Policy on the Collection and Remittance of Provincial Sales Taxes (Application of Reciprocal Taxation Agreements and Comprehensive Integrated Tax Coordination Agreements)

1. Effective date

(a) The present document contains the policy concerning the application of the reciprocal taxation agreements (RTA) with the provincial and territorial governments for a five year term starting January 1, 1994 and the Comprehensive Integrated Tax Coordination Agreements (CITCA) of October 1996 with the provinces of Newfoundland, Nova Scotia and New Brunswick.

(b) This policy is effective April 1, 1997.

2. Preface

(a) The requirement for federal departments and agencies to charge, collect and remit provincial sales tax was initiated by a Cabinet decision of September 7, 1961 [X-0325-61RD(01)] which directed all government departments and agencies selling goods to register with provincial authorities in provinces which levy provincial sales tax and to collect and remit this tax to the appropriate province.

(b) Subsequent to the 1961 Cabinet decision, Part VII of the Federal-Provincial Fiscal Arrangements and Federal-Provincial Post-Secondary Education and Health Contribution Act (1985 Revised Statutes) provided that RTA between Canada and the government of any participating province and territory shall contain provisions for the collection and remittance of PST, and the payment of sales taxes or other similar taxes levied by the other level of government. In this policy, "province" and "provincial" are used to designate both provincial and territorial governments.

(c) On October 23, 1996, a harmonized sales tax (HST) was announced. An amendment to the Excise Tax Act to give effect to the HST was given royal assent on March 20, 1997. Three provinces, Newfoundland, Nova Scotia and New Brunswick, have signed CITCA with the federal government. Canada and the CITCA provinces have agreed to pay the HST in respect of supplies acquired by their governments, agents and entities. In these three provinces, the HST replaces the federal Goods and Services Tax (GST) and the provincial general sales taxes (PST) that would otherwise be charged.

(d) The RTA and CITCA are complementary and both types of agreements may run concurrently.

(e) This chapter includes all the information that may be required by departments and agencies to comply with the RTA and CITCA. Departments should also refer to the Policy on the Application of the Goods and Services Tax and Harmonized Sales Tax in the Departments and Agencies of the Government of Canada, Comptrollership, Treasury Board Secretariat publication, for details regarding the accounting for HST.

3. Definitions

Non-partaking province (province ne prenant pas part) - means a province or territory which is not a party to a Reciprocal Taxation Agreement.

Non-participating province (province non participante) - means a province or territory which is not a party to a Comprehensive Integrated Tax Coordination Agreement.

Partaking province (province prenant part) - means a province or territory which is a party to a Reciprocal Taxation Agreement.

Participating provinces (provinces participantes) - means the provinces of Newfoundland, Nova Scotia, and New Brunswick, and such other provinces as may join in the Comprehensive Integrated Tax Coordination Agreement from time to time.

Third party purchases (achats de tiers) - are purchases by employees in the course of employment related travel including supplies and transportation, meals, accommodation, taxi services and incidental travel related expenses, as well as purchases out of petty cash.

4. Policy objective

To ensure that the provisions of the Federal-Provincial RTA and CITCA concluded with provincial governments in respect of the payment of certain provincial taxes and the collection and remittance of general PST and HST are adhered to and implemented by all federal government departments and agencies.

5. Policy statement

The policy of the federal government is to fully comply with the terms of the RTA and the CITCA concluded with the provinces and territories and to pay and to collect and remit all the applicable taxes.

6. Application

This policy applies to all organizations considered to be departments within the meaning of section 2 of the Financial Administration Act.

7. Policy requirements

7.1 Collection of provincial sales taxes and HST

(a) Departments must ensure that adequate policies and procedures are issued to comply with the reciprocal taxation agreements and comprehensive integrated tax coordination agreements and must establish and maintain the procedures for the administration of the PST and HST, including provisions for the timely adjustment of tax collection procedures when the tax of goods or services changes.

(b) All federal departments which sell taxable goods and services in non-participating provinces shall register with provincial authorities in the provinces which levy a sales tax and submit the appropriate PST returns required by the provinces.

