Documentary Requirements (GST 400-1-2)

Notice to the reader:

Please note that the following GST Memorandum, although correct at the time of issue, has not been updated to reflect any subsequent legislative changes since the date of issue. As a result, some of the technical information this memorandum contains may no longer be valid. Please contact your GST/HST Rulings Centre for assistance.

GST memoranda 400-1-2

Bill C-62, the proposed legislation on the Goods and Services Tax, received third reading and was passed by the House of Commons on April 10, 1990. Although this Bill has not yet received Royal Assent, Revenue Canada would like to help businesses and organizations prepare for the tax. Accordingly, the information contained in this memorandum, although subject to change, is being provided at this time for your convenience.

Ottawa, November 8, 1990
INPUT TAX CREDITS
DOCUMENTARY REQUIREMENTS

This memorandum in the Input Tax Credits (ITC) series describes the general documentary evidence registrants must obtain prior to claiming an ITC in respect of a supply of property or a service for a reporting period, for purposes of the proposed Goods and Services Tax (GST).

LEGISLATIVE REFERENCES

Excise Tax Act - subsections 169(4), 169(5), 221(2), 228(4), 286(3), sections 120, 123, 170, 174, 175, 176, 223, 236 and 284

Income Tax Act - subparagraph 6(6)(a)(ii), section 67.1

Proposed Input Tax Credit Information Regulations

TABLE OF CONTENTS

Definitions 2
General 4
Documentary and Information Requirements: Overview 5
Types of Input Tax Credits 6
Full ITCs 6
Apportioned ITCs 7
Special Case ITCs 8
Limitations 9
General Documentary and Information Requirements 10
Total Amount Under $30 12
Total Amount of $30 or More, But Less Than $150 12
Total Amount of $150 or More 13
Retention of Evidence 14
Credit Card Receipts 14
Exemptions 15
Inability to Meet Subsection 169(4) Requirements 15
Unvouchered Cash Payments to Coin- and/or 16
Dollar-Bill-Operated Machines
Computerized Records 18
Contractual Agreements 20
Meal and Entertainment Expenses 21
General Treatment 21
Meals and Entertainment - Direct Expenses 22
Meals and Entertainment - Reimbursements 22
Meal and Entertainment Expenses - Allowances 25
Reimbursements - General 28
Reasonable Allowances 30
Real Property 33
Penalty 35

DEFINITIONS

The following definitions have either been taken from the Excise Tax Act (as amended by Bill C-62) or represent departmental interpretations of terms relevant to the administration of that Act.

"Act" means the proposed Excise Tax Act as amended by Bill C-62;

"business" includes a profession, calling, trade, manufacture or undertaking of any kind whatever, whether the activity or undertaking is engaged in for profit, and any activity engaged in on a regular or continuous basis that involves the supply of property by way of lease, licence or similar arrangement, but does not include an office or employment;

"Department" means the Department of National Revenue, Customs and Excise;

"document" includes money, a security and a record;

"exclusive", in respect of the consumption, use or supply of property or a service, means all or substantially all of the consumption, use or supply of the property or service, and "all or substantially all", in respect of the consumption, use or supply of property or a service by a financial institution, means all of the consumption, use or supply of the property or service;

"input tax credit" means a credit claimed by a registrant for the Goods and Services Tax paid or payable on any property or service used, consumed or supplied in the course of a commercial activity;

"invoice" includes a statement of account, a bill and any other similar record, regardless of its form or characteristics, and a cash register slip or receipt;

"Minister" means the Minister of National Revenue;

"money" includes any currency, cheque, promissory note, letter of credit, draft, traveller's cheque, bill of exchange, postal note, money order, postal remittance and other similar instrument, whether Canadian or foreign, but does not include currency the fair market value of which exceeds its stated value as legal tender in the country of issuance or currency that is supplied or held for its numismatic value;

"prescribed" means

(a) in the case of a form, the information to be given on a form or the manner of filing a form, prescribed by the Minister, and

(b) in any other case, prescribed by regulation or determined in accordance with rules prescribed by regulation;

"recipient" in respect of a supply, means the person who pays or agrees to pay consideration for the supply or, if no consideration is or is to be paid for the supply, the person to whom the supply is made;

"record" includes a book, an account, a statement, a voucher, an invoice, a letter, a telegram, an agreement and a memorandum, whether recorded in writing or in some other manner and whether or not some process must be applied to the record to make it readily intelligible;

"registrant" means a person who is registered, or who is required to apply to be registered, under sections 240 and 241 of the Excise Tax Act;

"tax" means the Goods and Services Tax imposed under Part IX of the Excise Tax Act.

