Archived [2013-04-01] - Guideline on the Application of Goods and Services Tax/Harmonized Sales Tax

5.2.1 Each reporting entity must file a monthly return with CRA using the personalized GST/HST return provided by CRA. This return must be filed by the end of the month following the return's reporting period. Total revenue reported is the sum of all GST/HST revenue accounted for on the accrual basis. For months in which there are no GST, HST or adjustment amounts recorded, a NIL return must be completed and filed with CRA.

5.2.2 As an extension to the federal government entity's Business Number, each reporting entity is assigned a four-digit GST/HST account identifier number that begins with RT (e.g., RT0002, RT0003). The RT extension is the entity's own account number for GST/HST reporting purposes.

5.2.3 Basic information identifying the reporting entity is preprinted on the form supplied by CRA. The preprinted form includes the Business Number plus the RT extension number in the "Business Number" box at the top and under line 405 at the bottom of the form. The name of the reporting entity should appear in the form's "Name" box and should be the same as that shown in the space at the bottom of the GST/HST return.

5.2.4 To change the address and telephone number appearing on the preprinted form and in CRA's records, the reporting entity should complete the "Notification of Change" stub attached to the envelope that was supplied with the return and send the stub to CRA along with the monthly return. Other changes to the reporting entity, such as the addition or deletion of a reporting entity or a change to its name, must be requested using Form GST 10, "Application or Revocation of the Authorization to File Separate GST/HST Returns and Rebate Applications for Branches or Divisions."

5.2.5 Requirements for completing the monthly return differ between Government of Canada reporting entities and other registrants. In the top part of the form, government reporting entities complete only lines 101, 103, 104, 105, 107, 109 and 113C. In the bottom part, only lines 101, 105 and 109 are to be completed.

5.2.6 General instructions for completing the return are found in publications issued by CRA. In addition, the following instructions apply:

• Line 101. Sales and other revenue.
• Line 103. GST/HST collected or collectible.
  Use line 103 for all GST and HST collected and collectible (i.e., whether the purchaser has paid or not).
• Line 104. Adjustments.
  Use line 104 for the GST/HST applicable to any refunds, returns or other price adjustments that occurred during the period for which GST/HST was reported on a previous monthly return. To account for these adjustments, which would usually result in a refund cheque being issued if the entity were not a department, the GST/HST portion of the adjustment must be recorded as a debit in the GST/HST Liability Account.
• Line 105. Total GST/HST and adjustments for the period
  Add line 103 and 104.
• Line 106. Input tax credits.
  Do not complete this line. Input tax credits do not apply. The Refundable Advance Account (RAA) fulfils this function for government departments.
• Line 107.
  Enter the total amount of adjustments to be deducted from net tax (e.g., GST/HST included in a bad debt).
• Line 108.Total ITC and adjustments
  Add line 106 and 107.
• Line 109.Net tax
  Subtract line 108 from line 105, the difference is the net tax.
• Line 112. Total other credits.
  Do not complete the line for Rebates; they are not applicable. The RAA fulfils this function for government departments.
• Line 113C. Balance.
  Line 113C is the amount found on line 109 (which should be the same as the amount on line 105).
• Line 115. Payment enclosed.
  Do not complete line 115. Departments do not enclose payment with the return.
• Line 205. GST/HST due on acquisition of taxable real property.
  Do not complete line 205. Government departments do not self-assess tax.
• Line 405. Other GST/HST to be self-assessed.
  Do not complete lines 405. Government departments do not self-assess tax.

5.2.7 In addition to the monthly return, departments must send an interdepartmental settlement (IS) to CRA for each month the entity reports GST/HST collected, GST/HST collectible or both. The amount reported on the IS must be identical to the net amount recorded in the GST/HST Liability Account for the period.

5.2.8 The authorized signature is the signature of the reporting entity's designated contact person.

5.2.9 When a reporting entity has adjustments that result in a negative amount, the monthly return should show the negative amount. CRA will not issue a refund in this case, as it ordinarily would for non-government registrants. This negative amount would be carried forward as a reduction in line 104 in the next reporting period.

