File #: 11740-4, 11740-11(km)
S. 152, 168
Dear Mr. XXXXX
Recently a concern was raised with the Department by members of your association regarding the timing of GST liability in respect of progress billings under various construction contracts. Specifically, the issue raised was whether or not the Department considers certain documents issued in respect of these progress billings to be invoices, thereby triggering GST liability. I understand that in some specific cases auditors of the Department have issued assessments against registrants on the basis that such documents were invoices, whereas the various registrants had treated them as applications for payment with GST liability occurring at a later date. Further, I understand that you recently discussed this issue with Mitch Bloom, manager of the Taxing Provisions Unit of my Division.
First, let me confirm that the Department's administrative position on this issue remains as stated in paragraph 10 of GST memorandum 300-6-13. In summary, this administrative position is that if certification by a third party is a condition precedent to the payment of a particular amount pursuant to a written construction contract, then any document issued by the supplier prior to that certification in order to initiate payment (i.e. a request or application for payment) is not considered to be an invoice. The fact that a particular document contains the word "invoice" or is referred to by either the supplier or recipient as an invoice, will not cause that document to be considered an invoice. Further, the fact that a supplier records the amount requested as an accounts receivable in their books of account will not cause that document to be considered an invoice. In both cases the substance of the transaction must be examined. As such, if pursuant to the written construction contract certification by a third party is condition precedent to the payment of the amount, then the document will not be considered an invoice. Notwithstanding the above, if a particular document establishes terms of payment without regard to the certification requirement under that particular written construction agreement, then that document will be considered an invoice and as such will trigger GST liability. However, if a particular document details terms of payment but those terms do not apply to the transaction at hand (e.g. a pre-printed document is used), the Department will consider the document to be an application for payment and not an invoice. The burden of proof in such cases will rest with the supplier, however, it must be clear that the recipient was aware that those terms of payment did not apply.
It is important to note that preliminary policy work on the issue of timing of GST liability under specific scenarios has revealed that the above administrative position may not be supportable under the current legislation. Although policy work continues on this issue and the administrative position stated above could change as a result of that work, any change in the above administrative position would likely be on a prospective basis.
Secondly, the following is a written reply to your letter addressed to me, dated May 4, 1992, on this same topic. These comments are the same as the verbal reply provided to you on May 12, 1992. I apologize for the delay in providing you with a written response.
In summary, your question is whether or not the written agreement between a particular supplier and recipient must expressly make certification a condition precedent to payment in order for the above administrative position to apply. You make reference to a scenario where the written agreement does not make express reference to prior certification as a condition precedent to payment, but payments are in fact subject to prior certification in accordance with customary industry practice.
In order for the above administrative position to apply, the written agreement between a particular supplier and recipient must state that certification is a condition precedent to payment. If the written agreement does not contain such a statement, then any document requesting payment would be considered an invoice, thereby triggering GST liability.
If you have any questions regarding the above comments or if you wish to discuss this issue further, please contact Ken Mathews of my staff at 613-952-9585 or alternately, Sara Nixon of my staff at 613-954-4397.
H.L. Jones
Director
General Applications Division
GST Rulings and Interpretations
GAD#: 1021(GEN)
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