Revenue Canada questions & answers: December 10 and 11, 1996.

On December 10 and 11, 1996, a delegation of members from TEIs Commodity Tax Committee, led by TEI President James R. Murray and committee chair Pierre M. Bocti, met with representatives of Revenue Canada and the Department of Finance to discuss excise and commodity tax matters. The agendas for the meetings were separate, but substantially overlapping owing to the focus on issues arising from legislation harmonizing GST and the Atlantic provincial sales taxes.

The answers and comments reprinted below for questions numbered roman numeral I through V are taken solely from the meeting with Revenue Canada. The responses to items in questions VI and VII were reviewed by both Revenue Canada and the Department of Finance. There were no significant differences in the responses received from the two agencies. In lieu of reprinting responses from both ministries, only the responses from Revenue Canada are reproduced. Answers appear in italic type. Ricardo N. Horton of General Electric Canada Inc. and Munir Suleman of the Bank of Nova Scotia contributed substantially to the development of the agendas.

I. Section 252.41 -- NonResident Rebates for Installation Services

1. A number of issues arise where tangible personal property (TPP) is supplied on an installed basis by a non-resident, unregistered supplier (U.S. Co.) to a registered Canadian resident company (Customer). This is particularly true where the non-resident supplier (or its nonresident, non-registered third-party subcontractor) is itself the recipient of a taxable supply in Canada of a service of installing TPP in real property. In other words, U.S. Co. (or its U.S. subcontractor) is the recipient of a taxable supply of installation services from install Co., a registered Canadian resident, and Customer, a registered Canadian resident, receives the installed goods from U.S. Co., a non-registered non-resident. Under such circumstances, subsection 252.41(1) permits the non-resident supplier (U.S. Co.) to apply for a rebate of Goods and Services Tax (GST) from the government for the GST related to the installation service. Alternatively, under subsection 252.41(2), U.S. Co. can submit the application directly to Install Co.

   1. a) Must the price to the Canadian Customer from U.S. Co. be stated on lump-sum basis in order for the rebate to be granted under subsection 252.41(2)? b) Alternatively, will subsection 252.41(2) apply where the non-resident supplier identifies a separate invoice price for the TPP and the installation service? c) If a lump-sum price is a prerequisite, how is the Canadian registrant supplying the installation service (Install Co.) to U.S. Co. to ascertain the status of the order between U.S. Co. and Customer in order to determine whether tax applies or whether U.S. Co. is eligible for the rebate for the installation service?

      1. Can be stated on lump-sum basis.

      2. Can be stated on separate selling price basis.

      3. Not applicable since lump-sum is not a prerequisite.

   2. In order for TPP to be considered installed "In Real Property," must the TPP be installed in a building or upon land as defined in section 123 of the Excise Tax Act (hereinafter "the Act")? In other words, must the TPP become real property?

      "In Real Property" vs. "Becomes Real Property" was an issue for Revenue Canada (RC). RC's answers were based on "In Real Property."

   3. Please advise whether U.S. Co.'s eligibility for the rebate depends on whether (1) U.S. Co. supplies the TPP and the Canadian registrant supplies the installation or (2) the Canadian registrant supplies the TPP on an installed basis.

      1) Yes -- rebates available if qualified.

      2) Direct shipment 179(2) can be used.

2. Please confirm in the following cases whether U.S. Co. is eligible for the non-resident rebate. Assume in each case that the non-registered, non-resident supplier is selling to the Canadian GST registrant on the basis of a lump-sum supplied and installed price (except as noted in case 5 below).

   1. U.S. Co. is a computer manufacturer that sells a mainframe computer to a Canadian-resident registrant Customer Co. U.S. Co. hires the following Canadian-resident registrants to provide services in connection with installation of the mainframe computer:

      1. Registrant S will wire the computer to Customer's main power supply.

         Not in itself.

      2. Registrant T will install air conditioning in the room where the computer is housed.

         Not in itself.

   2. U.S. Co. manufactures lathes in the United States. In connection with the sale of a lathe to Customer, U.S. Co. hires the following Canadian-resident GST registrants to perform the indicated services related to the installation:

      1. Registrant U will wire the lathe to Customer's main power supply.

         Not in itself.