6.2.1 Purchases from non-registrants are not subject to GST/HST and may be paid without tax implications. Non-registrants include small suppliers whose total revenues from taxable supplies in the four quarters preceding the present quarter do not exceed $30,000 or, in the case of public service bodies, $50,000. If the supplier claims to be a non-registrant but there is doubt concerning this status, confirmation of the status may be sought from the CRA Business and GST/HST Registration enquiries line at 1-800-959-5525. Otherwise, the invoice should be paid as presented.

6.2.2 When a contract exceeds $30,000 ($50,000 for a public service body) or there is reason to believe that the supplier is required to be a GST/HST registrant, contact the supplier and request that the invoice be amended. If the supplier refuses to comply, the invoice should be paid as presented, the case referred to the local Tax Services Office of CRA for enforcement action, and the supplier informed of the referral to CRA.

6.4.1 Suppliers that are GST/HST registrants are always liable for remitting payment to CRA of uncollected tax as well as applicable penalties and interest. Departments are not to engage in a dispute with the supplier over the GST/HST portion of the invoice.

6.4.2 A department may seek advice from CRA (see Section 7.4, "GST/HST rulings") to determine its responsibility for paying the GST/HST invoiced by a supplier. Even when awaiting advice or a ruling from CRA, the department must pay the amount of tax invoiced by the supplier because the Refundable Advance Account (RAA) mechanism is in place for the department to account for the tax.

6.5.1 Goods imported into Canada are generally subject to the GST/HST.

6.5.2 A foreign supplier may register for purposes of the GST/HST. If the foreign supplier is a GST/HST registrant, departments must pay the GST/HST invoiced, as long as the invoice meets format requirements. The invoice must be paid as presented. The GST/HST is then charged to the RAA in the usual manner. If there is any reason to question the legitimacy of the supplier charging GST/HST, a confirmation of the foreign supplier's registration status may be sought from the CRA Business and GST/HST Registration enquiries line at 1-800-959-5525.

6.5.3 A foreign supplier that imports taxable goods to supply a department but is not a GST/HST registrant is not entitled to claim a tax refund or rebate. The foreign supplier will include an amount to cover the GST/HST costs in the price of the goods. Departments must pay the foreign supplier the total price charged. In these cases, the GST/HST represents a cost reimbursement; therefore, it is charged to the appropriation and not the RAA.

6.5.4 Departments importing taxable goods from a GST/HST registrant must pay the applicable GST/HST at the time of importation. Accordingly, the GST/HST is paid to the Canada Border Services Agency through the Interdepartmental Settlement System. The department may charge the GST/HST to the RAA.

6.5.5 A customs broker who imports taxable goods as an agent of a federal department may pay the GST/HST on the department's behalf. The customs broker is not entitled to claim an input tax credit. The department must reimburse the customs broker for the GST/HST paid, and the applicable GST/HST may be charged to the RAA.

7.1.1 As a general rule under the ETA, all goods and services provided by a supplier who is a GST/HST registrant are taxable at 5% for GST; 12% for HST in British Columbia;13% for HST in New Brunswick, Newfoundland and Labrador, and Ontario, and 15% in Nova Scotia, unless specified otherwise. Supplies to which the GST/HST does not apply are classified as zero-rated (taxable at zero %), exempt or deemed not to be a supply under the ETA.

• For general information on the GST/HST, consult the Canada Revenue Agency website.
• For a list of examples of exempt supplies, consult the Exempt goods and services page on the Canada Revenue Agency website.

7.1.2 When determining the application of the GST/HST, the following should also be considered:

• The destination of the supply also affects its tax status. For example, exports are zero-rated in specified circumstances.
• The tax status of each supply and the rationale for the tax status decision should be kept on file and regularly updated for administrative and audit purposes.
• All sales to parties external to the federal government are considered supplies, whether they are recorded as other revenues or charges to non-budgetary funds and accounts.
• Supplies provided to parties outside the government by way of barter, transfer or exchange are subject to GST/HST, depending on the tax status of the supplies bartered, transferred or exchanged.
• Supplies provided between federal government departments are not taxable.

7.2.1 When fees and rates set by Regulations are payment for a taxable supply, they are not considered to be "tax included" prices. GST is to be charged at 5% and HST is to be charged at 13% (or 12% in British Columbia, 15% in Nova Scotia).