GENERAL

1. Documentary and information requirements necessary to claim ITCs are linked to the general obligation to disclose tax placed on every registrant making a taxable supply.

2. Subsection 223(1) of the Act imposes a statutory obligation on all registrants making a taxable supply to indicate to the recipient of the supply, either:

(a) the consideration paid or payable by the recipient for the supply and the tax payable in respect of the supply in a manner that clearly indicates the amount of the tax; or

(b) that the amount paid or payable by the recipient for the supply includes the tax payable in respect of the supply.

3. These indications must appear either:

(a) in the prescribed manner;

(b) on the invoice or receipt issued to the recipient in respect of the supply; or

(c) in an agreement in writing entered into with the recipient of the supply.

4. The obligation to disclose tax relates to the making of a taxable supply, which is defined in subsection 123(1) of the Act as meaning " ... a supply that is made in the course of a commercial activity, but does not include an exempt supply". Subsection 123(1) defines supply to mean " ... the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition".

5. Consequently, registrants making a combination of taxable and exempt supplies within the same transactions are obliged to disclose tax only on the taxable supply or supplies.

6. Subsection 223(2) requires a supplier to provide specific documentary and information requirements to a recipient who wishes to claim an ITC or rebate in respect of a supply. Pursuant to this subsection, any person who makes a taxable supply to another person must, on the request of that other person, furnish, in writing, such particulars of the supply as may be required to substantiate the ITC or rebate claim.

DOCUMENTARY AND INFORMATION REQUIREMENTS: OVERVIEW

7. Subsections 169(4) and 169(5) are the legislative provisions that impose a legal responsibility on registrants wishing to claim ITCs in relation to documentary evidence.

8. Paragraph 169(4)(a) sets out the general statutory and regulatory documentary and information requirements governing the claiming of ITCs. Paragraph 169(4)(b) provides that when real property is sold to a registrant in cases where subsection 221(2) applies, the registrant may claim an ITC only if the return required to be filed pursuant to subsection 228(4), with respect to the supply, has been filed.

9. Subsection 169(5) provides for the creation of discretionary ministerial exemptions from the statutory and regulatory documentary and information requirements established by subsection 169(4).

TYPES OF INPUT TAX CREDITS
Full ITCs

10. Pursuant to subsection 169(1), full ITCs are claimable when taxable property or a service is acquired or imported by a registrant for consumption, use or supply exclusively in the course of commercial activities. For purposes of claiming an ITC, "exclusively" means 90 per cent or more consumption, use or supply in the course of commercial activities.

11. Subject to the restrictions set forth in section 170 of the Act, registrants may claim 100 per cent of the GST paid or payable for the taxable property or service in a reporting period. The full ITC is the total of:

(a) the tax paid or payable on all taxable property and services acquired in Canada in a reporting period; and

(b) the tax paid or payable on all property imported into Canada in a reporting period.

12. Documentary and information requirements to substantiate full ITC claims may fall within the legislative and regulatory framework created pursuant to subsection 169(4), or under the ministerial exemptions created under subsection 169(5).

Apportioned ITCs

13. Pursuant to subsection 169(2), apportioned ITCs are claimable when taxable property or a service is acquired or imported by a registrant for consumption, use or supply (in this subsection referred to as "intended use") partly in the course of commercial activities, and subsection 169(1) does not apply. Apportionment applies when goods or services are not used exclusively in commercial activity, such as when registrants use a taxable input in both commercial and personal activities, or when a combination of taxable (including zero-rated) and exempt supplies is produced by the registrant.

14. Subject to the application of section 147 and to the restrictions set forth in section 170 of the Act, registrants may claim a percentage of tax paid or payable on the property or service corresponding to the extent of its use in commercial activities. Special apportionment rules apply in relation to passenger vehicles and aircraft, capital personal property of non-financial institution registrants and capital real property acquired by public sector bodies.

15. Documentary and information requirements to substantiate apportioned ITC claims must include, over and above the requirements pursuant to subsection 169(4) or 169(5), the following:

(a) sufficient information to identify the allocation method used;

(b) sufficient information to establish its reasonableness in the registrant's circumstances; and

(c) sufficient information to establish that it is being applied consistently throughout the fiscal year by the registrant.

