29 August 1994 GST/HST Interpretation 1994-08-29[1] - Sales of Goods by Auction to an Indian

The following is further to your request which we received on March 1, 1994 to review the application of the GST to auction sales and your request, received on April 26, 1994, concerning the interpretation provided to the XXXXX on April 20, 1994. We apologize for the delay in providing you with our response.

More specifically, you requested that we review the entitlement to a notional input tax credit (ITC) where a sale of personal property is made by an auctioneer on behalf of a non-registrant principal to an Indian recipient for delivery by the auctioneer to a reserve.

We confirm that pursuant to paragraph 177(1.2)(c) of the Excise Tax Act (the ETA) a supply by auction of personal property is deemed to have been made by the auctioneer and not by the principal. In addition, paragraph 177(1.2)(d) of the ETA provides that the principal is deemed to have made a supply of the property to the auctioneer where at one or more times the auctioneer remits to, or credits in favour of, the principal an amount on account of the supply made to the recipient.

Where tax is not payable on the supply deemed to have been made by the principal (i.e. the principal is a non-registrant), subparagraph 177(1.2)(d)(i) of the ETA establishes that the amount of the consideration for this deemed supply is equal to the total of the consideration and the tax payable by the recipient. Subsection 177(1.3) of the ETA refers to this total as the particular amount.

As you are aware, a taxable supply of property made to an Indian and delivered to a reserve by the vendor or the vendor's agent is not subject to tax. Vendors are required to maintain appropriate documentation that the sale was made to an Indian and that the property was delivered to a reserve. Although the supply to the Indian remains a taxable supply, there is no tax payable. It is the Department's position that in the circumstances indicated above where the supply by the auctioneer is made to an Indian for delivery to a reserve, the consideration for the deemed supply made by the principal to the auctioneer is equal to the consideration for the supply made by the auctioneer to the recipient. No amount will be taken into account for the tax payable in this particular calculation under subparagraph 177(1.2)(d)(i) of the ETA as the supply in question is not subject to tax.

Subsection 177(1.3) of the ETA allows auctioneers, who have been deemed to have received a supply made by the principal, to claim a notional ITC under section 176 provided they have been deemed to have paid consideration equal to a particular amount determined under subparagraph 177(1.2)(d)(i). Subparagraph 177(1.3)(b)(ii) of the ETA imposes a further restriction for claiming a notional ITC. The auctioneer must remit to, or credit in favour of, the principal an amount on account of the supply equal to the amount, if any, by which the particular amount exceeds the consideration and the tax payable for the auctioneer's services relating to the supply of the property.

Subsection 177(1.3) of the ETA does not restrict the claiming of notional ITCs to situations where tax is payable at the rate of 7% by the recipient of the property sold by the auctioneer. Furthermore, section 176 of the ETA does not restrict the claiming of notional ITCs when the supply in question is made to an Indian for delivery to a reserve and not subject to tax.

As such, we concur with your interpretation that an auctioneer may claim a notional ITC in the situation described above. This parallels the claiming of notional ITCs by registrants who supply used goods, for which tax was not payable upon their acquisition, that are subsequently sold to Indians for delivery to a reserve.

We recognize that a benefit accrues to the auctioneer in these circumstances as the notional ITC is not passed on to the principal to remove the unrecoverable tax originally paid by the principal. Although the intent of the legislation expressed in the explanatory notes may be frustrated, the wording of the legislation clearly supports the claiming of a notional ITC. It should be noted that the benefit which accrues to the auctioneer parallels the benefit which accrues to a vendor of used goods who does not voluntarily pass on this benefit to the original owner (i.e. a new car dealer who does not pass on the benefit of the notional ITC to the purchaser in establishing the consideration for the used vehicle trade-in.).

We trust that the above information will be useful. Should you require additional information, please do not hesitate to contact Marcel Boivin at (613) 954-2488.

H.L. Jones
Director
General Tax Policy
Policy and Legislation
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