7.2.2 Some fees and rates set by Regulations are payment for supplies that are exempt under Schedule V, Part VI of the ETA, in which case no GST/HST is to be charged.

7.3.1 Section 22 of Part VI of Schedule V of the ETA exempts a supply of a service, made by a municipality or by an organization that operates a water distribution, sewerage or drainage system and that is designated by the Minister of National Revenue to be a municipality for the purposes of this section, of installing, repairing, maintaining or interrupting the operation of a water distribution, sewerage or drainage system.

7.3.2 Section 23 of Part VI of Schedule V of the ETA exempts a supply of unbottled water (other than a zero-rated supply and a supply of water dispensed in single servings to consumers through a vending machine or at a permanent establishment of the supplier) when made by a person other than a government or by a government designated by the Minister of National Revenue to be a municipality for the purposes of this section. In addition, this section exempts the service of delivering water when the service is supplied by the supplier of the water and that supply of water is exempt.

7.3.3 Effective September 1, 1992, the federal government registrant has been designated a municipality for the purposes of sections 22 and 23 of Part VI of Schedule V of the ETA. As a designated municipality, a department that provides such supplies as described in sections 22 and 23 does not collect GST/HST on these supplies.

7.3.4 In addition, since September 1, 1992, the federal government registrant has been designated a municipality for the purposes of section 259(1) of the ETA, i.e., for the making of the supplies described in sections 22 and 23 of Part VI of Schedule V. As a result of this designation, a 100% rebate is available for the GST and the federal component of the HST paid or payable on inputs consumed, used or supplied in the course of the designated activities that involve making these exempt supplies. See the chart in Section 7.3.6 for the rebates entitled for the provincial component of the HST.

7.3.5 Therefore, municipalities, including persons designated to be municipalities under subsection 259(1) of the ETA, located outside the HST provinces of New Brunswick, Nova Scotia, Newfoundland and Labrador, Ontario and British Columbia may claim a rebate equal to 100% of the GST. Accordingly, departments located outside these HST provinces may record 100% of the GST incurred as a debit in the RAA.

7.3.6 The HST rebate available to municipalities located in Nova Scotia, New Brunswick, Newfoundland and Labrador, Ontario and British Columbia, including persons designated to be municipalities under subsection 259(1) of the ETA, is as follows:

7.3.7 When a department determines that costs for the delivery of municipal services are to be recovered from users, it may have to account for the cost of GST/HST that is not otherwise relieved in whole or in part through the municipal rebate. For example, the cost of tax should be considered when setting prices or cost recovery charges to users for municipal services in the provinces of:

• Nova Scotia and New Brunswick, 42.86% of the provincial component of the HST;
• Newfoundland and Labrador, 100% of the provincial component of the HST;
• British Columbia, 25% of the provincial component of the HST; and
• Ontario, 22% of the provincial component of the HST.

7.3.8 Some departments that provide the supplies described in sections 22 and 23 of Part VI of Schedule V of the ETA do not account for the costs of making such supplies separately from the other costs of their operations. It is therefore difficult to claim the municipal rebate at the time the inputs are paid for. To avoid departments having to establish costly supplementary processes for separating GST/HST on inputs for these exempt supplies, officials at CRA and the Department of Finance have proposed an alternative.

• For each fiscal year, a department may choose one of the following methods to account for the municipal rebate for GST/HST paid on inputs used to supply water, sewerage or drainage services.

Method 1: At the time when the GST/HST is paid, record the percentage of municipal rebate available (see chart in Section 7.3.6) as a debit in the RAA and the balance to the chargeable appropriation.

OR

Method 2: At the time when the GST/HST is paid, record the total GST/HST paid as a debit in the RAA. Following the procedure outlined below, departments are required to make an annual adjustment entry.