Subsection 170(2) applies to all ITC claims. It provides that no ITC may be claimed by a registrant in respect of a particular taxable supply except to the extent that both the nature of the supply and the consideration for the supply are reasonable with respect to the commercial activities of the registrant.

16. The above information must be retained by the registrant and made available to the Minister, on request, in order to validate apportioned ITC claims.

Special Case ITCs

17. Special case ITCs are claimed pursuant to various statutory provisions that set forth various legislative application criteria.

18. Documentary and information requirements to substantiate special case ITCs must, over and above the requirements of subsections 169(4) and 169(5), include sufficient information to substantiate the application of the special statutory rules giving rise to the relevant ITC.

LIMITATIONS

19. Pursuant to subsection 170(1) and other legislative provisions of the Act generally, registrants are not eligible to claim ITCs for the GST paid or payable on:

a) membership fees or dues to any club the main purpose of which is to provide dining, recreational or sporting facilities;

b) any property or service purchased by a registrant for the exclusive personal consumption, use or enjoyment of the registrant, his/her employee or an individual who was, is, or agrees to become, an officer or employee of the registrant;

c) any property supplied by lease, licence or similar arrangement primarily for the personal consumption, use or enjoyment of the registrant, an officer, shareholder, beneficiary of a trust or any other related individual;

d) the acquisition, importation or improvement of capital personal property, unless the property is used primarily (more than 50 per cent) in the registrant's commercial activities; and

e) any payments, including wages and other remuneration (for example, contributions to pension plans, group life insurance premiums, retirement allowances, deferred profit-sharing plans), interest or dividends, tax-exempt or zero-rated supplies, and federal, provincial, and municipal taxes (including licence fees, fines, penalties and other statutory levies).

GENERAL DOCUMENTARY AND INFORMATION REQUIREMENTS

20. Subsection 169(4) sets out the minimum documentary and information requirements that a registrant must obtain prior to filing a return for the reporting period in which the ITC is claimed.

21. Pursuant to paragraph 169(4)(a), a registrant may not claim an ITC in respect of a supply of property or a service for a reporting period unless, before filing the return in which the ITC is claimed, the registrant has obtained sufficient evidence in such form, containing such information, as will enable the amount of the ITC to be determined, including any such information as may be prescribed by regulation.

22. Generally, documentary and information requirements obtained in support of ITC claims will be the same receipts, invoices and agreements in writing currently retained by businesses to support expense deductions under the Income Tax Act.

23. For purposes of the regulations to be prescribed pursuant to paragraph 169(4)(a), "supporting documentation" will include:

(a) an invoice;

(b) a receipt;

(c) a cash register receipt;

(d) a bill of sale;

(e) a credit card receipt;

(f) a debit note;

(g) a statement of account;

(h) a book or ledger of account;

(i) a written contract or agreement;

(j) any record contained in a computerized or electronic retrieval or data storage system; and

(k) any other document validly issued or signed by a registrant in respect of a purchase on which the GST is paid or payable.

24. The information requirements for ITC claims will depend on the total amount shown on the supporting documentation for the supply or supplies reflected in the supporting documentation.

Total Amount Under $30

25. Where the total amount shown on the supporting documentation, for the supply or supplies reflected in the supporting documentation, is under $30, the minimum prescribed information which must be obtained through the supporting documentation includes:

(a) the supplier's name or trading name;

(b) the date or dates when the GST in respect of the supply or supplies was paid or became payable; and

(c) the total amount paid or payable for the supply or supplies.

Total Amount of $30 or More, But Less Than $150

26. When the total amount shown on the supporting documentation, for the supply or supplies reflected in the supporting documentation, is $30 or more, but less than $150, the minimum prescribed information that must be obtained through the supporting documentation includes items (a) to (c) of paragraph 25 of this memorandum, as well as:

(a) the registration number of the supplier; and

(b) (i) when the supply or all supplies are not made on a tax-included basis, the amount of GST charged on each supply or all supplies; or

(ii) when the supply is on a tax-included basis or all supplies are on a tax-included basis at the same rate of tax (0 per cent or seven per cent), a statement to that effect and an indication of the rate of tax; or

(iii) when the supply is an exempt supply or all supplies are exempt, a statement to that effect; or

(iv) when the tax status of two or more supplies is different, the tax status of each supply and the rate of tax with respect to each taxable supply.

