Pending excise tax issues: December 7, 2004.On December December: see month. 7, 2004, Tax Executives Institute held its annual liaison meeting with officials of the Canada Revenue Agency The Canada Revenue Agency (CRA) administers:
1. An indirect tax charged on the sale of a particular good. 2. A penalty tax applied to ineligible transactions in retirement accounts. This penalty is assessed by and paid to the IRS. Notes: 1. issues. Reprinted below is the agenda for the meeting, which was prepared under the aegis aegis (ē`jĭs), in Greek mythology, weapon of Zeus and Athena. It possessed the power to terrify and disperse the enemy or to protect friends. of TEI's Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. Commodity Tax Committee, whose chair is Sherrie Sherrie is a given name, and may refer to:
Tax Executives Institute, Inc. welcomes the opportunity to present the following comments and questions on pending commodity and excise tax issues, which will be discussed with representatives of the Canada Revenue Agency (CRA See Community Reinvestment Act. ) during TEI's December 7, 2004, liaison meeting. If you have any questions in advance of that meeting, please do not hesitate to call either David M. Penney, TEI's Vice President for Canadian Affairs Canadian Affair is the trading name of a privately owned company called The Airline Seat Company Limited – a tour operator offering flights and package holidays between the UK and Canada. , at 905.644.3122, or Sherrie Ann Pollock, chair of the Institute's Canadian Commodity Tax Committee, at 416.955.7373. Goods and Services Taxes The Goods and Services Tax is a Value-added tax that exists in a number of countries. Please see:
abbr. Greenwich sidereal time GST (in Australia, New Zealand, and Canada) Goods and Services Tax ) l. Supply & Installation of Equipment A commercial GST-registered corporation (eligible for input tax credits (ITCs)) acquires two large production machines (e.g., blast furnaces blast furnace, structure used chiefly in smelting. The principle involved in this means of extracting metals is that of the reduction of the ores by the action of carbon monoxide, i.e., the removal of oxygen from the metal oxide in order to obtain the metal. ) that will be firmly attached to its manufacturing premises--one located in Ontario and the other one located in Manitoba. The corporation will use both machines to produce goods over the next ten years. For purposes of the Ontario Retail Sales Tax sales tax, levy on the sale of goods or services, generally calculated as a percentage of the selling price, and sometimes called a purchase tax. It is usually collected in the form of an extra charge by the retailer, who remits the tax to the government. Act (ORSTA ORSTA Orienting Station (surveyed reference location for positioning field artillery) ), the installed machine would be considered a fixture An article in the nature of Personal Property which has been so annexed to the realty that it is regarded as a part of the real property. That which is fixed or attached to something permanently as an appendage and is not removable. when installed.(1) For purposes of Manitoba Retail Sales Tax Act (MRSTA), the installed machine would be considered tangible personal property (TPP TPP thiamine pyrophosphate. Thiamine pyrophosphate (TPP) The coenzyme containing thiamine that is essential in converting glucose to energy. Mentioned in: Beriberi TPP 1. total plasma protein. 2. ). The corporation hires a GST-registered contractor, resident in both provinces, to supply and install each large production machine. The contractor will purchase the production machines from a third-party supplier and then install them at the manufacturing sites in Ontario and Manitoba. The total contract price is $12,000,000. Goods and Services Tax (GST) is not included in that price. The payment terms are $1,000,000 per month (GST excluded), beginning January 1, 2005, through December 1, 2005. Part I--Initial Sale, Delivery & Installation Assume title to the production machines passes from the contractor to the corporation on delivery to the manufacturing sites. Each machine will be delivered to each site on October 1, 2005, and will be completely installed by December 1, 2005. The contract does not contain any international commerce terms (Incoterms) and does not contain a delivery clause. One party believes that, for GST purposes, the supply and-install contract is a sale of TPP and thus the contractor should invoice An itemized statement or written account of goods sent to a purchaser or consignee by a vendor that indicates the quantity and price of each piece of merchandise shipped. A consular invoice is one used in foreign trade. GST of $70,000 on each monthly payment. The other party believes that the contract is the supply of real property and thus the contractor should not be required to invoice, remit To transmit or send. To relinquish or surrender, such as in the case of a fine, punishment, or sentence. An individual, for example, might remit money to pay bills. TO REMIT. To annul a fine or forfeiture. 2. , or collect any Division II tax since subsections 221(2) and 228(4) of the Excise Tax Act (ETA e·ta n. Symbol  The seventh letter of the Greek alphabet.ETA estimated transmitting ability. ) apply. The purchaser would therefore self-assess and recover the tax as an ITC ITC (Brit) n abbr (= Independent Television Commission) → Fernseh-Aufsichtsgremium ITC n abbr (BRIT) (= Independent Television Commission) → , but is not clear when this should be done--each month or in December 2005. Questions (a) Which party is correct? For the purposes of the ETA, is the above supply-and-install contract considered the sale of TPP or real property? If the supply is considered real property, when is the proper time to self-assess and recover the tax as an ITC in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with sections 221(2) and 228(4) of the ETA? (b) Does the differing treatment of the production machines under the respective provincial sales tax acts--Ontario as a fixture (real property) and Manitoba as TPP--affect the treatment for GST purposes? (c) If the contract had separate selling prices for the supply and installation of each production machine identified within the contract--e.g., sale of machines, $5,000,000 each; installation of machines, $1,000,000 each--would the answer to question (a) be different? (d) If two contracts with the same party were used, one for the sale and another for the installation, would the answer to question (a) be different? (e) If title to the production machines passes from the contractor to the corporation on installation rather than delivery, would the answers to questions (a) and (b) be different? Part II--Subsequent Sale Three years later, the corporation decides to ease its cash flow needs by selling the two production machines located in Ontario and Manitoba to a non-related leasing company for $10,000,000 (GST not included). The GST-registered leasing company will receive payments of $375,000 (GST not included) per month from the corporation. Under the negotiated sale-leaseback contract, no physical invoices are issued from the leasing company to the corporation. The leasing company will automatically withdraw the proper amount monthly from the corporation's bank account as provided in the agreement. Both the corporation's and the leasing company's GST registration numbers, full names, payments dates, etc., will be contained in the sale-lease-back contract, i.e., all the standard documentation needed to recover an ITC. Questions (f) Will the sale of the installed production machines to the leasing company be considered the sale of TPP for GST purposes (which the corporation should invoice Division II tax to the leasing company) or will the sale be considered the sale of real property, with subsections 221(2) and 228(4) of the ETA applying to the leasing company? (g) Please confirm whether the leasing company is required to remit Division II tax on the lease payments (which are automatically drawn from the corporation's bank account with no physical invoice being issued) regardless of whether the machines are considered TPP or real property (i.e., $375,000 x 7% = $26,250 in GST). (h) Assuming the leasing company is required to remit the Division II tax on the monthly lease payment, please confirm that the corporation is eligible to claim back the GST on such payments as an ITC, based on the ITC documentation contained in the sale-leaseback agreement, even though actual invoices are not issued. 