that there is "no requirement to file an amended GST return" under the ETA where there is a net refund?
Q7. In the above situation, how should ABC make a claim for its refund on a subsequent period's tax return?
Q8. With respect to the above situation, what is CRA's position?
Q9. If the net refund requested is denied under P-149, would the amount of the TPR denied be subject to any penalties under the ETA? If so, which sections of the ETA would be applicable?
Q10. Was policy P-149, as in its current form, the same prior to 1999?
Q11. Has there been a situation where an amount of a TPR denied (relating to a request to increase a taxpayer's tax expenses, losses, UCC, or ITC) ever been subject to any penalties?
Situation #2:
XYZ Ltd. is a GST registrant and acquires substantially all of the business assets of DLX Ltd., also a GST registrant. XYZ had no other transactions in the reporting period. Normally, XYZ would be eligible for an ITC and DLX would be required to collect GST on the transaction. Parties to the above transaction decide that GST44 Election is applicable.
With respect to the above, you have the following questions:
Q1. Should XYZ file a NIL return such that no ITC's are claimed, (provided that there are no other transactions applicable)? Should DLX Ltd., while reporting the taxable sale on its GST return, not report any GST as being collected? In other words, should XYZ not claim an ITC and file a NIL return and DLX file a tax return where GST on the transaction is not payable?
Q2. Is the above transaction referred to as a "wash transaction" by the CRA?
Q3. What is CRA's policy with respect to Wash Transactions?
Q4. What is CRA's policy with respect to audit settlements where the tax-payer voluntarily proposes a settlement and waives its right to an appeal or objection?
Interpretation Given
Based on the information provided, we respond to each of the above questions as follows:
Our Responses - Situation #1
Response 1
ABC Ltd., a monthly filer, may be considered to have filed the return in time for the reporting period ending on June 30, 1998, if it was filed on July 20, 1998, as required by subsection 238(1).
Response 2
A GST/HST Return is a legal form whose form and content are provided for by subsection 238(4) of the Excise Tax Act (ETA). A GST return is required to be filed under subsection 238(1) of the ETA. The form, its content and the manner in which it is filed are prescribed by the Minister of National Revenue.
The phrase "Taxpayer-requested Adjustment" (TPR) is used in the context of the Income Tax Act, for CRA's business purposes. TPR adjustments are not considered Tax Returns.
For any subsequent amendments to the GST returns filed, your attention is drawn to GST Guide RC4022 General Information for GST/HST Registrants:
"If you need to make a change to any return you have sent us, do not file another return.
If you forgot to include an amount in your ITCs, simply add the omitted amount on line 106 of your next GST/HST return.
If you need to increase the amount of GST/HST collected or collectible, send a letter to your tax centre indicating your Business Number, the GST/HST reporting period to be amended, and the corrected amounts per line number on your GST/HST return."
(Please refer to the Guide available on our public website for more information)
In the situation 1 that you have prescribed, the amended GST return for June 30 1998 filed by ABC ltd. is not a TPR.
Response 3
GST/HST Policy Statement P-149R is the administrative policy regarding adjustments to the Goods and Services Tax/Harmonized Sales Tax (GST/HST). The policy discusses the restrictions which apply to requests for adjustments to previously filed GST/HST returns. Based on the policy, the $1000 GST collected would be included but offset against an equal amount of ITC's. The remaining $30,000 of unclaimed ITC's could be claimed in subsequent returns subject to the time restrictions in the Excise Tax Act.
Response 4
Section 225 of the ETA provides for the determination of net tax for a particular reporting period and does not address adjustments to prior returns. P-149R discusses the restrictions which apply to requests for adjustments to previously filed GST returns resulting in increased ITC's or other credits without a corresponding increase in tax liability for the same reporting period.
Response 5
P-149R has been effective from June 1, 1994 for GST and from April 1, 1997 for HST.
Response 6
There is no specific requirement under the ETA to file a return as a mode of making a request for any subsequent adjustments to the GST return filed for a prior period (irrespective of the possible outcome of such a request - additional net tax or refund).