Total Amount of $150 or More

27. When the total amount shown on the supporting documentation, for the supply or supplies reflected in the supporting documentation, is $150 or more, the minimum prescribed information that must be obtained through the supporting documentation includes items listed in paragraphs 25 and 26 of this memorandum, as well as:

(a) the recipient's name, trading name, or the name of his or her duly authorized agent or representative; and

(b) a description sufficient to identify each supply.

Retention of Evidence

28. Registrants claiming ITCs will not be required to submit supporting documentation with their returns. However, documentation and information required pursuant to subsections 169(4) or 169(5) must be retained until the expiration of six years after the end of the year to which they relate or for such other period as may be prescribed under subsection 286(3) of the Act.

Credit Card Receipts

29. As a general rule, when a credit card receipt is issued in conjunction with another component of supporting documentation, both components must be obtained and retained together by the registrant before the return in which the ITC is claimed is filed.

30. For supplies made in the hospitality industry and by gasoline service stations and dealers, a credit card receipt will constitute sufficient supporting documentation to claim an ITC, provided the credit card receipt meets all of the information requirements prescribed by regulations made pursuant to paragraph 169(4)(a) of the Act.

31. Where no other supporting documentation is issued in conjunction with a credit card receipt, the credit card receipt will constitute sufficient supporting documentation to claim an ITC provided that it meets all of the documentary and information requirements prescribed by regulations made pursuant to paragraph 169(4)(a) of the Act.

EXEMPTIONS
Inability to Meet Subsection 169(4) Requirements

32. If registrants are unable to fulfil the documentary and information requirements pursuant to subsection 169(4), or they are unable to obtain the information required prior to filing a return in the period in which the ITC is claimed, registrants will be required to determine whether these taxable supplies fall under the ministerial discretionary exemptions established pursuant to subsection 169(5).

33. Pursuant to subsection 169(5), the Minister is given discretionary power in certain circumstances to exempt a specified registrant, a specified class of registrants or registrants in general from the statutory and regulatory documentary and information requirements of subsection 169(4), or any provision thereof, in respect of a taxable supply or a class of taxable supplies.

34. This provision also permits the Minister to specify the terms and conditions of the exemption.

35. At this time, ministerial discretionary exemptions for all registrants, generally, from the application of paragraph 169(4)(a), ITC documentary and information requirements, include:

(a) unvouchered cash payments made to coin- and/or dollar- bill-operated machines;

(b) computerized records;

(c) contractual agreements;

(d) meal and entertainment expenses (only where prescribed factor is used to calculate eligible ITC);

(e) reimbursements (only where prescribed factor is used to calculate ITC eligibility); and

(f) allowances.

Unvouchered Cash Payments to Coin- and/or Dollar-Bill-Operated Machines

36. When a property or a service is acquired by a registrant for consumption, use or supply in the course of the commercial activities of that registrant, and such property or service is paid for using coins or dollar bills that are dispensed into a coin- and/or dollar-bill-operated machine, and no voucher is discharged by the machine or provided by the supplier operating the machine, registrants may be unable to meet the statutory and regulatory requirements established pursuant to paragraph 169(4)(a).

37. In cases where such cash payments are subject to supporting documentation that can and does meet the statutory and regulatory requirements under paragraph 169(4)(a), such supporting documentation must be obtained by the registrant prior to the filing of a return.

38. However, where the registrant is unable to meet these requirements prior to the filing of a return in which such an ITC is claimed, or if the said documentation fails to satisfy the legal requirements under subsection 169(4), the Minister will exempt registrants, generally, from the requirements of subsection 169(4).

39. This exemption will apply when unvouchered cash payments made by a registrant for reasonable amounts, as determined in relation to the particular commercial activity and other relevant characteristics of the registrant submitting the ITC claim, are documented in the registrant's proper books and records. These books and records must capture the following:

(a) sufficient information to identify the location where the taxable supply was made;

(b) sufficient information to identify the reporting period when the GST in respect of the supply was paid or became payable;

(c) the consideration paid for the supply;

(d) the amount of GST paid or payable; and

(e) sufficient information to identify the nature and quantity of the supply.

40. The above-mentioned books and records must be made available, on request by the Minister, in order to permit the establishment of particulars with respect to the supply and the tax paid on the supply.