      2. Registrant Y will install a ventilating system around the lathe in order to permit fumes to exhaust properly

         Not in itself.

         (c) Registrant W will install the foundation upon which the lathe rests.

         Not in itself.

   3. U.S. Co. purchases a lathe in Canada from a Canadian manufacturer. U.S. Co. avails itself of the drop-shipment rules of subsection 179(2) to deliver the purchased lathe to Customer. In connection with the sale of the lathe, U.S. Co. hires the following Canadian-resident registrants to perform the indicated services related to the installation:

      1. Registrant X will wire the lathe to Customer's main power supply.

         Not in itself.

      2. Registrant Y will install a ventilating system around the lathe in order to permit fumes to exhaust properly.

         Not in itself.

         (c) Registrant Z will install the foundation for the lathe.

         Not in itself.

   4. A transmitter is purchased in Canada by U.S. Co. who is selling the transmitter to Customer in Canada. The installation of the transmitter, the cost of which is included in the price, will also be performed by the Canadian supplier for U.S. Co. The transmitter will be attached to a communications tower owned by Customer.

      Subsection 179(2) should apply.

   5. Same facts as listed in case 4 except that the Canadian supplier of the transmitter separately states the sale price for the transmitting equipment and the installation service on the invoice to, and contract with, U.S. Co.

      Same as B4.

      Summary -- Non-Resident Rebates for Installation Services.

      Revenue Canada has taken the position that Section 252.41 of the ETA applies only to a prime contractor who provides the entire installation service for the non-resident unregistered supplier. The non-resident unregistered supplier will subsequently supply the entire installation service to the Canadian resident company.

      The position is based on RC's understanding of the term "installation service" which RC takes to mean the entire installation service. In reality, although there may be a prime contractor who does arrange for the majority of the installation service (i.e., subcontracts various services from subcontractors), there can be and often is separate contracts between the non-resident unregistered supplier and other Canadian GST-registered contractors (hereinafter referred to as specific contractors") who do a specific part of the installation. It may be that the prime contractor is unwilling to take the risk of liability for certain aspects of the installation (e.g., containment wall in a nuclear rector) and therefore the non-resident unregistered supplier has a contract with a "specific contractor" in addition to the primer contractor.

      RC's position states that the supply by these "specific contractors" are not eligible under section 252.41 because this service is not the entire installation service.

      TEI believes that this was not the intent of section 252.41. RC indicated that it would review the position and discuss the issue with the Department of Finance.

      II. Amalgamations

1. Will Revenue Canada permit a supplier company, following an amalgamation with another company, to exhaust its supply of invoices with the preprinted GST registration number of a predecessor company? Will the input tax credits (ITC) claimed by the supplier's customers be jeopardized by the use of such invoices?

   RC will allow existing forms with the former GST number of the predecessor corporation to be used until the existing stock is depleted. The customers of the newly amalgamated company (same name as the aforementioned predecessor corporation) will not be denied input tax credits even though the former GST number of the predecessor corporation is on the form and not the new GST number of the newly amalgamated corporation.

2. Since the GST numbers on old election forms are technically invalid as of the amalgamation date, will the amalgamated company be required to complete new election forms pursuant to sections 150 and 156?

   The amalgamated company is deemed to be a new company. S150 and S156 elections will flow through to the new amalgamated company provided the requirements of the respective sections are still met. A new S156 form should be completed but does not need to be filed with RC. RC will update the S150 election form so a new form does not have to be filed.

3. Predecessor corporations that cease to exist upon amalgamation also likely filed elections pursuant to sections 150 and 156. Should the prior elections be revoked by giving notice to Revenue or does Revenue consider the elections terminated by operation of law?

   A S150 revocation is required to be filed with RC even if the corporation is no longer in existence. A S156 revocation is required to be completed even if the corporation is no longer in existence but is not required to be sent to RC.

4. Where one of the predecessor corporations is deemed a financial institution pursuant to a section 150 election filed with another corporation that is not a participant in the amalgamation, and where none of the other participants...