Collection of GST, by a Supplier, Where the Invoice is Silent on the Tax Payable

Please note that the following Policy Statement, although correct at the time of issue, may not have been updated to reflect any subsequent legislative changes.

GST/HST Policy Statement P-116

DATE OF ISSUE

January 27, 1994

SUBJECT

Collection of GST, by a supplier, where the invoice is silent on the tax payable.

LEGISLATIVE REFERENCE(S)

Sections 223 and 224 of the Excise Tax Act.

NATIONAL CODING SYSTEM FILE NUMBER(S)

11630-7

EFFECTIVE DATE

January 27, 1994 - This policy statement further clarifies the Department's position on this matter.

TEXT
Issue and Decision:

Section 224 of the Excise Tax Act (the Act) authorizes a supplier to initiate legal action against a recipient for the recovery of unpaid tax where the supplier has met the requirements to:

1. account for or remit the tax payable by the recipient in respect of the supply to the Crown; and
2. comply with subsection 223(1) of the Act.

Subsection 223(1) of the Act requires the supplier to disclose the tax payable for the supply: where it is tax-extra, to indicate the amount of tax, and where it is tax-included, to indicate the price includes GST. In both cases the disclosure must be overt and not presumed.

In some cases, where suppliers have failed to meet the requirements of subsection 223(1) of the Act, an attempt is made to remedy the situation by issuing an amended invoice in compliance with the disclosure requirements. However, when a supplier indicates that the GST is extra, a recipient may not agree to pay the extra amount. In the recipient's mind, the supply was purchased and paid for at an agreed-upon price, and the recipient believes that the obligation to pay tax was met at that time.

Where the invoice is silent on the tax payable for a supply, purchasers may argue that they believed that the GST was included in the price or that the supply was not taxable. This is despite the fact that the Department may, where warranted, assess a recipient for the tax payable under section 296 of the Act.

This policy applies under the following circumstances:

1. where a registrant made a taxable supply and the tax was payable to the supplier;
2. the invoice, or receipt, did not state the amount of tax payable or that the amount payable by the recipient in respect of the supply included the tax payable;
3. the supplier has not collected the tax;
4. the supplier has accounted for or remitted the tax payable in respect of the supply, either pursuant to a departmental assessment after the fact, through a voluntary disclosure, or for some other reason; and,
5. the supplier re-issues the invoice with GST added to the amount previously invoiced;
6. the recipient of the supply refuses to pay any additional amount to the supplier.

Where the above circumstances apply, the Department will confirm to the recipient that tax is payable in respect of the supply under section 165 of the Act, but that the question of whether the price paid for the supply included the tax is a matter to be determined between the parties.

Both parties to the transaction will be informed that section 224 of the Act is intended as the means to allow them to resolve their dispute. This section authorizes a supplier to sue a purchaser where certain requirements have been met and does not involve the Department. Suppliers will be reminded of their obligation to account for amounts of tax that became collectible and to remit positive amounts of net tax, regardless of whether or not the tax has been collected.

Where there are no contractual or common law restrictions to prevent the issuance of amended or additional invoices, the Department will continue to accept that the disclosure requirements may be met after the fact. This position was adopted since subsection 223(1) of the Act is silent on the issue of timing and because many purchasers are agreeable to the extra charge. Purchasers may be willing to pay an additional amount in the interest of maintaining good relations with their supplier or where the additional amount may be claimed as an ITC. The flexibility to issue an amended invoice allows a supplier to correct a mistake.

Should circumstances (a), (b) and (c) be discovered during the course of an audit and where the supplier has not accounted for the tax collectible, the departmental auditor will review the facts of the particular situation. An assessment to account for the tax collectible by the supplier will be made either on a tax-included or tax-extra basis depending on those facts. Subsequent to the assessment, a re-assessment may be made should any additional facts be identified or to address a court judgement that is rendered in legal proceedings between the supplier and the recipient.

SAMPLE RULINGS