Computerized Records

41. Given the rapid changes in computer technology that affect the transactions and operations of registrants, the particulars of numerous taxable supplies and the tax paid or payable on them will not necessarily be available in such a manner as to permit registrants to comply with the statutory and regulatory requirements established pursuant to paragraph 169(4)(a).

42. In cases where the physical documentation issued by a supplier's electronic or computerized system can and does meet the statutory and regulatory requirements under paragraph 169(4)(a), such supporting documentation must be obtained by the registrant prior to the filing of a return.

43. However, where the registrant is unable to meet these requirements before filing a return in which an ITC is claimed, or if the said documents fail to satisfy the requirements under subsection 169(4), the Minister may exempt registrants, generally, from the requirements of subsection 169(4).

44. This exemption will apply where a registrant maintains proper computerized books and records which capture the following:

(a) sufficient information to identify the supplier's name or trading name and address (or that of the supplier's duly authorized agent or representative);

(b) the supplier's registration number;

(c) sufficient information to identify when the GST in respect of the supply was paid or became payable and the amount of GST paid or payable;

(d) sufficient information to identify the name or trade name and address of the recipient of the supply (or that of his or her duly authorized agent or representative); and

(e) sufficient information to identify the nature of the supply.

For more information on computerized records, please see GST MEMORANDUM 500-1-2 ,"COMPUTERIZED RECORDS".
Contractual Agreements

45. Given the extensive use of contractual agreements covering supplies of goods and/or services over a fixed period of time between registrants, the particulars of these taxable supplies and the tax paid or payable on them may not necessarily be available in such a manner as to permit registrants to comply with the ITC documentary and information requirements established pursuant to paragraph 169(4)(a).

46. In cases where the contractual agreement by itself, or combined with related supporting documentation issued pursuant to the governing contract, can and does meet the statutory and regulatory requirements under paragraph 169(4)(a), such supporting documentation must be obtained by the registrant prior to the filing of a return.

47. However, if the registrant is unable to meet these requirements prior to the filing of a return in which such an ITC is claimed, or if the said documentation fails to satisfy the requirements under subsection 169(4), the Minister will exempt registrants, generally, from the requirements of subsection 169(4).

48. This exemption will apply when a registrant maintains proper books and records, including the contractual agreement and all related documentation issued pursuant to the governing contract, and these books and records capture the following:

(a) sufficient information to identify the supplier's name or trading name;

(b) the supplier's registration number;

(c) sufficient information to identify the reporting period when the GST in respect of the supply was paid or became payable and the amount of GST paid or payable;

(d) sufficient information to identify the name or trading name of the recipient of the supply (or that of the recipient's duly authorized agent or representative); and

(e) sufficient information to identify the nature of the supply.

Meal and Entertainment Expenses
General Treatment

49. Meal and entertainment expenses of registrants, whether they are incurred directly or are the object of a reasonable allowance or reimbursement, are accorded special treatment under the Act, which parallels restrictions placed on such expenses under the Income Tax Act.

50. Pursuant to section 236, where section 67.1 of the Income Tax Act applies (or would apply if the registrant were a taxpayer under that Act) and, the deduction for income tax purposes of the cost of food, beverage and entertainment expenses is (or would be) limited to 80 per cent of the cost, only 80 per cent of the GST paid or payable in relation to such costs will qualify as an ITC.

Meals and Entertainment - Direct Expenses

51. Where meal and entertainment expenses are incurred directly by the registrant, the calculation of the ITC eligibility will be based on the actual GST paid or payable on meal, beverage or entertainment expenses, subject to the 80-per-cent limitation rule where applicable, incurred in Canada throughout the relevant filing period. Such ITC claims will be subject to the general documentary and information requirements enacted pursuant to subsection 169(4) of the Act.

Meals and Entertainment - Reimbursements

52. Section 175 provides that when an employer or partnership reimburses an employee or member of a partnership for expenses incurred by the individual on behalf of the employer or partnership, and the amount reimbursed includes the GST, the tax is considered to have been paid by the employer or partnership, who, if registered, can claim the appropriate ITC.

53. Where meal and entertainment expenses are subject to a reimbursement that meets the legislative criteria of section 175 of the Act, registrants may either claim an ITC equal to the actual tax paid or payable or use the prescribed factor of 6/106ths to calculate their ITC eligibility in relation to the amount reimbursed. The prescribed factor recognizes the fact that the total expense for meals and entertainment may include tips, gratuities and provincial sales tax, which are not subject to the GST. The method of calculation chosen by the registrant must be used consistently within each category of expenses.

