My thoughts from my initial post were from Memorandum 9.4 reimbursements and these specific points:
This memorandum explains the treatment of reimbursements paid to employees, members of a partnership or volunteers of a charity or public institution under the Excise Tax Act , and the subsequent eligibility rules for claiming input tax credits or public service body rebates for persons who pay these reimbursements.
- The term “employee” includes an officer.
Meaning of employer
Calculation of the tax deemed paid
Effect of section 175
- When the conditions under section 175 are met, an employer, partnership, charity or public institution that pays an amount as a reimbursement to the employee, partner or volunteer is deemed to have received a supply of the property or service that was acquired, imported or brought into a participating province and to have paid tax in respect of this supply.
- Any consumption or use of the property or service by the employee, partner or volunteer in relation to the activities of the employer, partnership, charity or public institution is deemed to be consumption or use by the employer, partnership, charity or public institution, and not by the employee, partner or volunteer.
Calculation of tax deemed paid
- Where the conditions of section 175 are met, the employer, partnership, charity or public institution is deemed to have paid, at the time the reimbursement is paid, tax in respect of the supply equal to the amount determined by the formula
A × B
A is the tax paid by the employee, member or volunteer in respect of the acquisition, importation or bringing into a particular province of the property or service by the employee, member or volunteer, and
B is the lesser of
- the percentage of the cost to the employee, partner or volunteer of the property or service that is reimbursed, and
- the extent (expressed as a percentage) to which the property or service was acquired, imported or brought into the province by the employee, partner or volunteer for consumption or use in relation to activities of the employer, partnership, charity or public institution.
A volunteer rented a car in Manitoba while attending three days of meetings as a representative of a charity. Since the volunteer was not returning home after the meetings but was taking a one-week vacation, the vehicle rental agreement was for a ten-day period. The volunteer paid $500, plus $25 GST, for the car rental. The charity reimbursed the volunteer for the car rental in respect of the meetings (including the GST). The percentage reimbursed was 30%, which was the three days use during the meetings of the ten-day car rental.
Pursuant to section 175, the charity is deemed to have received a supply of the car rental, and the use of the car by the volunteer for the three days is considered to be use by the charity.
The tax the charity is deemed to have paid in respect of the supply is equal to
A × B
A is $25 (the tax paid by the volunteer),
B is 30% which is the lesser of
- 30% (the percentage of the cost to the volunteer that was reimbursed), and
- 30% (the extent expressed as a percentage to which the rental of the car was acquired for use in relation to activities of the charity).
Therefore, the tax deemed paid by the charity on the car rental is equal to $7.50 ($25 × 30%).
## Calculation of the ITC and rebate
- As a result of the application of section 175, an employer, a partnership, a charity and a public institution may be eligible to claim an ITC or a rebate for the amount of tax deemed paid to the same extent as the person would have been able to claim the credit or rebate if the person had incurred the expense directly to the extent that the deemed consumption or use is consumption or use in the course of the person’s commercial activities. Charities are required to use the “net tax calculation for charities”. Consequently, they cannot claim ITCs for the GST/HST paid or payable on most of their purchases. However, if a charity meets certain conditions, it may elect not to use the net tax calculation for charities.
An employer reimburses an employee for expenses incurred in respect of supplies of property or services purchased in Prince Edward Island and Nova Scotia.
The employer is eligible to calculate its ITCs based on the deemed tax paid on the reimbursed amount equal to the total of:
- 4/104 of the amount reimbursed for supplies made in Prince Edward Island where 90% or more of the supplies are subject to the 5% GST; and
- 14/114 of the amount reimbursed for supplies made in Nova Scotia where 90% or more of the supplies are subject to the 15% HST.