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.
[Addressee]
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
Case Number: 129921
November 19, 2010
Dear [Client]:
Subject:
GST/HST
Employee Rebate
Thank you for your email of November 4, 2010, concerning applications for Employee Rebates under section 253 of the Excise Tax Act (ETA) for the [yyyy] through [yyyy] tax years.
Our understanding is as follows.
1. In a letter dated April 30, 2010, and addressed to [...] of the [...] TSO, [...], representing [...] [Individual A], requested Employee Rebates under section 253 of the ETA for the [yyyy] through [yyyy] tax years. The representative provided a commentary and rationale to support the rebate claims in paragraphs 2 through 16.
2. [Individual A] and [...] [Individual B] are married.
3. [Individual A] worked as a commissioned [salesperson] for [...] [Company X].
4. During these years, [Individual A] provided services to [Individual B] to assist [Individual A] with [Individual A's] sales work. [Individual A] paid [Individual B] annually as an independent contractor for these services. [Individual A] paid [Individual B] and deducted the amount paid each year as an expense under paragraph 8(1)(f) of the Income Tax Act (ITA).
5. [Individual B] was not aware that since fees earned from [Individual A] exceeded $30,000 per year, [Individual B] was required to register for GST, collect GST from [Individual A], and remit net tax each year.
6. The CRA noticed that [Individual B] was reporting business income sufficiently high that [Individual B] should register for GST. On [mm/dd/yyyy] the CRA assessed [Individual B] for unremitted GST for [yyyy] to [yyyy], requested at the same time that [Individual B] file unfiled GST returns.
7. [Individual B] filed GST returns as requested and [they] were reassessed as filed on [mm/dd/yyyy]. The total assessment of GST plus interest and penalties was $[...].
8. In filing [Individual B's] GST return, [Individual B] treated the amounts billed to [Individual A] each year as GST-included amounts. [Individual A] agreed with this approach. The CRA accepted this treatment when reassessing [Individual B], consistent with CRA Policy P-116.
9. [Individual A] paid the following amounts of GST, included in the amounts charged by [Individual B] to [Individual A] for [Individual B's] services over the years. [...].
10. If [Individual B] had charged [Individual A] GST each year, [Individual A] would have been able to claim a GST Employee Rebate under section 253 of the ETA for the amount of the GST [Individual A] paid [Individual B]. [Individual A] did claim the Employee Rebate each year in respect of other expenses, on Form GST370 filed with [Individual A's] tax return, and the rebate was allowed to [Individual A's] each year.
11. Subsection 253(4) of the ETA provides for a four-year deadline for claiming the rebate, unless CRA extends the deadline.
12. Subsection 253(6) of the ETA provides an unlimited period during which CRA has discretion to allow additional GST Employee Rebates.
13. Subsection 253(6) does not contain a 10-year limitation period for applications, as do other Taxpayer Relief provisions such as subsections 152(4.2) and 220(3.1) of the ITA and section 281.1 of the ETA.
14. The representative requested that CRA apply subsection 253(6) of the ETA to allow [Individual A] the additional amounts of GST paid by [Individual A] which would have been allowed if [Individual A] had claimed it each year [...].
15. The representative submits that it would be appropriate for CRA to exercise its discretion in this case for the following reasons:
• If [Individual A] had been an independent contractor, [Individual A] would have the right under paragraph 225(4) of the ETA to claim such relief (and this would have been a wash transaction as contemplated by GST/HST Memorandum Series Chapter 16.3.1).
• From a tax policy point of view, the GST charged by [Individual B] to [Individual A] should be recoverable by [Individual A]. That is why section 253 of the ETA permits a full rebate for such GST.
• Subsection 253(6) of the ETA appears to have been designed for this kind of situation, where the taxpayer did not claim a rebate for an amount of GST that was inadvertently not charged to [Individual A].
• The assessment of $[...] resulting from [Individual B's] failure to remit GST is onerous, and a reassessment under subsection 253(6) of the ETA would provide significant relief of $[...].
16. The CRA accepted taxpayer's claims for rebates for the [yyyy] to [yyyy] tax years. The earlier years were not allowed as CRA stated that a reassessment of T1 returns can only be issued according to the ITA and that there is 10-year limitation on the reassessment period in that Act. CRA processed the rebates for [yyyy] to [yyyy] as additional employment expenses.