54. Where the meal and entertainment expenses reimbursed are subject to the 80 per cent limitation rule pursuant to section 236, registrants may choose one of two processes to calculate ITC eligibility on the GST paid or payable for meal and entertainment expenses:

(a) registrants may claim an ITC equal to 6/106ths of 100 per cent of the total expenditure or 100 per cent of the actual amount of tax paid or payable on food, beverage or entertainment expenses incurred in Canada throughout their fiscal year, but will have to recapture 20 per cent of the total ITCs claimed at the end of the fiscal year. For annual filers, this recapture is achieved by adding the disallowed amount to the net tax for the fiscal year. For all other filers, the recapture is added to the net tax in the return for the first reporting period after that fiscal year; or

(b) registrants may claim an ITC equal to 6/106ths of 80 per cent of the total expenditure or 80 per cent of the actual amount of tax paid or payable on food, beverage or entertainment expenses in each reporting period of their fiscal year. In this case, the 20-per-cent disallowance is calculated automatically at the time of net tax calculation for each reporting period, and there is no need for any recapture adjustment at the end of the year.

55. Registrants who choose to claim an ITC equal to the actual amount of tax paid or payable on the reimbursement will be subject to the general documentary and information requirements prescribed pursuant to subsection 169(4) of the Act.

56. Pursuant to subsection 169(5), registrants who wish to use the prescribed factor of 6/106ths to claim ITCs for the GST paid or payable on meal and entertainment expenses' reimbursements made to employees or members of a partnership will be exempt from the documentary and information requirements established pursuant to paragraph 169(4)(a), provided they maintain proper books and records, including all the documentation currently required to substantiate such deductions under the Income Tax Act, capturing the following information:

(a) the name and registration number of the registered employer or partnership who has made the reasonable reimbursement;

(b) the name of the employee or member of the partnership who has received the reasonable reimbursement;

(c) the total amount of the reimbursement received by each employee or member of the partnership;

(d) the total GST deemed to have been paid in respect of the reimbursement (6/106ths of the total amount, subject to the 80-per-cent restriction, if applicable); and

(e) the reporting period in which the reimbursement was paid.

57. Such books and records must be made available, on request by the Minister, to permit the establishment of particulars of the relevant taxable supplies and the tax paid on these supplies.

Meal and Entertainment Expenses - Allowances

58. Section 174 provides that when allowances are paid by a person who is an employer or a partnership to an employee or a member of a partnership for certain expenses incurred in Canada, and to the extent that the allowance is or would be deductible in computing the income of the person for a taxation year for purposes of the Income Tax Act, the employer or partnership is treated as having received a taxable supply, and as having paid, at the time the allowance is paid, the GST in respect of the supply equal to 7/107ths of the allowance.

59. The employer or partnership can claim an ITC and recover the GST paid by the employee or member of a partnership on expenses that, if incurred directly by the employer or partnership, would be recoverable as ITCs. The GST deemed to have been paid represents the tax fraction (7/107ths) of the amount of the total allowance paid.

60. Pursuant to section 174 of the Act, where an allowance is paid, in whole or in part, for meal and entertainment expenses that are subject to the 80 per cent limitation rule set forth in section 236, registrants may choose one of two processes to calculate the ITC eligibility for such expenses:

(a) registrants may claim an ITC equal to 7/107ths of 100 per cent of the total allowance for food, beverage or entertainment expenses incurred in Canada throughout their fiscal year, and will have to recapture 20 per cent of the total ITCs claimed at the end of the fiscal year. For annual filers, this recapture is achieved by adding the disallowed amount to the net tax for the fiscal year. For all other filers, the recapture is added to the net tax in the return for the first reporting period after that fiscal year; or

(b) registrants may claim an ITC equal to 7/107ths of 80 per cent of the total allowance for food, beverage or entertainment expenses in each reporting period of their fiscal year. In this case, the 20 per cent disallowance is calculated automatically at the time of net tax calculation for each reporting period.

61. Pursuant to subsection 169(5), registrants who wish to claim ITCs for the GST paid or payable on a meal and entertainment allowance, or on a component of such an allowance, will be exempt from the documentary and information requirements established pursuant to paragraph 169(4)(a), provided they maintain proper books and records, including all documentation currently required to substantiate such deductions under the Income Tax Act, capturing the following information:

(a) the name and registration number of the employer or partnership who has paid the reasonable allowance;

(b) the name of the employee or member of the partnership who has received the reasonable allowance;

(c) the total amount of the allowance paid to each employee or member of the partnership;

(d) the total GST deemed to have been paid in respect of that allowance (7/107ths of the allowance);

(e) the reporting period in which the allowance was paid; and

(f) the nature of the supply.