• In lieu of claiming a municipal rebate for GST/HST on inputs for the provision of water, sewerage and drainage services, reporting entities calculate an HST Municipal Rebate Adjustment Amount annually. In New Brunswick and Nova Scotia, this adjustment amount is 42.86% of the estimated provincial component of the HST incurred on inputs during the year for water, sewerage and drainage services, whereas in Newfoundland and Labrador, the adjustment amount is 100%; in Ontario, the adjustment amount is 22%; and in British Columbia, the adjustment amount is 25%.
• The adjustment amount will be recorded as a credit in the RAA and a debit in the operating accounts to which the expenses for the supplies are charged during the course of the year. When determining the fees to be charged for the supply of water, sewerage and drainage services, the adjustment amount is the portion of the HST that must be considered as part of the cost of providing these municipal services.
• When the costs of these exempt supplies are determined in whole or in part by an allocation methodology, the same allocation basis must be used to determine the adjustment amount. The calculation and any methodology used to estimate the adjustment amount is subject to audit by CRA, as are all GST/HST transactions.

7.4.1 For questions on the application of GST/HST to a government program or a specific transaction, please refer to Section 10, "Enquiries," of the Directive.

7.4.2 To avoid any possible misinterpretation of the ETA, departments may, through or with the consent of their GST/HST Coordinator, request an official written ruling or interpretation from the CRA Tax Services Office when the GST/HST status of a transaction is in doubt.

7.4.3 Departments may request a written ruling or an interpretation of the law from CRA. CRA rulings are specific to a particular registrant or other person's clearly defined factual situation, are issued only when all relevant facts are provided, and are binding on the CRA. An interpretation is a general written explanation of how the law will apply. A GST/HST interpretation may apply to departmental programs as a whole but does not bind CRA or absolve departments from GST/HST liabilities if they incorrectly apply CRA's interpretation or opinion to a specific transaction.

7.5.1 Some employee benefits are subject to GST/HST. The ETA and the Income Tax Act are the sources for determining which benefits and benefit amounts are subject to GST/HST. HST applies to the employee benefit when the location of employment is in New Brunswick, Nova Scotia, Newfoundland and Labrador, Ontario or British Columbia.

7.5.2 Generally, an employee benefit is subject to GST/HST when the benefit results from the supply of a good or service (other than an exempt or zero-rated supply) and is included in the calculation of an employee's income, according to paragraph 6(1)(a), (e), (k) or (l) of the Income Tax Act. Therefore, the whole amount received, including GST/HST, is included in the employee's income as a taxable benefit.

7.5.3 When a department pays a supplier for goods or services used to provide a taxable benefit to an employee, any GST/HST included in the payment may be recorded as a debit in the RAA. When the taxable benefit is included in the employee's income for the year, the GST/HST that the department paid, or that is payable for the property or services used to provide the benefit, must be added to the amount of the benefit. In effect, the employee "pays" the GST/HST on the benefit and the department "collects" it. Technically, the department is considered to have collected GST/HST from the employee, and the GST/HST is considered to have been paid by the employee on goods and services received from the department as a private individual.

7.5.4 Ordinarily, under section 173 of the ETA, when a GST/HST registrant provides a taxable supply to an employee that results in a taxable benefit to the employee, the registrant is required to remit tax on that benefit, although no tax is actually collected from the employee. This rule does not apply to government departments, and departments do not remit the tax on taxable benefits. However, departments must determine the appropriate amount of GST/HST to be included in calculating an employee's taxable income.

7.5.5 Supplies to Indians and Indian bands

• Generally, individual Indians and Indian bands may purchase goods free of GST/HST when the goods are provided on or delivered to a reserve. Services are free of GST/HST when they are performed for Indians on reserve or when a band purchases them for band management activities.
• When providing taxable supplies to Indians and Indian bands GST/HST tax-free, departments must maintain evidence of the tax-free status of the purchaser, including evidence of delivery to a reserve when applicable. For more information, see CRA Technical Information Bulletin B-039, GST/HST Administrative Policy – Application of the GST/HST to Indians (PDF - 316 KB).

