Installments (GST 500-2-2)
Notice to the reader:
Please note that the following GST Memorandum, although correct at the time of issue, has not been updated to reflect any subsequent legislative changes since the date of issue. As a result, some of the technical information this memorandum contains may no longer be valid. Please contact your GST/HST Rulings Centre for assistance.
GST memorandum 500-2-2
ADMINISTRATION AND ENFORCEMENT
RETURNS AND PAYMENTS
February 8, 1991
This memorandum in the RETURNS AND PAYMENTS sub-series explains the quarterly instalment requirement, calculation of the instalment base and penalty and interest implications for GST registrants who file on an annual basis under the Excise Tax Act.
Excise Tax Act - sections 237, 249, 264, 280 and 314, subsections
123(1), 238(1), 248(3), paragraph 149(1)(a)
The following definitions have either been taken from the Excise Tax Act as amended by S.C. 1990, c.45 (Bill C-62) or represent departmental interpretations of terms relevant to the administration of that Act.
"Act" means the Excise Tax Act;
"associated persons" persons are considered to be associated in the following circumstances:
(a) a particular corporation is associated with another corporation if, by reason of subsections 256(1) to (6) of the Income Tax Act, the particular corporation is associated with the other corporation for the purposes of that Act;
(b) a person other than a corporation is associated with a particular corporation if the particular corporation is controlled by the person or by a group of persons of which the person is a member and each of whom is associated with each of the others;
(c) a person is associated with:
(i) a partnership if the total of the shares of the profits of the partnership to which the person and all other persons who are associated with the person are entitled is more than half of the total profits of the partnership, or would be more than half of the total profits of the partnership if it had profits; and
(ii) a trust if the total of the values of the interests in the trust of the person and all other persons who are associated with the person is more than half of the total value of all interests in the trust; and
(d) a person is associated with another person if each of them is associated with the same third person;
"calendar quarter" means a period of three months beginning on the first day of January, April, July or October in each calendar year;
"Department" means the Department of National Revenue, Customs and Excise;
"fiscal month" of a person means a period that is determined under section 243 of the Excise Tax Act to be the fiscal month of the person;
"fiscal quarter" of a person means a period that is determined under section 243 of the Excise Tax Act to be the fiscal quarter of the person;
"fiscal year" of a person means
(a) where the person has made an election under section 244 of the Excise Tax Act that is in effect, the period that the person elected to be the fiscal year of the person, and
(b) in all other cases, the taxation year of the person;
"Minister" means the Minister of National Revenue;
"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;
(a) in the case of a form, the information to be given on a form or the manner of filing a form, prescribed by the Minister, and
(b) in any other case, prescribed by regulation or determined in accordance with rules prescribed by regulation;
"registrant" means a person who is registered, or who is required to apply to be registered, under sections 240 and 241 of the Excise Tax Act;
"reporting period" of a person means the reporting period of the person as determined under sections 245 to 251 of the Excise Tax Act;
"taxation year" of a person means
(a) where the person is a taxpayer within the meaning of that term in the Income Tax Act, the taxation year of the person for the purposes of that Act, and
(b) in any other case, the period that would be the taxation year of the person for the purposes of that Act if the person were a corporation.
REQUIREMENT FOR REGISTRANTS TO FILE GST RETURNS
1. Subsection 238(1) of the Act provides that every registrant shall file a return for each reporting period of the registrant:
(a) where the registrant's reporting period is the fiscal year, the return is to be filed within three months after the end of the fiscal year; and
(b) in every other case, the return is to be filed within one month after the end of the reporting period of the registrant.
2. The reporting period of a registrant is dependent on the registrant's threshold amount for a fiscal year or fiscal quarter. Section 249 of the Act provides the rules for calculating the threshold amounts. In these calculations, consideration for most taxable supplies (including zero-rated supplies) that became due or was paid without having become due to the person during a specified period is aggregated with a similar total for all associated persons.
3. A registrant whose threshold amount for a fiscal year does not exceed $500,000 may elect to file annually and pay quarterly instalments. In addition, registrant list financial institutions (listed in paragraph 149(1)(a) of the Act) will file annually and pay quarterly instalments, unless they have elected for quarterly or monthly filing.
4. Additional information on the calculation of the threshold amount is available in GST MEMORANDUM 500-2-1, "AUTHORIZED FISCAL PERIODS AND REPORTING PERIODS".
5. The election to file annually with quarterly instalments takes effect at the beginning of a registrant's fiscal year and is binding on the registrant until an election to file on a quarterly or monthly basis takes effect, or until the threshold amount for the second or third fiscal quarter or for the fiscal year exceeds $500,000, whichever is the earliest.
PAYMENT OF INSTALMENTS
6. Pursuant to subsection 237(1) of the Act, where the reporting period of a registrant is a fiscal year or a period determined under subsection 248(3) of the Act, the registrant is required, on or before the last day of each fiscal quarter of the registrant ending after 1990 and in the reporting period, to pay to the Receiver General an instalment equal to 1/4 of the registrant's instalment base for that reporting period.
7. In addition, an annual return must be completed and submitted within three months of the end of the year. This return will reconcile the instalments paid by the registrant with the amount of net tax remittable.
8. A "Remittance Form for Goods and Services Tax" will be automatically mailed to a registrant who is an annual filer, in sufficient time to allow the registrant to submit the GST by the due date for the quarterly instalment. Instructions on where to submit the form can be found on the remittance form.
