Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 155620
Dear [Client]:
Subject: GST/HST RULING
Revalued Inventory at HST Implementation
Thank you for your letter of [mm/dd/yyyy], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies held in inventory during the period that includes the July 1, 2010, implementation date of the HST in Ontario. We apologize for the delay in responding.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
1. […][Information about RetailerCo, a supplier located in Ontario]
2. On July 1, 2010, a number of changes to the tax regime in Ontario took place that impacted RetailerCo and […][certain suppliers and] that effectively resulted in the revaluation of inventory held by RetailerCo and increased the revenue to […][suppliers] (without increasing prices) […] [Those changes include:]
* The elimination of the […][Ontario Provincial Sales Tax]; and
* The transition […][to the GST/HST] in Ontario.
3. […][Information about ACo, a supplier].
4. […][ACo sells product to RetailCo] .
5. […][RetailerCo charges ACo for certain product marketing activities]
6. […].
7. […][information about detailed net account statements].
8. […].
9. […], the various changes to the tax regime in Ontario resulted in [ACo] effectively receiving increased revenue from each product unit without implementing a price change.
10. You provided […] a numerical example […][of a detailed calculation of the inventory revaluation] at the time of the transition: […]
11. On [mm/dd/yyyy], [ACo] received an adjustment payment of $[…] from RetailerCo, which was the result of calculations made in respect of the HST included in the value of inventory […][supplied to RetailCo prior to] July 1, 2010.
12. […].
13. […].
RULING REQUESTED
You would like to know if the amount paid to [ACo] by RetailerCo constituted a price adjustment such that only GST at 5% was due on the adjusted value of the inventory held by RetailerCo on July 1, 2010, and HST was not due on previously supplied inventory.
RULING GIVEN
Based on the facts set out above, we rule that GST of 5% under subsection 165(1) was due on the adjusted value of the inventory held by RetailerCo on July 1, 2010, and no tax was payable under subsection 165(2) in respect of product that was supplied by way of sale to RetailerCo by [ACo] prior to July 1, 2010.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the CRA is bound by the rulings given in this letter provided that: none of the issues discussed in the rulings are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
EXPLANATION
As a result of the July 1, 2010, implementation date of the HST in Ontario, […] product supplied and delivered to RetailerCo before July 1, 2010, which was still in RetailerCo’s inventory at the end of the day on June 30, 2010 [was revalued]. […], the value of [ACo]’s product inventory increased, and tax was therefore due with respect to that increase.
Pursuant to subsection 41(1) of the New Harmonized Value-added Tax System Regulations, no tax is payable under subsection 165(2) in respect of any consideration for a taxable supply by way of sale of tangible personal property made in a specified province (defined to include Ontario) to a person to the extent that
(a) the property was delivered to the person before July 1, 2010; or
(b) ownership of the property was transferred to the person before July 1, 2010.
Accordingly, GST under subsection 165(1) was payable in respect of the product held in inventory on July 1, 2010, by RetailerCo as it was property that was delivered to RetailerCo before July 1, 2010; [however] no tax was payable under subsection 165(2). GI-070, Ontario and British Columbia: Transition to the Harmonized Sales Tax – Goods provides more information.
The payment from RetailerCo to [ACo] as or on account of GST was required to be included in the net tax calculation of [ACo] pursuant to subsection 225(1). Subsection 225(1) requires that the net tax of a person for a particular reporting period must include all amounts that became collectible and all other amounts collected by the person for the period as or on account of tax under Division II of Part IX of the ETA.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-324-7413. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
William Parker
Goods Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate
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