62. Such books and records must be made available, on request by the Minister, to permit the establishment of the particulars of the relevant taxable supplies and the tax paid on these supplies.

Reimbursements - General

63. As previously stated, section 175 of the Act provides that when an employer or partnership reimburses an employee or member of a partnership for expenses incurred by the individual on behalf of the employer or partnership, and the amount reimbursed includes the GST, the tax is considered to have been paid by the employer or partnership.

64. If the employer or partnership is registered, an ITC for the GST paid by the employee or member of a partnership may be claimed in the normal manner.

65. Registrants may choose one of two methods to calculate the eligible ITC in relation to reimbursements for expenses incurred in Canada:

(a) Registrants may claim an ITC equal to 6/106ths of the total amount reimbursed for expenses incurred for supplies all or substantially all of which are taxable supplies in Canada for the relevant filing period; or

(b) Registrants may use the exact calculation method by adding all the GST paid or payable on such reimbursed expenses incurred in Canada for the relevant filing period.

66. The method chosen by the registrant to calculate the ITC must be used consistently within each category of reimbursed amounts. If, for example, the registrant claims an ITC equal to 6/106ths of the reimbursement in relation to the airfare expense incurred by employee/partner "A", the registrant cannot then claim the actual tax paid for the same expense incurred by employee/partner "B".

67. Where the amount reimbursed is for meal and entertainment expenses, it may be subject to the 80-per-cent limitation rule set forth in section 236 of the Act. Please refer to paragraphs 53 and 54 of this memorandum for further details relating to the calculation of ITCs for meal and entertainment expenses.

68. Registrants who choose to use the exact calculation method to determine their ITC eligibility for reimbursements paid to an employee or a member of a partnership are subject to the documentary and information requirements prescribed under subsection 169(4).

69. Registrants using the prescribed factor (6/106ths) to calculate the eligible ITC on such reimbursements paid to employees or members of a partnership will be exempt, pursuant to subsection 169(5), from the documentary and information requirements established pursuant to paragraph 169(4)(a), provided they maintain proper books and records, including all documentation currently required to substantiate such deductions under the Income Tax Act, capturing the following information:

(a) the name and registration number of the registered employer or partnership who has made the reasonable reimbursement;

(b) the name of the employee or member of the partnership who has received the reasonable reimbursement;

(c) the total amount of the reimbursement received by each employee or member of the partnership;

(d) the total GST deemed to have been paid in respect of the reimbursement (6/106ths of the total amount);

(e) the reporting period in which the reimbursement was made; and

(f) the nature of the supply/expense.

70. Such books and records must be made available, on request by the Minister, to permit the establishment of the particulars of the relevant taxable supplies and the tax paid on these supplies.

Reasonable Allowances

71. As previously stated, section 174 of the Act provides that when allowances are paid by a person who is an employer or a partnership to an employee or a member of a partnership for certain expenses incurred in Canada, and to the extent that the allowance is or would be deductible in computing the income of the person for a taxation year for purposes of the Income Tax Act, the employer or partnership is treated as having received a taxable supply, and as having paid, at the time the allowance is paid, the GST in respect of the supply equal to 7/107ths of the allowance.

72. The employer or partnership can claim an ITC and recover the GST paid by the employee or member of a partnership on expenses which, if incurred by the employer or partnership, would be recoverable as ITCs. The GST deemed to have been paid represents the tax fraction (7/107ths) of the amount of the total allowance paid.

73. If the allowance is paid, in whole or in part, in respect of meal and entertainment expenses incurred by an employee or a member of a partnership, such expenses may be subject to the 80 per cent limitation rule pursuant to section 236 of the Act. Please refer to paragraph 60 of this memorandum for more details on how to calculate an ITC for meal and entertainment expenses that are subject to an allowance, or component of such allowance.

74. To qualify for this particular GST treatment, an allowance must:

(a) be reasonable for GST purposes;

(b) (i) have been paid for supplies 90 per cent or more of which were taxable supplies (other than zero-rated supplies) acquired in Canada by the employee or member of a partnership in relation to an activity engaged in by the employer or partnership; or

(ii) have been paid for the use in Canada of a motor vehicle, in relation to an activity engaged in by the employer or partnership; and

(c) be, or would be, deductible by the registered employer or partnership in computing income for purposes of the Income Tax Act.

