Consignment Sales (GST 300-6-9)

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 300-6-9

TAX ON SUPPLIES
TIME OF LIABILITY
Ottawa March 27, 1992
CONSIGNMENT SALES

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 yet enacted these 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) where goods are sold on a consignment, approval, sale-or-return or other similar basis.

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;

"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;

"personal property" means property that is not real property;

"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.

GENERAL RULE

1. The general timing of the 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. 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.

CONSIGNMENT SALES

5. 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, in turn, 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 or take ownership himself or herself, the consignee is free to return the property to the consignor.

6. Generally, there are two transactions for tax purposes: the supply from the consignor to the consignee and the supply from the consignee to the recipient. The recipient will usually be another person, unless the consignee takes the property himself or herself, in which case there would only be one supply, that from the consignor to the consignee. If the consigned property is taxable, these transactions will be subject to tax at the time that consideration is paid or becomes due for the respective supplies (see paragraphs 3 and 4 of this memorandum), except in the circumstances covered in paragraphs 9 and 10 of this memorandum.

7. Property is supplied on a sale-or-return basis where the supplier transfers possession of the property, but not ownership, to another person, who then offers the property for sale. If the property is not sold within a certain period of time, the person returns the property to the supplier. If the property is sold within the time period, tax would normally be payable, in accordance with paragraphs 3 and 4 of this memorandum, at the time the consideration is paid or becomes due for the respective supplies (i.e., the supply from the initial supplier to the person who offers the property for sale, and from that person to the recipient), except in the circumstances covered in paragraphs 9 and 10 of this memorandum.

8. Property is supplied on an approval basis where the supplier transfers possession but not ownership of the property to the recipient on a trial basis, usually for a specified period, and, at the end of the period, the recipient either accepts ownership of the property expressly or by not returning it, or returns it to the supplier. If the recipient accepts ownership of the property, tax would be payable, in accordance with paragraphs 3 and 4 of this memorandum, when the consideration for the property is paid or becomes due, except in the circumstances covered in paragraphs 9 and 10 of this memorandum.

Override Rule

9. Pursuant to paragraph 168(3)(b) of the Act, where a recipient of tangible personal property taken on a consignment, approval, 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 or took ownership 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.

Value not Ascertainable

10. In a situation in which paragraph 168(3)(b) of the Act applies, if the consideration for all or part of the supply is not ascertainable on that day, 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.

REFERENCES

OFFICE OF RESPONSIBILITY:

Policy and Legislation

LEGISLATIVE REFERENCES:

Excise Tax Act

HEADQUARTERS FILE:

N/A

SUPERSEDES GST MEMORANDUM:

GST 300-6-9, 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.