2. Emission Credits At TEI's 2003 liaison meeting, CRA was asked about the application of GST to "emission trading credits" and "emission offset credit instruments" (question no. 6). Please provide an update on whether these "instruments" are a supply of intangible personal property, a commodity, a service, a right in respect of real property, or an exempt supply of a financial instrument. 3. Documentation of Employee Expenses An employee of a GST-registered, commercial employer takes a business trip and stays overnight at a hotel in Ottawa. The hotel room cost is $100 plus $7 GST plus $5 Ontario Retail Sales Tax ($112 total). The employee pays for the hotel stay with an employer-provided credit card. The agreement between the employer, the employee, and the credit card company is that the employer and employee are joint and severally liable for the purchases charged to the credit card. On checking out of the hotel, the employee receives an invoice detailing the total amount owed ($112.00). The employee signs a paper document authorizing the hotel to charge the credit card account and the employee is provided a copy of that document. The employer uses the so-called 6/106th prescribed pre·scribe v. pre·scribed, pre·scrib·ing, pre·scribes v.tr. 1. To set down as a rule or guide; enjoin. See Synonyms at dictate. 2. To order the use of (a medicine or other treatment). factor method described in subparagraph 65(a) of CRA Publication G400-1-2, Documentary Requirements (GST 400-1-2). The flow of funds Flow of funds In the context of municipal bonds, refers to the statement displaying the priorities by which municipal revenue will be applied to the debt. In the context of mutual funds, refers to the movement of money into or out of a mutual funds or between or among is, as follows: The hotel receives payment from the credit card company. The credit card company notifies the employer of the expense. The employer pays the $112. The employee is informed of the credit card charge, and asked to verify (1) To prove the correctness of data. (2) In data entry operations, to compare the keystrokes of a second operator with the data entered by the first operator to ensure that the data were typed in accurately. See validate. it. After the employee has completed the report, the employer's accounting process charges the hotel expense to the correct operational expense account and calculates any applicable GST recovery based on applicable allowed percentages. Which of the following correctly describes the documentation required to justify the GST recovery by the employer of the ITC on the hotel expense? (a) No documentation is required, i.e., neither the hotel invoice nor the document authorizing the hotel to charge the credit card account is required since the 6/106th prescribed factor method is used. (b) The hotel invoice is required even though the 6/106th prescribed factor method is used. (c) The document authorizing the hotel to charge the credit card account is required even though the 6/106th prescribed factor method is used. (d) Both the hotel invoice and the document authorizing the hotel to charge the credit card account are required even though the 6/106th prescribed factor method is used. 4. Cross-border Transportation of Goods A GST-registered company (Company A) sells goods to a GST-registered purchaser (Customer B). Company A obtains the goods from its U.S. parent in Boston, Massachusetts “Boston” redirects here. For other uses, see Boston (disambiguation). Boston is the capital and most populous city of Massachusetts.[3] The largest city in New England, Boston is considered the unofficial economic and cultural center of the entire New . The U.S. parent is not GST-registered. With regard to title to the goods, U.S. parent sells the goods to Company A, which then sells the same goods to Customer B (who is aware of this relationship). The international commerce term (Incoterm) used in respect of these supplies between Company A and Customer B is Free Carrier (FCA FCA Abbreviation for the Free Carrier ) Post-Canada-Customs clearance (i.e., post importation into Canada). Under the existing process, the goods are directly shipped from Boston to Customer B. Company A is the importer of record, pays Division III
Division III (or DIII) is a division of the National Collegiate Athletic Association of the United States. GST, and subsequently recovers the tax as an ITC. The goods are never physically delivered to Company A. Company A invoices Customer B for the Division II tax (standard ITC documentation being provided). Only one freight carrier, which is GST-registered, delivers the goods from Boston to Customer B's location in Canada. The freight carrier invoices Customer B without including GST because the freight carrier views the supply as a zero-rated supply In economics, zero-rated supply refers to items that are not charged a tax on their input supplies. The term is applied to items that would normally be taxed under valued-added systems such as Europe's Value Added Tax (VAT) or Canada's Goods and Services Tax (GST). on an international transportation service. Please confirm that: (a) Based on the Incoterm used (FCA), the supply between Company A and Customer B is considered made in Canada Made in Canada may also mean Country of origin. Made in Canada is a Canadian television situation comedy which aired on the CBC from 1998 to 2003. In the United States, France, Australia and Latin America, the show was syndicated as The Industry. ; (b) Company A is correct in invoicing in·voice n. 1. A detailed list of goods shipped or services rendered, with an account of all costs; an itemized bill. 2. The goods or services itemized in an invoice. tr.v. Division II to Customer B; (c) Company A is eligible to recover the Division III GST paid at the border as an ITC; and (d) The freight carrier is correct in not invoicing GST to Customer B because the freight transportation supply is a zero-rated supply. Alternative Scenario Assume the freight carrier invoices Company A, rather than Customer B, for delivery of the goods from Boston to Customer B's location in Canada. Company A then pays the freight carrier's invoice and applies the exact freight charge as a separate line-item on its invoice to Customer B. Questions (e) Is the freight carrier correct in not invoicing GST to Company A because the freight transportation supply is a zero-rated supply? (f) Is Company A required to invoice Customer B for the Division II tax on the freight charge, i.e., does the freight transportation supply retain its status as a zero-rated supply or does it become part of the consideration for a taxable supply? (g) If two freight transportation carriers (FTCs) were used--one carrier (FTC FTC See Federal Trade Commission (FTC). 