17. In a subsequent letter dated September 20, 2010, and addressed to [...], of the [...] TSO, [the representative] provided further comments in support of the rebate claim in paragraphs 18 through 19.
18. The representative advised that [Individual A's] rebate requests were not processed correctly. Instead of the amounts requested for GST Employee Rebates, amounts were processed as additional employment expenses, with a small adjustment to the GST Employee Rebate in each year.
19. The adjustments were processed only for taxation years [yyyy] through [yyyy]. As explained in [the representative's] previous letter, the representative stated there is no 10 year limitation on the discretionary allowance of a late-filled GST employee rebate under subsection 253 of the ETA. Since CRA has agreed to exercise its discretion to allow these late claims, [the representative] submits that the adjustments should apply for [yyyy] to [yyyy], not only [yyyy] to [yyyy].
20. In a letter dated September 29, 2010, CRA advised the representative that the 10 year limit was applicable to subsection 253 of the ETA and that no adjustments to the [yyyy] to [yyyy] tax years would be made.
21. In a letter dated October 5, 2010, addressed to [...] of the [...] TSO, [the representative] again attempted to present a favourable case in support of the rebate claims. [These] comments follow in paragraphs 22 through 28.
22. Subsection 253(5) of the ETA specifically lists certain provisions of the ITA that apply to an employee rebate:
• Subsections 160.1(1), 164(3), (3.1) and (4), for purposes of calculating interest;
• Sections 165 to 167 (objections and extensions of time); and
• Division J of Part I (sections 169-180 - appeals)
23. Notably absent from the list in subsection 253(5) of the ETA is any reference to subsection 152(4.2), or to section 152 of the ETA as a whole.
24. Subsection 152(4.2) is in Division I of Part I of the ITA. It would have been very easy for subsection 253(5) of the ETA to provide simply that "Divisions I and J of Part I" of the ITA apply.
25. It is quite evident that when subsection 253(5) of the ETA specifies that Division J of Part I of the ITA applies but does not specify that Division I of Part I of the ITA applies, Division I is not intended to apply.
26. Further, subsection 152(4.2) of the ITA is not needed, and relief was not requested under it, but rather under subsection 253(6) of the ETA.
27. Subsection 253(6) of the ETA stands on its own. It does not need subsection 152(4.2) of the ITA to function. Subsection 253(6) of the ETA specifically permits the Minister "at any time" to reassess or make an additional assessment of the rebate, provided the taxpayer has made application for such relief. The words "at any time" are clear. They do not contain a requirement that the application must be made within 10 years, as subsection 152(4.2) of the ITA does.
28. Subsection 253(7) of the ETA specifically refers to subsection 152(4.2) of the ITA, but only for the limited purpose of determining the way in which Subsection 164(3.2) of the ITA applies. If subsection 152(4.2) of the ITA had been intended to apply to employee rebates, subsection 253(7) of the ETA would have been written to that effect.
Ruling Requested
You would like to know if CRA can reassess the taxpayer's [yyyy] to [yyyy] returns under the provisions of the ETA.
DIRECTED INTERPRETATION GIVEN
The CRA does not give rulings internally, however we can provide a directed interpretation. Based on our understanding of the situation outlined above, CRA may reassess personal income tax returns at any time for purposes of section 253 of the ETA.
Explanation
Subsections 253(3) and (6) of the ETA read/provide as follows (bold font inserted for emphasis).
ETA 253(3) Application for rebate - A rebate for a calendar year shall not be paid under subsection (1) to an individual unless, within four years after the end of the year or on or before such later day as the Minister may allow, the individual files an application for the rebate in prescribed form containing prescribed information with the Minister with a return of the individual's income under Part I of the Income Tax Act.
ETA 253(6) Reassessments - Despite subsection 298(2), if the Minister has assessed the amount of a rebate of a person payable under subsection (1), the Minister may at any time reassess or make an additional assessment of the amount of the rebate if application for the reassessment or additional assessment has been made by the person.
Subsection 253(3) of the ETA gives the Minister the discretion to accept an application for rebate on any date the Minister may decide. Subsection 253(6) of the ETA gives the Minister the discretion to reassess or make an additional assessment at any time. [...] the 10 year limit for reassessments under the Income Tax Act does not apply to reassessments related to rebate requests pursuant to section 253 of the ETA. As such, the taxpayer is eligible for the rebates as requested.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-0301.
Yours truly,
Owen Newell
Manager
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
UNCLASSIFIED
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