29 July 2004 GST/HST Interpretation 53446 - Tax Status of Services Provided by a Sales Representative

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 XXXXX XXXXX	Case Number: 53446File Number: 11890-7
XXXXX XXXXX	July 29, 2004

Subject:

GST/HST INTERPRETATION Effective date of Municipal Rebate at the Rate of 100%

Dear XXXXX:

Thank you for your message XXXXX concerning the effective date of the rebate of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) as it applies to municipalities.

We had previously discussed this question XXXXX.

Interpretation Requested

You have asked for an explanation of when municipalities are eligible for the 100% rebate of the GST and the federal portion of the HST. The previous rebate rate for municipalities was 57.14%. You are involved in a program that determines compensation based on 'cost' where 'cost' does not include amounts eligible for GST/HST rebate.

Interpretation Given

The legislation provides for a rebate of 100% of the GST and the federal portion of the HST where input tax credits are not available. The word 'tax' in this discussion refers to the GST (7%) and the federal portion (7%) of the HST. Legislative references are to the Excise Tax Act.

The new rebate rate of 100% applies for claim periods that end on or after February 1, 2004:

•   to tax that became payable on or after February 1, 2004;

•   to amounts deemed to have been paid or collected by the person on or after February 1, 2004.

Note that a municipality must meet both conditions in order to be eligible to claim a 100% rebate of tax.

Claim period

If the municipality is a GST/HST registrant, its claim periods are the same as its reporting periods for GST/HST purposes; that is, the periods for which it files its GST/HST returns (monthly, quarterly, or annually).

If the municipality is a non-registrant, its claim periods will be either its first and second fiscal quarters, or its third and fourth fiscal quarters of its fiscal year.

Example 1: A registrant municipality has a December 31 year-end and files its GST/HST returns quarterly. Therefore, its first claim period ending on or after February 1, 2004, will be the first fiscal quarter of 2004; that is January 1, 2004, ending on March 31, 2004.

Example 2: A non-registrant municipality with a December 31 year-end will have a claim period that covers the period January 1, 2004 to June 30, 2004. Therefore, its first claim period ending on or after February 1, 2004 will be that same period.

Tax payable

The time when tax becomes payable for a particular supply in Canada is a function of both section 152 {when consideration (payment) is due} and section 168 (when tax is payable). The legislative provisions are set out in Appendix A.

The general rule of subsection 168(1) provides that GST/HST is payable by the recipient (in this case, the municipality) of a taxable supply on the earlier of the day the consideration for the taxable supply is paid and the day the consideration becomes due. Note that certain exceptions apply to the general rule.

Subsection 152(1) provides that consideration (payment) is due on the earlier of the day that the supplier first issues an invoice in respect of the supply or the day that the supplier would have, but for an undue delay, issued an invoice or the day the recipient is required to pay that consideration pursuant to an agreement in writing.

The result of the interaction of these rules is that, generally, the GST/HST is payable for a taxable supply by the municipality on the earlier of the date that the payment is made or the date that the invoice is issued.

Examples

In the following examples, assume a claim period that ends on or after February 1, 2004, and that the municipality is eligible to claim the municipal rebate.

The municipality purchases paper. The supplier issues an invoice for the consideration for the supply.

In case 1, the invoice is issued and dated January 31, 2004, but the municipality does not pay until February 27, 2004. The municipality will be eligible for a rebate at the rate of 57.14%.

In case 2, the invoice is issued and dated February 1, 2004, but the municipality does not pay until February 27, 2004. The municipality will be eligible for a rebate of tax at the rate of 100%.

The discussion and examples above deal with a very simple situation. However, the determination of when tax is payable is determined on a case-by-case basis after consideration of all the facts. We note your concern that you may not be in a position to determine all the facts that will allow you to identify the date when tax is payable for a particular transaction. As discussed, unless there is evidence to the contrary, it may be reasonable to use the invoice date to assess rebate entitlement.

Time limit to claim the rebate

Generally, a municipality may claim a municipal rebate at any time up to four years after the last day of the claim period in which the GST/HST was paid or became payable.

The foregoing comments represent our general views with respect to the subject matter of your query. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Revenue Agency with respect to a particular situation.

Should you have further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-4390.

Yours truly,

Suzanne Leclaire
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

Enclosure

Appendix A

152(1) When consideration due - For purposes of this Part, the consideration, or part thereof, for a taxable supply shall be deemed to become due on the earliest of

(a) the earlier of the day the supplier first issues an invoice in respect of the supply for that consideration or part and the date of that invoice;

(b) the day the supplier would have, but for an undue delay, issued an invoice in respect of the supply for that consideration or part and;

(c) the day recipient is required to pay that consideration or part to the supplier pursuant to an agreement in writing.