1) to transport the goods from Boston to the FCA point, and another carrier (FTC2) to transport the goods from the FCA point to Customer B's location--and both freight carriers invoice Company A, will Division II tax apply to the charge for (1) the FTC1 amount only, (2) the FTC2 amount only, or (3) both amounts, if Company A includes both freight charges as separate line-items on its invoice to Customer B? (h) If Company A adds a 10-percent markup (text) markup - In computerised document preparation, a method of adding information to the text indicating the logical components of a document, or instructions for layout of the text on the page or other information which can be interpreted by some automatic system. to the cost of the freight charge in (f) and the freight charges in (g), do the answers change? 5. Time Limit for Gst Recovery On Bad Debt Write-off Write-Off A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. A fully commercial, GST-registered corporation issues invoices to a specific customer (Customer X) for GST-taxable supplies. GST is invoiced separately with all standard documentation requirements. This corporation does not make tax-exempt supplies. In September 1998, the corporation issued an invoice to Customer X. Contrary to past practice, however, Customer X does not pay the corporation's invoice. The corporation continues to invoice Customer X; the last invoice is dated November 3, 2001. During 1998-2001, Customer X pays a few of the corporation's invoices (the smaller dollar value ones) and continuously assures the corporation that its financial difficulties are temporary and its financial circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or will improve. Shortly after November 3, 2001, however, Customer X declares bankruptcy bankruptcy, in law, settlement of the liabilities of a person or organization wholly or partially unable to meet financial obligations. The purposes are to distribute, through a court-appointed receiver, the bankrupt's assets equitably among creditors and, in most . The corporation writes off the entire account as a bad debt (assume a valid bad debt for GST purposes)--$1,070,000 in December 2001 ($1,000,000 plus $70,000 GST). The corporation's December 2001 GST return is filed on January 31, 2002. The GST contained in the bad debt write-off is eligible for GST recovery and the corporation plans to record the GST recovery in December 2001. Because of staff turnover and year-end activity, however, the entry to record the GST recovery of the bad debts is not made. During an internal audit review in September 2004, it is discovered that GST recovery has not taken place. The earliest written-off invoices are dated September 1998, and the rest are from 1999-2001. Questions (a) Assuming the corporation files its GST return monthly, please confirm that the corporation may recover the GST associated with the bad debt write-off invoices in December 2004, since the corporation wrote off-the bad debt in December 2001 and the time period for recovery has not expired ex·pire v. ex·pired, ex·pir·ing, ex·pires v.intr. 1. To come to an end; terminate: My membership in the club has expired. 2. . (b) Please confirm that the latest the corporation can recover the GST associated with the above bad debt write-off is 4 years from the time of the actual write-off, i.e., the December 2005 GST return. 6. Product Testing Part I--First Scenario An unregistered, non-resident parent corporation has a product to be tested. The parent corporation has a fully owned subsidiary in Canada. Although the subsidiary does not have the facilities to perform the required tests of the parent's products, the subsidiary contracts with a GST-registered subcontractor One who takes a portion of a contract from the principal contractor or from another subcontractor. When an individual or a company is involved in a large-scale project, a contractor is often hired to see that the work is done. to do the testing. The subsidiary imports the parent's product into Canada and the subsidiary's name is on the import documents. Division III GST applies upon importation and is paid by the subsidiary. After testing is complete, the product is shipped back to the parent corporation as soon as practicable practicable adj. when something can be done or performed. . The parent corporation owns the product at all times. The subcontractor invoices the subsidiary, which in turn invoices the parent corporation (assume standard documentation requirements are met to claim an ITC). Please confirm that: (a) The subsidiary can recover the Division III GST paid on the importation of the parent corporation's products as an ITC under subsection subsection Noun any of the smaller parts into which a section may be divided Noun 1. subsection - a section of a section; a part of a part; i.e. 169(2) of the ETA. (b) The subcontractor must include Division II GST on its invoice to the subsidiary for the testing service, since this service was performed in Canada. (c) The subsidiary can recover the Division II GST included on the subcontractor's invoice since the subsidiary is using the testing service in its commercial activity. (d) The subsidiary can issue an invoice to the parent corporation for the testing service (even though the work is outsourced to a subcontractor), and not include GST under the zero-rated provision of subsection 4(a) of Part V of Schedule VI of the ETA. Part Ii--Second Scenario An unregistered, non-resident parent corporation has a product to be tested. The parent corporation contracts directly with a GST-registered subcontractor located in Canada to do the required testing. The subcontractor imports the parent corporation's product into Canada and the subcontractor's name is on the import documents. Division III GST applies upon importation and is paid by the subcontractor. After testing is complete, the product is shipped back to the parent corporation as soon as practicable. The parent corporation owns the product at all times. The subcontractor invoices the parent corporation. Please confirm that: (e) The subcontractor can recover the Division III GST paid on the importation of the parent corporation's products as an ITC under subsection 169(2) of the ETA. (f) The subcontractor can issue an invoice to the parent corporation for the testing service, and not include GST under the zero-rated provision of subsection 4(a) of Part V of Schedule VI of the ETA. Part III--Third Scenario An unregistered, non-resident parent corporation has a product to be tested. The parent corporation contracts directly with a GST-registered subcontractor located in Canada to do the required testing. The subcontractor does not want to be the importer of record and pay the Division III tax on importation. The parent corporation hires a broker to import its product into Canada and the parent corporation's name is on the import documents. Division III GST applies upon importation and is paid by the parent corporation via its broker. After testing is complete, the product is shipped back to the parent corporation as soon as practicable. The parent corporation owns the product at all times. The subcontractor invoices the parent corporation. Please confirm that: (g) The parent corporation cannot recover Division III GST because the parent corporation is not GST-registered. The parent corporation, however, can use section 180 of the ETA to pass the cost of Division III GST on to the subcontractor, which in turn can claim an ITC under subsection 169(2) of the ETA (as long as the parent corporation can provide the proper documentation for the amount of GST paid on importation). (h) The subcontractor can issue an invoice to the parent