(c) For HST purposes, federal departments which sell taxable goods and services in participating provinces need not register as vendors with these provinces as the Business Number used for federal HST registration is sufficient for the collection of HST. Provinces may require registration for other related purposes.

(d) All federal departments which sell taxable goods and services in participating provinces shall register as vendors with Revenue Canada and submit the appropriate HST returns required by Revenue Canada. Departments which are GST registrants are automatically registered for HST and therefore do not require a separate registration.

(e) Unless the purchaser is exempted from payment of the PST and/or HST by legislation or is the holder of an exemption license, departments and agencies registered as vendors are required to collect and remit PST and/or HST on all taxable sales.

7.2 Payment of provincial sales taxes

(a) Departments will claim exemption from paying provincial general retail sales taxes in all non - participating provinces and territories on purchases of goods and services in the name of Canada. This includes purchases made with Government of Canada acquisition cards.

(b) Departments will claim exemption from paying provincial general sales tax in non-participating provinces where they have entered into an agreement for motor fleet maintenance service for vehicles owned by Canada and where the contractor has accepted the liability for payment to third parties for goods and services to maintain the vehicles. Such payments to third parties are deemed to be made by Canada, and, as a result, are exempt from PST at point of purchase in all provinces except Alberta, the NWT and Yukon.

(c) PST is payable on purchases by third parties while on government business (e.g. petty cash or employee travel-related expenses). Government departments and agencies are to reimburse third parties for PST paid in respect of goods and services acquired by or on behalf of a department which are either acquired by federal employees in the course of employment-related travel (including transportation, meals, accommodation, taxi services) or purchased from petty cash.

(d) Departments shall not apply for any refund, rebate or remission of any PST paid or PST reimbursed to third parties from the respective provinces.

7.3 Payment of HST

(a) Departments will pay the HST on purchases of goods and services in the name of Canada where the goods or services are received in any participating province.

(b) Departments will NOT claim exemption from paying HST in participating provinces on purchases of goods and services in the name of Canada except where the goods or services are received in a non-participating province.

(c) Departments receiving goods or services in a non-participating province from a participating province do not pay HST.

7.4 Other Ancillary Taxes

Departments will pay the ancillary taxes required by the Reciprocal Taxation Agreements with all provinces and territories as described in Appendices B and C for each province.

8. Procedural requirements

In those provinces which offer commissions to individual vendors, and when cost-effective, registered federal vendors must claim the amount of compensation provided for under the respective provincial statutes on an individual basis.

9. Monitoring

(a) The Treasury Board Secretariat will monitor the effectiveness of this policy by reviewing departmental audit and performance monitoring reports.

(b) The collection and reporting of the provincial sales tax will be subject to audit by provincial revenue departments in the same manner as any other vendor.

(c) The collection and reporting of the HST will be subject to audit by Revenue Canada in the same manner as any other vendor.

(d) Departments are responsible for the effective and efficient application of the RTA and CITCA to their operations.

(e) Departments should undertake periodic reviews and audits which focus on the accuracy and completeness of amounts of PST and/or HST collected and paid in accordance with this policy and the RTA and CITCA.

(f) Performance indicators should relate primarily to the efficiency of documentation (policies, procedures and training material) and systems used to determine the amount of PST and/or HST charged and for the remittance of the PST to provincial tax departments.

10. References

(a) Part VII of the Federal - Provincial Fiscal Arrangements and Federal - Provincial Post - Secondary Education and Health Contribution Act (1985 Revised Statutes).

(b) Part IX of the Excise Tax Act.

(c) Policy on the Application of the Goods and Services Tax and Harmonized Sales Tax in the Departments and Agencies of the Government of Canada, Comptrollership, Treasury Board Secretariat publication.

