*GST Liability on Holdbacks or Partial Payments
It’s normal practice in construction industry in Canada to have a certain percentage of invoice payable as "Holdback’ to fulfil terms of contract until expiry of agreed period to meet contingent liability, the contractor will have ,in event of non- performance, or non -compliance per agreed terms.
For example if a contractor invoices the recipient of supply or services $100,000 On May 1,2008 due net 30days,and 10% of amount is on "Holdback" for an agreed period ( for example 2 years)and will be collected after expiry of period and contract terms having been satisfactorily fulfilled.
Question arise on GST implication of these HoldBack amounts, particularly when amounts involved are significant. Are the contractors supposed to pay GST on these amounts even though they have not been collected or are uncollectable till a certain period
Canada Revenue Agency has Memo (G300-6-7) for these partial payments .
Memo adds that any subsequent legislative changes may render this memo inapplicable
According to paragraph 6 of above memo and pursuant to subsection 168(2) of Excise Tax Act tax will be payable by recipient and collectible by the supplier on earlier of the day a partial payment is made and the day that part becomes due.
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.
If above two subsections of section 168 of Excise Tax Act are interpreted correct, supplier of service is liable to pay GST on charged services only when amount are due or collected whichever, is earlier.
For example if invoice is dated May 1,2008 for $ 10,000 and GST charged is $500 the total of $10,500 is payable net 60 days on July 1,2008
GST of $ 500 less input tax credit will be payable on August 31, 2008 or earlier if recipient pays before due date.
Same principle can be applied for "Holdbacks " meaning if invoice as mentioned above is dated May 1,2008 having 10% or $10,000 as "holdback" payable after May 1,2010 GST on this holdback which is $500 will be paid on June 30,2010 unless collected earlier.
It’s normal practice in construction industry in Canada to have a certain percentage of invoice payable as "Holdback’ to fulfil terms of contract until expiry of agreed period to meet contingent liability, the contractor will have ,in event of non- performance, or non -compliance per agreed terms.
For example if a contractor invoices the recipient of supply or services $100,000 On May 1,2008 due net 30days,and 10% of amount is on "Holdback" for an agreed period ( for example 2 years)and will be collected after expiry of period and contract terms having been satisfactorily fulfilled.
Question arise on GST implication of these HoldBack amounts, particularly when amounts involved are significant. Are the contractors supposed to pay GST on these amounts even though they have not been collected or are uncollectable till a certain period
Canada Revenue Agency has Memo (G300-6-7) for these partial payments .
Memo adds that any subsequent legislative changes may render this memo inapplicable
According to paragraph 6 of above memo and pursuant to subsection 168(2) of Excise Tax Act tax will be payable by recipient and collectible by the supplier on earlier of the day a partial payment is made and the day that part becomes due.
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.
If above two subsections of section 168 of Excise Tax Act are interpreted correct, supplier of service is liable to pay GST on charged services only when amount are due or collected whichever, is earlier.
For example if invoice is dated May 1,2008 for $ 10,000 and GST charged is $500 the total of $10,500 is payable net 60 days on July 1,2008
GST of $ 500 less input tax credit will be payable on August 31, 2008 or earlier if recipient pays before due date.
Same principle can be applied for "Holdbacks " meaning if invoice as mentioned above is dated May 1,2008 having 10% or $10,000 as "holdback" payable after May 1,2010 GST on this holdback which is $500 will be paid on June 30,2010 unless collected earlier.
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