corporation for the testing service, and not include GST under the zero-rated provision of subsection 4(a) of Part V of Schedule VI of the ETA. Part IV--Fourth Scenario An unregistered, non-resident parent corporation has a product to be tested. The parent corporation contracts directly with a GST-registered subcontractor located in Canada to do the required testing. The subcontractor does not want to be the importer of record and pay the Division III tax on importation. The parent corporation also does not want to be the importer of record and does not want to pay the Division III tax on importation. Therefore, the parent corporation directs its subsidiary to be the importer, even though the subsidiary is uninvolved un·in·volved adj. Feeling or showing no interest or involvement; unconcerned: an uninvolved bystander. Adj. 1. in the transaction between the parent and the subcontractor. There is no agency agreement between the parent corporation and the subsidiary. The subsidiary imports the parent's product into Canada and the subsidiary's name is on the import documents. Division III GST applies upon importation and is paid by the subsidiary. After testing is complete, the product is shipped back to the parent corporation as soon as practicable. The parent corporation owns the product at all times. The subcontractor invoices the parent corporation. Please confirm that: (i) The subsidiary cannot recover Division III GST paid on the importation of the parent corporation's products since the subsidiary is not providing any service to the parent corporation and thus is not using those products in the subsidiary's commercial activity. (j) If the subsidiary invoiced the parent corporation for Division III GST, the parent corporation cannot recover this tax because the parent corporation is not GST-registered. (k) If the subsidiary invoiced the subcontractor for Division III GST, the subcontractor cannot recover this tax under section 180 of the ETA because the non-registered, non-resident person is not the person invoicing the subcontractor. (l) The subcontractor can issue an invoice to the parent corporation for the testing service, and not include GST under the zero-rated provision of subsection 4(a) of Part V of Schedule VI of the ETA, despite the possibility of nonrecovery of Division III GST. 7. Drop Shipment Certificates A GST non-resident, non-registrant (A) instructs its Canadian supplier (B) to ship goods directly to A's customers in Canada. All customers in Canada are GST-registered, and B is not related to any of A's customers. Normally, B must obtain drop shipment certificates from A's customers to avoid charging A the 7% GST. B does not want to take on this responsibility. May A obtain drop shipment certificates on behalf of B, or on its own behalf to support not being charged GST by B? 8. Moving Allowances In the Zellers decision (2), the court ruled that moving allowances paid by Zellers to its employees were related to its business activities. The court agreed that the employee did not receive a personal benefit or employee perk--the allowances simply enhanced employee dedication and loyalty and fostered improved employer-employee long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. relationships. As a result, Zellers was entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: to claim ITCs for moving allowances paid to employees. In P-075R--Allowances and Reimbursements (July 19, 2004), CRA states that the amount of a moving allowance that is required to be included in an individual's income as a taxable benefit is not considered to be an allowance pursuant to section 174 of the ETA. Since this moving allowance is considered to be income of the individual, the payment is not subject to GST/HST and hence it is not eligible for purposes of determining an ITC. How does CRA reconcile its position with the decision in Zellers? 9. Draft GST/HST Policy Statement P-051R2 In September 2004, CRA released draft GST/HST Policy Statement P-051R2, Carrying on Business carrying on business n. pursuing a particular occupation on a continuous and substantial basis. There need not be a physical or visible business "entity" as such. in Canada. Its predecessor, issued March 8, 1999, was P-051R1 (the original policy statement was P-051, which was issued March 9, 1992). We have several questions related to the examples in the draft policy. The example numbers correspond to the respective example numbers in the policy statement. Unless indicated otherwise, assume the facts from each example in the policy statement. Additionally, it is assumed the non-resident is not registered for GST before the specific transaction. The transactions affect whether the existing non-registered, non-resident is carrying on business in Canada. If these transactions do occur, will they cause the non-registered, non-resident to be required to register for GST purposes? Example #1--Lease of Tangible Personal Property The conclusion reached in Example #1 is that the nonresident non·res·i·dent adj. 1. Not living in a particular place: nonresident students who commute to classes. 2. lessor One who rents real property or Personal Property to another. A lessor of land is a landlord. Cross-references Landlord and Tenant. lessor n. the owner of real property who rents it to a lessee pursuant to a written lease. is carrying on business in Canada. When is the non-resident, non-registered person in this example considered carrying on business in Canada--at the time the sale-leaseback agreement is signed, or at the time the first leased amount is owed under the sale-leaseback agreement? Specifically, assume the registered registrant An individual or organization that signs up (registers) for a training class or service. See domain name registrar. sells the conveyance The transfer of ownership or interest in real property from one person to another by a document, such as a deed, lease, or mortgage. conveyance n. to the non-resident lessor (not registered for GST purposes at this time) on January 1, 2005, for $10,000,000 (GST excluded). The terms of the agreement are that lease payments of $325,000 (GST excluded) are payable on the last day of the month beginning January 31, 2005, and every month thereafter for a set period. Questions (a) Is the non-resident, non-registered lessor considered to be carrying on business on January 1, 2005? (b) Is the non-resident, non-registered lessor required to be registered on January 1, 2005? In other words Adv. 1. in other words - otherwise stated; "in other words, we are broke" put differently , even if the non-resident lessor had not applied for, and has not received a GST number, is this person required to be registered because of the sale-leaseback arrangement? (c) Can the provisions of subsection 179(4) of the ETA be used on the supply from the registered registrant to the non-resident lessor on January 1, 2005? (d) If the non-resident lessor is considered to be carrying on business at the time of the purchase of the conveyance from the registered registrant solely because of this transaction--and is required to be GST registered even if the non-resident has not filed a GST application and received a GST number--please confirm that subsection 179(4) of the ETA is inapplicable in·ap·pli·ca·ble adj. Not applicable: rules inapplicable to day students. in·ap (since one of the conditions of that section is that the lessor be a non-resident person who is not registered). (e) If the terms of the sale-leaseback agreement are that the first monthly lease payment is due on January 1, 2005, i.e., the date of the agreement itself, will the answers to (a) through (d) change? (f) The previous