11 January 2005 GST/HST Interpretation 54061 - Clarification of Band-Empowered Entities (BEEs): the status of XXXXX

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.

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to garnishments.

Interpretation Requested

1. Does subsection 317(2) of the Excise Tax Act (ETA) apply only to circumstances in which the financial institution holds security over assets of the tax debtor?

2. What is the legal validity of a Notice issued under subsection 317(2) of the ETA in circumstances in which the Canada Revenue Agency (CRA) believes, in good faith, that the financial institution holds security over assets of the tax debtor but, in fact, the financial institution does not hold such security?

3. Do subsections 317(2) and (8) operate in a manner such that if a financial institution receives a valid notice under subsection 317(2) and refuses to provide a payment to the CRA that it would not, pursuant to the provisions of subsection 317(8) of the ETA, suffer any jeopardy to the CRA? Can you confirm that there is no civil sanction against a financial institution unless it advances funds to a tax debtor in contravention of the notice issued under subsection 317(2) of the ETA?

4. Please provide us with the current form of notice issued under subsection 317(2) of the ETA.

Interpretation Given

1. Does subsection 317(2) of the Excise Tax Act (ETA) apply only to circumstances in which the financial institution holds security over assets of the tax debtor?

Subsection 317(2) of the ETA applies where the tax debtor is indebted to the institution and has granted security in respect of the indebtedness.

2. What is the legal validity of a Notice issued under subsection 317(2) of the ETA in circumstances in which the Canada Revenue Agency (CRA) believes, in good faith, that the financial institution holds security over assets of the tax debtor but, in fact, the financial institution does not hold such security?

Subsection 317(2) of the ETA gives the Minister the right to issue a notice where the Minister knows or suspects that the institution will within ninety days loan or advance moneys to, or make a payment on behalf of, or make a payment in respect of a negotiable instrument issued by a tax debtor who is indebted to the institution and who has granted security in respect of the indebtedness. Therefore, where the Minister acting in good faith believes that the tax debtor has given security in respect of the indebtedness, the notice issued to the institution is a legally valid document.

3. Do subsections 317(2) and (8) operate in a manner such that if a financial institution receives a valid notice under subsection 317(2) and refuses to provide a payment to the CRA that it would not, pursuant to the provisions of subsection 317(8) of the ETA, suffer any jeopardy to the CRA? Can you confirm that there is no civil sanction against a financial institution unless it advances funds to a tax debtor in contravention of the notice issued under subsection 317(2) of the ETA?

Where the institution receives a valid garnishment notice under the provisions of subsection 317(2) of the ETA and the institution refuses to provide a payment to the CRA, subsection 317(8) of the ETA provides that the institution is liable to pay to Her Majesty in right of Canada an amount equal to the lesser of

(a) the aggregate of the moneys so loaned, advanced or paid, and

(b) the amount that the institution or person was required under subsection 317(2) of the ETA to pay to the Receiver General.

The institution may be assessed under subsection 317(9) of the ETA for any amount payable by the institution to the Receiver General under section 317 of the ETA and, where the Minister sends a notice of assessment, sections 296 to 311 apply, with such modifications as the circumstances require.

Subsection 313(1) of the ETA defines a "tax debt" to mean an amount payable or remittable by a person under this Part. As there is a tax debt (an amount payable by the institution under section 317 of Part IX of the ETA) due from the institution to Her Majesty in right of Canada, subsection 313(1.1) provides that the debt is recoverable as such in the Federal Court or any other court of competent jurisdiction or in any other manner provided under Part IX of the ETA.

With respect to civil sanctions under the provisions of the ETA, subsection 280(1) of the ETA provides that where a person fails to remit or pay an amount to the Receiver General when required under Part IX of the ETA, the person shall pay on the amount not remitted or paid a penalty of 6% per year and interest at the prescribed rate.

Provided the institution does not loan or advance moneys to, or make a payment on behalf of, or make a payment in respect of a negotiable instrument issued by, a tax debtor who is indebted to the institution and who has granted security in respect of the indebtedness, civil penalties provided for under the ETA will not apply.

4. Please provide us with the current form of notice issued under subsection 317(2) of the ETA.

The current form of notice issued under subsection 317(2) of the ETA is an internally generated computer form that is sent to a particular financial institution and it is not available for general distribution.

The foregoing comments represent our general views with respect to the subject matter of your letter. 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 any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-7931.

Yours truly,

Anne Kratz
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2005/01/17 — RITS 54529 — Application of GST/HST to XXXXX