7.5.6 Supplies to provincial government entities

• The federal government enters into Reciprocal Taxation Agreements with most of the provinces and territories to set out arrangements for the reciprocal payment of taxes and fees levied by the respective governments. Each agreement contains a listing of all provincial and territorial government entities-departments or ministries, Crown corporations, boards, commissions and agencies-that comprise the registrant provincial government entity or registrant territorial government entity. These entities are entitled to full relief from the GST/HST, either at the point of purchase or as a rebate of tax paid.
• By agreement, Nova Scotia, New Brunswick, Newfoundland and Labrador, Prince Edward Island and Nunavut have agreed to pay GST/HST. Effective July 1, 2010, Ontario and British Columbia have also agreed to pay GST/HST.
• The remaining provincial/territorial government registrants (Alberta, Saskatchewan, Manitoba, Quebec, Northwest Territories and Yukon) do not pay GST/HST.
• When selling to provinces and territories that do not pay GST/HST, it is essential to know which provincial/territorial entities receive point of purchase relief from the GST/HST. If there is any doubt as to whether a particular entity is part of a provincial or territorial government, departments may contact the local Tax Services Office of CRA to confirm the entity's status.
• For CRA audit purposes, departments must obtain sufficient evidence to support the tax-free status of a provincial or territorial government entity and keep it on file. Evidence could include invoices, purchase orders or contracts made out to a provincial or territorial entity or a certification clause signed by an authorized provincial or territorial official stating that a purchase has been made by the particular entity.

7.6.1 The Government of Canada's Business Number for GST/HST purposes is 121491807RT0001. This number must be shown on invoices or receipts for goods and services supplied by departments. Departments that have separate reporting entities, established under subsection 239(1) of the ETA, and have been assigned unique GST/HST account identifier extensions (i.e., RTXXXX) may use their respective RT extensions on invoices and receipts instead of the federal government entity's RT0001 extension.

7.6.2 The legislation permits the GST/HST to be recorded in one of two ways: included in the price of the supply or shown as a separate line item. To facilitate billing, price adjustments and the purchaser's claim for input tax credits and to accommodate GST/HST rate changes, departments are encouraged to show the GST/HST on a separate line.

7.6.3 In general, invoice requirements under GST/HST legislation follow normal business practice, with the addition of information specific to the GST/HST charged and the Business Number. Invoices are also understood to mean "receipts" for cash sales when no invoice is issued. The disclosure requirements for invoices are as follows:

For invoice amounts under $30:

• The name of the department or agency;
• The date of the invoice, or if no invoice is issued, the date on which the GST/HST is payable; and
• The total amount paid or payable for the supply (inclusive of GST/HST).

For invoice amounts between $30 and $150:

• All requirements for invoice amounts under $30;
• When the supply is not made on a tax-included basis or all supplies are not made on this basis, the amount of GST/HST charged on each supply or all supplies; or
• An indication of the total amount of GST/HST charged or that the amount paid or payable for each taxable supply (other than zero-rated supplies) includes GST/HST at the applicable rate; or
• When the supplies are taxable at different rates, an indication of which supplies are taxed at the GST rate and which are taxed at the HST rate; and
• The reporting entity's Business Number: 121491807RTXXXX.

For invoice amounts of $150 or more:

• All requirements for invoice amounts between $30 and $150;
• The purchaser's name, trading name or the name of his or her duly authorized agent or representative;
• Sufficient information to ascertain the terms of sale (e.g., cash sale, discount for prompt payment); and
• A description sufficient to identify the supply.

9.1.1 All GST/HST charged by departments to their customers is to be recorded on an accrual basis in the GST/HST Liability Account, financial reporting account 21134, until the amounts are transferred to CRA.

9.1.2 Accounting entries-Provision of taxable supplies

• When providing taxable supplies, the GST/HST collectible on each taxable supply must be recorded in the departmental accounts at the time that transactions are invoiced. The sale, including applicable GST/HST, must be recorded as an account receivable. When the department receives payment, the full amount of the payment, including the GST/HST, must be deposited and credited to accounts receivable. In the month that the sale is to be reported on the CRA return (i.e., sales that occurred for the previous month), the GST/HST payable must be transferred to CRA by Interdepartmental Settlement (IS) in that same month.
• The balance in each departmental GST/HST Liability Account for sales made during March will be transferred to CRA in April of the new fiscal year.
• For sample journal entries, see Section 9.3, "Sales Taxes," in the Financial Information Strategy Accounting Manual (FIS Accounting Manual) and Appendix 10 of Chapter 14, "Year End Timetable and Procedures," in the Receiver General Manual.