version of the policy statement (P051R1) contained the following example (Example #2): A U.S. aircraft lessor who has no employees in Canada, no facilities (either management, sales or services) of any kind in Canada, no bank accounts in Canada, and is not registered for GST/HST purposes, is approached by a Canadian Company who wishes to lease an aircraft. The lease is accepted by the lessor in the U.S., the aircraft is delivered by the lessor in the U.S. and the aircraft is serviced in Canada by the lessee at its own expense. In such a case, the lessor would not be considered to be carrying on business in Canada. Please confirm the position of CRA has not changed and that the lessor is still not considered to be carrying on business in Canada in this example. One significant difference between the two examples is that in Example #2 of P-051R1, the delivery point of the leased goods is outside Canada, whereas in Example #1 of P-051R2, the non-resident person has accepted delivery of the goods in Canada. It appears that where the delivery of goods takes place is a very relevant factor in determining if the non-resident lessor is, or is not, carrying on business in Canada (Examples #2 & #3 of P-051R2 also indicate this). Example #2--Lease of Tangible Personal Property In Example #2, the lessee's acquiring possession of the equipment outside Canada at the beginning of the lease initially appears to be a key factor in determining that the non-resident is carrying on business in Canada. Example #2 does not state, however, that the leased goods are for use in Canada, even though this may have been intended. If the leased goods will never be imported into Canada, the non-resident's not carrying on business in Canada should be of little significance. Under these circumstances, the lessee One who rents real property or Personal Property from another. A lessee of land is a tenant. Cross-references Landlord and Tenant. lessee n. the person renting property under a written lease from the owner (lessor). will likely intend to import the goods into Canada. Assume the resident registrant in Example #2 will import the leased goods into Canada after acquiring possession and use these leased goods wholly for its commercial activity in Canada. On importation, assume that Division III GST is payable and the resident registrant is required to pay it. Please confirm that: (g) Even though the leased goods will be imported into Canada after the resident registrant acquires possession, this does not change the determination in Example #2 that the non-resident lessor is not carrying on business in Canada. (h) The resident registrant will be able to claim the Division III GST it paid on importation as an ITC because the resident registrant is using the leased goods in its commercial activity. Example #8--Supply of Goods By Way of Sale The determination in Example #8 is that the nonresident is carrying on business in Canada in significant part because "[t]he non-resident maintains an inventory of existing goods for sale at a warehouse in Canada where the non-resident rents space" (fact no. 8). If the non-resident maintains an inventory of goods for sale at the non-resident's customer's location in Canada, such as critical parts for aircraft or locomotives This is a list of locomotives (classes, or individual locomotives) that currently have articles in Wikipedia.
Assume the non-resident is the initial supplier (seller) of the aircraft or locomotive locomotive, vehicle used to pull a train of unpowered railroad cars. Types of Locomotives The steam-powered locomotive played a key role during the development and golden age of railroading, but, despite its long and picturesque history, it has , and the customer is responsible for all on-going maintenance. The customer wants the non-resident to have an inventory of parts immediately available at the customer's site so that the customer can readily purchase and use these parts. The customer may or may not invoice the seller for the space occupied by the non-resident's parts inventory Noun 1. parts inventory - an inventory of replacement parts inventory, stock list - a detailed list of all the items in stock . Please advise with respect to the following: (i) Assuming a single customer does not charge the non-resident seller for space, will the inventory of seller's parts at this single customer's location in Canada cause the seller to be carrying on business in Canada? (j) Assuming several customers do not charge the nonresident seller for space, will the inventory of seller's parts at more than one customer location cause the seller to be carrying on business in Canada? (k) Assuming a single customer does charge the nonresident seller for space, will the inventory of seller's parts at the single customer's location in Canada cause the seller to be carrying on business in Canada? (l) Assuming several customers do charge the nonresident seller for space, will the inventory of seller's parts at more than one customer location cause the seller to be carrying on business in Canada? Example #10--Supply of Goods By Way of Sale Would the determination in Example #10--that the non-resident manufacturer is not carrying on business in Canada--be the same if the product being supplied and installed is software rather than a highly specialized spe·cial·ize v. spe·cial·ized, spe·cial·iz·ing, spe·cial·iz·es v.intr. 1. To pursue a special activity, occupation, or field of study. 2. industrial machine? Example #17--Supply of Services The determination in Example #17 is that the nonresident is carrying on business in Canada. This example raises concerns for large multinational corporations
relating to relate prep → bezüglich +gen, mit Bezug auf +acc global company-wide policies such as integrity and quality programs. These programs may last several days and be repeated at various locations in Canada (over the course of several weeks) for the same legal entity. Based on the facts in Example #17, it would appear that non-residents in the situation described above could be carrying on business in Canada. Interestingly, the example's rationale rationale (rash´  nal´),n the fundamental reasons used as the basis for a decision or action. indicates the following: "This [service performed in Canada and employees entering Canada to perform service], in addition to the relative significance of the service to the overall business activity of the non-resident is sufficient to conclude that the non-resident has a significance presence in Canada and is therefore carrying on business in Canada." (Emphasis added.) In the multinational and subsidiary scenario, the "relative significance" clause in the rationale may prove beneficial because most large multinationals have a variety of businesses not related to consulting work. Relying solely on "relative significance" to conclude that a non-resident is not carrying on business in Canada seems risky, however, particularly if the business of the non-resident is significantly related to consulting and training services for software or other services, rather than the above examples related to business productivity. Additionally, it appears that supplies made only to related parties in Canada by the non-resident (rather than to third-party customers) have no bearing on whether the non-resident is carrying on business in Canada. Please confirm that: (m) A related-party relationship between a non-resident and its Canadian customer (i.e., subsidiary), by itself, has no bearing on the determination whether the non-resident is carrying on business in Canada (in this example, the nonresident company will be carrying on business in Canada, subject to the possible