Pending excise tax issues: December 4, 2002.

• Position: Canadian Department of Finance

On December 4, 2002, Tax Executives Institute held its annual liaison meeting with officials of the Department of Finance on pending commodity and excise tax issues. Reprinted below is the agenda for the meeting, which was prepared by TEI's Canadian Commodity Tax Committee, whose chair is Martina Krummen of Air Canada.

Tax Executives Institute, Inc. welcomes the opportunity to present the following comments and questions on pending commodity and excise tax issues, which will be discussed with representatives of the Department of Finance during TEI's December 4, 2002, liaison meeting. If you have any questions in advance of that meeting, please do not hesitate to call either Glenn G. Wickerson, TEI's Vice President for Canadian Affairs, at 403.233.1135, or Martina Krummen, chair of the Institute's Canadian Commodity Tax Committee, at 514.856.6675.

Background

Tax Executives Institute is an international organization of more than 5,300 professionals who are responsible--in an executive, administrative, or managerial capacity--for the tax affairs of the corporations and other businesses by which they are employed. TEI's members represent more than 2,800 of the leading corporations with 53 chapters in Canada, the United States, and Europe.

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 eight 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.

Questions

1. Paragraph 169(1)(b) of the Income Tax Act--which allows a taxpayer to appeal to the Tax Court after 90 days from filing an objection to an assessment if the Minister has not notified the taxpayer that the Minister has vacated or confirmed the assessment or reassessed--improves the efficiency and effectiveness of the appeals process. There is no analogous provision in the Excise Tax Act (ETA). Would Finance consider adding a similar provision to section 302 of the ETA?

2. During last year's liaison meeting, TEI followed up on the Department's response to the following question regarding input tax credit (ITC) claims on imports (the de facto importer of record issue):

   A non-resident, GST-registered seller makes a sale FOB outside Canada, collecting no GST on the sale. The seller utilizes his business expertise to arrange transportation and importation of the goods into Canada on behalf of the customer. GST is incurred at the time the goods clear Customs by the seller. Is the seller entitled to an ITC? To which the Department responded: At the present time, the seller is not eligible to take an ITC.... Finance would like to arrange a further meeting with some TEI members to discuss this issue before they reach any conclusions. The Department has subsequently met with some TEI members (as well as other associations) concerning this issue and various solutions have been discussed.

   TEI also asked whether subsection 231(1) of the ETA provides a deduction with respect to a bad debt written off by a supplier. The deduction is contingent on the supplier having reported the tax collectible on the supply in its return and remitting the tax. If an election under subsection 177(1.1) is made, the agent of the supplier remits the tax and subsection 231(1) currently does not apply.

   TEI suggested that relief be granted where the agent is merely a collection agent and is remitting the tax on behalf of the actual supplier, and asked whether the Department would consider permitting the actual supplier to deduct the tax related to a bad debt, even if the tax were remitted by the supplier's agent.

   Would the Department please provide an update on both of these issues?

3. A national manufacturer pays a promotional allowance to a third party, based on amounts purchased by the third party's independent retailers (franchisees). This type of allowance does not appear to be covered by section 232.1 of the ETA. Will this section be amended to provide a "no consideration" treatment for such allowances to make it consistent with the underlying policy?

4. The Canadian Payments Association Board has approved a plan to implement a $25-million ceiling for all paper-based payments to be cleared and settled via the Automated Clearing Settlement System (ACSS). The implementation date for the $25-million threshold is February 3, 2003.

   CCRA has advised that it will not accept wire payments and has no plans to amend that policy by February. In addition, CCRA apparently is not prepared to accept two cheques totalling the final payment amount, citing reconciliation problems.

   Does the Department know what alternatives are being considered by CCRA for payments greater than $25 million? Will the Department be assisting CCRA in resolving this issue?

5. Is the Department considering any changes to the zero-rating provisions for intangible personal property or services to bolster the competitiveness of Canadian companies making supplies to a global marketplace? The following examples illustrate three areas of concern:

   (a) Intangible Personal Property--While intellectual property is zero-rated under section 10 of Part V of Schedule VI of the ETA, analogous provisions do not exist for other...