9.1.3 Accounting entries-Purchase of taxable supplies

• When acquiring taxable supplies, departments must record the GST/HST payable to the suppliers at the same time as the related goods or services are recorded in the departmental accounting system. The GST/HST payable must be recorded in the RAA. The full amount of the invoice must be recorded as an account payable.
• The balance in the department's RAA must be cleared at year-end and transferred to CRA on March 31. CRA will authorize the remission, as provided for under the Remission Order.
• If GST/HST is recorded as a result of any prior-year payable established after the March 31 transfer to CRA, it will be rolled over as the opening balance in the RAA.
• For sample journal entries, see Section 9.3, "Sales Taxes," in the FIS Accounting Manual and Appendix 10 of Chapter 14, "Year End Timetable and Procedures," in the Receiver General Manual.

9.1.4 Charges to the RAA

Only GST/HST payments that are relieved of tax pursuant to the Tax Remission Order may be charged to a department's RAA. Generally, there are three classes of GST/HST payments that may be charged to the RAA:

• GST/HST on taxable supplies of goods and services payable by a department;
• GST/HST paid on reimbursable expenses incurred by public service employees and other individuals appointed as agents of Her Majesty (such as commissioners and board members appointed by the Governor in Council) in the course of carrying out government business (e.g., travel and hospitality expenses); and
• GST/HST on allowances paid to employees (e.g., mileage and meal allowances).

9.1.5 Specified purpose accounts-GST liability

GST/HST must be paid and accounted for appropriately when taxable supplies are purchased using specified purpose account (SPA) funds. Please consult the Directive on Specified Purpose Accounts. In the majority of cost-sharing and joint project agreements, it is required that GST/HST on the purchase of taxable supplies made with SPA funds be charged to the SPA and not the RAA.

Exceptions to charging GST/HST to the SPA:

• When the SPA expenditure is not taxable; and
• When the contributor is not subject to GST/HST (i.e., the province). This is the only situation when the RAA account would be charged for taxable purchases using SPA funds.

9.1.6 GST/HST paid in error

When tax has been paid in error on a purchase made by a government department,

claims for this tax should not be filed because the GST/HST paid has been charged to the department's RAA.

9.1.7 Discounts and interest

• GST/HST is calculated on the net price of goods and services. Discounts for volume purchasing, provided at the time the supplier issues an invoice, are price reductions. Therefore, GST/HST is applied to the price after such discounts are taken into account.
• If a supplier provides a volume discount after having charged the GST/HST, it is up to the supplier to decide at what point in the transaction the discount is to apply. The supplier may adjust the GST/HST after it was charged or refund or credit the GST/HST after it was collected. The supplier may also provide the volume discount without adjusting, refunding or crediting the GST/HST.
• Interest charges for late payment and discounts for early payment are financial charges and, as such, do not affect the amount of GST/HST applicable to the transaction.
• The interest charges on overdue accounts receivable must be calculated on the total amount of the invoice, including any GST/HST and other taxes and duties due. These charges represent the extra financing cost of carrying the overdue amounts and apply equally to taxes and to the price of the goods and services billed or provided.
• Charging interest on late payments applies to both accounts receivable owing to the government and to late payments made by the government. The interest payable to suppliers on any late payment (including that on the GST/HST portion of the account) must be charged to a departmental appropriation in the case of interest paid by the government and credited to non-tax revenue in the case of interest received.

9.1.8 Penalty and interest

If a department fails to comply with the ETA, it will not be required to pay a penalty or interest. However, departments must avoid situations in which penalty and interest charges would normally have applied.

9.1.9 Audit trail and supporting documentation

• An audit trail and supporting documentation must be maintained, including receipts, invoices and expense claims, for all charges to the RAA.
• Records must be maintained on the taxability of the products and services departments provide, including any exemption. An audit trail and supporting documentation must also be maintained for sales invoices, payments and receivables.
• All books and financial records relating to GST/HST receipt, payment and accounting must be retained for a period of six full years after the end of the year to which they relate.

9.1.10 Current year refunds of expenditures

Departments that return goods to suppliers are responsible for matching refunds back to the original GST/HST charges and for making the necessary credit entries to the RAA.

9.1.11 Refunds of prior year's expenditures after closing the year

For refunds of previous year's expenditures after the year has been closed, the portion representing the actual cost of the goods or services must be coded against "Refunds of Previous Year's Expenditures." Any GST/HST refunded must be credited to the RAA of the current year.