CRA's position is well reflected in the Guide RC4022 (see our response in 2 above), which advises that there is no need to file another return.
P-149R also reflects the same position by stating that, "All requests for adjustments to previously filed GST/HST returns should be made in writing, provide details of the requested adjustments, and be addresses to the registrant's local Tax Centres".
Response 7
Based on the information you have provided in your example scenario, it is not clear whether ABC Ltd. is a "specified supplier" under subsection 225(4.1).
If ABC Ltd. was not a specified supplier under subsection 225(4.1), then it could have claimed the unclaimed ITC's for reporting period June 30, 1998 on any subsequent period's GST return. Under paragraph 225(4)(b) such a claim must have been made by the due date of the return for the last reporting period that ended within four years after the end of June 30, 1998 - that is, by July 31, 2002.
If ABC Ltd. was a specified supplier under subsection 225(4.1), then the general rule is that the input tax credit must be claimed on or before the due date of the return for the last reporting period of the registrant ending within two years after the fiscal year that includes the reporting period in which the tax becomes payable - that is by Jan 31st 2001.
Response 8
Please refer to our responses in 3 and 7 above. As explained earlier, the unclaimed ITC's in the amount of $30,000 could have been claimed in any subsequent GST return(s) subject to the time limitation imposed by paragraph 225(4)(b). Policy P149R states that amounts included on previously filed GST/HST returns may be adjusted, except where a person attempts to increase the amount of ITCs or other credit adjustments without a corresponding increase in tax liability for the same reporting period.
Response 9
In case of denial of any refunds under P-149R in the circumstance that you have described in your example situation 1, there are no penalties under the ETA on the amount denied.
However, we would like to draw your attention to paragraph 4 under Issue and Decision section of P-149R which, amongst other things, explains that "the circumstances surrounding a registrant's request will be taken into account when deciding whether to adjust a previously filed return. For example, an audit of the registrant's records may be required".
Section 285 of the ETA imposes a penalty on a person for knowingly, or under circumstances amounting to gross negligence, making a false statement or omission in a return or other document relating to a reporting period or transaction of the person. The penalty is equal to the greater of $250 and 25% of the total of any reductions in tax owing and any increases of refunds or rebates as a result of the false statement or omission.
Response 10
Very minor changes were made in the revised version, for example, changing the title or adding "HST" at appropriate places (the copy of the older version is attached for your perusal). The substance of the policy remains unchanged in the current version.
Response 11
The GST/HST Rulings Directorate is not aware of any such situation with regards to ITC's.
Our Responses - Situation #2
Response 1
The election form GST 44 has to be filed by the registrant recipient together with the GST/HST return for the reporting period in which the acquisition was made. If there were no other transactions (except the supply of assets of business) during the particular reporting period, the recipient must nonetheless file a GST return for the period [Please refer to GST Memorandum 500-2: Returns And Payments].
If XYZ (the recipient) did not have any other transaction for the particular reporting period except the supply of assets of business, then it could file a nil return along with the completed form GST 44.
As for registrant DLX, assuming that it did have other transactions subject to GST, it could file a GST return in a normal fashion reporting GST collected on those other transactions. There would be no GST on the supply of assets of the business, as an election is being filed. The return, however, must be accompanied by the completed form GST 44.
Response 2
Yes. The transactions referred in situation 2 are considered wash transactions.
Response 3
Please see GST Memoranda Series 16-3-1 Reduction of Penalty and Interest in Wash Transaction Situations available on our website at http://www.cra-arc.gc.ca/menu/GTMS_16-e.html.
Response 4
For information on our Voluntary Disclosure Program please see the information available on our website at http://www.cra-arc.gc.ca/gncy/nvstgtns/vdp-eng.html.
Although we have provided you with the above responses based on the above-noted scenarios, please be aware that GST returns would not be processed for adjustments (pursuant to P-149) beyond the 4-year limit set by subsection 298(1).
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 Canada Revenue Agency 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 613-952-0301. 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,
Owen Newell
Manager
General Operation Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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