Override Rule (GST 300-6-11)
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 300-6-11
Ottawa, January 23, 1992
TAX ON SUPPLIES
TIME OF LIABILITY
This memorandum does not replace the law found in the Excise Tax Act and its Regulations. It is provided for your reference. As it may not completely address your particular operation, you may wish to refer to the Act or appropriate Regulation or contact any Revenue Canada Excise/GST office for additional information.
This memorandum may reflect amendments proposed to the Excise Tax Act by Notices of Ways and Means Motion tabled on December 18, 1990, March 27, 1991 and November 5, 1991. The federal government announced its intention to introduce certain amendments to the Excise Tax Act to effect these changes which were outlined by the Minister of Finance in press releases on the mentioned dates. [Where proposed changes affect information contained in this memorandum, the information is enclosed in square brackets.] At the time of publication, Parliament has not enacted these proposed amendments. Any commentary in this memorandum should not be taken as a statement by the Department that such amendments will in fact be enacted into law in their current form.
This memorandum explains the timing of liability for payment of the Goods and Services Tax (GST) in situations in which there is a considerable delay between the time a supply is completed and the time consideration for the supply is paid or becomes due.
LEGISLATIVE AND OTHER REFERENCES
Excise Tax Act - sections 152 and 168, subsection 123(1)
DEFINITIONS AND INTERPRETATIONS
The following are either definitions which have been taken from the Excise Tax Act as amended by S.C. 1990, c. 45 (Bill C-62) or departmental interpretations of terms relevant to the administration of that Act.
"Act" means the Excise Tax Act;
"consideration" may be money, a thing, a service, forbearance in the exercise of a right or anything else which induces the supplier to make the supply. Where consideration is monetary, the amount of the money will be used to calculate the tax. Where the consideration is non-monetary, the fair market value of the consideration at the time the supply was made will be used to calculate the tax;
"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;
"person" means an individual, partnership, corporation, trust or estate, or a body that is a society, union, club, association, commission or other organization of any kind;
"personal property"means property that is not real property;
"property" means any property, whether real or personal, movable or immovable, tangible or intangible, corporeal or incorporeal, and includes a right or interest of any kind, a share and a chose in action, but does not include money;
"real property" includes
(a) in respect of property in the Province of Quebec, immovable property and every lease thereof,
(b) in respect of property in any other place in Canada, messuages, lands and tenements of every nature and description and every estate or interest in real property, whether legal or equitable, and
(c) a mobile home;
"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;
"registrant" means a person who is registered under section 241 or who is required to apply to be registered under section 240 of the Act;
"sale", in respect of property, includes any transfer of the ownership of the property and a transfer of the possession of the property under an agreement to transfer ownership of the property;
"supply" means, subject to sections 133 and 134 of the Act, the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition;
"tax" means the Goods and Services Tax payable under Part IX of the Act;
"taxable supply" means a supply that is made in the course of a commercial activity, but does not include an exempt supply.
1. The general timing of liability rule under subsection 168(1) of the Act is that tax is payable by the recipient of a taxable supply on the earlier of the day the consideration for the supply is paid and the day the consideration for the supply becomes due. Tax is generally collectible by the supplier at the same time that it is payable by the recipient.
2. Where consideration for a taxable supply is paid or becomes due on more than one day, tax will be payable by the recipient (and therefore collectible by the supplier), on the earlier of the day that the partial payment is made and the day the partial payment becomes due, pursuant to subsection 168(2) of the Act. The tax payable will be calculated only on that partial payment. For example, in the case of a supply of taxable goods for which progress payments are made, tax is payable separately on the value of each partial payment. The tax would be payable on the earlier of the day on which the partial payment is paid and the day on which the partial payment becomes due.
3. Registrants are required to account for any tax collectible, on the return for the reporting period during which the tax became collectible, regardless of whether it was actually collected.
4. Consideration is paid when it is received by the supplier.
Consideration Becomes Due
5. Under subsection 152(1) of the Act, consideration, or a part thereof, for a taxable supply, is deemed to become due on the earliest of the following days:
a) the day that the supplier first issues an invoice in respect of the supply for that consideration or part and the date of that invoice;
b) the day the supplier would have, but for an undue delay, issued an invoice in respect of the supply for that consideration or part; and
c) the day that the recipient is required to pay that consideration or part pursuant to an agreement in writing.
6. Subsection 168(3) of the Act introduces an override rule to the rules found in subsections 168(1) and 168(2) of the Act. In certain circumstances, (discussed under the following headings), tax will become payable where all or part of the consideration for the supply has not been paid or become due. This override rule has no application with respect to supplies of intangible personal property, real property, continuous supplies of property or services, and limited application to supplies of services. For information on the timing of liability on supplies of real property, see GST MEMORANDUM 300-6-5, REAL PROPERTY.