9. Pursuant to subsection 237(2) of the Act, the instalment base for a reporting period is the lesser of:
(a) the net tax for the particular reporting period; and
(b) an amount determined by the formula
A x 365/B
A is the net tax for all reporting periods of the registrant ending in the twelve-month period immediately preceding the particular reporting period, and
B is the number of days in those preceding reporting periods.
10. In the case of a reporting period determined under subsection 248(3) of the Act, the estimated net tax in the definition of instalment base in paragraph 9(a) of this Memorandum is replaced by the formula A x 12/B, where A is the net tax for the particular reporting period and B is the number of months in the particular reporting period.
11. In general, to determine the amount of the quarterly instalment payment, the registrant may divide the amount of net tax remittable for the previous year by four. For example, if the total net tax remittable for 1991 is $10,000, the instalment base for 1992 would ordinarily be $10,000. The registrant would then remit $2500, which is one quarter of $10,000, at the end of each quarter. At the end of the year, the registrant would remit the balance of the actual amount payable for 1992.
12. In accordance with subsection 237(3) of the Act, where a registrant's instalment base for a reporting period is less than $1000, the instalment base is deemed to be nil and the registrant is not required to pay quarterly instalments. The registrant must, however, file the annual return and remit the tax at that time.
13. A registrant who anticipates a decline in net tax in the current year is permitted to base the current year's instalment payments on an estimate of the current year's net tax, rather than the actual amount of the preceding year's net tax.
14. Pursuant to subsection 237(4) of the Act, where the net tax for a reporting period is a negative amount, the net tax is deemed to be nil for that reporting period for purposes of calculating the instalment base. Although, in this case, no instalment payments are required, the registrant is still required to file a return for that period.
INSTALMENT BASE IN TRANSITIONAL YEAR
15. For the transitional year, the registrant will not be able to calculate the instalment base on the basis of the previous year's net tax. Subsection 237(5) of the Act provides for a special transitional rule for determining a registrant's instalment base for a reporting period that begins before 1992 ("the transitional reporting period").
16. The instalment base of the registrant for reporting periods that begin before 1992 is the lesser of
(a) 75 per cent of the amount as determined under paragraph 237(2)(a) of the Act, and
(b) the amount determined by the formula
A x B x 365/C
A is the prescribed percentage,
B is the total consideration received by or due to the registrant for supplies of property (other than supplies by way of sale of capital property of the registrant) or services by the registrant in the fiscal year of the registrant that immediately preceded that reporting period, and
C is the number of days in the fiscal year of the registrant that immediately preceded that reporting period.
17. The regulations under the Act prescribe two percentages for use in the formula for determining the transitional instalment base of a registrant:
(a) for registrants whose supplies of zero-rated basic groceries make up at least 25 per cent of their total supplies in the preceding period, the prescribed percentage is 1.75 per cent; and
(b) for all other registrants, the prescribed percentage is five per cent.
18. For example, assume that in the fiscal year immediately preceding the "transitional" reporting period, total consideration for supplies as defined above was $300,000, and the applicable prescribed percentage was five per cent. Assuming the immediately preceding fiscal year consisted of 365 days, the instalment base would be 5% x 300,000 = $15,000. The annual filer would pay one quarter of that, i.e., $3750 at the end of each quarter and at the end of the year remit the balance payable for that year.
PENALTY AND INTEREST
19. Subsection 280(2) of the Act imposes penalty and interest charges where a quarterly instalment is underpaid or paid late. Where a person fails to pay all or any part of an instalment payable within the time specified in subsection 237(1) of the Act, i.e, on or before the last day of each fiscal quarter, the person will be required to pay, on the amount of the instalment not paid:
(a) a penalty of six per cent per year, and
(b) interest at the prescribed rate.
20. The penalty and interest will be calculated for the period beginning on the first day following the day on which the amount was due and ending on the earlier of
(a) the day the total of the amount, penalty and interest is paid, and
(b) the day on or before which the net tax is required to be remitted.
21. Penalty and interest, in respect of late or underpaid instalments, are payable only to the extent that they exceed the interest plus six mper cent per year calculated on overpaid or early remitted instalments. Where the amount calculated on overpaid or early remitted instalments exceeds any penalty and interest chargeable, the excess is not refundable and may not be applied to any other debt.
22. Pursuant to subsection 280(4) of the Act, penalty and interest payable in respect of instalments not paid by the due date of the net tax on account of which the instalment was payable will be considered to be an amount of net tax not remitted and will, therefore, continue to be subject to penalty and interest until paid.
23. Where the Minister holds security under section 314 of the Act for the payment or remittance of tax or any other amount under the GST, and any net tax, instalment, or amount under section 264 of the Act payable is not paid or remitted within the required time, pursuant to subsection 280(5) of the Act, the penalty will apply only to the extent that the total of the net tax, instalments, penalty, interest and other amounts outstanding on the particular day exceeds the value of the security at the time it was accepted by the Minister.
NOTE: This memorandum is not a legal document. It contains general information and is provided for convenience and guidance in applying the Excise Tax Act and Regulations. If interpretation problems occur, please refer to the legislation or contact the nearest Revenue Canada Excise office.
OFFICE OF RESPONSIBILITY:
Policy and Legislation
Excise Tax Act as amended by Bill C-62
SUPERSEDES GST MEMORANDUM:
SERVICES PROVIDED BY THE DEPARTMENT ARE AVAILABLE IN BOTH OFFICIAL LANGUAGES.
THIS MEMORANDUM IS ISSUED BY TECHNICAL INFORMATION, EXCISE BRANCH UNDER THE AUTHORITY OF THE DEPUTY MINISTER OF NATIONAL REVENUE, CUSTOMS AND EXCISE.
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