Time of Liability General Rule (GST 300-6-1)

Notice to the reader:

Please note that the following GST Memorandum, although correct at the time of issue, has not been updated to reflect any subsequent legislative changes since the date of issue. As a result, some of the technical information this memorandum contains may no longer be valid. Please contact your GST/HST Rulings Centre for assistance.

GST memoranda 300-6-1

Ottawa, January 10, 1992 TAX ON SUPPLIES TIME OF LIABILITY GENERAL RULE

This memorandum does not replace the law found in the Excise Tax Act and its Regulations. It is provided for your reference. As it may not completely address your particular operation, you may wish to refer to the Act or appropriate Regulation or contact any Revenue Canada Excise/GST office for additional information.

This memorandum may reflect amendments proposed to the Excise Tax Act by Notices of Ways and Means Motion tabled on December 18, 1990, March 27, 1991 and November 5, 1991. The federal government announced its intention to introduce certain amendments to the Excise Tax Act to effect these changes which were outlined by the Minister of Finance in press releases on the mentioned dates. [Where proposed changes affect information contained in this memorandum, the information is enclosed in square brackets]. At the time of publication, Parliament has not enacted these proposed amendments. Any commentary in this memorandum should not be taken as a statement by the Department that such amendments will in fact be enacted into law in their current form.

This memorandum explains the general rule for the timing of liability for payment of the Goods and Services Tax (GST), as required under the Excise Tax Act.

LEGISLATIVE AND OTHER REFERENCES

Excise Tax Act - section 168, subsections 123(1), 152(1), 169(1) and 225(1).

DEFINITIONS AND INTERPRETATIONS

The following are either definitions which have been taken from the Excise Tax Act as amended by S.C. 1990, c. 45 (Bill C-62) or departmental interpretations of terms relevant to the administration of that Act.

"Act" means the Excise Tax Act;

"consideration" may be money, a thing, a service, forbearance in the exercise of a right or anything else which induces the supplier to make the supply. Where consideration is monetary, the amount of the money will be used to calculate the tax. Where the consideration is non-monetary, the fair market value of the consideration at the time the supply was made will be used to calculate the tax;

"invoice" includes a statement of account, a bill and any other similar record, regardless of its form or characteristics, and a cash register slip or receipt;

"person" means an individual, partnership, corporation, trust or estate, or a body that is a society, union, club, association, commission or other organization of any kind;

"recipient", in respect of a supply, means the person who pays or agrees to pay consideration for the supply or, if no consideration is or is to be paid for the supply, the person to whom the supply is made;

"registrant" means a person who is registered under section 241 or who is required to apply to be registered under section 240 of the Act;

"supplier", in respect of a supply, means the person making the supply;

"supply" means, subject to sections 133 and 134 of the Act, the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition;

"tax" means the Goods and Services Tax payable under Part IX of the Act;

"taxable supply" means a supply that is made in the course of a commercial activity, but does not include an exempt supply.

GENERAL RULE

1. The general timing of liability rule under subsection 168(1) of the Act is that tax is payable by the recipient of a taxable supply on the earlier of the day the consideration for the supply is paid and the day the consideration for the supply becomes due. Tax is generally collectible by the supplier at the same time that it is payable by the recipient.

2. Where consideration for a taxable supply is paid or becomes due on more than one day, tax will be payable by the recipient (and therefore collectible by the supplier) on the earlier of the day that the partial payment is made and the day the partial payment becomes due, pursuant to subsection 168(2) of the Act. The tax payable will be calculated only on that partial payment. For example, in the case of a supply of taxable goods for which progress payments are made, tax is payable separately on the value of each partial payment. The tax would be payable on the earlier of the day on which the partial payment is paid and the day on which the partial payment becomes due.

3. Registrants are required to account for any tax collectible in the return for the reporting period during which the tax became collectible, regardless of whether it was actually collected.

4. Registrants may generally claim input tax credits on the return for the reporting period during which the tax became payable, regardless of when it was actually paid.