75. As a general rule, an allowance will be reasonable for GST purposes where it is reasonable for income tax purposes. However, each case will be determined on its own merits, depending on the particular circumstances surrounding the said allowance.

76. Pursuant to subsection 169(5), registrants who wish to claim ITCs for the GST paid or payable on an allowance will be exempt from the documentary and information requirements established pursuant to paragraph 169(4)(a) provided they maintain proper books and records, including all documentation currently required to substantiate such deductions under the Income Tax Act, capturing the following information:

(a) the name and registration number of the employer or partnership who has paid the reasonable allowance;

(b) the name of the employee or member of the partnership who has received the reasonable allowance;

(c) the total amount of allowance paid to each employee or member of the partnership;

(d) the total GST deemed to have been paid in respect of that allowance (7/107ths of the allowance);

(e) the reporting period in which the allowance was paid; and

(f) the nature of the supply.

77. Such books and records must be made available, on request by the Minister, to permit the establishment of the particulars of the relevant taxable supplies and the tax paid on these supplies. Real Property

78. Pursuant to paragraph 169(4)(b) of the Act, a registered recipient may not claim an ITC on a supply of real property by way of sale, in circumstances to which subsection 221(2) applies, unless, before filing the return in which the credit is claimed, the registrant has filed the return required to be filed under subsection 228(4), with respect to the said supply.

79. Pursuant to subsections 221(2) and 228(4), the recipient of the supply is required to remit any GST payable directly to the Receiver General and file with the Minister a return in the prescribed form, containing the prescribed information, in the following circumstances:

(a) where the supplier is a non-resident person or is resident in Canada by reason only of subsection 132(2);

(b) the recipient is registered under the Act and the supply is not a supply of a residential complex made to an individual; and

(c) the recipient is a prescribed registrant.

80. Where the recipient is a registrant and the property is for use primarily in commercial activities of the recipient, the return must be filed at the time the person's regular GST return for the period would be filed.

81. Where the recipient of a supply is a registrant, but the property is not for use primarily in a commercial activity, the return must be filed and tax paid on or before the last day of the month following the month in which the tax became payable. No ITC may be claimed until the recipient's next regular GST return is filed.

82. Where the person is not a registrant, the return must be filed and tax paid on or before the last day of the month following the month in which the tax became payable. No ITC may be claimed until the person becomes registered and begins to use the property in a commercial activity.

83. Under paragraph 169(4)(b), the eligibility for ITCs does not arise until the prescribed form, containing the information required by subsection 228(4), has been filed with the Minister, and until the tax payable has been remitted to the Receiver General. This return must be filed before filing the return in which the credit is claimed.

PENALTY

84. Pursuant to subsection 223(2) of the Act, any person who makes a taxable supply to another person must, on the request of that other person, furnish, in writing, such particulars of the supply as may be required to substantiate an ITC claim.

85. The onus of obtaining particulars required for ITC claims is placed on the claimant. Pursuant to section 284, every person who fails to provide any information or documents as required under Part IX of the Act, or under a regulation made under that Part, will be subject to a penalty of $100, except when the Minister waives the penalty or, in the case of information required in respect of another person, when a reasonable effort was made by that person to obtain the information.

NOTE: This memorandum contains general information and is provided for your convenience and guidance in applying the Excise Tax Act and Regulations. Readers should refer to the legislation and/or contact the nearest Revenue Canada Excise office if interpretation problems occur.

. REFERENCES
OFFICE OF RESPONSIBILITY:

Policy and Legislation

LEGISLATIVE REFERENCES:

Excise Tax Act as amended by Bill C-62

HEADQUARTERS FILE:

N/A

SUPERSEDES GST MEMORANDUM:

N/A

OTHER REFERENCES:

N/A

SERVICES PROVIDED BY THE DEPARTMENT ARE AVAILABLE IN BOTH OFFICIAL LANGUAGES.

THIS MEMORANDUM IS ISSUED BY TECHNICAL INFORMATION, EXCISE BRANCH UNDER THE AUTHORITY OF THE DEPUTY MINISTER OF NATIONAL REVENUE, CUSTOMS AND EXCISE.

Date modified:

2002-08-12