Remitting the GST for Supplies Under Warranty

When should automobile mechanics and dealerships that honour a manufacturer’s warranty remit the GST payable on repairs warranted by the manufacturer—when they send a claim for a refund to the manufacturer, or when the manufacturer pays the claim? The decision in Garage Gilles Roy (2007) inc. c. La Reine (2014 CCI 269) supports the latter choice. This decision may have application to warranty repairs beyond the automobile industry.

The dispute concerned the application of sections 168 and 152 of the ETA (the equivalent of sections 82 and 83 of the Act Respecting the Québec Sales Tax) to repairs carried out by the taxpayer (GGR) that were covered under the manufacturer’s warranty. GGR remitted the tax, based on the amount approved by the manufacturer, to Revenu Québec at the time that it was paid by the manufacturer for the repairs made under warranty. Revenu Québec, which administers the GST and the Quebec sales tax (QST) in Quebec, argued that the tax should have been collected and remitted when the claim was submitted to the manufacturer. Revenu Québec was of the view that the claims submitted by GGR to the manufacturers were “invoices” within the meaning of the ETA and that the tax therefore should have been collected at that time in accordance with paragraph 152(1)(a).

Favreau J, writing on behalf of the TCC, held that the taxpayer’s claims did not constitute an “invoice” for the purpose of administering the sales tax because there was no legal obligation to pay on behalf of the manufacturer, which could always refuse all or part of the claim if certain requirements under its own guidelines for warranty claims were not satisfied. Thus, in the absence of a written agreement stipulating at what point the purchaser was “required to pay that consideration or part to the supplier” (ETA paragraph 152(1)(c)), only when the taxpayer’s claim was approved by the manufacturer was there a real obligation to pay, and GGR was required to collect the applicable tax on the approved amount.

Favreau J’s conclusions are consistent with the principles underlying the application of value-added taxes such as the GST and the QST: the supplier should not bear the burden of the sales tax during the course of its commercial activities and thereby suffer an impairment of working capital for the several weeks before the manufacturer approves the claim and pays the tax to the dealership or mechanic. Instead, the burden should be borne by the ultimate consumer of the supply. This conclusion also eliminates the need for the dealership or mechanic to ask the tax authority for a tax refund when the manufacturer refuses to pay the claim in full or in part.

Maude Caron-Morin
Joli-Coeur Lacasse LLP, Quebec City

Canadian Tax Focus
Volume 5, Number 1, February 2015
©2015, Canadian Tax Foundation