Tangible Personal Property
7. Under paragraph 168(3)(a) of the Act, where a recipient takes ownership or possession of tangible personal property (i.e., goods) by way of sale, (other than a consignment or on approval sale to which paragraph 168(3)(b) of the Act applies), and all or any part of the consideration for this supply has not been paid or become due by the end of the calendar month following the calendar month during which ownership or possession of the property was transferred to the recipient, tax will be payable on that day. The tax payable will be calculated on any consideration not paid or due by that day. See paragraph 5 of this memorandum for the rules on when consideration is deemed to have become due.
8. Conditional sales, (sales where possession of property is transferred but ownership passes only after certain conditions are fulfilled, for example on full payment of the purchase price by the recipient), and instalment sales, (sales where the ownership of the property transfers immediately, but the property is paid for in instalments), are both "sales" for the purposes of the override rule. To illustrate, a supplier delivers a television on June 15, 1992, on a conditional sales basis. The recipient agrees to pay the supplier $50 per month for the television for 12 months for a total of $600. Ownership of the television will pass to the recipient after the final payment is made. On June 15, 1992, the recipient pays $50 and pays the same amount on July 15, 1992. Tax will be payable on each of these amounts as they are paid or become due. At the end of July, (the end of the month following the month in which delivery occurred), $500 is still owing on the television. Tax will become payable on the $500 at the end of July.
Consignment and Other Similar Sales
9. Pursuant to paragraph 168(3)(b) of the Act, where a recipient of tangible personal property taken on approval, consignment, sale- or-return basis or other similar terms supplies the property to a person other than the supplier or takes ownership of that property, and any consideration for the supply by the supplier to the recipient has not been paid or become due by the last day of the calendar month following the calendar month during which the recipient supplied that property or took ownership thereof, tax will be payable by the recipient on that day. The tax payable will be calculated on any consideration which has not been paid or become due by that day. For example, if a consignee sold the property on February 15, 1992, tax would be payable on March 31, 1992, on any consideration for the supply of the property that had not been paid or become due by that day.
10. A consignment is an arrangement whereby the supplier (the consignor), transfers the possession of property, but not the ownership, to a particular person (the consignee). The consignee can make a supply of that property to a third person or take ownership of the property for his or her own use. If the consignee does not or cannot supply the property to a third person, the consignee is free to return the property to the consignor.
Normally, there are no tax consequences to a consignment until the consignee supplies the property to someone other than the consignor or the consignee takes ownership of the property. At that time, the consignor is considered to have supplied the property to the consignee.
11. Further information on consignment sales is available in GST MEMORANDUM 300-6-9, CONSIGNMENT SALES.
12. Property is supplied on a sale-or-return basis where the supplier transfers possession of the property, but not ownership, to the recipient, who then offers the property for sale. If the property is not sold within a certain period of time, the recipient returns the property to the supplier.
13. Property is supplied on an approval basis where the supplier transfers possession but not ownership of the property to the recipient, and the recipient keeps the property on a trial basis, usually for a specified period, and at the end of the period, the recipient may either purchase the property or return it to the supplier.
14. Sale-or-return and approval transactions are similar to consignments in that in each of these types of transactions, the possession of the property is initially transferred to the recipient without ownership having been transferred. A condition (i.e., the supply of the property to another person or failure to return the property on a timely basis), must be fulfilled before ownership is transferred.
15. Paragraph 168(3)(c) of the Act applies to supplies made under a written agreement to construct, renovate, alter or repair real property, a ship or other marine vessel. The rule applies to ships and marine vessels only where the work on the vessel is reasonably expected to take more than three months to complete. If all or part of the consideration for the supply has neither been paid nor become due by the end of the calendar month following the calendar month during which the supply was substantially (90 per cent or more) completed, tax will be payable on that day. The tax will be calculated on the value of the consideration or part consideration, which has not been paid or become due by that day.
16. The override rule does not apply to holdbacks under written agreements for the construction, renovation, alteration of, or the repair to, real property or ships or other marine vessels. Pursuant to subsection 168(7) of the Act, tax on such holdbacks is payable on the earlier of the day the holdback is paid and the day the holdback is required to be paid out.
17. Further information on this subject is available in GST MEMORANDUM 300-6-13, CONSTRUCTION CONTRACTS and GST MEMORANDUM 300-6-14, HOLDBACKS.
Value Not Ascertainable
18. If the consideration for the supply is not ascertainable on the day when tax would be payable under the override rule, tax will be payable on that day only in respect of any part of the consideration that was ascertainable on that day pursuant to subsection 168(6) of the Act. Tax on the remainder of the consideration will be payable on the day its value becomes ascertainable.
19. Further information on this subject is available in GST MEMORANDUM 300-6-15, VALUE NOT ASCERTAINABLE.
OFFICE OF RESPONSIBILITY:
Policy and Legislation
Excise Tax Act
SUPERSEDES GST MEMORANDUM:
GST 300-6-11, dated December 14, 1990
SERVICES PROVIDED BY THE DEPARTMENT ARE AVAILABLE IN BOTH OFFICIAL LANGUAGES.
THIS MEMORANDUM IS ISSUED BY TECHNICAL INFORMATION, EXCISE/GST BRANCH UNDER THE AUTHORITY OF THE DEPUTY MINISTER OF NATIONAL REVENUE, CUSTOMS AND EXCISE.
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