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Fourth quarter 2006

Some suppliers use returnable containers (such as wooden skids, cases or other containers) for the transportation and handling of products sold. If separate charges are made for returnable containers, they are subject to the goods and services tax (GST) and the Québec sales tax (QST).

When the customer returns a container that held the products to the supplier, the return may be dealt with according to the provisions of the original agreement, that is,

• as a sale made by the customer to the original supplier. A customer that is a registrant charges GST and QST to the supplier on the return of a container. The supplier may claim an input tax credit (ITC) or an input tax refund (ITR) in respect of the GST and QST paid on repurchasing the container;
• as a refund made by the supplier to the customer. The supplier refunds the amount of separate charges and taxes paid by the customer or issues the customer a credit note. Alternatively, the customer may issue the supplier a debit note.

If the supplier and the purchaser are both registrants and they have reported the amount of taxes collected and remitted or have claimed an ITC or an ITR, as applicable, in their respective GST and QST returns, the supplier can make the refund without including the GST and QST amounts that were initially paid by the purchaser.

However, if the supplier refunds or credits the purchaser for the taxes already paid, the supplier must issue a credit note. Furthermore, when the supplier and the purchaser are both registrants, they must adjust their GST and QST returns for the reporting period in which the credit note was issued.

In such a case, the supplier must deduct the amount of taxes refunded or credited in the calculation of net tax and the purchaser must include this amount in the calculation of net tax for the reporting period in question.