Consideration Paid

5. Consideration is paid when it is received by the supplier. In the case of a post-dated cheque, for example, the supplier has accepted as payment an instrument that will not become negotiable until the postdate. On or after the postdate, the supplier can present the cheque to the bank to be honoured, at which time the supplier is paid. The consideration in this case is not actually paid until the postdate.

6. For further information on when consideration has been paid, see GST MEMORANDUM 300-6-2, PAYMENTS.

Consideration Becomes Due

7. Under subsection 152(1) of the Act, consideration, or a part thereof, for a taxable supply, is deemed to become due on the earliest of the following days:

(a) the day that the supplier first issues an invoice in respect of the supply for that consideration or part and the date of that invoice;

(b) the day the supplier would have, but for an undue delay, issued an invoice in respect of the supply for that consideration or part; and

(c) the day that the recipient is required to pay that consideration or part pursuant to an agreement in writing.

Invoices

8. The word "invoice" has a broad meaning, as defined by subsection 123(1) of the Act. Normally, an invoice is a document which notifies a recipient of the obligation to pay for a supply or records payment for the supply. A simple estimate for car repairs would not qualify as an invoice for the work to be done because there would be no supply of the repair work, no agreement to make a supply and no obligation to pay the estimated amount.

9. Tax will be calculated on the face value of the invoice in accordance with subsection 152(1) of the Act, as outlined in paragraph 6 of this memorandum.

10. For more information concerning invoices and written agreements, please refer to GST MEMORANDUM 300-6-3, INVOICES, and GST MEMORANDUM 300-6-4, AGREEMENTS IN WRITING.

EXCEPTIONS TO THE GENERAL RULE

11. The following are circumstances in which special timing of liability rules apply instead of or in addition to the general rule described in this memorandum:

Supplies made by way of lease, licence or similar arrangement under written agreements (see GST MEMORANDUM 300-6-4, AGREEMENTS IN WRITING)

Sales and rentals of real property (see GST MEMORANDUM 300-6- 5, REAL PROPERTY)

Continuous supplies (see GST MEMORANDUM 300-6-6, CONTINUOUS SUPPLIES)

Partial payments (see GST MEMORANDUM 300-6-7, PARTIAL PAYMENTS)

Deposits (see GST MEMORANDUM 300-6-8, DEPOSITS)

Consignment sales (see GST MEMORANDUM 300-6-9, CONSIGNMENT SALES)

Sales from coin-operated devices (see GST MEMORANDUM 300-6- 10, COIN-OPERATED DEVICES)

Situations in which there is a considerable delay between the completion of a supply and the issuing of an invoice or where tangible personal property is sold on a conditional or instalment basis (see GST MEMORANDUM 300-6-11, OVERRIDE RULE)

Construction contracts (see GST MEMORANDUM 300-6-13, CONSTRUCTION CONTRACTS)

Holdbacks required by federal or provincial law or relating to construction contracts (see GST MEMORANDUM 300-6-14, HOLDBACKS)

Situations in which the value of the supply is not ascertainable (see GST MEMORANDUM 300-6-15, VALUE NOT ASCERTAINABLE)

Situations where the supply is a combination of two or more of the following elements: personal property, real property and/or services (see GST MEMORANDUM 300-6-16, COMBINED SUPPLIES)

REFERENCES

OFFICE OF RESPONSIBILITY:

Policy and Legislation

LEGISLATIVE REFERENCES:

Excise Tax Act

HEADQUARTERS FILE:

N/A

SUPERSEDES GST MEMORANDUM:

GST 300-6-1, dated December 19, 1990

OTHER REFERENCES:

N/A

SERVICES PROVIDED BY THE DEPARTMENT ARE AVAILABLE IN BOTH OFFICIAL LANGUAGES. THIS MEMORANDUM IS ISSUED BY TECHNICAL INFORMATION, EXCISE/GST BRANCH UNDER THE AUTHORITY OF THE DEPUTY MINISTER OF NATIONAL REVENUE, CUSTOMS AND EXCISE.