exception under the "relative significance" clause, notwithstanding that notwithstanding; although. See also: Notwithstanding the service is only provided to its subsidiary). Example #18--Supply of Services The determination in Example #18 is that the non-resident is not carrying on business in Canada for GST/HST purposes. Although the non-resident painting company is not considered to be carrying on business in Canada, GST will be included on the invoice from the subcontractor to the non-resident painting company, and the non-registered nonresident is unable to recover the GST invoiced. As a result, the non-resident will likely factor in GST, in addition to the base cost, from the subcontractor's invoice as its true, total cost and thus the non-resident's selling price to its Canadian customer will reflect a GST-embedded cost. Please confirm that: (n) The Canadian painting company is required to include Division II GST on its invoice to the non-resident painting company. (o) The non-resident painting company cannot obtain a refund TO REFUND. To pay back by the party who has received it, to the party who has paid it, money which ought not to have been paid. 2. On a deficiency of assets, executors and administrators cum testamento annexo, are entitled to have refunded to them legacies of GST since the non-resident is not GST registered. (p) Even if the non-resident is a non-resident for purposes of subsection 179(2) of the ETA, and the non-resident's customer provides a drop shipment consignee consignee n. a person or business holding another's goods for sale or for delivery to a designated agent. (See: consign) CONSIGNEE, contracts. One to whom a consignment is made. 2. certificate to the Canadian painting company, the consignee's certificate is not valid for purposes of subsection 179(2) because the painting contract relates to real property in Canada. 10. Contract Manufacturing A non-resident of Canada enters into an agreement with a Canadian contract manufacturer to produce goods on behalf of the non-resident. As part of the contract, the nonresident will send pieces of equipment to the Canadian contract manufacturer that will be used to produce the goods. At the end of the term of the agreement, the equipment is to be returned by the Canadian contract manufacturer to the non-resident. Questions (a) Will the presence of the non-resident's equipment on the Canadian contract manufacturer's premises during the term of the contract cause the non-resident to (1) be carrying on business in Canada, or (2) have a permanent establishment in Canada for GST purposes (assume that the goods produced will be exported from Canada, or, if sold by the non-resident in Canada, drop-shipped to the non-resident's Canadian customers)? (b) If the Canadian contract manufacturer imports the equipment owned by the non-resident, will the importer be able to claim an ITC for Division III GST under any part of section 169 of the ETA (assume the importer will be required to pay Division III GST)? 11. Outsourced Information Technology (IT) Services Two foreign corporations (Corporations A and B) enter into an outsourcing (1) Contracting with outside consultants, software houses or service bureaus to perform systems analysis, programming and datacenter operations. Contrast with insourcing. See netsourcing, ASP, SSP and facilities management. agreement whereby Corporation A outsources its information technology requirements to Corporation B. Corporation A will eliminate its own IT department (or a portion of it) and provide its application software to Corporation B, which will install it on computer servers that Corporation B owns or leases and use operating system operating system (OS) Software that controls the operation of a computer, directs the input and output of data, keeps track of files, and controls the processing of computer programs. software that it licenses. Corporation B is responsible for maintaining the servers, software, and network connections to ensure that the network is operating and available to Corporation A 99% of the time. Corporation B plans to subcontract sub·con·tract n. A contract that assigns some of the obligations of a prior contract to another party. intr. & tr.v. sub·con·tract·ed, sub·con·tract·ing, sub·con·tracts a substantial portion of its obligations under the contract to a Canadian corporation (Canco). Accordingly, Corporation B will send the servers, operating system software, and Corporation A's application software to Canco. Canco will be responsible for operating and maintaining the servers and software at its server farm in Canada. At the end of the contract term, Canco will export all the servers and software back to Corporation B. Questions (a) Please confirm that neither Corporation A nor B will be carrying on business in Canada or have a permanent establishment in Canada. (b) Please confirm that under subsection 179(3) of the ETA, Canco is not required to charge GST on its fees to Corporation B, so long as Canco returns the servers and software to Corporation B outside of Canada at the end of the term of the contract. (c) If Canco imports the equipment owned by Corporation B, may the importer claim an ITC for Division III GST under any part of section 169 of the ETA (assume the importer will be required to pay Division III GST)? 12. Section 156 The following corporations are wholly commercial operations eligible for full ITCs: * Corporation ABC ABC in full American Broadcasting Co. Major U.S. television network. It began when the expanding national radio network NBC split into the separate Red and Blue networks in 1928. owns Corporations DEF, GHI GHI Group Health Incorporated (HMO) GHI German Historical Institute (Washington, DC) GHI Ghost Hunters International GHI Geohazards International GHI Gustav Heinemann-Initiative , JKL JKL Jyväskylä (Finland) JKL Jammu Kashmir and Ladakh (Indian State) , and MNO. * Corporation ABC is owned 51% by Corporation W and 49% by Corporation X. * Corporation W owns 100% of Corporation 1234. * Corporation X owns 100% of Corporation TUV (Technischer Überwachungs-Verein) Literally "Technical Watch-Over Association." A German certifying body involved with product safety for the European community. . [ILLUSTRATION OMITTED] Questions (a) May Corporation 1234 make a section 156 election with Corporations DEF, GHI, JKL, and MNO? (b) May Corporation TUV make a section 156 election with Corporations DEF, GHI, JKL, and MNO? (c) Do the answers to (a) and (b) change if W and X are individuals rather than corporations? 13. Vendor Verification of Purchaser GST Registration Subsection 221(2) of the ETA provides that the purchaser of real property must be a GST registrant in order for the vendor to be relieved of the requirement to collect and remit GST on the sale. TEI 1. (communications) TEI - Terminal Endpoint Identifier. 