20 July 2001 GST/HST Ruling 31125 - Equalized Billing Plans

Dear XXXXX:

Thank you for your letter of March 1, 2001, with attachments, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to charges made under an equalized billing plan.

Statement of Facts

Our understanding of the facts is as follows:

•   The XXXXX offers its customers the ability to pay the costs associated with energy consumption under a budget payment program (i.e., an equal payment/billing plan).

•   Under the program, customers pay an equal/budget amount on a monthly basis over a 12-month period with any accumulated difference between the budgeted amounts and the actual charges for energy consumption over the period settled in the 12th invoice.

•   The budget amount includes XXXXX and XXXXX takes this amount of XXXXX collectible into account in its net tax calculation for the reporting period during which an invoice is issued for the budget payment.

•   The monthly invoice issued to its customers by XXXXX under the budget payment program includes information relating to the actual energy consumption for the period as well as the budget payment owing for the period.

•   At the time of invoicing, the customer is only required to pay the budget amount, which includes the XXXXX, under the budget payment program offered by XXXXX.

Ruling Requested

You believe that, under the budget payment program, XXXXX is required to account for the HST collectible in its net tax calculation based on the amount charged for the actual energy consumed during the time period covered by the invoice issued by XXXXX as opposed to the budget amount.

Ruling Given

Based on the facts set out above, we rule that XXXXX is required to account for the XXXXX collectible in its net tax calculation based on the tax-included budget amount that the customer is required to pay pursuant to sections 168, 221 and 225 of the Excise Tax Act.

This ruling further clarifies and is consistent with the rulings issued to XXXXX on XXXXX, and XXXXX, by the XXXXX and the XXXXX GST/HST Rulings Centre.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts for which you requested a ruling.

Explanation

The following explanation is in addition to the one provided in the ruling issued on XXXXX.

Pursuant to subsection 221(1) of the Excise Tax Act (the ETA), a supplier, who makes a taxable supply, is required to collect the GST/HST payable by the recipient in respect of the supply as agent of Her Majesty in right of Canada. The tax is collectible by the supplier at the same time that it is payable by the recipient.

Subsection 168(1) of the ETA provides that GST/HST is payable by the recipient of a taxable supply on the earlier of the day the consideration for the supply is paid and the day the consideration becomes due. Where the consideration for a taxable supply is paid or becomes due on more than one day, subsection 168(2) of the ETA provides that the tax is payable (and, therefore, collectible by the supplier), on each day that is the earlier of the day a part of the consideration is paid and the day that part becomes due. In other words, the tax is only payable on the partial payment as it becomes due or is paid whichever is earlier. This applies equally to partial payments that are considered to be prepayments.

For GST/HST purposes, consideration includes any amount that is payable for a supply by operation of law.

Under the budget payment program, XXXXX requires the customer to pay only the budget payment amount throughout the 12-month period and not the actual charges associated with the energy consumed. Only in the 12th month, where a reconciliation is made, does XXXXX require the customer to pay an additional amount to cover any difference between the budget payments and the actual charges for energy consumed during the 12-month period. It should be noted that whether the program is called an equal billing plan, a budget billing/payment plan or a budget payment program does not affect the application of the GST/HST.

Even though the invoice issued by XXXXX under the budget payment program specifies the actual amount charged for the energy consumed during the period, the customer is only required to pay XXXXX the budget amount indicated on the invoice. The budget amount is the consideration, or part thereof, that the customer is required to pay under the budget payment program upon the issuance of the invoice by XXXXX. In applying subsection 152(1) of the ETA, which was explained in our earlier ruling, for GST/HST purposes, the budget payment is deemed to become due on the date of the invoice issued by XXXXX. It is at this time that the GST/HST is collectible by XXXXX in respect of the budget payment. Given that the budget payment is inclusive of XXXXX, the tax included in the payment must be accounted for in XXXXX net tax calculation for the reporting period during which the invoice was issued.

With respect to the disclosure of GST/HST information on an invoice, where the amount payable includes the GST/HST, subsection 223(1) of the ETA stipulates that a registrant who makes a taxable supply must indicate to the recipient in the invoice or receipt issued, or the agreement entered into, that the amount payable includes the tax. Upon reviewing the "mock-up" invoice you included in your submission and the current actual invoice in use by XXXXX that you submitted previously, it is noted that the disclosure requirements are not met in the invoice itself given that there is no indication that the budget payment includes the tax.

As you are aware, the ETA also provides documentary requirements for the purposes of claming input tax credits (ITCs). To prevent your customers who are entitled to claim ITCs from making a request for additional information to substantiate their ITC claim, you may also wish to modify your invoices to meet the ITC documentary requirements. For your information, I have enclosed a copy of the Input Tax Credit Information (GST/HST) Regulations as well as the provisions of section 223 of the ETA. It should be noted that any ITCs claimed by your customers in respect of energy consumption should be based on the tax-included budget payment and not on the actual energy consumed.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-2488.

Sincerely,

Marcel R. Boivin
General Operations Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

Enclosure