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
Attention: XXXXX
Case Number: 112068
Code: 11750-1; 11755-30
June 26, 2009
Subject:
GST/HST RULING
Purchase / Sale of XXXXX HST deduction after Bad Debt Write-off
Dear XXXXX:
Thank you for your letter of XXXXX, (with attached Bill of Sale) and subsequent telephone conversations concerning the application of the Harmonized Sales Tax (HST) to your purchase and sale of a XXXXX, and a possible deduction from your net tax payable after your write off of a bad debt.
HST applies at the rate of 13% in the participating provinces of Nova Scotia, New Brunswick and Newfoundland and Labrador. GST applies at the rate of 5% in the remaining provinces and territories. All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
Statement of Facts
We understand the pertinent facts are as follows:
1. All three firms discussed in this letter, XXXXX are registered for GST/HST purposes.
2. XXXXX owed your company $XXXXX including HST and interest, which it was not able to pay.
3. Your firm and your lawyer discovered that XXXXX owned a XXXXX, on which XXXXX had a lien of $XXXXX under a Security Agreement between the two companies. You contacted XXXXX, who worked together with your company on their seizure of the XXXXX. XXXXX advised you that all they wanted is their $XXXXX.
4. On this matter, your lawyer also represented XXXXX and in that capacity he mailed a notice of seizure by XXXXX of the XXXXX. Once XXXXX had seized the XXXXX, it was in a position to sell it to your company.
5. XXXXX sold the XXXXX to your company under Bill of Sale dated XXXXX, for $XXXXX including HST @ 13% ($XXXXX @13% = $XXXXX).
6. You recently sold the subject XXXXX for $XXXXX plus HST.
7. You wrote off the $XXXXX as a bad debt.
Rulings Requested
You are requesting a confirmation of the following:
1. For HST purposes, your purchase of the subject XXXXX was a simple purchase for resale independent from your writing off a bad debt of $XXXXX from XXXXX and that you have claimed $XXXXX correctly as an input tax credit (ITC) in respect of tax paid upon purchase of the XXXXX.
2. For HST purposes, your sale of the subject XXXXX is a sale independent of your bad debt of $XXXXX, and you will account for HST at the rate of 13% calculated on the consideration of $XXXXX. Any profit made from your purchase and sale of the XXXXX is not considered to be an amount recovered out of the uncollectible amount of $XXXXX.
3. After you have written off your bad debt as cited in Fact #7, you can claim an amount of HST in respect of the supply which gave rise to your bad debt. The calculation of the amount you can claim does not require that you take into account any profit amount made from your above purchase and sale of the subject XXXXX. This profit is not considered to be a recovery of bad debt.
Rulings Given
Based on the facts set out above, we rule that:
1. For HST purposes, your purchase of the subject XXXXX from XXXXX is not linked to your uncollectible receivable of $XXXXX from XXXXX. Your claim of an ITC in respect of HST paid upon the purchase was a valid claim under subsection 169(1).
2. For HST purposes, the sale of the XXXXX to a third party is not linked to your uncollectible receivable of $XXXXX from XXXXX. It is subject to HST at 13% based on the consideration of $XXXXX under section 165.
3. After you have written off the bad debt of $XXXXX, section 231 allows you to deduct from your net tax an amount equal to 100% of the HST that you have invoiced XXXXX and remitted to the CRA in respect of the relevant supply/supplies.
This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service. We are bound by this ruling provided that none of the above issues are currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.
For your convenience, find enclosed a copy of GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-1433. 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,
Bao Tran
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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