2. (text, project) TEI - Text Encoding Initiative. understands that recently a vendor was found liable for GST even though relying on a representation by the purchaser's lawyer that the purchaser was a GST registrant, when in fact the purchaser's GST registration had been cancelled prior to the sale. Please comment on the consequences for the vendor in following the circumstances: (a) A GST-registered vendor sold a commercial property to a business. The purchaser provides its GST registration number as part of the closing documents prepared by the lawyer. Relying on the GST number disclosure, and pursuant to paragraph 221(2)(b), the vendor does not collect GST on the sale. It is subsequently discovered that the purchaser's registration is invalid Null; void; without force or effect; lacking in authority. For example, a will that has not been properly witnessed is invalid and unenforceable. INVALID. In a physical sense, it is that which is wanting force; in a figurative sense, it signifies that which has no effect. . (b) A GST-registered vendor sells a commercial property to a business. The purchaser provides its GST registration number as part of the closing documents prepared by the lawyer. The vendor obtains an oral confirmation from a local CRA tax service office that the number is valid. Relying on the oral confirmation, and pursuant to subsection 221(2)(b) of the ETA, the vendor does not collect GST on the sale. It is subsequently discovered that the purchaser was not a GST registrant at the time of the sale. The GST number provided is for a related company of the purchaser who was not a party to the transaction. Is there any written documentation that a vendor can obtain from CRA to prove the validity of the purchaser's registration? 14. Dissolution Act or process of dissolving; termination; winding up. In this sense it is frequently used in the phrase dissolution of a partnership. The dissolution of a contract is its Rescission by the parties themselves or by a court that nullifies its binding force and reinstates each of Partnership, Use of Subsection 167(1) Election & ITC Entitlement An individual's right to receive a value or benefit provided by law. Commonly recognized entitlements are benefits, such as those provided by Social Security or Workers' Compensation. Pekoe pe·koe n. A grade of black tea consisting of the leaves around the buds. [Chinese (Amoy) pek ho : pek, white + ho, down, fine feathers.] Noun 1. is an Ontario partnership owned by two corporations, A and B. A and B own 99% and 1% of Pekoe, respectively. A is GST-registered, but B is not. As part of a corporate reorganization, Pekoe is dissolved dis·solve v. dis·solved, dis·solv·ing, dis·solves v.tr. 1. To cause to pass into solution: dissolve salt in water. 2. , resulting in distributions of undivided interests undivided interest n. title to real property held by two or more persons without specifying the interests of each party by percentage or description of a portion of the real estate. in partnership property to the former partners in proportion to their interests. B subsequently sells its undivided interest in the property to A. A then transfers the property to a new corporate partnership (New Pekoe) in exchange for an increased partnership interest. New Pekoe was previously established by A, C, and D in anticipation of the restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). ; C and D are themselves corporations and are not related to A. New Pekoe will carry on the same type of business as Pekoe, albeit significantly expanded. Questions (a) May B register for GST? If not, why not? (b) May Pekoe and A file an ETA election under subsection 167(1) of the ETA to avoid having Pekoe charge GST on the supply to A of the undivided UNDIVIDED. That which is held by the same title by two or more persons, whether their rights are equal, as to value or quantity, or unequal. 2. Tenants in common, joint-tenants, and partners, hold an undivided right in their respective properties, until , proportionate pro·por·tion·ate adj. Being in due proportion; proportional. tr.v. pro·por·tion·at·ed, pro·por·tion·at·ing, pro·por·tion·ates To make proportionate. interest in the partnership property upon dissolution (bearing in mind that A owns 99% of Pekoe)? It seems that since A has acquired ownership, possession, or use of all or substantially all of the property necessary for it to be capable of carrying on the business, the election is available. If CRA disagrees, why? (We note that CRA Policy Statement P-103R, Transfer of an Undivided Interest in a Joint Venture, allows an undivided fractional fractional size expressed as a relative part of a unit. fractional catabolic rate the percentage of an available pool of body component, e.g. protein, iron, which is replaced, transferred or lost per unit of time. interest in assets of a joint venture to qualify for the election.) (c) If the subsection 167(1) election is unavailable to Pekoe and A, is the GST Pekoe is required to charge and collect fully recoverable by A and B as ITCs, in light of the nature of their activities? The draft policy statement on subsection 272.1(7) of the ETA contains an example that raises concerns that A and B (assuming B can and does become GST registered) may bear a non-recoverable tax, even though they would be considered to be engaged in commercial activities pursuant to the definition of that term contained in subsection 123(1) of the ETA. Administrative Questions 15. GST Audit Plans Does CRA have standardized standardized pertaining to data that have been submitted to standardization procedures. standardized morbidity rate see morbidity rate. standardized mortality rate see mortality rate. GST audit plans and procedures to be observed by its auditors AUDITORS, practice. Persons lawfully appointed to examine and digest accounts referred to them, take down the evidence in writing, which may be lawfully offered in relation to such accounts, and prepare materials on which a decree or judgment may be made; and to report the whole, together ? Is there a CRA policy regarding audit plans and related information requests from the auditors to the registrants? Are these plans and procedures followed consistently throughout the country? To what extent does a GST auditor auditor n. an accountant who conducts an audit to verify the accuracy of the financial records and accounting practices of a business or government. A proper audit will point out deficiencies in accounting and other financial operations. or manager have discretion to act independently of any such plans or procedures? 16. Limited Scope Waiver The voluntary surrender of a known right; conduct supporting an inference that a particular right has been relinquished. The term waiver is used in many legal contexts. Does CRA accept GST waivers with a scope limited to specific issues? If yes, can CRA explain in what circumstances such a waiver is acceptable? Is there a process in place to ensure a consistent approach to waivers throughout Canada? 17. GST Rulings What procedures are in place to ensure consistency in the GST rulings issued by CRA across the country, as well as by Revenue Quebec? Is there a procedure to allow a taxpayer to have a ruling reviewed when it appears inconsistent with other rulings? In the event a ruling is inconsistent, what recourse The right of an individual who is holding a Commercial Paper, such as a check or promissory note, to receive payment on it from anyone who has signed it if the individual who originally made it is unable, or refuses, to tender payment. does a taxpayer have? 18. Documentation For GST purposes, a registrant is entitled to claim an ITC, as long as it obtains the prescribed information, including the supplier's name and address, the GST registration number, and the consideration for the supply. Please confirm that a registrant who obtains the prescribed information in an electronic format is entitled to claim an ITC in respect of the GST paid. Additionally, please confirm that an auditor is not required to establish that the supplier has appropriately remitted the GST collected in order to grant the corresponding ITC to the purchaser. 19. Procurement The fancy word for "purchasing." The procurement department within an organization manages all the major purchases. Cards For several years, TEI and CRA have discussed the need to address the documentation issues related to procurement card purchases. Please provide a status report on the procurement card policy. 