Note: Treasury Board Secretariat publications are available in electronic format only. They can be accessed through the TBS Web site on the Government Enterprise Network (GENet), the federal government internal network, at the following address:

http://publiservice.tbs-sct.gc.ca/

and on the TBS Web site on the Internet at:

http://www.tbs-sct.gc.ca/

11. Enquiries

(a) Enquiries about this policy should be directed to your departmental headquarters.

(b) Enquiries from departmental headquarters about this policy and about disputes resulting from tax adjustments or provincial audit findings should be directed to:

(c) Enquiries about provincial tax legislation should be directed to the provincial tax office - see Appendix C for addresses and telephone numbers.

(d) Enquiries about reciprocal taxation agreements, CITCA and HST legislation should be directed to:

Appendix A
Reciprocal Taxation Agreements, Comprehensive Integrated Tax Coordination Agreements and Types of Provincial Taxes

The RTA and CITCA are complementary and both types of agreements may run concurrently. As a result departments continue to be required to pay ancillary taxes in participating provinces (see 3.2 below).

1. Comprehensive Integrated Tax Coordination Agreements

1.1 Participating Provinces

Canada has CITCA with the provinces of Newfoundland, Nova Scotia and New Brunswick. See the Policy on the Application of the Goods and Services Tax and Harmonized Sales Tax in the Departments and Agencies of the Government of Canada, Comptrollership, Treasury Board Secretariat publication, for the appropriate accounting and other information related to the HST.

1.2 Collection of HST

Federal departments in all provinces which sell taxable goods and services to a recipient in a participating province are required to collect and file appropriate returns for the HST.

1.3 Payment of HST

Federal departments in all provinces must pay suppliers the HST for taxable goods and services it receives in participating provinces.

2. Reciprocal Taxation Agreements

2.1 Partaking provinces

(a) Canada has Reciprocal Taxation Agreements (RTA) with all provinces and territories except Alberta and New Brunswick. The RTA were renewed January 1, 1994 for a five year term.

(b) Canada is presently negotiating the renewal of reciprocal taxation administrative arrangements with New Brunswick. Until the arrangements are renewed, both governments will continue to follow the terms of the agreements concluded in March 1991.

2.2 Collection of provincial sales taxes

Federal departments which sell taxable goods are required to collect and remit provincial sales taxes in all provinces. The collection of provincial taxes is required by all RTA except the one with Yukon and the administrative arrangements with New Brunswick. However, even in provinces without an agreement covering the collection of taxes, it is the federal government policy to collect and remit general sales and ancillary taxes. Note, however, that the participating provinces do not charge PST.

2.3 Payment of PST

Federal departments are exempt from paying general PST in all provinces.

2.4 Other

(a) Federal departments are required to pay ancillary taxes in ALL provinces except the NWT and Yukon. In Saskatchewan, federal departments are exempt from fuel taxes. In Alberta, federal departments do not pay ancillary taxes as there is no RTA.

(b) The RTA require federal departments to pay PST on third party purchases in all provinces except Alberta (no RTA), the NWT and Yukon (neither have general sales taxes, but the NWT's RTA requires federal departments to pay, should the NWT levy one in the future).

3. Types of provincial sales taxes

Provincial sales taxes include all taxes and fees levied by the appropriate provincial and territorial governments and are classified as follows.

3.1 General sales taxes

A general sales tax is considered to be a tax of general application payable by the purchaser on the value of goods, property or services acquired, and is levied under a provincial retail sales tax statute or its equivalent. The HST is not considered to be a provincial general sales tax.

3.2 Ancillary taxes

(a) An ancillary tax is a tax or fee generally levied under a provincial statute other than the provincial retail sales tax legislation or its equivalent.

(b) Purchases made in the NWT, Yukon and Alberta, and gasoline purchased in Saskatchewan will be exempt from this type of provincial sales tax upon presentation of the exemption certificate.

(c) Ancillary taxes include fuel taxes, tobacco taxes, admission/amusement tax (Nova Scotia), broadcast advertising tax (Quebec), hotel room taxes (where these taxes are not levied under the provincial retail sales tax legislation), as well as general sales taxes applicable to insurance premiums in Quebec and environmental levies on batteries and tires in British Columbia.

