29 February 2000 GST/HST Interpretation 13552 - Date for Currency Conversion

Dear Sirs:

Thank you for your letter of November 22, 1999 concerning the application of the Goods and Services Tax (GST) on taxable supplies made by your client in 1992 and in 1998 that were audited and assessed in 1999, resulting in your client issuing invoices to customers for the tax applicable to these supplies.

Interpretation Requested

You have presented the following facts:

•   A US resident corporation (USCO) is considered to be carrying on business in Canada effective January 1, 1991, and, as such, was required to be registered for GST purposed as of that date.

•   USCO was not registered for, nor did it collect or remit any GST on taxable supplies made in Canada for the period January 1, 1991 to June 30, 1999.

•   USCO made a voluntary disclosure in respect of the failures set out above, and was duly assessed upon audit.

•   Under the Canada Customs and Revenue Agency's (CCRA's) own policy, USCO is not subject to any penalty or interest on its failure to register for or collect and remit tax at the correct time, but it is required to collect and remit tax due.

•   In order to pay the assessment levied on audit, USCO raised GST-only invoices to recover the tax originally due dated October 1999.

Your questions center on two scenarios and how to deal with the different results when invoicing GST in US funds.

Interpretation Given

You have indicated that your client has been assessed. Apparently, the assessment dealt with the CCRA's application of the voluntary disclosure, wash transaction, or fairness policies. Since your client's situation is factual it is not appropriate nor is it within the mandate of this Directorate to review or comment on a decision that was made as part of the assessment process. If you desire further information with respect to the application of these policies as they apply to your client, you should contact Wayne Hood, Senior Appeals Officer, Fairness and Communications Section, Appeals Directorate at (613) 954-4810.

You have stated that the CCRA's voluntary disclosure policy was applied to waive both the penalty and interest. Please note that registrants who make a voluntary disclosure have to pay only the amount of tax owed, plus any relevant interest. In order for the interest portion to have been waived it would appear that the CCRA policy regarding wash transactions would have also been applied.

In the first scenario, your client is assessed for GST not remitted on a particular transaction, in the amount of XXXXX From the facts provided, the recipients of the supply in June 1992, were issued a GST-only invoice in American dollars in October 1999, based on 7% of the original invoice amount rather than the amount assessed by the CCRA. Consequently, the amount collected on or account of tax is the equivalent of XXXXX using the conversion factors supplied in scenario 1. It is our view that the difference of $28.14 CAD is an amount collected as or on account of tax and is due under subsections 222(1) and 225(1) of the Excise Tax Act.

In the second scenario, similar to the above, the GST-only invoice was issued in June 1999, based on 7% of the consideration invoiced in October, 1998. In this case, however, the Canadian dollar had strengthened and the amount collected as or on account of tax was less than the tax assessed on the transaction. In this case the loss on currency conversion could be treated in accordance with accounting principles and the applicable income tax provisions of the appropriate jurisdiction.

The foregoing comments represent our general views with respect to the subject matter of your letter. 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 Department with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at.

Yours truly,

David Crawford
General Operations Unit
General Operations & Border Issues Division
GST/HST Rulings and Interpretations Directorate