Continuous Supplies (GST 300-6-6)

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 300-6-6

Ottawa, January 10, 1992

TAX ON SUPPLIES
TIME OF LIABILITY
CONTINUOUS SUPPLIES

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 the Goods and Services Tax (GST), where property or services are supplied on a continuous basis by means of a wire, pipeline or other conduit.

LEGISLATIVE AND OTHER REFERENCES

Excise Tax Act - subsections 123(1), 152(1), 152(2), 168(1), 168(2), 168(3), 168(4), 232(1) and 232(3)

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;

"exempt supply" means a supply included in Schedule V to the Act;

"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;

"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;

"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;

"service" means anything other than

(a) property,

(b) money, and

(c) anything that is supplied to an employer by a person who is or agrees to become an officer or employee of the employer in the course of or in relation to the office or employment of that person;

"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.

GENERAL RULE

1. The general timing of liability rule under subsection 168(1) of the Act provides 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. 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.

Consideration Paid

3. Consideration is paid when it is received by the supplier.

Consideration Becomes Due

4. 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.

CONTINUOUS SUPPLIES

5. A continuous supply, for purposes of the timing of liability, is a supply of property or a service which is provided, delivered, performed or made available on a continuous or ongoing basis by means of a wire, cable, pipeline or other conduit, and for which the supplier invoices the recipient on a regular or periodic basis. Examples of continuous supplies of property include water, electricity, natural gas or steam. Continuous supplies of services include cable television and home telephone services.

6. Where a taxable continuous supply of property or a service is delivered, performed or made available to a recipient and the supplier invoices the recipient for the supply, tax will become payable on the earlier of the day consideration for the supply is paid and the day consideration for the supply becomes due. Consideration becomes due on the earlier of the day the supplier invoices the recipient for the supply and the date of the invoice. If there is an undue delay in the issuance of an invoice, consideration becomes due on the day that the supplier would, but for the delay, have issued the invoice.

7. Pursuant to subsection 168(4) of the Act, the Override Rule in paragraph 168(3)(a) of the Act will not apply to continuous supplies of property where the supplier invoices the recipient on a regular or periodic basis. The Override Rule normally applies in cases in which there has been a considerable delay between the completion of a supply of tangible personal property and the issuing of an invoice for the supply.

8. More information on the Override Rule is available in GST MEMORANDUM 300-6-11, OVERRIDE RULE.

Equal Billing Plans

9. Continuous supplies of property and services are often provided under equal billing plans. Under an equal billing plan, the recipient of a property or service is billed the same amount every month, regardless of actual consumption. The amount billed each month is normally based on an estimate of consumption for the whole billing period (usually a year). At the end of the billing period, the supplier makes a reconciliation between the amount paid over the course of the period and the amount of the property or service actually consumed, and either bills the recipient for the shortfall (if actual consumption has exceeded that on which the estimate was based), or gives the recipient a refund or credit (if the amount of property or service for which the recipient has paid has exceeded actual consumption).

10. Tax is payable on any end-of-period reconciliation billing relating to a continuous supply of property or a service on the earlier of the day consideration for the billing is paid or the day the consideration becomes due, i.e., the date an invoice is issued. The override rule in paragraph 168(3)(a) of the Act has no effect on the timing of liability for tax on such billings.

11. Where a credit is given or a refund is paid, because the amount for which the recipient was billed over the course of the year exceeded the amount of actual consumption, pursuant to subsection 232(1) of the Act, the supplier may refund or credit the excess tax that had been collected. If the excess tax is refunded or credited, the supplier must issue a credit note to the recipient for the amount of the refund or credit in accordance with subsection 232(3) of the Act. The recipient, if a registrant, would add the amount of tax refunded or credited to his/her tax collected for the reporting period in which the credit note was issued, to the extent that the amount had been deducted in determining net tax for that period or a preceding reporting period. The supplier would deduct the amount of tax refunded or credited from the net tax on his/her return for the reporting period in which the credit note was issued, to the extent that this amount had been included in determining the net tax of the supplier for that period, or a preceding reporting period.

REFERENCES

OFFICE OF RESPONSIBILITY:

Policy and Legislation

LEGISLATIVE REFERENCES:

Excise Tax Act

HEADQUARTERS FILE:

N/A

SUPERSEDES GST MEMORANDUM:

GST 300-6-6, dated December 14, 1990

OTHER REFERENCES:

N/A

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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