File: 11620-1(MRB)
September 13, 1995
XXXXX
This is further to your facsimile message that was received on September 6, 1995 regarding concerns raised by the above referenced association. In particular you have requested that we provide you with our comments relating to points 2, 3, and 4.
Point 2, Land Lease Transactions
As indicated to you, we have asked Mr. Venne's Real Property Unit to provide you with comments relating to this point. Their comments are attached and should you wish to discuss the matter further you may contact Chantal Quesnel at 952-1513.
Point 3, Bare Trusts
We concur with the association that the application of the GST to bare trust situations is a complex matter. As indicated in the letter, the Department's policy was first released in the summer of 1992. It should be noted that the Department provided bare trust and beneficial owners with a six month grace period to comply with the Department's position in this matter. In addition, this grace period was extended an additional six months following the publication of the Technical Information Bulletin.
We would like to confirm that the transfer of legal ownership of property held in a bare trust without any change in the beneficial ownership is not a disposition of property for GST purposes. This parallels the treatment under the Income Tax Act. It should be noted that although there is no distribution for income tax purposes when property is settled with a trustee or distributed to the beneficial owners, there is a supply for GST purposes. However, legal title without the equitable interest would normally have little or no monetary value and, as such, the settling of the legal title in a bare trust and the transfer of the title to the beneficial owners would normally have no GST implications.
Point 4, GST 60 and the Application of Penalty and Interest
The association has indicated that unlike income tax, there are situations where penalty and interest is payable even though the Department has received all funds owing on time. Subsection 280(1) of the Excise Tax Act only provides for the application of penalty and interest where a person has failed to pay or remit an amount.
The first example provided by the association is the "wash transaction" situation. It should be noted that in these cases, the person has failed to charge tax on a taxable supply to another registrant who is entitled to claim a full input tax credit. As a result, the person has not accounted for the tax in its net tax calculation and, as a consequence, has failed to remit an amount of net tax. Therefore, the person may be assessed net tax to account for that tax and the corresponding penalty and interest. Recognizing that a "wash" situation does not represent a revenue loss to the government, the Department may waive or cancel the penalty and interest that is in excess of 4% of the tax not properly charged. Given that the tax has not been charged and accounted for by the person, the Department has not received the funds on time.
The second example relates to the filing of the GST 60 and the claiming of an input tax credit. We confirm that paragraph 169(4)(b) of the ETA stipulates that, where subsection 221(2) applies, an input tax credit relating to the purchase of real property may not be claimed until the purchaser has filed the GST 60. This ensures that a net tax refund is not claimed and paid to the person before the Department receives the funds that are owing on the sale. In other words, the purchaser cannot benefit from the use of the refund while the tax payable remains outstanding. The Act does provide that penalty and interest will be applied where a person has failed to pay the amount of tax owing on the sale of real property, therefore, it is important that the person files the GST 60 on time. When the GST 60 is filed together with the regular return in which the person claims the relating input tax credit, any resulting net tax refund will be applied against the person's tax liability reported on the GST 60.
If the GST 60 is filed late together with a regular return in which the input tax credit is claimed, under the legislation, penalty and interest is payable with respect to the amount owing on the GST 60. An administrative tolerance policy has been established to permit, in certain circumstances, the full waiver of penalty and interest on the late submission of the GST 60. This tolerance is only available if the GST 60 liability is offset by a corresponding input tax credit and the person does not achieve any monetary gain. For your information, we have attached a copy of this policy.
It is our understanding that the Deputy Minister has informed the XXXXX of this policy in his written response to the concerns raised in their February 8, 1994 letter to the Minister of National Revenue . If any of the XXXXX members have been assessed penalty and interest for such situations, we would suggest that they contact their local Revenue Canada office and request a cancellation of these charges. In turn, the district office can examine the circumstances of each case and determine whether relief can be provided.
As you may be aware, the Audit policy also provides that penalty and interest will not be assessed where a person has failed to file a GST 60 and has not claimed an input tax credit, provided that there are no revenue implications (i.e., the purchaser is entitled to a full input tax credit). This policy is addressed in a memorandum dated April 14, 1994 that indicates that an audit directive will be issued to reinforce this policy
In addition, the association may be interested in knowing that Department is currently reviewing the regular GST return for registrants. Consideration is being given to including the reporting of the tax payable on the purchase of real property on the regular return to facilitate the reporting requirements and the offset of the tax payable by any available net tax refund.
I would like to thank you for the opportunity to provide you with our comments and I hope that the above information is of assistance to you in preparing your response. Should you wish to discuss these issues further, please do not hesitate to contact Marcel Boivin at 954-2488.
H.L. Jones
Director
General Applications Division
GST Rulings and Interpretations
GEN(2441) XXXXX
| c.c.: |
W. McCloskey,
H.L. Jones,
D. Caron,
M. Boivin,
C. Quesnel,
R. Wong |
Email this Content