Appendix B
Reciprocal Taxation Agreements - Requirements

1. General

The tax rate to be applied is based on the province where the goods are to be delivered.

2. Exemption certificate

No general sales taxes are paid and the provincial sales tax license number applicable to the particular provinces must appear on all purchase documents at the time of the purchase made directly on behalf of a department or agency.

3. Ancillary taxes

(a) Ancillary taxes are payable in those provinces where they are applicable.

(b) Departments and agencies are responsible for paying applicable ancillary taxes directly to suppliers. License numbers should not be quoted unless the invoices include purchases which are subject to PST. These payments are to be charged to departmental appropriations.

(c) Payment of motor vehicle registration fees is required for vehicles held by federal departments and agencies. Motor vehicle registration fees are to be paid directly from departmental appropriations.

4. Registration

(a) Federal departments and agencies which sell goods and services to external parties (such as, employees, Crown corporations or the public) are considered vendors by provincial legislation and are required to apply for a vendor registration certificate from the appropriate provincial authorities in non-participating provinces.

(b) The department or agency shall contact the designated provincial representatives for any non-participating province in which the goods are expected to be delivered and provide information on the nature of the sales (including the goods and services being sold, potential clients) and the estimated volume of sales in dollars. The province will determine whether the department or agency is required to register as a vendor. If registration is necessary, the province will issue a vendor registration certificate and provide applicable instructions, including tax information and due dates for returns.

5. Accounting

(a) PST collected will be deposited in the Consolidated Revenue Fund and credited to a PST liability account in the Accounts of Canada at the time of receipt. A debit entry is to be made to the PST liability account when the tax is remitted to the appropriate province. Departments which have sales that are taxable in provinces but which do not have a PST liability account should request one from the Receiver General.

(b) Note that PST are normally remitted on an accrual basis. However, in the case of credit sales, PST may have to be remitted to the appropriate province before payments are received. Therefore, the department PST liability account may have a temporary debit balance.

6. Commissions

(a) As a form of compensation for the services of collecting and remitting provincial sales taxes, most provinces offer vendors a commission.

(b) When commissions are claimed by individual federal vendors, the commission will be deducted from the remittance made to the province. The amount of the commission will be debited from the PST liability account and credited as non-tax revenue, source object 4550, "Proceeds from Sales - Other".

(c) Where a department has parliamentary authority to net vote, the commission may be credited to source object 3550, "Proceeds from Sales - Other".

7. Provincial review of departmental (vendor) sales records

(a) Departments and agencies are responsible for maintaining proper records on the taxability of their sales, and on the taxes collected, remitted and owing, to permit verification by the partaking provinces. These records may include sales invoices, sales journals, cash register tapes, general ledgers, daily sales reports, and records of goods acquired for sale.

(b) During a provincial audit, federal vendors are required to provide provincial officials with access to their records and to explain the procedures relating to their sales activities.

(c) Provincial audit will take place periodically as considered necessary by the partaking provinces.

8. Non-compliance

When a provincial audit indicates that a department or agency did not comply with provisions of the provincial tax legislation, the province may recommend changes, where warranted, to correct procedures in areas of non-compliance.

9. Tax adjustment

(a) Where a provincial audit finds that a federal vendor has failed to collect or to remit tax, the province may request payment of an adjustment. This adjustment represents the amount of the tax which should have been collected and remitted by the vendor, including interest where applicable.

(b) The department will review the documentation provided by the province supporting the tax adjustment. Within ninety days of receipt and upon agreement, payment will be made by the department to the province.

(c) Tax adjustments are to be paid from departmental appropriations and charged to object of expenditure 3259.

10. Taxes collected and not remitted

(a) When a provincial audit finds that certain provincial taxes have been collected but not remitted, the province will send the federal vendor a "Request for Payment of Tax Adjustments".

(b) Departments will review the documentation furnished in support of the tax adjustment and, if in agreement, will pay the tax adjustment to the province. This adjustment will be paid out of the PST Liability Account where the tax receipt is held.