(2) Consideration under leases, etc. - Notwithstanding subsection (1), where property is supplied by way of lease, licence or similar arrangement under an agreement in writing, the consideration, or any part thereof, for the supply shall, for the purposes of this Part, be deemed to become due on the day the recipient is required to pay the consideration or part to the supplier pursuant to the agreement.

(3) Payment - For the purposes of this Part, where consideration that is not money is given or required to be given, the consideration that is given or required to be given shall be deemed to be paid or required to be paid, as the case may be.

168(1) General rule - Tax under this Division in respect of a taxable supply is payable by the recipient on the earlier of the day the consideration for the supply is paid and the day the consideration for the supply becomes due.

(2) Partial consideration - Notwithstanding subsection (1), where consideration for a taxable supply is paid or becomes due on more than one day,

(a) tax under this Division in respect of the supply is payable on each day that is the earlier of the day a part of the consideration is paid and the day that part becomes due; and

(b) the tax that is payable on each such day shall be calculated on the value of the part of the consideration that is paid or becomes due, as the case may be, on that day.

(3) Supply completed - Notwithstanding subsections (1) and (2), where all or any part of the consideration for a taxable supply has not been paid or become due on or before the last day of the calendar month immediately following the first calendar month in which

(a) where the supply is of tangible personal property by way of sale, other than a supply described in paragraph (b) or (c), the ownership or possession of the property is transferred to the recipient,

(b) where the supply is of tangible personal property by way of sale under which the supplier delivers the property to the recipient on approval, consignment, sale-or-return basis or other similar terms, the recipient acquires ownership of the property or makes a supply of it to any person, other than the supplier, or

(c) where the supply is under an agreement in writing for the construction, renovation or alteration of, or repair to,

(i) any real property, or

(ii) any ship or other marine vessel, and it may reasonably be expected that the construction, renovation, alteration or repair will require more than three months to complete,

the construction, renovation, alteration or repair is substantially completed,

tax under this Division in respect of the supply, calculated on the value of that consideration or part, as the case may be, is payable on that day.

(4) Continuous supplies - Subsection (3) does not apply in respect of a supply of water, electricity, natural gas, steam or any other property where the property is delivered or made available to the recipient on a continuous basis by means of a wire, pipeline or other conduit and the supplier invoices the recipient in respect of that supply on a regular or periodic basis.

(5) Sale of real property - Notwithstanding subsections (1) and (2), tax under this Division in respect of a taxable supply of real property by way of sale is payable

(a) in the case of a supply of a residential condominium unit where possession of the unit is transferred, after 1990 and before the condominium complex in which the unit is situated is registered as a condominium, to the recipient under the agreement for the supply, on the earlier of the day ownership of the unit is transferred to the recipient and the day that is sixty days after the day the condominium complex is registered as a condominium; and

(b) in any other case, on the earlier of the day ownership of the property is transferred to the recipient and the day possession of the property is transferred to the recipient under the agreement for the supply.

(6) Value not ascertainable - Where under subsection (3) or (5) tax is payable on a day and the value of the consideration, or any part thereof, for the taxable supply is not ascertainable on that day,

(a) tax calculated on the value of the consideration or part, as the case may be, that is ascertainable on that day is payable on that day; and

(b) tax calculated on the value of the consideration or part, as the case may be, that is not ascertainable on that day is payable on the day the value becomes ascertainable.

(7) Retention of consideration - Notwithstanding subsections (1), (2), (3), (5) and (6), where the recipient of a taxable supply retains, pursuant to

(a) an Act of Parliament or of the legislature of a province, or

(b) an agreement in writing for the construction, renovation or alteration of, or repair to, any real property or any ship or other marine vessel, a part of the consideration for the supply pending full and satisfactory performance of the supply, or any part thereof, tax under this Division, calculated on the value of that part of the consideration, is payable on the earlier of the day that part is paid and the day it becomes payable.

(8) Combined supply - For the purposes of this section, where a supply of any combination of service, personal property or real property (each of which is in this subsection referred to as an "element") is made and the consideration for each element is not separately identified,

(a) where the value of a particular element can reasonably be regarded as exceeding the value of each of the other elements, the supply of all of the elements shall be deemed to be a supply only of the particular element; and

(b) in any other case, the supply of all of the elements shall be deemed(i) where one of the elements is real property, to be a supply only of real property, and

(ii) in any other case, to be a supply only of a service.

(9) Deposits - For the purposes of this section, a deposit (other than a deposit in respect of a covering or container in respect of which section 137 applies), whether refundable or not, given in respect of a supply shall not be considered as consideration paid for the supply unless and until the supplier applies the deposit as consideration for the supply.

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