20. Sales To Provincial Government Entities Generally, provincial governments are exempt from paying GST. CRA Publication G500-6-2, Provincial Governments (GST 500-6-2), lists the required information that vendors must keep to substantiate To establish the existence or truth of a particular fact through the use of competent evidence; to verify. For example, an Eyewitness might be called by a party to a lawsuit to substantiate that party's testimony. GST-exempt sales to provincial government entities. In practice, provincial governments and their departments find it cumbersome cum·ber·some adj. 1. Difficult to handle because of weight or bulk. See Synonyms at heavy. 2. Troublesome or onerous. cum to produce a GST certification clause letter, but rather provide their GST registration number as support for GST-exempt purchases. A provincial government's GST registration number is not listed as appropriate proof to exempt the sale in Publication G5006-2. Can the documentary requirements be simplified for GST-exempt sales to government entities? 21. GST Memorandum 17.16 As indicated during TEI's 2003 liaison meeting, TEI has some suggested changes and comments pertaining per·tain intr.v. per·tained, per·tain·ing, per·tains 1. To have reference; relate: evidence that pertains to the accident. 2. to GST Memorandum 17.16--GST/HST Treatment of Insurance Claims. Attached is a marked-up version; we would be happy to discuss these suggestions with you. Customs 22. Customs Notices If a Customs notice is issued on January 2, 2004, that adversely affects the classification of goods (e.g., the rate is higher), and it is now July 30, 2004, how far back in time does the importer need to go to be in compliance? Does the importer need to go back 90 days from the date the notice is issued in order to have "reason to believe," or does "reason to believe" begin on the date the notice is issued? The following questions are illustrative il·lus·tra·tive adj. Acting or serving as an illustration. il·lus  tra·tive·ly adv.Adj. 1. : (a) Importer A is aware of this change and goes to Customs to inquire in·quire also en·quire v. in·quired, in·quir·ing, in·quires v.intr. 1. To seek information by asking a question: inquired about prices. 2. about a potential reassessment Reassessment The process of re-determining the value of property or land for tax purposes. Notes: Property is usually reassessed on an annual basis. You may request a "reassessment" if you disagree with your assessment. . Importer A does not wish to resubmit Verb 1. resubmit - submit (information) again to a program or automatic system feed back return, render - give back; "render money" claims. Can A obtain a waiver from the Customs Border Service Agency (CBSA CBSA Canada Border Services Agency CBSA Core-Based Statistical Area CBSA Colorado BioScience Association CBSA College-Bound Student-Athlete CBSA Corporate Benefit Services of America CBSA Canadian Blind Sports Association CBSA Canadian Billiards & Snooker Association ) to obviate ob·vi·ate tr.v. ob·vi·at·ed, ob·vi·at·ing, ob·vi·ates To anticipate and dispose of effectively; render unnecessary. See Synonyms at prevent. a resubmission? (b) Importer B is aware of this classification change but does not approach CBSA or resubmit claims. If audited, is B subject to an Administrative Monetary Penalty System (AMPS) assessment since it had "reason to believe" and did not act within the 90 days? (c) If the Customs notice reduces the rate of duty on a certain commodity, how far back can a client go to claim refund? Can it go back four years or is the notice issued on a prospective basis only? 23. Interest on Additional GST During TEI's December 6, 2000, liaison meeting, an issue arose concerning the imposition The printing of pages on a single sheet of paper in a particular order so that they come out in the correct sequence when cut and folded. of interest on GST when goods are imported into Canada and the importer subsequently realizes that additional GST is payable. CRA suggested that TEI raise the issue with the Director of the Trade Incentives Program, and TEI did so in February 2001 (as described in our letter to CRA dated December 20, 2002, a copy of which is attached). The issue has been discussed at TEI's 2001, 2002, and 2003 Liaison Meetings with CRA. Please provide a status report on this issue. 24. Customs Notice N-571 Customs Notice N-571, Accounting for Pallets, dated May 12, 2004, allows certain categories of pallets to be imported into Canada without being declared or accounted for. Would CBSA consider expanding this program to cover other categories of returnable containers in circumstances where importers can demonstrate that the containers are continuously used for the purposes of importing and exporting goods to and from Canada? 25. Quantity and Price Differential Reporting The Customs Act requires a periodic report of quantity and price differentials on all imported goods (subsection 32.2(2)). This task is onerous on·er·ous adj. 1. Troublesome or oppressive; burdensome. See Synonyms at burdensome. 2. Law Entailing obligations that exceed advantages. for large-volume importers since every part, supply, piece of machinery, and equipment must be tracked from the receiving location and compared against the invoice and other related customs documentation. Companies have made substantial investments in order to be able to reconcile the receipts (the only way to accomplish the task is using costly programs that can successfully track the information for a large volume of transactions). Recently, CBSA amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. the reporting requirement to segregate seg·re·gate v. seg·re·gat·ed, seg·re·gat·ing, seg·re·gates v.tr. 1. To separate or isolate from others or from a main body or group. See Synonyms at isolate. 2. and report overages and shortages separately along with any related price discrepancies. This amendment requires significant manual intervention A procedure used in a lawsuit by which the court allows a third person who was not originally a party to the suit to become a party, by joining with either the plaintiff or the defendant. since the existing electronic reports and invoices generally net the differentials. Moreover, the extra work does not appear to be feasible since quantity differentials tend to net out over time, i.e., overages and shortages tend to be corrected on the next shipment. While we are aware that overages and shortages have different legislative provisions in the Customs Act, the task of reporting them separately is very burdensome and time consuming, especially to large volume importers. Please comment on the reason for this additional requirement. Conclusion Tax Executives Institute appreciates this opportunity to present its comments on pending excise A tax imposed on the performance of an act, the engaging in an occupation, or the enjoyment of a privilege. A tax on the manufacture, sale, or use of goods or on the carrying on of an occupation or activity, or a tax on the transfer of property. and commodity tax issues. We look forward to discussing our views with you during the Institute's December 8, 2004, liaison meeting. (1) In accordance with Ontario Guide 206, a fixture is an item that is permanently attached to real property when installed. (2) 3859681 Canada Inc. v. The Queen, 2003 TCC TCC The Car Connection (web site) TCC Tidewater Community College TCC Tallahassee Community College TCC Temporary Continuation of Coverage TCC Tucson Convention Center (Tucson, AZ, USA) 501 (Zellers Inc. v. The Queen was heard on appeal together with 3859681 Canada Inc.). |
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