11. Dispute resolution

(a) In cases where a federal vendor disagrees with the findings of the provincial audit or with the resulting tax adjustment, the matter will be referred to the Financial and Contract Management Sector of the Deputy Comptroller General Branch of the Treasury Board. Discussion will then take place between officials of the Treasury Board and the province concerned to resolve the difference administratively.

(b) If the dispute is not settled at this level, the matter may be referred for decision by a Board of Commissioners in accordance with the terms of the Federal-Provincial Reciprocal Taxation Agreements.

Appendix C
Details of the Reciprocal Taxation Agreements and CITCA by Province and Territory

1. Newfoundland

1.1 Participation

CITCA participating province and RTA partaking province.

1.2 Contact office

Manager
Tax Information and Rulings
Tax Administration Branch
Department of Finance - Newfoundland
P.O. Box 8720
St. John's, Newfoundland
A1B 4K1

(709) 729-3831

1.3 Account number

32243-0-09

1.4 Harmonized sales tax

Federal departments are required to pay HST in Newfoundland. Federal departments are also required to pay HST on third party purchases by employees in the course of employment related travel including supplies and transportation, meals, accommodation, taxi services and incidental travel related expenses, as well as purchases out of petty cash.

1.5 Ancillary taxes and other fees

Canada will pay ancillary taxes and other fees imposed under the provincial sales tax legislation, as established for the purposes of Part VII of the Federal - Provincial Fiscal Arrangements and Federal Post - Secondary Education and Health Contributions Act (1985 Revised Statutes) and levied or collected under the following legislation as though such taxes and fees were applicable to Canada:

2. Prince Edward Island

2.1 Participation

RTA partaking province.

2.2 Contact office

Chief Tax Administrator
Department of Provincial Treasury
Provincial Revenue
Province of Prince Edward Island
P.O. Box 1330
Charlottetown, PEI
C1A 7N1

(902) 368-4146

2.3 Account number

OP-10000-250

2.4 Provincial general sales tax

Federal departments are exempt from paying provincial general sales tax in Prince Edward Island. However, federal departments are required to pay general sales tax on third party purchases by employees in the course of employment related travel including supplies and transportation, meals, accommodation, taxi services and incidental travel related expenses, as well as purchases out of petty cash.

2.5 Ancillary taxes and other fees

Canada will pay the taxes and other fees imposed under the provincial sales tax legislation, as established for the purposes of Part VII of the Federal - Provincial Fiscal Arrangements and Federal Post - Secondary Education and Health Contributions Act (1985 Revised Statutes) and levied or collected under the following legislation as though such taxes and fees were applicable to Canada:

2.6 Additional information

Federal departments are exempt from paying provincial general sales tax where they have entered into an agreement for motor fleet maintenance service for vehicles owned by Canada and where the contractor has accepted the liability for payment to third parties for goods and services to maintain the vehicles. Such payments to third parties are deemed to be made by Canada, and, as a result, are exempt from provincial sales tax at point of purchase.

3. Nova Scotia

3.1 Participation

CITCA participating province and RTA partaking province.

3.2 Contact Office

Manager
Tax Information and Vendor Services
Provincial Tax Commission
P.O. Box 755
Halifax, Nova Scotia
B3J 2V4

(902) 424-6317

3.3 Account number

U84-00-03172-3

3.4 Harmonized sales tax

Federal departments are required to pay HST in Nova Scotia. Federal departments are also required to pay HST on third party purchases by employees in the course of employment related travel including supplies and transportation, meals, accommodation, taxi services and incidental travel related expenses, as well as purchases out of petty cash.

3.5 Ancillary taxes and other fees

Canada will pay the taxes and other fees imposed under the provincial sales tax legislation, as established for the purposes of Part VII of the Federal - Provincial Fiscal Arrangements and Federal Post - Secondary Education and Health Contributions Act (1985 Revised Statutes) and levied or collected under the following legislation as though such taxes and fees were applicable to Canada: