The Canada Revenue Agency has released this much anticipated Technical Information Bulletin which provides further information on the requirement for large businesses to recapture the provincial component of HST in respect of specified products or services acquired or brought into Ontario or British Columbia for their organization’s consumption or use. The bulletin reiterates and expands on information that had been previously released by the provinces of Ontario and British Columbia on the specified property and services subject to the recapture.
The bulletin has clarified the factors to be used for large businesses that use the simplified factor method to calculate input tax credits for employee or partner reimbursements. As anticipated, input tax credits on employee reimbursements will be calculated using a factor of 11/111 for British Columbia and 12/112 for Ontario. For any reimbursements that are subject to the input tax credit recapture requirement, such as a cell phone charge reimbursed to an employee, the factor of 7/12 for British Columbia and 8/13 for Ontario may be used to determine the amount of recapture.
In addition, where an employee is being reimbursed or paid an allowance in respect of a meal subject to the 50% income tax recapture, the 50% income tax restriction is applied first, and then the recapture of input tax credit requirement. For example, if a large business in Ontario reimburses an employee for meal expenses of $113 ($100 plus $13 HST), the input tax credit would be restricted by 50% per section 236 of the Excise Tax Act, for a gross input tax credit of $6.50 ($13 x 50%). As meals and entertainment expenses are specified property, the large business would be required to report $4 ($6.50 x 8/13) as the recapture of the provincial component of HST. In this example, the net input tax credit would be $2.50($6.50 less $4.00 recapture).
As previously announced, large businesses that have production activities primarily in Ontario or with Canadian production activities at least 10% in British Columbia, will generally be able to elect to use a production proxy to determine the portion of specified energy that can be attributed directly to the production of tangible personal property for sale, and therefore not subject to the recapture requirement. The bulletin confirms that election form RC4530, “Election or Revocation of an Election to Use a Production Proxy to Report the Recapture of Input Tax Credits” must be filed with the CRA by the due date of the GST/HST return for the first reporting period in a particular recapture period. As the first recapture period will begin July 1, 2010, if a large business wishes to elect to use the production proxy for this recapture period and is a monthly GST/HST filer, the election must be filed no later than August 31, 2010. The election will remain in effect until it is revoked and can only be revoked if used for a minimum of one recapture period.
A large business may generally make an election to use an estimation, installment and reconciliation approach to account for the RITC requirement. Under the estimation and reconciliation method, for each province that has a RITC requirement, a large business will:
- estimate the amount of RITC requirement during its most recently completed fiscal year; along with any RITC requirement anticipated due to business changes from the previous fiscal year;
- report an equal amount of recaptured input tax credits in each reporting period that begins three months after the beginning of its fiscal year and ends three months after the end of that fiscal year (instalment period); and
- at the end of its fiscal year, reconcile any differences between the estimated and actual amount of recaptured input tax credits during the year.
During the 2010 transitional year, a registrant will be required to file this election using form RC4531, "Election or Revocation of an Election to Use the Estimation and Reconciliation Method to Report the Recapture of Input Tax Credits" before the due date of their GST/HST return which includes July, 2010. An election to use the estimation and reconciliation method remains in effect until revoked and can be revoked effective the first day of an instalment period that begins after the election became effective.
CRA TIB B-104Production Proxy Election Form - RC4530
Estimation and Reconciliation Election - RC4531