Proposed improvements to GST Technical Bill: October 1, 1996.

• Position: Goods and Services Tax Technical Bill - Canada

Background

TEI is an international organization of approximately 5,000 professionals who are responsible - in an executive, administrative, or managerial capacity - for the tax affairs of the corporations and the other businesses by which they are employed. TEI's members represent more than 2,700 of the leading corporations in Canada and the United States.

Canadians make up approximately 10 percent of TEI's membership, with our Canadian members belonging to chapters in Calgary, Montreal, Toronto, and Vancouver, which together make up one of our nine geographic regions. In addition, a substantial number of our U.S. members work for companies with significant Canadian operations. In sum, TEI's membership includes representatives from most major industries including manufacturing, distributing, wholesaling, and retailing; real estate; transportation; financial services; telecommunications; and natural resources (including timber and integrated oil companies). The comments set forth in this submission reflect the views of the Institute as a whole, but more particularly those of our Canadian constituency.

TEI has historically been concerned with issues of tax policy and administration and is dedicated to working with government agencies in Ottawa (and Washington), as well as in the provinces (and the states), to reduce the costs and burdens of tax compliance and administration to our common benefit. We are convinced that the administration of the tax laws in accordance with the highest standards of professional competence and integrity, as well as in an atmosphere of mutual trust and confidence between business and government, will promote the efficient and equitable operation of the tax system. In furtherance of this principle, TEI supports efforts to improve the tax laws and their administration at all levels of government.

General

TEI is pleased that the Technical Bill will clarify the application of the GST in a number of areas including:

* The expanded list of items eligible for zero-rating;

* The broadened scope of the de minimis rules, which will limit the application of the deemed financial institution provisions;

* The modifications to the taxable benefit to employees arising from employer-provided automobiles;

* The elimination of the requirement to file GST Form 60 for most business real estate transactions.

Other provisions of the Technical Bill, however, raise issues that warrant careful consideration and reevaluation.

Two-year Limit for

Claiming Input Tax Credits

1. Differing Statutes for Assessments, Input Tax Credit Claims, and Refunds. Under current rules, a registrant may claim input tax credits in respect of qualifying purchases for up to four years following a taxable supply. The Bill will shorten the period for claiming input tax credits from four years to two for "large taxpayers." TEI believes that imposing a special limitation period on large taxpayers is both unwarranted and unfair. The discriminatory treatment of large taxpayers unjustifiably restricts the benefit of input tax credits in contravention of the economic rationale for adopting a multi-stage sales tax, namely, the pass through of the incidence of GST to the ultimate consumer. Moreover, there is no corresponding and equitable change to the limitation period within which Revenue Canada may assess additional GST on, or deny input tax credits claimed by, large taxpayers. We recommend that the two-year limitation rule for large taxpayer to claim input tax credits be withdrawn.

2. Illustration. The detrimental effect of the shortened period for claiming input credits is easily illustrated. One exception to the four- (or two-) year limitation period permits a taxpayer-supplier to claim an input credit beyond the normal limitation period where the purchaser is under audit. Consider the application of the revised rule under the following common circumstances. In connection with an audit of four years of GST returns, Company A is assessed for...